<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1999
REGISTRATION NO. 333-74883
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRISM FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6162 36-4279417
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
440 N. ORLEANS, CHICAGO, IL 60610
(312) 494-0020
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
BRUCE C. ABRAMS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PRISM FINANCIAL CORPORATION
440 N. ORLEANS
CHICAGO, IL 60610
(312) 494-0020
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RODD M. SCHREIBER LARRY A. BARDEN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM SIDLEY & AUSTIN
(ILLINOIS) ONE FIRST NATIONAL PLAZA
333 WEST WACKER DRIVE CHICAGO, IL 60603
CHICAGO, IL 60606 (312) 853-7000
(312) 407-0700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 11,190
NASD Filing fee.................................................. 4,813
Nasdaq National Market listing fee............................... 88,500
Printing and engraving expenses.................................. 180,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 185,000
Blue sky fees and expenses....................................... 5,000
Transfer agent and registrar fees and expenses................... 5,000
Miscellaneous fees and expenses.................................. 20,497
---------
Total...................................................... $ 800,000
---------
---------
</TABLE>
- ------------------------
Prism Financial will bear all of the expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of Delaware Law authorizes a court to award or a corporation's
board of directors to grant indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under some circumstances for
liabilities arising under the Securities Act and to provide for the
reimbursement of expenses incurred.
As permitted by the Delaware Law, Article VIII of our Amended Bylaws provide
that (1) we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware Law, subject to very limited exceptions; (2) we
are permitted to indemnify our other employees to the extent that we indemnify
our officers and directors, unless otherwise required by law, our Amended
Certificate, our Amended Bylaws or agreements; (3) we are required to advance
expenses, as incurred, to our directors and officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware Law, subject to very
limited exceptions; and (4) the rights conferred in the Amended Bylaws are not
exclusive. As permitted by the Delaware Law, our Amended Certificate includes a
provision that eliminates the personal liability of our directors for monetary
damages for breach of fiduciary duty as a director, except for liability (1) for
any breach of the director's duty of loyalty to us or our stockholders; (2) for
acts of omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the Delaware Law (regarding
payments of dividends; stock purchases or redemptions which are unlawful) or (4)
for any transaction from which the director derived an improper personal
benefit. This provision in the Amended Certificate does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware Law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to us for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware Law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
II-1
<PAGE>
Under Article VIII, Section 8, of our Amended Bylaws, we will be authorized
to, and intend to purchase, insurance covering our directors and officers
against liability asserted against them in their capacity as officers or
directors. The Underwriting Agreement, contained in Exhibit 1.1 hereto, will
contain provisions indemnifying our officers and directors against some types of
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 1, 1998, the Registrant issued 102,690 shares of its common stock to
Ms. Abby Reisler as consideration for services rendered to the registrant.
On August 1, 1998, the Registrant issued 307,441 shares of its common stock
to Mr. William Osenton and 241,410 shares of its common stock to Mr. Bruce
Barbera as partial consideration for the purchase by the registrant of all of
the issued and outstanding common stock of Pacific Guarantee Mortgage
Corporation.
On December 31, 1998, the Registrant entered into an Agreement Relating to
the Purchase of Common Stock of Prism Mortgage Company with CTC Trust, Donrose
Trust, T&M Childrens Trust and JBR Trust #4 (collectively, the "Trust Buyers"),
pursuant to which the registrant issued 523,000 shares of its common stock to
CTC Trust and 17,251 shares of its common stock to each of Donrose Trust, JBR
Trust #4 and T&M Childrens Trust as consideration for the $2.5 million received
by the registrant in the form of cash and the satisfaction of indebtedness owed
by the registrant to the Trust Buyers.
The sale and issuance of securities in all the above transactions were
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) thereof, or Regulation D thereunder, as transactions by an issuer
not involving a public offering. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about Prism Mortgage or had access, through
employment or other relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1**** Form of Share Exchange Agreement.
3.1**** Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2**** Form of Amended and Restated Bylaws of the Registrant.
4.1 Reference is hereby made to Exhibits 3.1 and 3.2.
4.2**** Specimen Certificate for the Registrant's Common Stock.
4.3**** Form of Registration Rights Agreement.
5.1+++ Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), special counsel to the Registrant.
10.1** Form of 1999 Omnibus Stock Incentive Plan of the Registrant.
10.2++++ Agreement for the Purchase and Sale of the Capital Stock of Pacific Guarantee Mortgage Corporation,
dated as of July 31, 1998, by and between Prism Mortgage Company and William D. Osenton and Bruce P.
Barbera.
10.3++++ Agreement for the Purchase and Sale of the Capital Stock of Mortgage Market, Inc., dated as of
September 30, 1998, by and among Prism Mortgage Company and Martin E. Francis, Kenneth Bartley,
Melissa Stashin and Curt Vanderzanden.
10.4++++ Prism Equity Value Plan, effective as of August 31, 1998, by Prism Mortgage Company and by personnel
of Pacific Guarantee Mortgage Corporation.
10.5++++ Executive Employment Agreement, dated as of July 31, 1998, by and between Pacific Guarantee Mortgage
Corporation and William D. Osenton.
10.6++++ Executive Employment Agreement, dated as of September 30, 1998, by and between Mortgage Market, Inc.
and Martin E. Francis.
10.7** Prism 2000 Profit Sharing Plan.
10.8++ Credit Agreement, dated as of March 31, 1999, among Prism Mortgage Company and its subsidiaries, the
lending institutions listed on the signature pages thereto and The First National Bank of Chicago, as
Agent.
10.9++++ First Amendment to Purchase and Sale Agreement, entered into on April 25, 1999, by and among Bruce
Barbera and William Osenton and Prism Mortgage Company.
10.10**** Second Amendment to Purchase and Sale Agreement, entered into on April 27, 1999, by and among Bruce
Barbera and William Osenton and Prism Mortgage Company.
10.11**** Third Amendment to Purchase and Sale Agreement, entered into as of May 11, 1999 by and among Bruce
Barbera and William Osenton and Prism Mortgage Company.
11.1+++ Statement Regarding Computation of Per Share Earnings.
16.1+++ Letter Regarding Change in Certified Independent Auditors.
21.1*** Subsidiaries of Prism Financial Corporation.
23.1+++ Consent of PricewaterhouseCoopers LLP.
23.2+++ Consent of McGladrey & Pullen, LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
23.3+++ Consent of Stefani & Matthews, L.L.P.
23.4+++ Consent of Clay L. Miller.
23.5+++ Consent of William M. Stoll.
23.6+++ Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.1).
23.7*** Consent of Andrew S. Hochberg.
23.8*** Consent of Michael P. Krasny.
23.9*** Consent of Penny S. Pritzker.
23.10*** Consent of Richard L. Wellek.
24.1*** Power of Attorney (included on signature page).
27.1++ Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Filed with Amendment No. 1 to Prism Financial Corporation's Registration
Statement on Form S-1, dated April 1, 1999.
++ Filed with Amendment No. 2 to Prism Financial Corporation's Registration
Statement on Form S-1, dated April 29, 1999.
+++ Filed with Amendment No. 3 to Prism Financial Corporation's Registration
Statement on Form S-1, dated May 14, 1999.
*** Filed with Prism Financial Corporation's Registration Statement on Form
S-1, dated March 23, 1999.
**** Filed herewith.
++++ Filed herewith. Portions of this exhibit have been omitted pursuant to a
confidential treatment request filed with the Securities and Exchange
Commission.
(B) FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted because the information required to be set
forth in those schedules is not applicable or is shown in the combined financial
statements or notes thereto.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on May 19, 1999.
PRISM FINANCIAL CORPORATION
By: /s/ DAVID A. FISHER
-----------------------------------------
Name: David A. Fisher
Title: Chief Financial Officer and Senior
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities indicated below on May 19, 1999:
SIGNATURE TITLE
- ------------------------------ ---------------------------
Chairman and Chief
/s/ BRUCE C. ABRAMS* Executive Officer
- ------------------------------ (Principal Executive
Bruce C. Abrams Officer)
Chief Financial Officer and
/s/ DAVID A. FISHER* Senior Vice President
- ------------------------------ (Principal Financial
David A. Fisher Officer)
/s/ JAMES P. HAYES* Controller (Principal
- ------------------------------ Accounting Officer)
James P. Hayes
/s/ MARK A. FILLER* Director
- ------------------------------
Mark A. Filler
/s/ TERRY A. MARKUS* Director
- ------------------------------
Terry A. Markus
<TABLE>
<S> <C> <C> <C>
*By: /s/ DAVID A. FISHER
-------------------------
David A. Fisher
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1**** Form of Share Exchange Agreement.
3.1**** Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2**** Form of Amended and Restated Bylaws of the Registrant.
4.1 Reference is hereby made to Exhibits 3.1 and 3.2.
4.2**** Specimen Certificate for the Registrant's Common Stock.
4.3**** Form of Registration Rights Agreement.
5.1+++ Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), special counsel to the Registrant.
10.1** Form of 1999 Omnibus Stock Incentive Plan of the Registrant.
10.2++++ Agreement for the Purchase and Sale of the Capital Stock of Pacific Guarantee Mortgage Corporation,
dated as of July 31, 1998, by and between Prism Mortgage Company and William D. Osenton and Bruce P.
Barbera.
10.3++++ Agreement for the Purchase and Sale of the Capital Stock of Mortgage Market, Inc., dated as of
September 30, 1998, by and among Prism Mortgage Company and Martin E. Francis, Kenneth Bartley,
Melissa Stashin and Curt Vanderzanden.
10.4++++ Prism Equity Value Plan, effective as of August 31, 1998, by Prism Mortgage Company and by personnel
of Pacific Guarantee Mortgage Corporation.
10.5++++ Executive Employment Agreement, dated as of July 31, 1998, by and between Pacific Guarantee Mortgage
Corporation and William D. Osenton.
10.6++++ Executive Employment Agreement, dated as of September 30, 1998, by and between Mortgage Market, Inc.
and Martin E. Francis.
10.7** Prism 2000 Profit Sharing Plan.
10.8++ Credit Agreement, dated as of March 31, 1999, among Prism Mortgage Company and its subsidiaries, the
lending institutions listed on the signature pages thereto and The First National Bank of Chicago, as
Agent.
10.9++++ First Amendment to Purchase and Sale Agreement, entered into on April 25, 1999, by and among Bruce
Barbera and William Osenton and Prism Mortgage Company.
10.10**** Second Amendment to Purchase and Sale Agreement, entered into on April 27, 1999, by and among Bruce
Barbera and William Osenton and Prism Mortgage Company.
10.11**** Third Amendment to Purchase and Sale Agreement, entered into as of May 11, 1999 by and among Bruce
Barbera and William Osenton and Prism Mortgage Company.
11.1+++ Statement Regarding Computation of Per Share Earnings.
16.1+++ Letter Regarding Change in Certified Independent Auditors.
21.1*** Subsidiaries of Prism Financial Corporation.
23.1+++ Consent of PricewaterhouseCoopers LLP.
23.2+++ Consent of McGladrey & Pullen, LLP.
23.3+++ Consent of Stefani & Matthews, L.L.P.
23.4+++ Consent of Clay L. Miller.
23.5+++ Consent of William M. Stoll.
23.6+++ Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.1).
23.7*** Consent of Andrew S. Hochberg.
23.8*** Consent of Michael P. Krasny.
23.9*** Consent of Penny S. Pritzker.
23.10*** Consent of Richard L. Wellek.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
24.1*** Power of Attorney (included on signature page).
<C> <S>
27.1++ Financial Data Schedule.
</TABLE>
- ------------------------
*To be filed by amendment.
**Filed with Amendment No. 1 to Prism Financial Corporation's Registration
Statement on Form S-1, dated April 1, 1999.
++Filed with Amendment No. 2 to Prism Financial Corporation's Registration
Statement on Form S-1, dated April 29, 1999.
+++Filed with Amendment No. 3 to Prism Financial Corporation's Registration
Statement on Form S-1, dated May 14, 1999.
***Filed with Prism Financial Corporation's Registration Statement on Form S-1,
dated March 23, 1999.
****Filed herewith.
++++Filed herewith. Portions of this exhibit have been omitted pursuant to a
confidential treatment request filed with the Securities and Exchange
Commission.
<PAGE>
FORM OF
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (the "AGREEMENT"), effective as of March 19,
1999, by and among the shareholders (the "SHAREHOLDERS") of Prism Mortgage
Company, an Illinois corporation ("PRISM MORTGAGE"), set forth on signature
pages hereto, and Prism Financial Corporation, a Delaware corporation ("PRISM
FINANCIAL"). Prism Mortgage and Prism Financial are hereinafter referred to
collectively as the "CORPORATIONS."
WITNESSETH:
WHEREAS, the authorized capital of Prism Mortgage consists of
A. 1,000,000 shares of common stock, par value $.01 per share ("PRISM
MORTGAGE COMMON STOCK"), of which 111,942 are issued and outstanding on the date
hereof;
B. no shares of preferred stock; and
C. the Shareholders collectively hold all of the issued and outstanding
Prism Mortgage Common Stock.
WHEREAS, Prism Financial is a wholly-owned subsidiary of Prism Mortgage,
and its authorized capital stock currently consists of
A. 1,000 shares of common stock, par value $.01 per share, of which 100
shares are issued and outstanding and owned by Prism Mortgage; and
B. no shares of preferred stock.
WHEREAS, upon filing its amended and restated certificate of incorporation
(the "AMENDED CERTIFICATE") with the Secretary of State of the State of
Delaware, Prism Financial's capital stock will consist of
A. 100,000,000 shares of common stock ("PRISM FINANCIAL COMMON STOCK");
and
<PAGE>
B. 10,000,000 shares of preferred stock.
WHEREAS, immediately prior to the consummation of the transactions
contemplated by this Agreement, pursuant to the Put Agreement or Call Agreement,
each of which was made and entered into as of the 31st day of December, 1998, by
and between Bruce Abrams and GEM Value/Prism, LLC, the Put Agreement or Call
Agreement, each of which was made and entered into as of the 31st day of
December, 1998, by and between Mark Filler and GEM Value/Prism, LLC and the Put
Agreement or Call Agreement, each of which was made and entered into as of the
31st day of December, 1998, by and between Terry Markus and GEM Value/Prism, LLC
(collectively the "SALE AGREEMENTS"), three of the Shareholders will sell a
portion of their shares of Prism Mortgage Common Stock to GEM Value/Prism, LLC
(the "SHAREHOLDER SALE") such that GEM Value/Prism, LLC shall be a shareholder
of Prism Mortgage and shall be included in the definition of Shareholder for all
purposes of this Agreement;
WHEREAS, each of the Shareholders desires to exchange all of its respective
shares of Prism Mortgage Common Stock, upon the terms and conditions set forth
in this Agreement, for shares of Prism Financial Common Stock (the "EXCHANGE");
and
WHEREAS, immediately following the Exchange and pursuant to an integrated
plan that includes the Exchange, Prism Financial will sell up to 2,875,000
shares of Prism Financial Common Stock (the "IPO") to the public pursuant to a
"firm commitment" underwriting agreement (the "UNDERWRITING AGREEMENT") such
that, immediately after the Exchange and IPO, the Shareholders and persons who
acquired shares of Prism Financial Common Stock pursuant to the IPO will own all
of the issued and outstanding shares of Prism Financial Common Stock; and
WHEREAS, the Shareholders intend that the Exchange constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the Exchange and IPO constitute a
transaction described in Section 351 of the Code;
NOW, THEREFORE, each of the Shareholders and Prism Financial hereby agree
as follows:
2
<PAGE>
ARTICLE I
Prism Financial hereby agrees to issue to each Shareholder that number of
shares of Prism Financial Common Stock set forth opposite such Shareholder's
name in column 3 of Attachment 2 hereto in exchange for the transfer by such
Shareholder to Prism Financial of all of such Shareholder's Prism Mortgage
Common Stock, which number is set forth opposite such Shareholder's name in
column 2 of Attachment 2 hereto. Subject to the terms and conditions of this
Agreement, the foregoing exchange shall become effective upon the satisfaction
or waiver of the conditions contained in Article IV hereof (the "EFFECTIVE
TIME").
ARTICLE II
The closing (the "CLOSING") of the transactions contemplated by this
Agreement shall be held immediately prior to the closing of the IPO. The date
of the Closing is herein referred to as the "CLOSING DATE."
ARTICLE III
A. Each Shareholder, severally and not jointly, represents and warrants
to Prism Financial that:
1. Each Shareholder owns its Prism Mortgage Common Stock in the
amount set forth opposite such Shareholder's name in column 2 of Attachment 2
hereto free and clear of any encumbrances, liens, pledges, security interests,
pre-emptive rights, voting or other trusts or any other restriction of any kind
whatsoever ("ENCUMBRANCES") except for Encumbrances arising from the Sale
Agreements or transactions with Cole Taylor Bank pursuant to those certain
agreements listed on Attachment 3 hereto which such Encumbrances shall be
removed prior to the Effective Time, and, upon consummation of the transactions
contemplated by this Agreement, Prism Financial shall have good title to the
Prism Mortgage Common Stock exchanged by such Shareholder free and clear of all
Encumbrances.
2. Each Shareholder that is not an individual is duly organized
and validly existing under the laws of the state of its formation and has all
requisite powers and authority to own its assets and properties and to conduct
its business.
3
<PAGE>
3. No approval, proceeding or action, corporate, trust,
partnership, membership or other, on the part of any of the Shareholders or any
of their respective shareholders, beneficiaries, partners or members is
necessary to authorize the execution and delivery by such Shareholder of this
Agreement and the consummation by it of the transactions contemplated hereby.
4. Each Shareholder has full legal right, power and authority to
enter into and deliver this Agreement and to perform the terms, conditions and
obligations hereof. The execution, delivery and performance of this Agreement
do not, and the Exchange will not, (i) violate or conflict with (a) any law,
rule or regulation applicable to such Shareholders, (b) the certificate of
incorporation, bylaws, trust agreements, partnership, operating agreements or
similar formation documents, if any, of any Shareholder or (c) any agreement,
instrument or license to which such Shareholder is a party, or by which any such
Shareholder or any of its assets or properties may be bound or subject, (ii)
result in the creation of any encumbrance or charge upon Prism Mortgage Common
Stock or (iii) or violate any order, judgment, injunction, award or decree
applicable to such Shareholder of any court, arbitrator, governmental or
regulatory body. This Agreement constitutes the valid and legally binding
obligation of each Shareholder enforceable against each Shareholder in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally or general principles of
equity.
5. Such Shareholder, as of the date hereof, has, and as of the
Closing Date, will have:
(a) acknowledged that neither such Shareholder nor anyone
acting on such Shareholder's behalf has directly or indirectly offered the Prism
Financial Common Stock or any part thereof for sale to, or solicited any offer
to buy the same from, any other person;
(b) acknowledged that the Prism Financial Common Stock will
not be registered as of the Closing Date under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), by reason that the sale contemplated hereby is
exempt from registration pursuant to Section 4 of the Securities Act, and that
reliance of Prism Financial on such exemption is predicted in part on the
representations set forth in this Section 5 of Article III;
4
<PAGE>
(c) represented and warranted that the Prism Financial
Common Stock is being acquired by such Shareholder for its own account and not
with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act;
(d) represented and warranted that such Shareholder has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of such Shareholder's investment, and has the
ability to suffer the total loss of such Shareholder's investment;
(e) represented and warranted that, in making the decision
to acquire the Prism Financial Common Stock, such Shareholder has relied upon
independent investigations made by such Shareholder and, to the extent believed
appropriate by such Shareholder, by such Shareholder's own professional,
financial, tax and other advisors;
(f) represented and warranted that such Shareholder has had
access prior to its acquisition of the Prism Financial Common Stock to such
information relating to Prism Financial as it desired and that it has had the
opportunity to ask questions of and receive answers from the Corporations
concerning the terms and conditions of the offering of the Prism Financial
Common Stock and the IPO and to obtain additional information (to the extent the
Corporations possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify that accuracy of any information
furnished to it or to which it had access;
(g) represented and warranted that the offering to such
Shareholder was made only through direct personal communication between such
Shareholder and a representative of the Corporations and not through public
solicitation or advertising; and
(h) acknowledged that such Shareholder understands that the
Prism Financial Common Stock may not be sold, transferred or otherwise disposed
of without registration under the Securities Act or an exemption therefrom and
that, in the absence of an effective registration statement covering the Prism
Financial Common Stock or an available exemption from registration under the
Securities Act, the Prism Financial Common Stock must be held indefinitely.
5
<PAGE>
6. Such Shareholder will, at the time of the Exchange and
immediately after the Exchange and IPO, (i) have beneficial ownership of all
shares of Prism Financial Common Stock received by such Shareholder pursuant to
the Exchange, (ii) except with respect to certain pledges described in
Attachment 3, not have entered into any agreement or arrangement of any kind to
sell, exchange or otherwise dispose of any of such shares and (iii) have no plan
or intention to sell, exchange or otherwise dispose of such shares.
B. Prism Financial represents and warrants to each Shareholder that:
1. Prism Financial is duly organized and validly existing under
the laws of the State of Delaware.
2. Prism Financial has full legal right, power and authority to
enter into and deliver this Agreement and to perform the terms, conditions and
obligations hereof. The execution, delivery and performance of this Agreement
do not, and the Exchange will not, (i) violate or conflict with (a) any law,
rule or regulation applicable to Prism Financial, (b) Prism Financial's charter
or bylaws or (c) any agreement, instrument or license to which Prism Financial
is a party, or by which Prism Financial or any of its assets or properties may
be bound or subject, (ii) result in the creation of any encumbrance or charge
upon Prism Financial Common Stock or (iii) violate any order, judgment,
injunction, award or decree applicable to Prism Financial of any court,
arbitrator, governmental or regulatory body. This Agreement constitutes the
valid and legally binding obligation of Prism Financial enforceable against
Prism Financial in accordance with its terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting enforcement of creditor's rights generally or
general principles of equity.
3. Prism Financial Common Stock, when issued and delivered
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
4. The authorized capital stock of Prism Financial consists
solely of (a) 100,000,000 shares of common stock, of which approximately
15,000,000 shares will be issued and outstanding upon consummation of the IPO,
and (b) 10,000,000 shares of preferred stock, none of which will be issued and
outstanding upon consummation of the IPO.
6
<PAGE>
ARTICLE IV
At the Closing:
A. Each Shareholder will deliver to Prism Financial such Shareholder's
Prism Mortgage Common Stock representing the number of shares of Prism Mortgage
Common Stock set forth opposite such Shareholder's name in column 2 of
Attachment 2 hereto, with a stock power duly endorsed.
B. Prism Financial will deliver to each Shareholder certificates (in
such denominations and registered in such names as each Shareholder may request)
representing the number of shares of Prism Financial Common Stock set forth
opposite such Shareholder's name in column 3 of Attachment 2 hereto.
C. Each share of Prism Financial Common Stock held by Prism Mortgage
shall be cancelled.
ARTICLE V
A. The obligation of Prism Financial to consummate the transactions
contemplated hereby on the Closing Date is subject, at its option, to:
1. the representations and warranties of the Shareholders being
true and correct on the Closing Date with the same effect as if such
representations and warranties had been made at and as of that time;
2. Prism Financial Common Stock to be issued in connection with
the exchange shall have been listed, subject to official notice of issuance, by
the Nasdaq National Market;
3. the closing of the transactions contemplated by the
Shareholder Sale;
4. the concurrent closing of the IPO; and
5. the delivery by each of the Shareholders of its Prism Mortgage
Common Stock in an amount set forth opposite such Shareholder's name in column 3
of Attachment 2 hereto.
7
<PAGE>
B. The obligation of the Shareholders to consummate the transactions
contemplated hereby on the Closing Date is subject, at their option, to:
1. the representations and warranties of Prism Financial being
true and correct on the Closing Date with the same effect as if such
representations and warranties had been made at and as of such time;
2. Prism Financial Common Stock to be issued in connection with
the Exchange shall have been listed, subject to official notice of issuance, by
the Nasdaq National Market;
3. the concurrent closing of the IPO; and
4. the delivery of a true, correct and complete copy of an
executed underwriting agreement entered into in connection with the IPO.
ARTICLE VI
A. Each Shareholder agrees and acknowledges that it will not, directly
or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any Prism Financial Common Stock (each a "TRANSFER") unless: (i) the
transfer is exempt from the registration requirements of the Securities Act and
any applicable state securities laws, (ii) if Prism Financial so requests, Prism
Financial receives from the transferor an unqualified opinion of counsel that
such transfer may be effected without registration under the Securities Act and
any applicable state securities laws, and (iii) the transferee shall agree in
writing, in form and substance satisfactory to Prism Financial to become, and
becomes, bound by the restrictions on transfer applicable to a Shareholder
contained in this Section A of Article VI; PROVIDED that such restrictions shall
not apply to the sale of shares of Prism Mortgage Common Stock pursuant to the
Underwriting Agreement. Each subsequent holder of the Prism Financial Common
Stock by taking and holding the same shall be deemed to represent and warrant to
the parties hereto the representations and warranties set forth in Sections
5(a), (f), (h) and (i) of Article III hereof.
1. Any purported transfer in violation of this Section A of
Article VI shall be null and void and of no force or effect.
8
<PAGE>
2. The restrictions on transfer contained in this Section A of
Article VI shall not apply to any transfer pursuant to an effective registration
statement under the Securities Act or Rule 144 under the Securities Act as such
rule may be amended from time to time, in compliance with all applicable state
securities laws; PROVIDED, HOWEVER, that a Shareholder transferring Prism
Financial Common Stock pursuant to Rule 144 shall have its counsel provide the
Company with an opinion of the type customarily given in connection with any
sale pursuant to Rule 144.
B. Each certificate representing shares of Prism Financial Common Stock
issued hereunder shall bear substantially the following legend (unless and until
Prism Financial determines, based on the advice of counsel, that such legend is
no longer required to appear thereon):
"THE SHARES REPRESENTED BY THIS CERTIFICATE (THE 'SHARES') HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
'ACT'), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE
UNITED STATES OR OTHER JURISDICTION. NEITHER THE SHARES NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, SUCH REGISTRATION REQUIREMENTS. BY THE ACQUISITION HEREOF, THE
HOLDER AGREES THAT SUCH HOLDER WILL GIVE EACH PERSON TO WHOM THE SHARES ARE
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN THE
CASE OF ANY TRANSFER OR OTHER DISPOSITION MADE OTHERWISE THAN PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, THE HOLDER HEREOF SHALL
BE REQUIRED TO PROVIDE TO THE COMPANY, PRIOR TO SUCH TRANSFER, AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM,
OR NOT SUBJECT TO, REGISTRATION UNDER THE ACT AND IN COMPLIANCE WITH ALL
APPLICABLE STATE SECURITIES LAWS.
"IN ADDITION, THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A SHARE
9
<PAGE>
EXCHANGE AGREEMENT EFFECTIVE AS OF MARCH 19, 1999, BY AND AMONG PRISM
FINANCIAL AND EACH OF THE SHAREHOLDERS LISTED ON THE SIGNATURE PAGES
THERETO, TO WHICH REFERENCE IS MADE FOR THE TERMS AND PROVISIONS THEREOF.
A COPY OF THE SHARE EXCHANGE AGREEMENT MAY BE OBTAINED UPON REQUEST FROM
THE SECRETARY OF PRISM FINANCIAL AND MAY BE INSPECTED AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
C. At any time prior to the Closing Date, Prism Financial and the
Shareholders may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of the parties hereto, (c)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (d) waive compliance with any of
the agreements or conditions contained herein. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver under this Section C of Article VI shall be valid only if set forth in an
instrument in writing signed on behalf of such party. Except with respect to
the Registration Rights Agreement, this Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
agreements between the parties relating to the subject matter hereof.
D. Each of the Shareholders and Prism Financial agrees that it will (i)
report the Exchange and IPO as a transaction described in Section 351 of the
Code (and any similar provision of applicable state and local law) (a "SECTION
351 TRANSACTION") in all tax returns and filings and (ii) take no position that
is inconsistent with the characterization of the Exchange and IPO as a Section
351 Transaction in any audit, litigation or other proceeding.
E. This Agreement may be terminated at any time prior to the Closing:
1. by mutual consent of the parties hereto; and
2. by Prism Financial or any of the Shareholders if the Closing
does not occur on or before August 31, 1999; provided that neither Prism
Financial nor any Shareholder shall be entitled to terminate this Agreement
pursuant to this Section E of Article VI if such party's knowing or willful
breach of this Agreement has prevented the consummation of the transactions
contemplated hereby.
10
<PAGE>
F. All communications hereunder will be in writing and, if sent to
Prism Financial, will be marked, delivered, telecopied or telegraphed and
confirmed to Prism Financial Corporation, 440 N. Orleans, Chicago, IL 60610,
Attn: David A. Fisher, Fax No. (312) 494-0184, and, if sent to any of the
Shareholders, to the applicable Shareholder at the address listed on Attachment
2 hereto, or another address if supplementally supplied by such Shareholder to
the other parties hereto.
G. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
H. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
I. If any article, paragraph or provision of this Agreement is for any
reason determined to be invalid or unenforceable, such determination shall not
affect the validity or enforceability of any other article, paragraph or
provision hereof.
J. This Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors and legal representatives.
K. All representations and warranties contained in this Agreement shall
survive the execution and delivery of this Agreement.
L. Any legal action, suit or proceeding arising out of or relating to
this Agreement or the Exchange may be instituted only in the Federal or state
courts within the State of Illinois, and each party irrevocably submits to the
jurisdiction of such courts in any action, suit or proceeding, and each party
hereto agrees not to assert by way of motion as a defense or otherwise, in any
such action, suit or proceeding, any claim that it is not subject personally to
the jurisdiction of such courts, that the action, suit or proceeding is brought
in an inconvenient forum, that the venue of the action, suit or proceeding is
improper or that this Agreement or the subject matter hereof or thereof may not
be enforced in or by such courts.
11
<PAGE>
IN WITNESS WHEREOF, each of the Shareholders listed below and Prism
Financial, pursuant to authorization and approval given by its Board of
Directors, has caused this Agreement to be executed as of the date first above
written.
-----------------------------------------
Bruce C. Abrams, solely in his capacity
as a shareholder of Prism Mortgage
Company
-----------------------------------------
Terry A. Markus, solely in his capacity
as a shareholder of Prism Mortgage
Company
-----------------------------------------
Mark A. Filler, solely in his capacity
as a shareholder of Prism Mortgage
Company
-----------------------------------------
Abby Reisler, solely in her capacity as
a shareholder of Prism Mortgage Company
-----------------------------------------
William D. Osenton, solely in his
capacity as a shareholder of Prism
Mortgage Company
<PAGE>
-----------------------------------------
Bruce P. Barbera, solely in his
capacity as a shareholder of Prism
Mortgage Company
CTC TRUST
By:
--------------------------------------
Name:
Title:
DONROSE TRUST
By:
--------------------------------------
Name:
Title:
JBR TRUST #4
By:
--------------------------------------
Name:
Title:
T&M CHILDREN'S TRUST
By:
--------------------------------------
Name:
Title:
GEM/PRISM, LLC
By:
--------------------------------------
Name:
Title:
<PAGE>
ABRAMS CAPITAL TRUST
By:
--------------------------------------
Name:
Title:
PRISM FINANCIAL CORPORATION
By:
--------------------------------------
Name:
Title:
<PAGE>
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
of
PRISM FINANCIAL CORPORATION
(Adopted in Accordance with the Provisions of
Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
PRISM FINANCIAL CORPORATION, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify as
follows:
A. The Corporation's present name is Prism Financial Corporation.
It was originally incorporated under the name Prism Financial Corporation by
the filing of its original Certificate of Incorporation in the office of the
Secretary of State of Delaware in February of 1999.
B. This Amended and Restated Certificate of Incorporation (the
"Amended and Restated Certificate of Incorporation") was duly adopted by the
Board of Directors of the Corporation (the "Board of Directors") and by the
stockholders of the Corporation, all in accordance with and in the manner and
by the vote prescribed by Sections 242 and 245 of the General Corporation Law
of the State of Delaware (the "DGCL").
C. This Amended and Restated Certificate of Incorporation
restates and integrates and further amends the Certificate of Incorporation
of the Corporation, as heretofore amended and supplemented.
D. The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:
FIRST: NAME. The name of the corporation is Prism Financial
Corporation (the "Corporation").
SECOND: ADDRESS; REGISTERED OFFICE AND AGENT. The address of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road in
<PAGE>
the City of Wilmington, County of New Castle. The name of its registered
agent at such address is CSC The United States Corporation Company.
THIRD: PURPOSE. The purpose of the Corporation is to engage in,
carry on and conduct any lawful act or activity for which a corporation may
be organized under the DGCL.
FOURTH: NUMBER AND DESIGNATION OF SHARES OF CAPITAL STOCK.
(a) AUTHORIZED CAPITAL STOCK. The total number of shares of stock
that the Corporation shall have authority to issue is 110,000,000 shares of
capital stock, consisting of 100,000,000 shares of common stock, par value
$.01 per share (the Common Stock), and 10,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The designations,
powers, preferences and relative participating, optional or other special
rights and the qualifications, limitations and restrictions thereof in
respect of the capital stock of the Corporation are as follows:
(b) COMMON STOCK. The powers, preferences and rights, and the
qualifications, limitations and restrictions, of the Common Stock are as
follows:
(1) VOTING. Except as otherwise expressly
required by law or provided in this Amended and Restated Certificate
of Incorporation, and subject to any voting rights provided to holders
of Preferred Stock at any time outstanding, the holders of any
outstanding shares of Common Stock shall vote together as a single
class on all matters with respect to which stockholders are entitled
to vote under applicable law, this Amended and Restated Certificate of
Incorporation or the Bylaws of the Corporation, or upon which a vote
of stockholders is otherwise duly called for by the Corporation. At
each annual or special meeting of stockholders, each holder of record
of shares of Common Stock on the relevant record date shall be
entitled to cast one vote in person or by proxy for each share of the
Common Stock standing in such holder's name on the stock transfer
records of the Corporation.
(2) NO CUMULATIVE VOTING. The holders of
shares of Common Stock shall not have cumulative voting rights.
2
<PAGE>
(3) DIVIDENDS. Subject to the rights
provided to holders of Preferred Stock at any time outstanding, and
subject to any other provisions of this Amended and Restated
Certificate of Incorporation, as it may be amended from time to time,
holders of shares of Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock or property of the
Corporation when, as and if declared thereon by the Board of Directors
from time to time out of assets or funds of the Corporation legally
available therefor.
(4) LIQUIDATION, DISSOLUTION, ETC. In the
event of any liquidation, dissolution or winding up (either voluntary
or involuntary) of the Corporation, the holders of shares of Common
Stock shall be entitled to receive the assets and funds of the
Corporation available for distribution after payments to creditors and
to the holders of any Preferred Stock of the Corporation that may at
the time be outstanding, in proportion to the number of shares held by
them.
(5) NO PREEMPTIVE OR SUBSCRIPTION RIGHTS.
No holder of shares of Common Stock shall be entitled to preemptive or
subscription rights.
(6) POWER TO SELL AND PURCHASE SHARES.
Subject to the requirements of applicable law, the Corporation shall
have the power to issue and sell all or any part of any shares of any
class of stock herein or hereafter authorized to such persons, and for
such consideration, as the Board of Directors shall from time to time,
in its discretion, determine, whether or not greater consideration
could be received upon the issue or sale of the same number of shares
of another class, and as otherwise permitted by law. Subject to the
requirements of applicable law, the Corporation shall have the power
to purchase any shares of any class of stock herein or hereafter
authorized from such persons, and for such consideration, as the Board
of Directors shall from time to time, in its discretion, determine,
whether or not less consideration could be paid upon the purchase of
the same number of shares of another class, and as otherwise permitted
by law.
3
<PAGE>
(c) PREFERRED STOCK. The Board of Directors is hereby expressly
authorized to provide for the issuance of all or any shares of the
Preferred Stock in one or more classes or series, and to fix for each such
class or series such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class
or series, including, without limitation, the authority to provide that any
such class or series may be (i) subject to redemption at such time or times
and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at
such times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other series; (iii)
entitled to such rights upon the dissolution of, or upon any distribution
of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with
such adjustments; all as may be stated in such resolution or resolutions.
FIFTH: DIRECTORS. The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(b) The number of directors that shall constitute the whole Board of
Directors shall from time to time be fixed exclusively by the Board of
Directors by a resolution adopted by a majority of the whole Board of
Directors serving at the time of that vote. In no event shall the number
of directors that constitute the whole board of directors be less than five
or more than nine. No decrease in the number of directors shall have the
effect of shortening the term of any incumbent director. Election of
directors need not be by written ballot unless the Bylaws so provide.
(c) The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
may be
4
<PAGE>
possible, of one-third of the total number of directors constituting
the entire Board of Directors. The initial division of the Board of
Directors into classes shall be made by the decision of the affirmative
vote of a majority of the entire Board of Directors. The term of the
initial Class I directors shall expire on the date of the 2000 annual
meeting; the term of the initial Class II directors shall expire on the
date of the 2001 annual meeting; and the term of the initial Class III
directors shall expire on the date of the 2002 annual meeting. At each
succeeding annual meeting of stockholders beginning in 2000, successors to
the class of directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director.
(d) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall
be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
(e) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the
Board of Directors then in office, provided that a quorum is present, and
any other vacancy occurring on the Board of Directors may be filled by a
majority of the Board of Directors then in office, even if less than a
quorum, or by a sole remaining director. Any director of any class elected
to fill a vacancy resulting from an increase in the number of directors of
such class shall hold office for a term that shall coincide with the
remaining term of that class. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor. Subject to the rights, if any,
of the holders of shares of Preferred Stock then outstanding, any or all of
the directors of the Corporation may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of at
least two-thirds of the voting power of the Corporation's then outstanding
capital stock entitled to vote generally in the election of directors.
Notwithstanding the foregoing, whenever the holders of any one or more
5
<PAGE>
classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Amended and Restated Certificate of
Incorporation applicable thereto, and such directors so elected shall not
be divided into classes pursuant to this Article FIFTH unless expressly
provided by such terms.
(f) The presence of a majority of the total number of directors shall
constitute a quorum for the transaction of business and, except as
otherwise provided herein, the vote of a majority of such quorum as shall
be required in order for the Board of Directors to act.
(g) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the DGCL, this Amended and Restated Certificate of
Incorporation, and any Bylaws adopted by the stockholders; PROVIDED,
HOWEVER, that no Bylaws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if
such Bylaws had not been adopted.
SIXTH: LIMITATION OF LIABILITY. No director of the Corporation
shall be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is not permitted
under the DGCL as the same exists or may hereinafter be amended. If the DGCL
is amended hereafter to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent authorized
by the DGCL, as so amended. Any repeal or modification of this Article
SIXTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification.
SEVENTH: INDEMNIFICATION. (a) The Corporation shall indemnify
its directors and officers to the fullest extent authorized or permitted by
law, as now or hereafter in effect, and such right to indemnification shall
continue as to a person who has ceased to be a director or officer of the
Corporation and shall inure to the
6
<PAGE>
benefit of his or her heirs, executors and personal and legal
representatives; PROVIDED, HOWEVER, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to
indemnify any director or officer (or his or her heirs, executors or personal
or legal representatives) in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors. The right to
indemnification conferred by this Article SEVENTH shall include the right to
be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
(b) The Corporation may, to the extent authorized from time to time
by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar
to those conferred in this Article SEVENTH to directors and officers of the
Corporation.
(c) The rights to indemnification and to the advance of expenses
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Amended and
Restated Certificate of Incorporation, the Bylaws of the Corporation, any
statute, agreement, vote of stockholders or disinterested directors or
otherwise.
(d) Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director or officer
of the Corporation existing at the time of such repeal or modification with
respect to any acts or omissions occurring prior to such repeal or
modification.
EIGHTH: ACTION BY STOCKHOLDERS. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation, and the
ability of the stockholders to consent in writing to the taking of any action
is hereby specifically denied.
NINTH: MEETINGS OF STOCKHOLDERS. Meetings of stockholders may be
held within or without the State of Delaware, as the Bylaws may provide. The
books of the Corporation may be kept (subject to any provision contained in
the DGCL)
7
<PAGE>
outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the
Corporation.
TENTH: SPECIAL MEETINGS OF STOCKHOLDERS. Unless otherwise
required by law, special meetings of stockholders, for any purpose or
purposes, may be called by either (i) the Chairman of the Board of Directors,
if there be one, (ii) the President or (iii) the Board of Directors, and
shall be at the request in writing of a majority of the Board of Directors.
The ability of the stockholders to call a special meeting of stockholders is
hereby specifically denied.
ELEVENTH: AMENDMENT OF BYLAWS. In furtherance and not in
limitation of the powers conferred upon it by the laws of the State of
Delaware, the Board of Directors shall have the power to adopt, amend, alter
or repeal the Corporation's Bylaws. The affirmative vote of at least a
majority of the entire Board of Directors shall be required to adopt, amend,
alter or repeal the Corporation's Bylaws. The Corporation's Bylaws also may
be adopted, amended, altered or repealed by the affirmative vote of the
holders of at least two-thirds of the voting power of the shares, voting as a
single class, entitled to vote at an election of directors.
TWELFTH: AMENDMENT OF CERTIFICATE OF INCORPORATION. The
Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation
in the manner now or hereafter prescribed in this Amended and Restated
Certificate of Incorporation, the Corporation's Bylaws or the DGCL, and all
rights herein conferred upon stockholders are granted subject to such
reservation; PROVIDED, HOWEVER, that, notwithstanding any other provision of
this Amended and Restated Certificate of Incorporation (and in addition to
any other vote that may be required by law), the affirmative vote of the
holders of at least two-thirds of the voting power of the shares entitled to
vote at an election of directors, voting as a single class, shall be required
to amend, alter, change or repeal, or to adopt any provision as part of this
Amended and Restated Certificate of Incorporation inconsistent with the
purpose and intent of Articles FIFTH, EIGHTH and ELEVENTH of this Amended and
Restated Certificate of Incorporation or this Article TWELFTH.
8
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed and attested to on its
behalf this __ day of ______________, 1999.
PRISM FINANCIAL CORPORATION
By:
--------------------------------------
Name:
Title:
9
<PAGE>
FORM OF
AMENDED AND RESTATED
BY-LAWS
of
PRISM FINANCIAL CORPORATION
A Delaware Corporation
Effective May ___, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
OFFICES. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . .1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . .1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . .1
Section 3. Special Meetings. . . . . . . . . . . . . . . . . . . . .2
Section 4. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 5. Proxies . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 6. Voting. . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 7. Nature of Business at Meetings of
Stockholders . . . . . . . . . . . . . . . . . . . . .4
Section 8. List of Stockholders Entitled to Vote . . . . . . . . . .5
Section 9. Stock Ledger. . . . . . . . . . . . . . . . . . . . . . .5
Section 10. Record Date. . . . . . . . . . . . . . . . . . . . . .6
Section 11. Inspectors of Election . . . . . . . . . . . . . . . . .6
Section 12. Conduct of Meetings. . . . . . . . . . . . . . . . . . .6
ARTICLE III
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 1. Number and Election of Directors. . . . . . . . . . . . .7
Section 2. Nomination of Directors . . . . . . . . . . . . . . . . .7
Section 3. Vacancies . . . . . . . . . . . . . . . . . . . . . . . .9
Section 4. Duties and Powers . . . . . . . . . . . . . . . . . . . .9
Section 5. Organization. . . . . . . . . . . . . . . . . . . . . . 10
Section 6. Resignations and Removals of Directors. . . . . . . . . 10
Section 7. Meetings. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 9. Actions of Board. . . . . . . . . . . . . . . . . . . . 11
Section 10. Meetings by Means of Conference
Telephone. . . . . . . . . . . . . . . . . . . . . . 11
Section 11. Committees . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<TABLE>
<S> <C> <C>
Section 12. Compensation . . . . . . . . . . . . . . . . . . . . . 12
Section 13. Interested Directors . . . . . . . . . . . . . . . . . 12
ARTICLE IV
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. General . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2. Removal . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3. Compensation. . . . . . . . . . . . . . . . . . . . . . 13
Section 4. Voting Securities Owned by the Corporation. . . . . . . 13
Section 5. Chairman of the Board of Directors. . . . . . . . . . . 14
Section 6. President . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7. Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents and other
Officers.. . . . . . . . . . . . . . . . . . . . . . 14
Section 8. Secretary . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9. Treasurer . . . . . . . . . . . . . . . . . . . . . . . 15
Section 10. Assistant Secretaries. . . . . . . . . . . . . . . . . 16
Section 11. Assistant Treasurers . . . . . . . . . . . . . . . . . 16
ARTICLE V
STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1. Form of Certificates. . . . . . . . . . . . . . . . . . 16
Section 2. Signatures. . . . . . . . . . . . . . . . . . . . . . . 17
Section 3. Lost, Destroyed, Stolen or Mutilated
Certificates . . . . . . . . . . . . . . . . . . . . 17
Section 4. Transfers . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5. Transfer and Registry Agents. . . . . . . . . . . . . . 17
Section 6. Beneficial Owners . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. Notices . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. Waivers of Notice . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2. Disbursements . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<TABLE>
<S> <C> <C>
Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . 19
Section 4. Corporate Seal. . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1. Power to Indemnify in Actions, Suits
or Proceedings Other than Those by
or in the Right of the Corporation . . . . . . . . . 20
Section 2. Power to Indemnify in Actions, Suits
or Proceedings by or in the Right
of the Corporation . . . . . . . . . . . . . . . . . 20
Section 3. Authorization of Indemnification. . . . . . . . . . . . 21
Section 4. Good Faith Defined. . . . . . . . . . . . . . . . . . . 21
Section 5. Indemnification by a Court. . . . . . . . . . . . . . . 22
Section 6. Expenses Payable in Advance . . . . . . . . . . . . . . 22
Section 7. Nonexclusivity of Indemnification
and Advancement of Expenses. . . . . . . . . . . . . 22
Section 8. Insurance . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9. Certain Definitions . . . . . . . . . . . . . . . . . . 23
Section 10. Survival of Indemnification and
Advancement of Expenses. . . . . . . . . . . . . . . 23
Section 11. Limitation on Indemnification. . . . . . . . . . . . . 24
Section 12. Indemnification of Employees and Agents. . . . . . . . 24
ARTICLE IX
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 1. Amendments. . . . . . . . . . . . . . . . . . . . . . . 24
Section 2. Entire Board of Directors . . . . . . . . . . . . . . . 24
</TABLE>
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FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
PRISM FINANCIAL CORPORATION
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect directors, and transact such other
business as may properly be brought before the meeting. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote
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at such meeting not less than ten nor more than sixty days before the date of
the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or
by the certificate of incorporation of the Corporation, as amended and restated
from time to time (the "Certificate of Incorporation"), special meetings of
stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, or (ii) the Board of Directors. Such
request shall state the purpose or purposes of the proposed meeting. At a
special meeting of the stockholders, only such business shall be conducted as
shall be specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise required by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting not less than ten nor more than
sixty days before the date of the meeting.
SECTION 5. PROXIES. Any stockholder entitled to vote may do so in
person or by his or her proxy appointed by an instrument in writing subscribed
by such stockholder or by his or her attorney thereunto authorized, delivered to
the Secretary of the meeting; PROVIDED, HOWEVER, that no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or
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persons to act for him or her as proxy, either of the following shall constitute
a valid means by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing
another person or persons to act for him or her as proxy. Execution may be
accomplished by the stockholder or his or her authorized officer, director,
employee or agent signing such writing or causing his or her signature to
be affixed to such writing by any reasonable means, including, but not
limited to, by facsimile signature.
(ii) A stockholder may authorize another person or
persons to act for him or her as proxy by transmitting or authorizing the
transmission of a telegram or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission,
provided that any such telegram or other means of electronic transmission
must either set forth or be submitted with information from which it can be
determined that the telegram or other electronic transmission was
authorized by the stockholder.
Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission authorizing another person or persons to act as proxy
for a stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; PROVIDED that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 6. VOTING. At all meetings of the stockholders at which a
quorum is present, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy and entitled to vote on such question, voting as a single
class. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
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SECTION 7. NATURE OF BUSINESS AT MEETINGS OF STOCKHOLDERS. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 7
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 7.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material
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interest of such stockholder in such business and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 7, PROVIDED, HOWEVER, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 7 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
For purposes of this Section 7 "PUBLIC ANNOUNCEMENT" shall mean an
announcement in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT").
SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 96. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 8 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
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SECTION 10. RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors and which record
date: (1) in the case of determination of stockholders entitled to vote at any
meeting of stockholders or adjournment thereof, shall not be more than sixty nor
less than ten days before the date of such meeting; and (2) in the case of any
other action, shall not be more than sixty days prior to such other action. If
no record date is fixed: (1) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; and (2) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board by resolution or the Chairman of the meeting shall
appoint one or more inspectors of election to act at the meeting and make a
written report thereof. One or more other persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is present, ready and willing to act at a meeting of stockholders,
the Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers,
employees or agents of the Corporation. Each inspector, before entering upon
the discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector shall have the duties prescribed by
law and shall take charge of the polls and, when the vote is completed, shall
make a certificate of the result of the vote taken and of such other facts as
may be required by law.
SECTION 12. CONDUCT OF MEETINGS. The Board of Directors may adopt by
resolution such rules and regulations for the conduct of the meeting of the
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stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Directors, the
Chairman of any meeting of the stockholders shall have the right and authority
to prescribe such rules, regulations and procedures and to do all such acts as,
in the judgment of such Chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the board of
directors or prescribed by the Chairman of the meeting, may include, without
limitation, the following: (1) the establishment of an agenda or order of
business for the meeting; (2) the determination of when the polls shall open and
close for any given matter to be voted on at the meeting; (3) rules and
procedures for maintaining order at the meeting and the safety of those present;
(4) limitations on attendance at or participation in the meeting to stockholders
of record of the Corporation, their duly authorized and constituted proxies or
such other persons as the Chairman of the meeting shall determine; (5)
restrictions on entry to the meeting after the time fixed for the commencement
thereof; and (6) limitations on the time allotted to questions or comments by
participants.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than five nor more than nine members, the exact number
of which shall be determined from time to time by resolution adopted by the
Board of Directors. Except as provided in Section 3 of this Article III,
directors shall be elected by the stockholders at the annual meetings of
stockholders, and each director so elected shall hold office until such
director's successor is duly elected and qualified, or until such director's
death, or until such director's earlier resignation or removal. Directors need
not be stockholders.
SECTION 2. NOMINATION OF DIRECTORS. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any special
meeting of stockholders called for the purpose of electing directors, (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the Com-
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pany (i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 2 and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this Section 2.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company (a) in the case of an annual meeting, not less than sixty (60) days nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant
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to which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
For purposes of this Section 2 "PUBLIC ANNOUNCEMENT" shall mean an
announcement in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
SECTION 3. VACANCIES. Subject to the terms of any one or more
classes or series of preferred stock, any vacancy on the Board of Directors that
results from an increase in the number of directors may be filled by a majority
of the directors then in office, provided that a quorum is present, and any
other vacancy occurring on the Board of Directors may be filled by a majority of
the Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Notwithstanding the foregoing, whenever the holders of any
one or more class or classes or series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
Certificate of Incorporation.
SECTION 4. DUTIES AND POWERS. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not
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by statute or by the Certificate of Incorporation or by these By-Laws required
to be exercised or done by the stockholders.
SECTION 5. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board of Directors, or, in his or her absence, a director
chosen by a majority of the directors present, shall act as Chairman. The
Secretary of the Corporation shall act as Secretary at each meeting of the Board
of Directors. In case the Secretary shall be absent from any meeting of the
Board of Directors, an Assistant Secretary shall perform the duties of Secretary
at such meeting; and in the absence from any such meeting of the Secretary and
all the Assistant Secretaries, the Chairman of the meeting may appoint any
person to act as Secretary of the meeting.
SECTION 6. RESIGNATIONS AND REMOVALS OF DIRECTORS. Any director of
the Corporation may resign at any time, by giving written notice to the Chairman
of the Board of Directors, the President or the Secretary of the Corporation.
Such resignation shall take effect at the time therein specified or, if no time
is specified, immediately; and, unless otherwise specified in such notice, the
acceptance of such resignation shall not be necessary to make it effective. Any
director or the entire Board of Directors may be removed only in accordance with
the provisions of the Certificate of Incorporation.
SECTION 7. MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, or a majority of the directors then in
office. Notice thereof stating the place, date and hour of the meeting shall be
given to each director either by mail not less than forty-eight (48) hours
before the date of the meeting, by telephone, facsimile or telegram on
twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 8. QUORUM. Except as may be otherwise required by law, the
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a
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quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting of the time and place of the
adjourned meeting, until a quorum shall be present.
SECTION 9. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 10. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 10 shall
constitute presence in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent permitted by
law and provided in the resolution establishing such committee, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
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SECTION 12. COMPENSATION. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
such emoluments as the Board of Directors shall from time to time determine. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or their
votes are counted for such purpose if (i) the material facts as to such person's
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to such person's or their relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a Chairman of the Board and Chief
Executive Officer, President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors and shall hold office for such term and shall
exercise such powers and perform such duties as set forth in these By-Laws and
as shall be determined from time to time by the Board of Directors. The Board
of Directors or the Chair-
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man of the Board may also elect or appoint one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers, each of whom
shall hold office for such term and shall exercise such powers and perform such
duties as set forth in these By-Laws and as shall be determined from time to
time by the Board of Directors if such officer was elected by the Board of
Directors or by the Chairman of the Board if such officer was appointed by the
Chairman of the Board. Any number of offices may be held by the same person,
unless otherwise prohibited by law, the Certificate of Incorporation or these
By-Laws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the Board of Directors,
need such officers be directors of the Corporation.
SECTION 2. REMOVAL. All officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer may be removed at any time by the
affirmative vote of a majority of the entire Board of Directors or by the
Chairman of the Board, if such officer was appointed by the Chairman of the
Board. Any vacancy occurring in the offices of Chairman of the Board and Chief
Executive Officer, President, Secretary or Treasurer shall be filled by the
Board of Directors. Any vacancy occurring in any other office of the
Corporation shall be filled by the Board of Directors or the Chairman of the
Board. The salaries of all officers of the Corporation shall be fixed by the
Board of Directors.
SECTION 3. COMPENSATION. The Board of Directors from time to time
shall fix the compensation of the officers of the Corporation. The compensation
of other agents and employees of the Corporation may be fixed by the Board of
Directors, or by any committee designated by the board or by an officer to whom
that function has been delegated by the Board of Directors.
SECTION 4. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board, President or any
Vice President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The
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Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall preside at all meetings of the stockholders and of the
Board of Directors. The Chairman of the Board of Directors shall be the Chief
Executive Officer of the Corporation and shall in general supervise and control
all of the business and affairs of the Corporation. The Chairman of the Board
of Directors shall possess the power to execute all deeds, mortgages, bonds,
contracts, certificates and other instruments of the Corporation requiring a
seal, under the seal of the Corporation, except in cases where the execution
thereof shall be expressly delegated by the Board of Directors or by these
By-laws to some other officer or agent of the Corporation or shall be required
by law to be otherwise executed or signed. The Chairman of the Board of
Directors shall make reports to the Board of Directors and the stockholders, and
shall see that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these By-laws or by
the Board of Directors.
SECTION 6. PRESIDENT. The President shall be the second most senior
executive of the Corporation and, subject to the direction and control of the
Chairman of the Board of Directors, shall assist the Chairman of the Board of
Directors in the administration and operation of the Corporation's business and
general supervision of its policies and affairs. In the absence of the Chairman
of the Board of Directors, the President shall preside at all meetings of the
stockholders of the Corporation. The President shall possess the power to
execute all deeds, mortgages, bonds, contracts, certificates and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these By-Laws to some other officer or
agent of the Corporation or shall be required by law to be otherwise executed or
signed. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him or her by these
By-Laws, the Chairman of the Board of Directors or by the Board of Directors.
SECTION 7. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS, VICE
PRESIDENTS AND OTHER OFFICERS. Each Executive Vice President, Senior Vice
President, other Vice President or other officer of the Corporation shall
perform such duties and have such powers as from time to time may be assigned to
him or her by the Board
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of Directors or the Chairman of the Board of Directors as provided in Section 1
of this Article IV.
SECTION 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the Chairman of the Board of Directors, under whose supervision the Secretary
shall be. If the Secretary shall be unable or shall refuse to cause to be given
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and if there be no Assistant Secretary, then either the Board of
Directors or the President may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his or her signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
SECTION 9. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board of Directors and
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of the office of Treasurer and for the restoration to
the Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever
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kind in the Treasurer's possession or under control of the Treasurer belonging
to the Corporation.
SECTION 10. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the Chairman of the Board of Directors, the President,
any Vice President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of his or her disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chairman of the Board of
Directors, the President, any Vice President, if there be one, or the Treasurer,
and in the absence of the Treasurer or in the event of the Treasurer's
disability or refusal to act, shall perform the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. If required by the Board of Directors, an
Assistant Treasurer shall give the Corporation a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of the office of Assistant Treasurer and for
the restoration to the Corporation, in case of the Assistant Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the Assistant Treasurer's
possession or under control of the Assistant Treasurer belonging to the
Corporation.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder of stock in the Corporation.
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SECTION 2. SIGNATURES. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST, DESTROYED, STOLEN OR MUTILATED CERTIFICATES. The
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or such person's legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; PROVIDED, HOWEVER, that such
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
SECTION 5. TRANSFER AND REGISTRY AGENTS. The Corporation may from
time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.
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SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile, telex or cable.
SECTION 2. WAIVERS OF NOTICE.
(a) Whenever any notice is required by law, the Certificate of
Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting, present by person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
(b) Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by law, the Certificate of Incorporation or these By-Laws.
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GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the requirements of the GCL and the
provisions of the Certificate of Incorporation, dividends upon the capital stock
of the Corporation may be declared by the Board of Directors at any regular or
special meeting of the Board of Directors, and may be paid in cash, in property,
or in shares of the Corporation's capital stock. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for purchasing any of the shares of capital stock, warrants,
rights, options, bonds, debentures, notes, scrip or other securities or
evidences of indebtedness of the Corporation, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any other
proper purpose, and the Board of Directors may modify or abolish any such
reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, such person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that such person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
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Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his or
her conduct was unlawful, if such person's action is based on the records or
books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable
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standard of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery of the State of Delaware or any other
court of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Sections 1 and 2 of this Article VIII.
The basis of such indemnification by a court shall be a determination by such
court that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standards of conduct
set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a
contrary determination in the specific case under Section 3 of this Article VIII
nor the absence of any determination thereunder shall be a defense to such
application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation or any By-Law, agreement,
contract, vote of stockholders or disinterested directors or pursuant to the
direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Section 1 and 2 of
this Article VIII shall be made to the fullest extent
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permitted by law. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Section 1 or
2 of this Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the GCL, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted
23
<PAGE>
pursuant to, this Article VIII shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer (or
his or her heirs, executors or personal or legal representatives) or advance
expenses in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE X
AMENDMENTS
SECTION 1. AMENDMENTS. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the Board of
Directors or by the stockholders as provided in the Certificate of
Incorporation.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and
in these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
24
<PAGE>
<TABLE>
<S><C>
Exhibit 4.2
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PAR VALUE $.01
[LOGO]
INCORPORATED UNDER THE LAWS CUSIP 74264Q 10 8
OF THE STATE OF DELAWARE PRISM FINANCIAL CORPORATION SEE REVERSE FOR CERTAIN DEFINITIONS
----------------------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
----------------------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
PRISM FINANCIAL CORPORATION
(hereinafter called the "Corporation") transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are issued and shall be
subject to all the provisions of the Certificate of Incorporation and Bylaws of the
Corporation and the amendments from time to time made thereto, copies of which are on file at
the principal office of the Corporation, to all of which the holder of this Certificate by
acceptance hereof assents. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signature of its duly
authorized officers.
CHAIRMAN OF THE BOARD DATED:
AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED:
[SEAL] LASALLE NATIONAL BANK
TRANSFER AGENT
AND REGISTRAR
SECRETARY
BY:
AUTHORIZED SIGNATURE
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other rights of each class of stock or series
thereof of the Corporation, and the qualifications, limitations or
restrictions of such preferences and/or rights. Any such request may be made
to the Corporation or the Transfer Agent.
KEEP THIS STOCK CERTIFICATE IN A SAFE PLACE. If this stock certificate is
lost, stolen, or destroyed, the Board of Directors of the Corporation may
require the owner, or his legal representative, to give the Corporation a
bond to indemnify the Corporation against any claim that may be made against
them on account of the alleged loss, theft, or destruction of any such
certificate as a condition to the issuance of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S><C>
TEN COM - as tenants in common UNIF GIFT MIN ACT --_________ Custodian ________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________________
in common (State)
UNIF TRF MIN ACT -- _______ Custodian (until age _____)
(Cust)
____________ under Uniform Transfers
(Minor)
to Minor Act ____________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________________ hereby sell(s), assign(s), and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
______________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________________________________________________________
_______________________________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_____________________________________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated __________________________
X______________________________________
X______________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
NOTICE: THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
By______________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKHOLDERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM,)
PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE>
Exhibit 4.3
FORM OF
REGISTRATION RIGHTS AGREEMENT
May __, 1999
To the several persons
named at the foot hereof:
Ladies and Gentlemen:
WHEREAS, Prism Financial Corporation, a Delaware corporation (the
"Company"), is undertaking an initial public offering of its Common Stock (as
defined herein) pursuant to an underwriting agreement, dated as of the date
hereof, by and among the Company, the Initial Shareholders (as defined herein)
and the underwriters named therein (the "Underwriting Agreement");
WHEREAS, in connection with the Company's initial public offering, the
Company and each Initial Shareholder have entered into a Share Exchange
Agreement or received shares of the Company pursuant to acquisition agreements,
such that upon consummation of the Company's initial public offering, each
Initial Shareholder shall own the number of shares of Common Stock set forth
opposite such Initial Shareholder's name on Annex I hereto; and
WHEREAS, the Company desires to provide to each of you, rights to register
the Common Stock of the Company owned by you.
NOW, THEREFORE, as an inducement to each of you to consummate the
transactions contemplated by the Underwriting Agreement, the Company hereby
covenants and agrees with each of you, and with each subsequent holder of
Restricted Stock (as defined herein) as follows:
1. Certain Definitions. As used herein, the following terms shall
have the following respective meanings:
<PAGE>
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
of the Company.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Initial Shareholders" shall mean those persons who are signatories to
this Agreement, and their successors and assigns, and other persons who may
become holders of Restricted Stock.
"Initial Shareholder Shares" means all shares of Common Stock owned by
the Initial Shareholders on the date hereof as set forth in Annex I hereto, as
such shares may be adjusted from time to time in accordance with Section 8
hereof.
"IPO" shall mean the initial public offering of the Company's Common
Stock under the Securities Act.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Public Sale" shall mean any sale of shares of Common Stock to the
public pursuant to an offering registered under the Securities Act or to the
public pursuant to the provisions of Rule 144 (or any successor or similar rule)
adopted under the Securities Act.
"Registration Expenses" shall mean the expenses so described in Section
6 hereof.
"Restricted Stock" shall mean the shares of Common Stock issued to the
Initial Shareholders or other persons which are required to bear a restrictive
legend, excluding Initial Shareholder Shares which have been (i) registered
under the Securities Act pursuant to an effective registration statement filed
thereunder and
2
<PAGE>
disposed of in accordance with the registration statement covering them or (ii)
publicly sold pursuant to Rule 144 under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 6
hereof.
2. Required Registration.
(a) At any time on or after the 180 day anniversary of the
consummation of the IPO, the holders of at least 50% of the Restricted Stock
outstanding at such time may request the Company to register all or any portion
of the Restricted Stock held by such requesting holder or holders for sale in
the manner specified in such notice; provided, however, that the Company shall
not be obligated to effect any such registration unless the proceeds to be
realized in connection with such registration shall not reasonably be expected
to be less than $1,000,000.
(b) Promptly following receipt of any notice under this
Section 2, the Company shall immediately notify any holders of Restricted Stock
from whom notice has not been received and shall use its best efforts to
register under the Securities Act, for Public Sale in accordance with the method
of disposition specified in such notice from requesting holders, the number of
shares of Restricted Stock specified in such notice (and in any notices received
from other holders of Restricted Stock within thirty (30) days after their
receipt of notice from the Company); provided, however, that the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
pro rata among the requesting holders of Restricted Stock if and to the extent
that the managing underwriter, if the proposed method of disposition specified
by the requesting holders shall be an underwritten public offering, shall be of
the opinion that such inclusion would materially adversely affect the marketing
of the Restricted Stock. If such method of disposition shall be an underwritten
public offering, the Company shall designate the managing underwriter of such
offering, subject to the approval of the selling holders of a majority of the
Restricted Stock covered by the offering, which approval shall not be
unreasonably withheld. Subject to paragraph (c) below, the Company shall be
obligated to use its reasonable best efforts to cause the registration statement
filed pursuant to this Section 2 to become effective not later than 90 (ninety)
days after receipt of notice pursuant to Section 2. The Company shall be
obligated to register
3
<PAGE>
Restricted Stock pursuant to this Section 2 on two (2) occasions only; provided
that such obligation shall be deemed satisfied only when a registration
statement covering all shares of Restricted Stock specified in notices received
as aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto; provided, however, that a registration
statement shall not constitute a registration request pursuant to this Section 2
if (x) after such registration statement has become effective, such registration
or the related offer, sale or distribution of Restricted Stock thereunder is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason not
attributable to the holders of such Restricted Stock and such interference is
not thereafter eliminated or (y) the conditions specified in the underwriting
agreement, if any, entered into in connection with such registration statement
are not satisfied or waived, other than by reason of a failure by any holder of
such Restricted Stock.
(c) Notwithstanding anything to the contrary in this
Agreement, the Company may delay for up to ninety (90) days the filing or
effectiveness of a registration statement pursuant to a request under this
Section 2 if the Board of Directors of the Company shall determine that such a
registration would not be in the best interests of the Company at such time,
during which period the requesting holders may withdraw their request (provided
that, if not so withdrawn, the Company will not have breached its obligations
under this Section 2 during such delay period), in which case the requesting
holders will not be deemed to have made a request for registration under this
Section 2.
(d) The Company shall be entitled to include in any
registration statement referred to in this Section 2, for sale in accordance
with the method of disposition specified by the requesting holders, shares of
Common Stock to be sold by the Company for its own account, except as and to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Restricted Stock (if any) to be sold.
3. Form S-3 Registration.
If at any time (i) the Company shall receive from the holders of at
least 50% of the Restricted Stock a written request or requests that the Company
effect a registration of all or any portion of the shares of Restricted Stock on
Form S-3 or any successor thereto, and (ii) the Company is a registrant entitled
to use Form S-
4
<PAGE>
3 or any successor thereto to register such shares, the Company will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other holders of any
shares of Restricted Stock; and
(ii) as soon as practicable, effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under applicable blue
sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and any other
government requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of
such holder's or holders' Restricted Stock as are specified in such
request, together with all or such portion of the Restricted Stock of any
holder or holders of Restricted Stock joining in such request as are
specified in a written request given within thirty (30) days after receipt
of such written notice from the Company; provided that the Company shall
not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 3 more than once in any 180-day period
and provided further that the Company shall not be obligated to effect any
such registration unless the proceeds to be realized in connection with
such registration shall not reasonably be expected to be less than
$1,000,000. Subject to the foregoing, the Company shall file a
registration statement covering the Restricted Stock so requested to be
registered as soon as practicable after receipt of the request or requests
of the holder or holders of Restricted Stock to do so.
Notwithstanding anything to the contrary in this Agreement, (i) the Company may
delay for up to ninety (90) days the effectiveness of, and (ii) the Company may
suspend for up to thirty (30) days, not more than once during the term of this
Agreement, the effectiveness of, a registration statement pursuant to a request
under this Section 3 if the Board of Directors of the Company shall determine
such registration (or, in the case of a suspension of a registration, sales
under such registration statement) would not be in the best interests of the
Company at such time, during which period the requesting holders may withdraw
their request, in which case the requesting holders will not be deemed to have
made a request for registration under this Section 3.
5
<PAGE>
(a) Commencing one year after the Company becomes subject to
the requirements of Section 12 or 15(d) of the Securities Exchange Act of 1934,
as amended, the Company shall use its reasonable best efforts to satisfy the
registrant requirements applicable for use of registration statements on Form
S-3 (or any successor form thereto) for the resale of securities by selling
stockholders.
(b) Registrations effected pursuant to this Section 3 shall
not be counted as requests for registration effected pursuant to Section 2.
4. Incidental Registration. If the Company at any time (other than
pursuant to Section 2 or 3 hereof) proposes to register any of its Common Stock
under the Securities Act for sale for cash only to the public, whether for its
own account or for the account of other security holders or both (except with
respect to registration statements on Forms S-4 or S-8 or another form not
available for registering the Restricted Stock for sale to the public, a
registration statement on Form S-3 to be filed by the Company to register shares
of Common Stock issued in consideration for an acquisition, or a registration
statement on Form S-1 covering solely an employee benefit plan), it will give
written notice at such time to all holders of outstanding Restricted Stock of
its intention to do so. Upon the written request of any such holder, given
within thirty (30) days after receipt of any such notice by the Company, to
register any of its Restricted Stock (which request shall state the intended
method of disposition thereof), the Company will use its reasonable best efforts
to cause the Restricted Stock as to which registration shall have been so
requested, to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Restricted Stock so registered; provided that nothing
herein shall prevent the Company from abandoning or delaying any such
registration at any time. In the event that any registration pursuant to this
Section 4 shall be, in whole or in part, an underwritten public offering of
Common Stock, the Company shall not be required to include any Restricted Stock
in such underwritten offering unless the holder shall agree to the terms and
conditions of the underwritten offering as agreed by the Company and the
underwriters. The number of shares of Restricted Stock to be included in such
an underwriting may be reduced pro rata among the requesting holders of
Restricted Stock, if and to the extent that the managing underwriter shall be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein. In such event, the Company shall
be required to include in such registration, to the extent of the amount that
the managing underwriter believes may be sold without causing such adverse
effect, first, all of the securities to be offered for the account of the
Company; second, the Restricted Stock
6
<PAGE>
to be offered for the account of the holders pursuant to this Section 4, pro
rata based on the number of shares of Restricted Stock owned by each such
holder; and third, any other securities requested to be included in such
underwritten offering.
5. Registration Procedures. If and whenever the Company is required
by the provisions of Section 2, 3 or 4 hereof to use its reasonable best efforts
or best efforts, as the case may be, to effect the registration of any of the
Restricted Stock under the Securities Act, the Company will, as expeditiously as
possible:
(a) prepare (and afford counsel for the selling holders up to
10 business days' opportunity to review and comment thereon) and file with the
Commission a registration statement (which, in the case of an underwritten
public offering pursuant to Section 2 hereof, shall be on Form S-1 or other form
of general applicability satisfactory to the managing underwriter selected as
therein provided) with respect to such securities and use its reasonable best
efforts or best efforts, as the case may be, to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(b) prepare (and afford counsel for the selling holders up to
10 business days' opportunity to review and comment thereon) and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in paragraph (a) above
and to comply with the provisions of the Securities Act with respect to the
disposition of all Restricted Stock covered by such registration statement in
accordance with the sellers' intended method of disposition set forth in such
registration statement for such period;
(c) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons may reasonably request
in order to facilitate the Public Sale or other disposition of the Restricted
Stock covered by such registration statement;
(d) use its reasonable best efforts or best efforts, as the
case may be, to register or qualify the Restricted Stock covered by such
registration statement under the securities or blue sky laws of such
jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter, shall reasonably request
and do any and all other acts and things which
7
<PAGE>
may be reasonably necessary or advisable to enable any such seller to consummate
the disposition in such jurisdictions of the Restricted Stock owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any
jurisdiction);
(e) use its reasonable best efforts to list the Restricted
Stock covered by such registration statement with any securities exchange on
which any Common Stock of the Company is then listed;
(f) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;
(g) use its reasonable best efforts or best efforts, as the
case may be (if the offering is underwritten and at the request of any seller of
Restricted Stock), to furnish, at the request of any seller, on the date that
Restricted Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing the
Company, for the purposes of such registration, addressed to the underwriters
and either addressed to such seller or specifically entitling such seller to
rely thereupon, stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the registration statement, the related
prospectus, and each amendment or supplement thereof, comply as to form in all
material respects with the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder (except that such counsel
need express no opinion as to financial statements, the notes thereto, and the
financial schedules and other financial and statistical data contained therein)
and (C) to such other effects as may reasonably be requested by counsel for the
underwriters or by such seller or its counsel; and (ii) a letter dated such date
from the independent public accountants retained by the Company, addressed to
the underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company
8
<PAGE>
included in the registration statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five (5) business days prior to the date of such
letter) with respect to the registration in respect of which such letter is
being given as such underwriters or seller may reasonably request; and
(h) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
(i) cooperate with each seller of Restricted Stock and each
underwriter participating in the disposition of such Restricted Stock and their
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD"); and
(j) immediately notify each seller of Restricted Stock of any
stop order issued or threatened by the Commission.
For purposes of paragraphs (a) and (b) above and of Section 2(d) hereof, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby or
six (6) months after the effective date thereof.
In connection with each registration hereunder, as a condition to the
right to sell under any registration statement (a) the selling holders of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as shall be
reasonably necessary in order to assure compliance with federal and applicable
state securities laws; (b) any such selling holder of Restricted Stock will
enter into a written agreement with the underwriters and the Company in such
form and containing such provisions as are customary in the securities business
for such an arrangement between major underwriters and companies of the
Company's size and investment stature, and such
9
<PAGE>
selling holder of Restricted Stock will use its reasonable best efforts to cause
its counsel to give any opinion customarily given, in connection with secondary
distributions under similar circumstances; (c) during such time as any such
selling holder of Restricted Stock may be engaged in a distribution of such
stock, such selling holder of Restricted Stock will comply with all applicable
laws and, to the extent required by such laws, will, among other things (i) not
engage in any stabilization activity in connection with the securities of the
Company in contravention of such rules, (ii) distribute the Restricted Stock
owned by such selling holder of Restricted Stock solely in the manner described
in applicable registration statement or as otherwise permitted by law, (iii)
cause to be furnished to each agent or broker-dealer to or through whom the
Restricted Stock owned by such selling holder of Restricted Stock may be
offered, or to the offeree if an offer is made directly by such holder, such
copies of the applicable prospectus (as amended and supplemented to such date)
and the documents incorporated by reference therein as may be required by such
agent, broker-dealer or offeree, provided that the Company shall have provided
such selling holder of Restricted Stock with an adequate number of copies
thereof and (iv) not bid for or purchase any securities of the Company or
attempt to induce any person to purchase any securities of the Company; and (d)
on notice from the Company of the happening of any event specified in paragraph
(f) of Section 5 hereof or the suspension of effectiveness of the registration
statement under Section 3, then such selling holder will cease offering or
distributing the Restricted Stock until the Company notifies such selling holder
that the offering and distribution of the Restricted Stock may recommence.
In connection with each registration pursuant to Sections 2, 3 and 4
hereof covering an underwritten public offering, the Company agrees to enter
into a written agreement with the managing underwriter selected in the manner
herein provided in such form and containing such provisions as are customary in
the securities business for such an arrangement between major underwriters and
companies of the Company's size and investment stature; provided, however, that
such agreement shall not contain any such provision applicable to the Company
which is inconsistent with the provisions hereof; and provided, further, that
the time and place of the closing under said agreement shall be as mutually
agreed upon between the Company and such managing underwriter.
6. EXPENSES. All expenses incurred by the Company in complying with
Sections 2, 3 or 4 hereof, including without limitation all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the NASD, transfer
taxes, fees of transfer agents and registrars, costs of insurance and reasonable
fees and expenses of
10
<PAGE>
not more than one counsel for the Initial Shareholders (not more than $50,000 in
fees for such counsel), but excluding any Selling Expenses, are herein called
"Registration Expenses." All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock are herein called "Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant to Sections 2, 3 and 4 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 2, 3 or 4 hereof shall be borne by the participating sellers in
proportion to the number of shares sold by each, or by such persons other than
the Company (except to the extent the Company shall be a seller) as they may
agree.
7. Indemnification.
(a) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Section 2, 3 or 4 hereof, the Company
will indemnify and hold harmless each seller of such Restricted Stock thereunder
and each underwriter of Restricted Stock thereunder and each officer, director
and each other person, if any, who controls such seller or underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 2, 3 or 4, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) the indemnity in this Section 7
shall not apply to any amounts paid in settlement of any such loss, claim,
damage or liability if settlement is affected without the consent of the
Company, and (ii) the Company will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such seller, such
underwriter or such controlling person in writing specifically for use in such
registration statement or prospectus.
11
<PAGE>
(b) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Section 2, 3 or 4 hereof, to the
extent permitted by law each seller of such Restricted Stock thereunder,
severally and not jointly, will indemnify and hold harmless the Company and each
officer, director and each other person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer or director or underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Section 2, 3 or 4, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus; and
provided, further, that the liability of each seller hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of shares sold by such
seller under such registration statement bears to the total public offering
price of all securities sold thereunder, but not to exceed the proceeds (net of
underwriting discounts and commissions) received by such seller from the sale of
Restricted Stock covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any
12
<PAGE>
indemnified party other than under this Section 7. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 7 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there are reasonable defenses available to it which are different
from or additional to those available to the indemnifying party, or if the
interests of the indemnified party reasonably are in conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. No settlement of any such
claim, loss, damage, liability or action shall be made by the indemnified party
without the prior written consent (not to be unreasonably withheld or delayed)
of the indemnifying party.
Notwithstanding the foregoing, any indemnified party shall have the
right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in paragraphs (a) and
(b) of this Section 7 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or
13
<PAGE>
liabilities or actions in respect thereof referred to therein, then each
indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the sellers of such Restricted Stock, on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or actions as well as any other relevant equitable considerations,
including the failure to give any notice under paragraph (c) of this Section 7.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact relates to
information supplied by the Company, on the one hand, or the sellers of such
Restricted Stock, on the other hand, and to the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the sellers of Restricted Stock agree
that it would not be just and equitable if contributions pursuant to this
paragraph were determined by pro rata allocation (even if all of the sellers of
such Restricted Stock were treated as one entity for such purpose) or by any
other method of allocation which did not take account of the equitable
considerations referred to above in this paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or action in respect thereof, referred to above in this paragraph, shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, the sellers of such
Restricted Stock shall not be required to contribute any amount in excess of the
amount, if any, by which the total price at which the Common Stock sold by each
of them was offered to the public exceeds the amount of any damages which they
would have otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission. No person guilty of fraudulent misrepresentations
(within the meaning of Section 11(f) of the Securities Act), shall be entitled
to contribution from any person who is not guilty of such fraudulent
misrepresentation.
The indemnification of underwriters provided for in this Section 7
shall be on such other terms and conditions as are at the time customary and
reasonably required by such underwriters. In that event the indemnification of
the sellers of Restricted Stock in such underwriting shall at the sellers'
request be modified to conform to such terms and conditions.
8. Changes In Restricted Stock. If, and as often as, there are any
changes in the Common Stock by way of stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization,
14
<PAGE>
or by any other means, appropriate adjustment shall be made in the provisions
hereof, as may be required, so that the rights and privileges granted hereby
shall continue with respect to the Common Stock as so changed and shall apply to
any securities received in any such transaction.
9. Rule 144 Reporting. The Company agrees with you as follows:
(a) From and after such time as the Company becomes subject to
the reporting requirements of the Exchange Act, the Company shall make and keep
public information available, as those terms are understood and defined in
Rule 144 under the Securities Act, at all times from and after the date it is
first required to do so.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe under
Section 13(a) or 15(d) of the Exchange Act at any time after the Company has
become subject to such reporting requirements of the Exchange Act.
(c) The Company shall furnish to such holder of Restricted
Stock forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after the date it first becomes subject to such reporting requirements), and of
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements), (ii) a copy of the most recent annual or
quarterly report of the Company, and (iii) such other reports and documents so
filed as a holder may reasonably request to avail itself of any rule or
regulation of the Commission allowing a holder of Restricted Stock to sell any
such securities without registration.
10. Holdback Agreement. If and to the extent requested by the
Company, the Initial Shareholders agree (i) not to effect any public sale or
distribution of any Restricted Stock or of any securities convertible into or
exchangeable or exercisable for such Restricted Stock, including a sale pursuant
to Rule 144, and (ii) not to make any request for a registration under Sections
2 or 3 of this Agreement, during the 120-day period or such shorter period
agreed upon by such holder beginning thirty days prior to the anticipated
effective date of a registration statement filed by the Company (except as part
of such registration filed by the Company).
15
<PAGE>
11. Effectiveness. This agreement shall become effective upon
consummation of the IPO; provided, however, that if the IPO has not occurred on
or prior to July 31, 1999, this agreement shall not become effective and shall
be void.
12. Miscellaneous.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto, including, without limitation, the
rights to indemnification under Section 7 hereof, shall bind and inure to the
benefit of the respective successors and permitted assigns of the parties hereto
whether so expressed or not. Without limiting the generality of the foregoing,
the registration rights conferred herein on the holders of Restricted Stock
shall inure to the benefit of any and all subsequent holders from time to time
of the Restricted Stock.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class registered
mail, postage prepaid, addressed as follows:
if to the Company, to it at 440 N. Orleans Street, Chicago, Illinois
60610, attention: Chief Financial Officer, facsimile number (312) 494-0273,
with a copy to Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 W. Wacker
Drive, Chicago, Illinois 60606, attention: Rodd Schreiber, Esq., facsimile
number (312) 407-0411;
if to any holder of Restricted Stock, to him, her or it, as the case
may be, at its address as set forth on Annex I hereto or any subsequent address
provided by such holder to the Company and the other Initial Shareholders;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Restricted
Stock), or to the holders of Restricted Stock (in the case of the Company).
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may not be
waived, modified or amended, nor may the Company grant any third party any
registration rights more favorable than or inconsistent with any of those
contained
16
<PAGE>
herein as long as any of the registration rights under this Agreement remains in
effect, except in writing executed by the Company, the holders of a majority of
the Initial Shareholders' Shares; provided, however, that any such amendment,
modification or waiver shall affect all of the holders of Initial Shareholders'
Shares in the same manner and that no such amendment, modification or waiver
that would adversely affect the rights or alter the obligations of any holder
of Initial Shareholders' Shares hereunder or confer on any holder of Initial
Shareholders' Shares any benefit not shared ratably by all of the other holders
of Initial Shareholders' Shares will be effective without the prior written
approval of any such adversely affected holder of Initial Shareholders' Shares.
(e) This Agreement may be executed 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.
(f) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this letter (herein
sometimes called "this Agreement") shall be a binding agreement between the
Company and you.
Very truly yours,
PRISM FINANCIAL CORPORATION
By:
-------------------------------------
Name:
Title:
<PAGE>
----------------------------------------
Bruce C. Abrams
----------------------------------------
Terry A. Markus
----------------------------------------
Mark A. Filler
----------------------------------------
Abby Reisler
----------------------------------------
William D. Osenton
----------------------------------------
Bruce P. Barbera
----------------------------------------
Robert Siefert
CTC TRUST
By:
-------------------------------------
Name:
Title:
DONROSE TRUST
By:
-------------------------------------
Name:
Title:
<PAGE>
JBR TRUST #4
By:
-------------------------------------
Name:
Title:
T&M CHILDREN'S TRUST
By:
-------------------------------------
Name:
Title:
GEM VALUE/PRISM, LLC
By:
-------------------------------------
Name:
Title:
ABRAMS CAPITAL TRUST
By:
-------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.2
AGREEMENT FOR THE PURCHASE AND SALE
OF THE CAPITAL STOCK OF
PACIFIC GUARANTEE MORTGAGE CORPORATION
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omitted text has been marked with a bracketed asterisk ("[*]") and has
been filed separately with the Securities and Exchange Commission.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2
Purchase and Sale of Shares . .. . . . . . . . . . . . . . . . . . . . .5
2.1 Agreement to Sell and Purchase. . . . . . . . . . . . . . . . . .5
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 3
Consideration and Payment of Terms . . . . . . . . . . . . . . . . . .5
3.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 Additional Consideration. . . . . . . . . . . . . . . . . . . . .6
ARTICLE 4
Representations and Warranties of Sellers. . . . . . . . . . . . . . . 10
4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . 10
4.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 No Restrictions; Binding Effect; Approval of Change of
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Title to the Shares . . . . . . . . . . . . . . . . . . . . . . 12
4.7 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 12
4.8 Corporate Records and Action. . . . . . . . . . . . . . . . . . 13
4.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 13
4.10 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 Events Since December 31, 1997. . . . . . . . . . . . . . . . . 14
4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.13 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . 16
4.14 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . 17
4.15 Accounts Receivable; Notes Receivable . . . . . . . . . . . . . 17
4.16 Intellectual Property and Software. . . . . . . . . . . . . . . 17
4.17 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . 19
4.18 Litigation; Regulatory Examination. . . . . . . . . . . . . . . 20
4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.20 Schedule of Loans . . . . . . . . . . . . . . . . . . . . . . . 21
4.21 Compliance with Law Including Consumer Law. . . . . . . . . . . 21
4.22 Forms; Policies and Procedures. . . . . . . . . . . . . . . . . 22
4.23 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . 22
4.24 Environmental Warranties. . . . . . . . . . . . . . . . . . . . 22
4.25 Payroll List. . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.26 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 24
4.27 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . 24
4.28 Employee Policies . . . . . . . . . . . . . . . . . . . . . . . 24
i
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4.29 Referral Sources; Investors . . . . . . . . . . . . . . . . . . 25
4.30 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.31 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . 25
4.32 Personal Guarantees . . . . . . . . . . . . . . . . . . . . . . 25
4.33 Brokerage Fee . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.34 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 25
4.35 Business Records. . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 5
Representations and Warranties of Purchaser. . . . . . . . . . . . . . 26
5.1 Organization and Standing . . . . . . . . . . . . . . . . . . . 26
5.2 No Restrictions; Authorization; Binding Effect; Approval
of Change of Control. . . . . . . . . . . . . . . . . . . . . 26
5.3 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . 27
5.6 Authorization for Common Stock Issued by Purchaser. . . . . . . 27
5.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 27
5.8 No Material Adverse Change or Extraordinary Dividends
or Distributions. . . . . . . . . . . . . . . . . . . . . . . 27
5.9 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 28
5.10 Corporate Records and Action. . . . . . . . . . . . . . . . . . 28
5.11 Events Since December 31, 1997. . . . . . . . . . . . . . . . . 28
5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.13 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . 30
5.14 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . 30
5.15 Accounts Receivable; Notes Receivable . . . . . . . . . . . . . 30
5.16 Litigation; Regulatory Examination. . . . . . . . . . . . . . . 31
5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.18 Compliance with Consumer Law. . . . . . . . . . . . . . . . . . 31
5.19 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . 31
5.20 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 32
5.21 Brokerage Fee . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.22 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 32
5.23 Warehouse Line and Gestation Repo Line Terms. . . . . . . . . . 32
ARTICLE 6
Covenants of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Conduct of Businesses; Notification of Breaches in
Representations or Warranties . . . . . . . . . . . . . . . . 32
6.2 Notification of Breach of Representation, Warranty or
Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Forebearances by PGM. . . . . . . . . . . . . . . . . . . . . . 33
6.4 Good Faith Negotiations . . . . . . . . . . . . . . . . . . . . 34
6.5 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . 34
6.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ii
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6.7 Government Approval. . . . . . . . . . . . . . . . . . . . . . . 35
6.8 Additional Financial Statements. . . . . . . . . . . . . . . . . 36
6.9 Supplements to Schedules . . . . . . . . . . . . . . . . . . . . 36
6.10 Consents of Third Parties. . . . . . . . . . . . . . . . . . . . 36
6.11 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . 36
6.12 Guarantees and Collateral Pledges. . . . . . . . . . . . . . . . 37
6.13 Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 7
Covenants of Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1 Notification of Breach of Warranty or Covenant . . . . . . . . . 37
7.2 Forebearances by Purchaser . . . . . . . . . . . . . . . . . . . 37
7.3 Good Faith Negotiations. . . . . . . . . . . . . . . . . . . . . 38
7.4 Government Approvals . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 8
Joint Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.1 Access and Information . . . . . . . . . . . . . . . . . . . . . 38
8.2 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.3 Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . 40
8.4 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . 40
8.5 Other Documentation. . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 9
Conditions to Obligation to Close . . . . . . . . . . . . . . . . . . . 41
9.1 Mutual Conditions. . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Conditions to Obligations of Purchaser to Effect the
Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.3 Conditions to Obligations of Sellers to Effect the Closing . . . 43
ARTICLE 10
Post Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Post Closing Covenants of Purchaser Regarding
Financing of PGM. . . . . . . . . . . . . . . . . . . . . . . 45
10.2 Covenant Not to Compete and Not to Solicit by Sellers
Surviving Closing . . . . . . . . . . . . . . . . . . . . . . 46
10.3 Limited Indemnification by Sellers. . . . . . . . . . . . . . . 49
10.4 Exposure on Breach of Warranty by Purchaser . . . . . . . . . . 53
10.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.6 Personal Guaranties . . . . . . . . . . . . . . . . . . . . . . 53
10.7 New Joint Venture Operations. . . . . . . . . . . . . . . . . . 53
10.8 Oak Park Estates REO. . . . . . . . . . . . . . . . . . . . . . 54
10.9 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 54
iii
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ARTICLE 11
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.1 Termination and Cure Upon Material Adverse Change. . . . . . . . 54
11.2 Other Termination. . . . . . . . . . . . . . . . . . . . . . . . 54
11.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE 12
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.1 Survival of Representations and Warranties . . . . . . . . . . . 55
12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.3 Press Releases; Employee Communications. . . . . . . . . . . . . 56
12.4 Right of Offset. . . . . . . . . . . . . . . . . . . . . . . . . 56
12.5 Written Agreement to Govern. . . . . . . . . . . . . . . . . . . 56
12.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.7 Injunctive Remedy for Breach . . . . . . . . . . . . . . . . . . 56
12.8 Notices and Other Communications . . . . . . . . . . . . . . . . 56
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 59
12.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 59
12.12 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.13 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . 60
12.14 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.15 Waiver of Provisions . . . . . . . . . . . . . . . . . . . . . . 60
12.16 ARBITRATION; GOVERNING LAW; CONSENT TO
JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.17 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . 63
12.18 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SCHEDULES AND EXHIBITS
Schedule 4.1 -- Organization and Good Standing of PGM
Schedule 4.2 -- Qualifications
Schedule 4.3 -- Governmental Notices, Authorizations, Filings, Etc.
Required to effect Change of Control
Schedule 4.4 -- Conflicts
Schedule 4.5 -- Current Capitalization of PGM
Schedule 4.7 -- Subsidiaries, Joint Ventures
Schedule 4.10 -- Disclosed Liabilities
Schedule 4.11 -- Events Since December 31, 1997
Schedule 4.12 -- Taxes
Schedule 4.13 -- Liens
Schedule 4.16 -- Intellectual Property
Schedule 4.17 -- Material Contracts
Schedule 4.18 -- Litigation, Administration
Schedule 4.19 -- Insurance
iv
<PAGE>
<CAPTION>
PAGE
----
<S> <C>
Schedule 4.20 -- Description of Loan Portfolio, Loan Locks and
Branches
Schedule 4.23 -- Licenses and Permits
Schedule 4.25 -- Payroll List
Schedule 4.28 -- Employee Pension Funds
Schedule 4.29 -- Employee Policies and Practices Not Included in
Employee Handbook
Schedule 4.30 -- Bank Accounts
Schedule 4.31 -- Powers of Attorney
Schedule 6.7 -- Required Consents
Exhibit A -- Special Shareholders Agreement
Exhibit B -- Term Sheet
Exhibit C -- Employment Agreement
Exhibit D -- Employment Agreement
</TABLE>
v
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into this 31st day of July, 1998,
by and between PRISM MORTGAGE COMPANY, an Illinois corporation ("Purchaser"),
and WILLIAM D. OSENTON ("Osenton") and BRUCE P. BARBERA ("Barbera") (together
"Sellers").
W I T N E S S E T H:
WHEREAS, Sellers own all of the issued and outstanding shares of
capital stock of Pacific Guarantee Mortgage Corporation ("PGM"); and
WHEREAS, PGM, which has its principal place of business at 501 Canal
Boulevard, Suite H, Point Richmond, California 94804 (the "Premises") is
either directly or through the PGM Joint Ventures (as defined below) in the
business of brokering, originating, funding and closing residential mortgage
loans (collectively, the "Business"); and
WHEREAS, Sellers desire to sell to Purchaser and Purchaser desires to
purchase from Sellers all of the issued and outstanding shares of capital
stock of PGM (collectively, the "Shares") subject to the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized Terms herein, not otherwise defined, shall have the meanings set
forth in this Article:
"AFFILIATE" shall mean any legal entity or person which directly or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, Purchaser or PGM. The term "control" means the
power to direct or cause the direction of the management and policies of an
entity.
"BRANCH OPERATORS AGREEMENTS" shall mean those certain agreements
between PGM and Net Branch operators substantially in the form as provided to
Purchaser by PGM as of the Closing.
1
<PAGE>
"BUSINESS DAY" shall mean any day which is not a Saturday or Sunday
and which is not a day on which national banks in Chicago, Illinois or San
Francisco, California are required or permitted to be closed.
"CONTRACT YEAR" shall mean a one year period ending on an anniversary
of the date on which the Closing occurs.
"EQUITY VALUE PLAN" or "EVP"shall mean that certain Equity Value Plan
established among PGM, Purchaser and the administrator of the Equity Value
Plan (the "EVP Administrator"), pursuant to an Equity Value Plan Agreement,
entered into by and between the Purchaser and in form and substance
acceptable to the Purchaser, PGM and the Sellers.
"HOLDERS" shall mean the Sellers, the "EVP Administrator" (as defined
in Section 3.2) and "Permitted Assignees" (as defined in Section 3.2)
entitled to receive Additional Consideration.
"IPO OR SALE OF PURCHASER" shall mean the occurrence of (a) any
initial public offering of shares of capital stock of Purchaser (b) the sale
of all or substantially all of the assets of the Company or (c) the sale of
eighty percent (80%) or more of the outstanding shares of Purchaser, whether
such sale in (b) or (c) is effected directly or indirectly through a merger,
consolidation or reorganization.
"NET BRANCHES" shall mean PGM branch operations operating under a "PGM
Branch Operators Agreement" as in effect on the date of this Agreement or as
from time to time hereafter modified by the approval of the Board of PGM,
which branches are licensed and authorized to conduct the Business and in
which the responsibility and compensation to the Branch Manager are as set
forth in the PGM Branch Operators Agreement.
"NORTHERN CALIFORNIA" shall be defined as those counties in California
north of and including Salinas and Monterey counties.
"ORDINARY COURSE OF BUSINESS" shall mean in the ordinary course of
business in accordance with appropriate and legal past practices and
procedures by the Purchaser or PGM, as applicable, in ordinary business
circumstances.
"PGM MANAGED BRANCH" shall mean offices other than Net Branches
operated directly by PGM.
"PGM'S MORTGAGE BANKING NET INCOME" shall include all service release
premiums, incentive income, gain on sale income, interest income, income
generated as a result of bulk sales, assignment of trade or co-issuer
transactions and all similar income generated from the sale of loans in the
secondary market and shall be computed on a product by product basis by
calculating the total gross revenues generated by each
2
<PAGE>
product for PGM and Purchaser and its Affiliates. Such gross revenue shall
be allocated as PGM Mortgage Banking Net Income based on (i) the ratio of the
[*] the Purchaser or its Affiliates relative to the [*] Purchaser and its
Affiliates (including the PGM loans) (ii) multiplied by [*] from which total
is subtracted all mortgage banking expenses incurred in connection with such
revenues allocated to PGM based on the ratio of the [*] and funded by PGM or
Purchaser relative to [*] Purchaser and its Affiliates (including PGM Loans),
adjusted by subtracting (i) all hedging costs allocated to PGM based on the
[*] Purchaser and PGM to the [*] Purchaser and its Affiliates (including
PGM) taking into account [*] compared to [*], (ii) any costs and expenses
associated with any repurchase obligations of PGM, and (iii) any special fees
paid to or reduced premiums received from purchasers of loan product of PGM
or Purchaser due to [*] such loans by PGM [*], and adjusted further by adding
or subtracting any [*] reflected on the rate sheet of PGM distributed to its
loan officers vis-a-vis the rate sheets of Purchaser and its Affiliates
distributed to their loan officers.
If PGM retains underwriting and closing operations [*].
By way of example, assume PGM [*] of $500 Million [*] of $200 Million
[*] of $300 Million, that the mortgage banking operations [*] $250 Million [*]
$300 Million [*] and $500 Million [*]. Assume further Purchaser and its
Affiliates [*] of $10 Million [*] $5 Million in [*] and $15 Million [*] $1
Million in hedging costs [*] $10 Million in mortgage banking operating
expenses [*] 3,000 loans [*].
If PGM does not retain underwriting and closing:
PGM Mortgage Banking Net Income would equal
[*].
[*] $500 Million/$750 Million x $10 Million) +($200 Million/$500
Million x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)
[*] 3,000/10,000 x $10 Million - ($1 Billion/$2.05 Billion x $1 Million)
[*] $6,666,666.66 + 2,000,000 + $5,625,000 - [$3,000,000 - $487,804]
[*] $10,803,862
If PGM retains underwriting and closing:
[*] ($500 Million/$750 Million x $10 Million) + ($200 Million/$500
Million x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)]
[*] [3,000/10,000 x ($10 Million (3,000/10,000 x $2 Million))]
[*] [$1 Billion/$2.05 Billion x $1 Million ]
[*] [$6,666,666.66 + 2,000,000 + $5,625,000 ]
[*] [3/10 x ($10 Million - $600,000)] - [$487,804]
3
<PAGE>
[*] $14,291,666 - ($2,820,000) - ($487,804)
[*] $10,983,862*
* [*] underwriting and closing [*] would then be [*].
"PGM NET INCOME" shall equal PGM's pretax Mortgage Banking Net Income
plus all other pre-tax income generated by the PGM Operations calculated in
accordance with GAAP, including, without limitation, revenues from loan
origination including underwriting and other fee income, minus all
operational, administrative and out-of-pocket expenses including, without
limitation, all underwriting and closing costs in California, directly
associated with the operation of PGM included in the expenses and subtracted
from revenues in computing PGM Net Income and all indirect or other expenses
of Purchaser and its Affiliates to the extent they are associated with
services provided to PGM and apply to PGM Operations (including, without
limitation, accounting, financial, legal and other services relating to the
provision of technology, human resources, accounting, insurance and national
marketing and otherwise provided by national senior management) allocated to
or on behalf of PGM based on the ratio of [*] compared to [*]. In no event
shall [*] the purchase contemplated hereby (other than [*]) be deemed to
constitute direct or indirect charges to PGM for the purpose of this
definition.
"PGM JOINT VENTURES" shall mean the PGM Joint Ventures disclosed in
Schedule 4.7.
"PURCHASER NET INCOME" shall mean all pre-tax net income of Purchaser
and its Affiliates including all PGM Net Income.
"PGM OPERATIONS" shall mean all operations of PGM existing as of the
Closing plus (i) all other operations of PGM located in Northern California
which may be opened after the Closing (including new branches and/or
acquisitions), (ii) any new operations (i.e. not acquisitions) in California
which are opened by PGM after the Closing, (iii) any existing or new Net
Branches which are operated by PGM throughout the United States, (iv) any
conversions to PGM Managed Branches of new or existing Net Branches that at
the time of such conversion have been opened for two (2) years or more, (v)
the joint venture to be established with Keystroke and (vi) any other
operations of a PGM Joint Venture created for assisting in loan origination
and processing for which PGM is a processing agent and which is expressly
approved as a PGM Operation by Purchaser in writing, in its reasonable
discretion.
"PGM POST TAX NET INCOME" shall mean PGM Net Income minus all payments
of taxes on all distributions to pay taxes of Sellers and other shareholders
of PGM Purchasers.
"PURCHASER SHAREHOLDERS" shall mean the shareholders of Purchaser.
4
<PAGE>
"SHAREHOLDERS AGREEMENT" shall mean that certain Special Shareholders
Agreement dated of even date herewith between Purchaser, the Sellers and
participants in the Equity Value Plan, in the form of Exhibit A, attached
hereto and made a part hereof.
"THIRD PARTIES" shall mean any person or entity other than (a)
Purchaser or PGM or (b) any Affiliate of Purchaser or PGM.
ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the terms and
subject to the conditions set forth herein, and in reliance on the respective
representations and warranties of the parties, Sellers shall sell the Shares
to Purchaser, and Purchaser shall purchase the Shares from Sellers, on the
Closing Date and at the time and place of Closing referred to in Section 2.2
below, for the price and in accordance with the provisions specified in
Article 3 hereof, free and clear of all claims, liens, charges, security
interests, equities and encumbrances of any nature whatsoever and free and
clear of any sale, transfer or transaction taxes of any kind whatsoever
relating to the transfer of the Shares to Purchaser hereunder.
2.2 CLOSING. The consummation of the purchase and sale of
the Shares (the "Closing") shall take place at the offices of Rudnick &
Wolfe, Suite 1800, 203 North LaSalle Street, Chicago, Illinois at 10:30 a.m.
local time on June 30, 1998, or at such other place, time and date as the
parties may hereafter agree upon in writing (hereinafter the "Closing Date").
ARTICLE 3
CONSIDERATION AND PAYMENT TERMS
3.1 PURCHASE PRICE. Purchaser shall pay the following
consideration subject to the terms set forth below:
(a) AMOUNT OF THE CLOSING DATE PURCHASE PRICE. The
aggregate consideration to be paid by Purchaser to Sellers for the Shares as
at the Closing Date (the "Closing Date Purchase Price") as follows:
(i) The "BASE CASH PRICE" equal to
$2,425,000; PLUS
(ii) The "BASE STOCK PRICE" shall mean
common stock of Purchaser ("Stock"), which when issued will
represent five percent (5%) of the issued and outstanding stock of
Purchaser as of
5
<PAGE>
the Closing Date subject to dilution caused by a stock offering or
warrants or options prior to or within six (6) months after the
Closing based on a valuation of Purchaser of $50 Million or more.
(b) BASE CASH PRICE INTEREST ADJUSTMENT. If the
Closing Date occurs after June 19, 1998, the Base Cash Price shall be
increased each day at a per annum interest rate equal to 1/2% below the Prime
Rate as printed in the most recent Midwest edition of the WALL STREET
JOURNAL, computed on a 365-day year basis, unless such delay is caused by an
act or omission of PGM or the Sellers other than a delay caused solely by a
failure to obtain the Required Regulatory Approvals (as defined in Section
6.7 below) provided that if on or after June 30, 1998, the Required
Regulatory Approvals have not been obtained but all other conditions
precedent to the Closing have been met, and Purchaser (but not the Sellers)
has waived the receipt of Required Regulatory Approvals as a condition
precedent to the Closing, no further interest adjustment shall be made for
such post-June 30, period.
(c) BASE CASH PRICE END OF YEAR ADJUSTMENT. On or
before April 15, 1999, Purchaser will pay Sellers an aggregate amount equal
to $75,000 if PGM Net Income for Calendar Year 1998 is greater than or equal
to $3,075,000. If PGM Net Income for 1998 is less than $3,075,000, no such
amount shall be payable.
(d) INDEMNIFICATION AMOUNT. On the Closing Date,
Purchaser shall deliver to the Indemnity Account (as defined in Section
10.3(c)) $1,000,000 (the "Indemnification Amount"), plus if the Closing
occurs after June 19, 1998, an "Indemnification Amount Interest Adjustment"
computed in the same manner as provided for the Base Cash Price Interest
Adjustment.
3.2 ADDITIONAL CONSIDERATION.
(a) CALCULATION OF ADDITIONAL CONSIDERATION. In
addition to the consideration set forth in Section 3.1 above, Purchaser shall
pay to Sellers and allocate to the Equity Value Plan described above, the
"Additional Consideration" all on the terms and conditions set forth in this
Section 3.2.
(i) SELLERS. At the time of an IPO or
Sale of Purchaser, the Sellers will be entitled to receive the
"Seller's Additional Stock Consideration" consisting of additional
stock in the case of an IPO or a sale of all or substantially all
of the assets, or stock, or at the option of the Purchaser, stock
appreciation rights (the dollar equivalent value of the stock) in
Purchaser in the case of a sale of 80% or more of the stock of
Prism, in an amount to be determined by the following formula:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Value of Stock or PGM Net
Appreciation Rights = [*] X Income [*] X [*]%
to be received by Seller
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
By way of example, if Purchaser completes an IPO [*] and at the time of the
offering, [*] and PGM Net Income was $22,500,000, Sellers Additional
Consideration would be computed as follows:
$ [*] - $[*] x $22,500,000 [*] x [*]% = $[*]
---------------
[*]%
$[*] = [*]% of Purchaser Stock after
------------------------------------- offering
$[*]
Alternatively, if there is a Sale of Purchaser, i.e. if there is a
sale of all or substantially all of the assets or eighty percent (80%) or
more of the Stock in a private sale, [*] and, at the time of the sale, [*]
and PGM Net Income was $22,500,000, Sellers Additional Consideration would be
computed as follows:
$[*] x $22,500,000 [*] x [*]% = $[*]
For purposes of this calculation, PGM Net Income and [*] will be determined
on a trailing twelve-months basis.
Allocation of the 20% Additional Consideration to each individual Seller will
be on the basis of shares of PGM sold.
(i) EQUITY VALUE PLAN.
A. At the time of an IPO or Sale of
Purchaser, the participants in the Equity Value Plan will be entitled to
receive the "Equity Value Plan Stock Consideration" consisting of
additional stock in the case of an IPO or a sale of all or substantially
all of the assets, or stock, or, at the option of the Purchaser, stock
appreciation rights (the dollar equivalent value of the stock) in
Purchaser in the case of a sale of 80% or more of the Stock of Prism in
an amount to be determined by the following formula:
Value of Stock or
Appreciation Rights to = [*] x PGM Net Income [*] x [*]%
be received by EVP
By way of example, if Purchaser completes an IPO [*] and at the time of the
offering, [*] and PGM Net Income was $22,500,000, Equity Value Plan
Participants Stock Consideration would be computed as follows:
$ [*]
--------------- - $[*] x $22,500,000 [*] x [*]% = $[*]
[*]%
7
<PAGE>
$[*] = [*]% of Purchaser Stock after
------------------------------------- offering
$[*]
Alternatively, if there is a Sale of Purchaser, i.e. if there is a
sale of all or substantially all of the assets or all of the Stock in a
private sale, [*] and, at the time of the sale, [*] and PGM Net Income was
$22,500,000, the Equity Value Plan Stock Consideration would be computed as
follows:
$[*] x $22,500,000 [*] x [*]% = $[*]
$[*] = [*]% of Purchaser Post-Sale
------------------------------------- Stock
$[*]
For purposes of this calculation, PGM Net Income and [*] will be determined
on a trailing twelve-months basis.
B. An earnout for the five-year period
immediately after the Closing equal to 1.0% of PGM Net Income for each
year during the first five year period (The Equity Value Plan Earnout
Consideration"), which such consideration shall be paid to the Equity
Value Plan regardless of whether there occurs an IPO or Sale of
Purchaser.
C. Notwithstanding anything to the
contrary, the costs of establishing the Equity Value Plan shall be
covered by or reimbursed from the payment of the Equity Value Plan
Earnout Consideration to the Equity Value Plan.
If the Purchaser Shareholders enter into any restriction on the sale
of their stock for a period of time following any IPO, the Holders shall be
subject to the same restriction with respect to stock received as Additional
Consideration or Equity Value Plan Stock Earnout. If the Purchaser
Shareholders generally obtain [*] or the rights to receive cash or other
consideration in an IPO or Sale of Purchaser, the Holders shall be afforded
such rights on a pro rata basis with respect to shares of Purchaser received
as Additional Consideration or Equity Value Plan Stock Earnout.
D. PAYMENT OF EQUITY VALUE PLAN EARNOUT
CONSIDERATION. The Equity Value Plan Earnout Consideration for each
Contract Year will be paid by check to the Equity Value Plan on or before
120 days after the Calendar Year end immediately following such Contract
Year. A report setting forth in reasonable detail the computation of the
Equity Value Plan Earnout Consideration for each Contract Year shall be
delivered to the Equity
8
<PAGE>
Value Plan Administrator concurrently with the payment of the Equity
Value Plan Consideration for such year.
(b) DISTRIBUTION OF SELLERS' ADDITIONAL STOCK
CONSIDERATION AND THE EQUITY VALUE PLAN STOCK CONSIDERATION. The Sellers or
Holders will receive their appropriate Stock Consideration immediately before
and concurrently with the occurrence of the IPO or Sale of Purchaser, in
which such case the Sellers or Holders shall receive their appropriate (i)
Stock in the case of an IPO or a sale of all or substantially all of the
assets of Purchaser or (ii) Stock or appreciation rights, at the option of
the Purchaser in the case of a sale of eighty percent (80%) of the Stock of
Purchaser.
(c) RECORDS AND INSPECTION OF RECORDS FOR CALCULATION
OF ADDITIONAL CONSIDERATION. During the period Purchaser is required to pay
the Additional Consideration, Purchaser shall maintain, and cause its
subsidiaries to maintain, accurate books of account and records and other
data necessary for the computation of the Additional Consideration.
Purchaser shall permit the Holders and their representatives, agents,
accountants and advisors to examine such books of account and make copies
thereof from time to time during normal business hours and upon reasonable
advance notice for the purpose of determining the accuracy of such
computations. The costs of any such inspection shall be borne by the Holders
unless (i) such inspection reveals an underpayment in the aggregate
Additional Consideration paid to the Holders of 5% or more (but in any event
at least $2,000) AND (ii) if such inspection is challenged by Purchaser
pursuant to the next paragraph, the appraisal process set forth therein
confirms such underpayment of 5% or more, in which case the costs of such
inspection shall be borne by Purchaser.
If the Holders' inspection discloses a discrepancy resulting in an
underpayment of the Additional Consideration, the Holders shall notify
Purchaser thereof in writing, which notice shall specify the basis for such
discrepancy in reasonable detail. Within twenty (20) Business Days after
Purchaser's receipt of such notice, Purchaser shall either (i) pay to the
Holders the aggregate amount of such underpayment, or (ii) notify the Holders
in writing that it disputes the amount of such underpayment, stating its
grounds therefor in reasonable detail. If Purchaser and the Holders are
unable to resolve Purchaser's objections within twenty (20) Business Days
after Purchaser has notified the Holders of its objections, and the matter in
dispute concerns only the calculation of the amount of the Additional
Consideration the matter in dispute shall be referred to an appraiser
mutually acceptable to the parties hereto, which shall be instructed to
resolve the matter in dispute promptly. If the Holders and the Purchaser
cannot agree on an appraiser, the Holders shall select a one appraiser,
Purchaser another and each of such appraisers shall together select a third
appraiser who shall conduct such appraisal. The determination of such
appraiser shall be final, binding and conclusive on Purchaser and the
Holders. The fees of such appraisers and such appraisals for making all such
determinations shall be borne equally by Purchaser, on the one hand, and
Holders, on the other.
9
<PAGE>
(d) RESTRICTIONS ON ASSIGNMENT. The right to receive
the Additional Consideration may not be transferred by the Sellers or by any
Holder, except as follows:
(i) such right may be transferred upon the
death of a Holder to the heirs of such Holder;
(ii) such right may be transferred by a
Holder to the spouse and children of such Holder or to a trust
created for the primary benefit of such Holder or his or her
spouse and children; and
(iii) in accordance with the Shareholders
Agreement,
(each a "Permitted Assignee"); PROVIDED, that Purchaser shall not be
obligated to make any payment to a Permitted Assignee unless (i) Purchaser
has received notice of such transfer from the assignor, setting forth the
name, address and employer identification number or social security number of
such Permitted Assignee and (ii) such notice has been received by Purchaser
at least ten (10) Business Days before the next payment of the Additional
Consideration is made.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, as to themselves, PGM and each PGM Joint Venture, as
applicable, represent and warrant to Purchaser on the date hereof and as of
the Closing Date as follows:
4.1 ORGANIZATION AND STANDING. PGM is a corporation which is
duly organized, validly existing and in good standing under the laws of
California. Sellers have delivered to Purchaser complete and correct copies
of the Articles of Incorporation and By-Laws, as amended, of PGM. PGM has
and the PGM Joint Ventures have all necessary corporate powers and authority
to engage in the business in which they are presently engaged (as such
business is presently being conducted), to own all property now owned by
them, and to lease all of the property used by them under lease. Complete
copies of the corporate minutes and stock transfer records of PGM and the PGM
Joint Ventures have been delivered to Purchaser for Purchaser's review, and
contain minutes and consents for all actions taken by the shareholders and
directors of PGM and the PGM Joint Ventures for which such consents were
required, and complete and accurate records of all issuances and transfer of
shares of its capital stock and partnership, joint venture or limited
liability shares or interests, as applicable. Schedule 4.1 hereto contains a
complete and accurate list of the officers and directors of PGM.
10
<PAGE>
4.2 QUALIFICATION. PGM and the PGM Joint Ventures have not
failed to qualify in any jurisdiction where a failure to so qualify would
have a material adverse effect on the financial condition or results of
operations of PGM. Schedule 4.2 hereto identifies each jurisdiction where
PGM and each PGM Joint Venture is duly qualified to do business as a foreign
corporation, and PGM is in good standing in each such jurisdiction.
4.3 NO RESTRICTIONS; BINDING EFFECT; APPROVAL OF CHANGE OF
CONTROL. Except as contemplated by this Agreement or as set forth in Schedule
4.3, neither Sellers, PGM nor any PGM Joint Venture is subject to any
material restriction, agreement, law, rule, regulation, ordinance, code,
writ, injunction, award, judgment or decree which would prohibit or be
violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby. Sellers have all power to execute and
deliver this Agreement and the instruments, documents and agreements to be
executed and delivered pursuant hereto and to consummate the transactions
contemplated hereby and thereby. This Agreement and each of the instruments,
documents and agreements to be executed and delivered pursuant hereto have
been or will be duly executed and delivered by Sellers, and each constitutes
a legal, valid and binding obligation of Sellers, enforceable against Sellers
or PGM, as applicable, in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally and subject to the availability of equitable remedies.
Except as contemplated by this Agreement or as set forth in Schedule 4.3,
neither sellers, PGM nor the PGM Joint Ventures are required to give any
notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement and to the extent the transaction
contemplated hereby gives any Joint Venture Partner to a Joint Venture or
Partnership Agreement the right to terminate the applicable Joint Venture or
Partnership Agreement (as disclosed on Schedule 4.3), neither PGM nor the
Sellers have received any notice of termination or been given any reason to
believe that any partner intends to terminate any Partnership or Joint
Venture Agreement.
4.4 NONCONTRAVENTION. Except as set forth in Schedule 4.4,
neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby and thereby nor any direct or indirect
change of control of PGM or any PGM Joint Venture will (a) violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
memorandum of understanding regulatory order or understanding to which PGM is
a party or is otherwise subject, (b) conflict with or result in a breach of
the provisions of the Articles of Incorporation or By-laws of PGM, as amended
to date or of any agreements governing any PGM Joint Venture, or (c) conflict
with, result in the breach of, constitute a default under, result in the
acceleration of, create in any person or entity the right to accelerate,
terminate, modify or cancel, or require any notice under, any material
contract, lease, license, indenture, agreement, mortgage, instrument of
indebtedness or other instrument to which PGM or the PGM Joint Ventures is a
party or by which PGM or any PGM Joint Venture or any property
11
<PAGE>
of PGM or any PGM Joint Venture is bound or result in the creation or
imposition of any lien or encumbrance on any of such property, and PGM and
the Sellers shall obtain all consents, waivers and amendments necessary to
resolve any such violation or conflict identified on Schedule 4.4 on or
before the Closing. To the extent that Sellers have identified any right of
termination in Schedule 4.4 with respect to Branch Operators Agreements or
otherwise, neither PGM nor the Sellers have received any notice of
termination or been given any reason to believe that the counterparty to any
Branch Operators Agreement intends to terminate its Branch Operators
Agreements with PGM.
4.5 CAPITAL STRUCTURE. Osenton and Barbera are the only
record and beneficial owners of the Shares as of the date hereof and Schedule
4.5 hereto accurately sets forth the number of authorized and issued and
outstanding shares of capital stock of PGM. The Shares represent all the
issued and outstanding shares of capital stock of PGM and all Shares are duly
authorized, validly issued and outstanding, and are fully paid and
non-assessable. Except as set forth in said Schedule 4.5, no other class or
series of capital stock of PGM is presently authorized. Except as set forth
in Schedule 4.5, (i) there is no obligation, option or warrant which is
binding upon PGM to issue, sell, redeem, purchase or exchange any of its
capital stock or any right relating thereto, (ii) there is no obligation,
debt, liability or security of PGM that is convertible into capital stock of
PGM, (iii) there are no outstanding stock appreciation rights, phantom stock
or similar rights, and (iv) there are no agreements to pay a percentage of
profits, revenue or volume of loans originated, brokered or assigned, except
as described in the Branch Operators Agreement or the PGM Joint Venture
Agreements, the recipient of such percentages, and their percentages which
are identified in Schedule 4.5 hereof.
4.6 TITLE TO THE SHARES.
(a) Sellers are the record and beneficial owners and
holders of the Shares and each respectively has good title to his respective
Shares, free and clear of all liens, encumbrances, pledges, security interests,
options, claims, charges and restrictions of any nature whatsoever, except those
that will be released at Closing; and
(b) Sellers have full voting power over the Shares,
subject to no proxy, shareholders agreement or voting trust, and have full
right, power and authority to sell and deliver the Shares to Purchaser and to
deliver the Shares to Purchaser in the manner provided for in this Agreement.
4.7 NO SUBSIDIARIES. Except as set forth on Schedule 4.7,
PGM does not own any shares of or equity interest in any corporation,
partnership, limited liability company, joint venture, association (excluding
memberships in trade associations) or other entity and the execution and
delivery of this Agreement and the consummation of the transactions
contemplated thereby and hereby do not and will not violate or conflict with
or create a default under, or give the counterparty to such agreement the
right to terminate, the agreements governing any of the joint ventures set
forth on Schedule 4.7. To the extent that this Agreement and the
consummation of the transactions contemplated hereby give any partner to any
partnership or joint venture agreement the right to
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terminate or modify a partnership or joint venture agreement as disclosed on
Schedule 4.7, neither PGM nor the Sellers have received any notice of
termination or modification or been given any reason to believe that any
partner intends to terminate or modify any partnership or joint venture
agreement on account of this Agreement or the transactions contemplated
hereby.
4.8 CORPORATE RECORDS AND ACTION. PGM has previously
furnished to Purchaser a copy of the Articles of Incorporation and all
amendments thereto of PGM, and prior to the Closing shall furnish to
Purchaser a copy of the foregoing, certified as being true, correct and
complete by the Secretary of State of California. PGM has previously
furnished to Purchaser a complete copy of the By-laws and all amendments
thereto of PGM, all joint venture agreements, partnership agreements,
articles of organization and other material documents concerning the
organization or the business of each PGM Joint Venture and prior to the
Closing shall furnish to Purchaser certification by the Secretary of PGM as
to the accuracy of such documents. PGM has previously made available to
Purchaser the complete minute books of PGM and the PGM Joint Ventures. As of
the Closing, all corporate actions taken by the Sellers, Board of Directors
or any committee of the Board of Directors of PGM is fairly and accurately
summarized in all material respects in the minute books of PGM. PGM has
previously made available to Purchaser the stock ledger books of PGM. All
issuances, cancellations, transfers and exchanges of capital stock of PGM as
of the Closing are reflected in its stock ledger books.
4.9 FINANCIAL STATEMENTS. The financial statements of PGM
for the years ended December 31, 1996 and 1997, including the balance sheets
as of said dates and the statements of income, statements of stockholders'
equity and statements of cash flows, reviewed in the case of the 1996
financial statements by William M. Stoll, certified public accountant, and in
the case of the 1997 financial statements by Clay L. Miller, certified public
accountant, and unaudited financial statements for the first four months of
1998 (collectively, the "Financial Statements"), copies of which have been
previously delivered to Purchaser, (a) have been prepared from the books and
records of PGM in accordance with generally accepted accounting principles
applied on a consistent basis, and (b) fairly present the financial position
of PGM as of the respective dates included therein and the results of
operations, changes in equity and cash flows of PGM for the respective
periods covered by the Financial Statements.
4.10 LIABILITIES. Except as set forth in Schedule 4.10, PGM
and the PGM Joint Ventures have no liabilities (whether known or unknown,
absolute or contingent, liquidated or unliquidated and whether due or to
become due), including any liability for Taxes (as defined in Section 4.12),
except for (a) liabilities set forth on the balance sheet of PGM as of
December 31, 1997 included in the Financial Statements (the "Year-End Balance
Sheet"), (b) liabilities incurred since that date in the ordinary course of
business in accordance with past practices including, without limitation,
under PGM's warehouse lines of credit, and (c) costs and expenses incurred in
connection with the transactions contemplated by this Agreement subject to
the $[*] limitation set forth in Section 12.2 hereof. Except as set forth in
Schedule 4.10, PGM or the PGM Joint
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Ventures are not liable upon or with respect to or obligated in any other way
to provide funds in respect of or to guaranty or indemnification or assume in
any manner (including, without limitation, under or pursuant to any
agreement, arrangement, commitment or understanding, whether written or
oral), any debt, obligation or dividend of any other person or entity.
4.11 EVENTS SINCE DECEMBER 31, 1997. Since December 31,
1997, except as disclosed on Schedule 4.11, there has not been:
(a) Any casualty damage, destruction, loss or forfeiture
(whether or not covered by insurance) or adverse change, actual or threatened,
to or affecting (i) any material property or asset of PGM or any PGM Joint
Venture, or (ii) the material business or condition (financial or other) of PGM
or any PGM Joint Venture, or (iii) the results of operations or prospects of PGM
or any PGM Joint Venture;
(b) Any direct or indirect redemption, purchase or other
acquisition by PGM of any capital stock of PGM, or any declaration, setting
aside or payment of any dividend or distribution with respect to any capital
stock of PGM;
(c) Any material increase in the compensation or
benefits (including bonuses) payable or to become payable by PGM to any of its
respective directors, officers, employees or agents, other than increases in the
ordinary course of PGM's business to persons receiving annual compensation
(other than the increase in the salary of Carol Asnault, VP/Accounting, from
$51,900 to $60,000, effective April 1, 1998), including increases in commission
compensation to employees compensated solely on a commission basis;
(d) Any contractual commitment by PGM or any PGM Joint
Venture to any third party, other than as provided in this Agreement or arising
in the ordinary course of PGM's or such PGM Joint Venture's business, relating
to (i) the property, assets or business of PGM or any PGM Joint Venture, or
(ii) the acquisition or disposition of property or assets (including, without
limitation, any leasehold estate) of PGM or any PGM Joint Venture;
(e) Any transaction, other than at arm's length in the
ordinary course of business, between PGM and any shareholder, director, officer
or affiliate of PGM or any PGM Joint Venture or any affiliate of any such
officer, director or shareholder;
(f) Any waiver or surrender by PGM or any PGM Joint
Venture of any valuable right or property other than for fair consideration;
(g) Any material change in the manner in which PGM or
any PGM Joint Venture operates its Business which has had or may reasonably be
expected to have an adverse effect on the assets or properties, liabilities,
condition (financial or other) or results of operations of PGM or any PGM Joint
Venture;
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(h) any indebtedness for borrowed money incurred by PGM
or any PGM Joint Venture, other than indebtedness incurred to the Sellers in an
amount not to exceed $850,000 subordinated to other debt of PGM, either now or
hereafter incurred from time to time, in form and substance satisfactory to
Purchaser (the "Sellers' Indebtedness") and indebtedness to Leon and Edith
Willat in an amount not to exceed $200,000 and to Forest and Aileen Willat in an
amount not to exceed $200,000 (together such indebtedness called the "Willat
Indebtedness"), evidenced by notes, and/or loan agreements and subordinated to
other debt of PGM, all as satisfactory to Purchaser in its sole discretion;
(i) any material change in any accounting policies,
procedures or practices employed with respect to PGM or any PGM Joint Venture;
(j) any sale of any of the assets of PGM or any PGM
Joint Venture, other than sales of loans in the ordinary course of business;
(k) any capital expenditures paid or incurred by PGM or
any PGM Joint Venture, other than capital expenditures incurred in the ordinary
course of business which do not exceed $50,000 for any single item or group of
related items;
(l) any acceleration, termination, cancellation or
adverse modification of any material agreement, contract, lease or license to
which PGM or any PGM Joint Venture is a party or by which it is bound;
(m) any dividend, payment or other distribution with
respect to any of the capital stock of PGM, other than (i) distributions to the
Sellers in March, 1998 in the amount of $845,000, and (ii) distributions to pay
income taxes of Sellers in connection with Sellers' taxes under Sections 1366
and 1377(a)(i) of the Code, and (iii) distributions required in the ordinary
course of business;
(n) any redemption or purchase of any Shares or any
option to purchase PGM Common Shares, other than (i) the purchase from Morton
Mason of 36,000 shares of PGM Common for a purchase price of $75,000 in March,
1998 and (ii) the purchases from each of Francine Osenton and Robert Siefert of
100 shares of stock for the purchase price of $200 each, respectively;
(o) any issuance of any Shares or of any options,
warrants or other rights to purchase such shares; or
(p) any other material transaction of PGM or any PGM
Joint Venture other than in the ordinary course of business consistent with past
practices.
4.12 TAXES.
(a) Except as disclosed in Schedule 4.12, PGM has filed
all returns and/or reports relating to Taxes (as hereinafter defined) which PGM
or any PGM
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Joint Venture was required to file prior to the date of this representation
(collectively the "Tax Returns"). All Taxes owed by PGM or any PGM Joint
Venture have been paid. As used herein, "Taxes" mean any federal, state,
local or foreign income, gross receipts, franchise, payroll, employment,
excise, unemployment, personal property, sales, use, value added,
alternative, estimated or other tax or tax obligation of any kind whatsoever,
including any interest, penalty or addition thereto.
(b) Proper and accurate amounts have been withheld by or
on behalf of PGM or any PGM Joint Venture with respect to all compensation paid
to employees of PGM or any PGM Joint Venture for all periods ending on or before
the Closing Date. PGM has required each employee who exercised an option to
purchase PGM Common Shares to pay to PGM or any PGM Joint Venture cash in an
amount sufficient to satisfy in full PGM's obligation to withhold Federal, state
or local income or other taxes incurred by reason of such exercise. All
deposits required with respect to compensation paid to employees of PGM or any
PGM Joint Venture have been made in compliance with applicable laws.
(c) Neither PGM nor any PGM Joint Venture has made any
payment, nor is obligated to make any payment, and is not a party to any
agreement that could obligate it to make any payment that will not be deductible
(in whole or in part) for Federal income tax purposes by reason of Section 280G
of the Code or under Proposed Treasury Regulation Section 1.280G-1. No
provision of this Agreement, or any agreement executed and delivered pursuant
hereto or thereto obligates PGM to make any payment in the nature of
compensation that will not be deductible (in whole or in part) for federal
income tax purposes by reason of Section 280G of the Code or under Proposed
Treasury Regulation Section 1.280G-1.
(d) PGM and the PGM Joint Ventures have not waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(e) Except as set forth on Schedule 4.12, none of PGM's
tax returns has been audited or is currently the subject of an audit by a
governmental agency. Except as set forth on Schedule 4.12, PGM has not received
any notice of a deficiency or proposed deficiency in any of the taxes paid by or
on behalf of PGM or any PGM Joint Venture and neither PGM, nor any PGM joint
Venture has entered into any settlements or tax agreements, and has not been the
subject of audits or proceedings by any federal or state taxing authority.
(f) PGM has made its election under Section 1360, ET
SEQ. of the Code to be, and is currently, an S corporation.
4.13 TITLE TO ASSETS. PGM and each PGM Joint Venture owns
all its assets free and clear of any mortgage, pledge, lien, encumbrance or
other security interest, other than liens for real estate taxes not yet due
or payable, liens for capitalized leases entered into in the ordinary course
of business and the liens described in
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Schedule 4.13. Other than the real estate known as Oak Park Estates
described on Schedule 10.8, PGM and the PGM Joint Venture do not currently
own any real property.
4.14 CONDITION OF ASSETS. The personal property owned and
leased by PGM is in good operating condition and repair, ordinary wear and
tear excepted. Any real estate leased by PGM or any PGM Joint Venture is in
good condition and PGM and the PGM Joint Ventures are not obligated to
perform any material repairs or maintenance to such real estate.
4.15 ACCOUNTS RECEIVABLE; NOTES RECEIVABLE. The accounts
receivable and notes receivable set forth in the Financial Statements for the
period ended December 31, 1997 and the accounts receivable of PGM arising
after that date represent valid claims payable to PGM for the provision of
services or other charges arising in the ordinary course of business of PGM
on or before the date thereof. Each of the account receivables or note
receivables on such Financial Statements, constitute valid claims arising
from bona fide transactions in the ordinary course of PGM's business and are
not subject to any claim for set-off, reduction or rebate.
4.16 INTELLECTUAL PROPERTY AND SOFTWARE.
(a) Schedule 4.16 correctly identifies all issued
domestic and foreign patents, patent applications pending, patent applications
in process, trademarks, trademark registrations, trademark registration
applications, service marks, service mark registrations, service mark
registration applications, copyright registrations, copyright registration
applications, license agreements, rights acquired through litigation, logos,
trade names, slogans owned by PGM or by any PGM Joint Venture and which are
presently used in the business of PGM or such PGM Joint Venture, and are
material to the operation of PGM (the foregoing, along with know-how and trade
secrets owned by PGM or by any PGM Joint Venture which are material to the
operation of PGM or any PGM Joint Venture are hereinafter collectively referred
to as the "Intellectual Property"). Schedule 4.16 correctly identifies all
issued patents, patent applications pending, patent applications in process,
trademarks, trademark registrations, trademark registration applications,
service marks, service mark registrations, service mark registration
applications, copyright registration applications, licenses, rights acquired
through litigation, logos, trade names, slogans, know-how and trade secrets
other than Software (as defined in Section 4.16(g) below) that are currently
expressly licensed to or by PGM or to or by any PGM Joint Venture and are
material to the operation of PGM or any PGM Joint Venture ("Licensed
Intellectual Property"). Except for any implied licenses and those licenses
granted in the Branch Operators Agreements or in the Joint Venture Agreements,
neither Sellers nor PGM has granted any license to any person with respect to
any Intellectual Property or Licensed Intellectual Property, except those set
forth in Schedule 4.16. Except as set forth in Schedule 4.16, the agreements
and/or arrangements for the Licensed Intellectual Property are in full force and
effect, and are free and clear of all adverse claims, options, liens, charges,
security interests, covenants, conditions, agreements, restrictions,
encumbrances and defenses other than Permitted
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Encumbrances, and no material default by PGM or by any PGM Joint Venture
exists thereunder.
(b) Neither PGM nor any PGM Joint Venture has any
registered or registerable patents with respect to its products, services, and
business.
(c) Intellectual Property consisting of issued
trademarks ("Trademarks") are valid and subsisting and there are no challenges
pending or, to the knowledge of Sellers, PGM or any PGM Joint Venture,
threatened, to the validity of any Trademarks.
(d) Except as disclosed on Schedule 4.16, neither PGM
nor any PGM Joint Venture is a party to any license or agreement relating to any
unpatented inventions, discoveries, specifications, data, processes, formulae,
trade secrets, proprietary technical information or know-how used by PGM with
respect to its business (hereinafter collectively "Know-How"). Except as
disclosed on Schedule 4.16, PGM owns and is legally entitled to exploit the
Know-How as used in the business as currently conducted without restrictions and
free of any adverse claim or claim of infringement.
(e) There are no interference, opposition or
cancellation proceedings or infringement suits pending or, to Sellers', PGM's or
any PGM Joint Venture's knowledge, threatened, with respect to any Intellectual
Property or Licensed Intellectual Property, except to the extent disclosed in
Schedule 4.16 hereto. To Sellers' or PGM's knowledge, no other person is
infringing any Intellectual Property, Licensed Intellectual Property, or
Know-How currently owned by or licensed to PGM or any PGM Joint Venture, except
as disclosed in Schedule 4.16 hereto, and neither PGM nor any PGM Joint Venture
is infringing, nor within the last five (5) years has PGM infringed or been
charged with infringing, any patent or trademark right of any person, or the
rights of any person with respect to Know-How, except to the extent disclosed in
Schedule 4.16 hereto.
(f) The Intellectual Property, Licensed Intellectual
Property and Know-How comprise all of the intellectual property rights owned or
expressly licensed to PGM or to any PGM Joint Venture and pertaining to the
conduct of its business as now operated, or as presently planned to be operated,
and there are no limitations or restrictions and no conflict or asserted
conflict with intellectual property rights of others.
(g) Except as set forth on Schedule 4.16 hereto, all of
the computer software used by or for PGM or by or for any PGM Joint Venture in
the conduct of its business (the "Software") is either (i) owned by PGM or such
PGM Joint Venture, as applicable, free and clear of any and all liens, claims,
equities, security interests and encumbrances whatsoever except Permitted
Encumbrances, or (ii) used by PGM or by such PGM Joint Venture pursuant to a
fully-paid license granted to PGM or to such PGM Joint Venture by the third
party pursuant to the terms of such license.
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Except as set forth on Schedule 4.16, no such computer software license shall
terminate or become terminable as a result of the transaction contemplated
herein. There are no infringement suits pending or, to the knowledge of
Sellers or PGM, threatened, against PGM or any PGM Joint Venture with respect
to any of the Software, and, to the knowledge of Sellers and PGM, no fact or
condition exists which could give rise to any such infringement suit.
4.17 MATERIAL CONTRACTS. Schedule 4.17 lists the following
contracts, leases and agreements in effect to which PGM and each of the PGM
Joint Ventures is a party or is bound:
(a) any agreement for the lease, as lessee, of vehicles;
(b) any agreement (or group of related agreements) for
the lease of personal property to or from any person or entity providing for
rent in excess of $20,000 during any twelve month period;
(c) any agreement for the lease of real property;
(d) any agreement (or group of related agreements) or
indemnity under which PGM or any PGM Joint Venture has created, incurred,
assumed, guaranteed any debt or obligation including without limitation any
indebtedness for borrowed money, warehouse lines of credit, or any capitalized
lease or purchase money obligation;
(e) any agreement under which PGM or any PGM Joint
Venture has granted a lien, pledge, security interest or other encumbrance upon
any of its assets;
(f) licenses of any of the Software, other than licenses
to customers granted in the ordinary course of business pursuant to agreements
which restrict the use and right to copy such Software in a manner which
protects the proprietary rights of PGM or any PGM Joint Venture in the Software
and do not restrict PGM's or the PGM Joint Venture's (as applicable) right to
use and exploit such Software;
(g) any agreement under which PGM or any PGM Joint
Venture has an obligation to indemnify a director, officer or employee or an
obligation to indemnify any person or entity including, without limitation, with
respect to any representation, warranty or covenant made by PGM or any PGM Joint
Venture;
(h) any agreement concerning confidentiality or
noncompetition given by PGM;
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(i) any agreement for the employment of any individual
on a full-time, part-time, consulting or other basis other than oral retainers
of professionals terminable at will;
(j) any other plan, contract or arrangement, whether
formal or informal, which involve direct or indirect compensation (including
bonus, stock option, severance, golden parachute, deferred compensation, special
retirement, consulting and similar agreements) for the benefit of one or more of
the current or former directors, officers or employees of PGM or any PGM Joint
Venture (other than employee policies described in Schedule 4.28);
(k) any material guaranty or suretyship, performance
bond or contribution agreement;
(l) any material distribution, marketing, sales
representative or dealership agreement;
(m) any agreement between any shareholder, director or
officer of PGM and PGM or between any partner, member, manager or officer of a
PGM Joint Venture and such PGM Joint Venture; and
(n) any other material contract or commitment.
With respect to each such agreement, except as otherwise disclosed in
Schedule 4.17: (i) such agreement is in full force and effect and constitutes
the legal, valid and binding obligation of PGM or a PGM Joint Venture, as
applicable, and, to the knowledge of Sellers, the other parties thereto,
enforceable in accordance with its terms, (ii) such agreement will not be
terminated as a result of the Closing, (iii) neither PGM nor the PGM Joint
Ventures are in default in any material respect under such agreement and no
event has occurred which, with the passage of time, would constitute such a
default, and (iv) to the knowledge of Sellers, no other party is in default in
any material respect under such agreement. No bonus or severance will become
due and payable under any existing agreement between PGM and any of its
employees as a result of the Closing and the change of control effected thereby.
4.18 LITIGATION; REGULATORY EXAMINATION. Except as set forth
on Schedule 4.18, neither PGM, Seller nor any PGM Joint Ventures are (a)
subject to any outstanding injunction, judgment, order, decree, ruling,
memorandum of understanding, cease and desist order or administrative
sanction or (b) a party or, to the knowledge of PGM or Seller, threatened to
be made a party to any action, suit, proceeding, hearing, audit,
investigation, criminal investigation or criminal proceeding of or before any
grand jury, court, quasi-judicial agency, administrative agency or
arbitrator. During the past five years, neither PGM nor the PGM Joint
Ventures have been audited or investigated by any instrumentality,
commission, division, subdivision, department, agency or procuring office or
other entity of the federal or state government other than routine
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examinations by federal and state regulators, and such routine examinations
have not revealed any material non-compliance with law, regulation or
applicable standards.
4.19 INSURANCE. PGM and each PGM Joint Venture maintains and
has maintained such insurance as is required by law or agreements to which
they are a party and such other insurance, in amounts and insuring against
hazards and other liabilities, as is customarily maintained by companies
similarly situated. Except as set forth on Schedule 4.19, neither PGM nor
any PGM Joint Venture maintains any insurance on the lives of any of its
shareholders, other than group insurance on those shareholders who are also
employees. Schedule 4.19 also describes all health insurance, life insurance,
disability, or other health policies and any "stop-loss" policy entered into
for or on behalf of PGM employees and the periodic premiums due thereon.
4.20 SCHEDULE OF LOANS. Schedule 4.20, prepared as of the
date of this Agreement, contains a detailed description of the loan portfolio
currently held by PGM and each PGM Joint Venture and all loans currently
outstanding on PGM's warehouse line, includes a detailed schedule of all
delinquencies and payment histories, the discount or actual prices at which
loans were sold to government agencies or other third parties, accurately
describes all loans subject to repurchase obligations of PGM or of a PGM
Joint Venture and a list of all uninsured FHA and VA loans of PGM or any PGM
Joint Venture. Except as set forth in Schedule 4.20, all mortgage insurance
premiums and all VA funding fees are to the knowledge of Sellers current
with respect to each loan for which such insurance is required (and to the
extent that they are not current, either with or without the knowledge of
Sellers, and not disclosed in the Schedule, Sellers agree that they shall
constitute an Indemnification Claim under Section 10.3 hereof). Schedule
4.20 also sets forth a list of all loan locks taken by PGM and each PGM Joint
Venture and all losses caused by such loan locks or losses caused by loans
that do not close in accordance with the loan lock agreement which locks or
losses have occurred within one hundred eighty (180) days of the date of this
Agreement which are still outstanding (provided that despite such listing on
Schedule 4.20, any losses suffered by PGM that are not mitigated shall
constitute an Indemnified Claim as defined in Section 10.3(b)(ii)) and lists
all branches, including all branches of PGM for the twenty-four (24) month
period immediately preceding the Closing (including any branches sold or
closed) and setting forth the volume of loans made at each such branch.
4.21 COMPLIANCE WITH LAW INCLUDING CONSUMER LAW. Except as
described on Schedule 4.21, PGM and each PGM Joint Venture has complied with
all applicable material laws, rules, regulations, ordinances and codes,
whether federal, state, local or foreign and, including, without limitation,
all laws and regulations relating to occupational health and safety, equal
employment opportunities, fair employment practices, and sex, race,
religious, age and other prohibited discrimination, all other labor laws,
including without limitation the Family and Medical Leave Act, and all
licensure, disclosure, usury and other consumer credit laws and regulations
governing residential mortgage lending and brokering, including, but not
limited to, all applicable rules, regulations, standards and guidelines
promulgated by the United States Department of Housing and Urban Development
("HUD"), the Federal Home Loan
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Mortgage Corporation ("FHLMC"), the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), the Veterans
Administration ("VA") and the Board of Governors of the Federal Reserve
System, the state agencies and all applicable provisions of the Real Estate
Settlement Procedures Act of 1974, the Flood Insurance Protection Act, the
Consumer Credit Protection Act, the Truth in Lending Act, the Equal Credit
Opportunity Act and the Fair Credit Reporting Act, all as amended from time
to time, and all regulations promulgated thereunder (the foregoing statutes
and laws called "Consumer Credit Law") and except as set forth on Schedule
4.21 and, except for correspondence received in connection with Required
Regulatory Approvals, copies of which have been delivered to Purchaser, no
notice or correspondence (whether regarding litigation, regulatory action or
otherwise) has been received by PGM from or on behalf of consumers which is
likely to have a material adverse effect on the Business or the manner in
which PGM conducts the Business or notice from any regulatory agency in which
such regulatory agency has alleged noncompliance with any Consumer Credit
Law or other applicable law. PGM and each of the PGM Joint Ventures has
complied with all applicable appraisal and accounting standards.
4.22 FORMS; POLICIES AND PROCEDURES. PGM has provided
Purchaser with all its standard consumer forms, including all form
disclosures and notices, brokers agreements, notes, mortgages, instruments
and agreements used in the Business (the "Consumer Forms") or those of the
PGM Joint Ventures. PGM has provided Purchaser with a copy of PGM's internal
practices and procedures and PGM and its employees have complied and are in
compliance with such practices and procedures in all material respects. All
such practices and procedures and all Consumer Forms comply in all material
respects with (i) Consumer Credit Law, as required in the states in which PGM
is conducting its Business, and (ii) any standards imposed by HUD, FHLMC,
GNMA, FNMA and the VA, to the extent applicable, and any other applicable law
or regulation.
4.23 LICENSES AND PERMITS. PGM and each PGM Joint Venture
has obtained all licenses, permits, qualifications, franchises and other
governmental authorizations and approvals, including, without limitation, all
state mortgage brokers and mortgage bankers licenses and, as applicable,
approvals by HUD, FHLMC, GNMA, FNMA and the VA, required in order for it to
conduct the Business as presently conducted, all of which are listed on
Schedule 4.23 hereto. All of such licenses, permits, qualifications,
franchises and other authorizations are in full force and effect and will
remain in full force and effect immediately after the Closing and shall not
be violated by or affected, impaired or require any further action to remain
effective as a result of the Closing, except as set forth on Schedule 4.23.
No material violation exists in respect of any such license, permit,
qualification, franchise, authorization or approval. No proceeding is
pending, or to the knowledge of PGM, threatened to revoke or limit any such
license, permit, qualification, franchise, authorization or approval.
4.24 ENVIRONMENTAL WARRANTIES. No real property owned or
leased by PGM or any PGM Joint Venture ("Real Property") contains any
Hazardous Substance (as hereinafter defined) or any underground or
above-ground storage tank containing or
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which has contained any Hazardous Substance. Neither PGM nor any of its
Affiliates or tenants (a) has conducted or authorized the generation,
transportation, storage, treatment, or disposal of any Hazardous Substance at
any parcel of real estate, except in compliance with Environmental Law (as
defined below in this Section 2.24); (b) has handled, treated, stored,
transported, released or disposed of any Hazardous Substance at any off-site
facility except in compliance with Environmental Law; (c) has allowed the
migration of any Hazardous Substance from any parcel of the Real Property
onto any neighboring property; (d) is aware of the migration of any Hazardous
Substance from any neighboring property onto the Real Property; (e) is aware
of any pending or threatened litigation or proceedings before any court or
any administrative agency in which any person or entity has alleged the
presence, release, threat of release, or placement of any Hazardous Substance
on or in any parcel of the Real Property, or the generation, transportation,
storage, treatment, or disposal of any Hazardous Substance at any parcel of
the Real Property; (f) possesses actual knowledge that any governmental or
quasi-governmental authority or agency (federal, state or local) has
determined, or threatens to determine, that there is a presence, release,
threat of release, or placement of any Hazardous Substance on or in any
parcel of the Real Property, or the generation, transportation, storage,
treatment or disposal of any Hazardous Substance at any parcel of the Real
Property; or (g) has received any communications or entered into any
agreement with any governmental or quasi-governmental authority or agency
(federal, state or local) or any other person or entity including, but not
limited to, any prior owners of any parcel of the Real Property, relating in
any way to the presence, release, threat of release, damages from a release,
placement of any Hazardous Substance on or in any parcel of the Real
Property, or the generation, transportation, storage, treatment, or disposal
of any Hazardous Substance at the Real Property. For purposes of this
Agreement, "Hazardous Substance" shall mean any asbestos, polychlorinated
biphenyls (PCBs), petroleum and petroleum by-products, and any other
substance, waste, pollutant, contaminant, or other material which is listed,
defined, identified or regulated as such by any Environmental Law. For
purposes of this Agreement "Environmental Law" shall mean any applicable
federal, state or local law, rule, regulation, order, governmental policy,
guideline or procedure or rule or theory of common law (including theories
based on nuisance or strict liability), and any judicial interpretation of
any of the foregoing, which pertains to any Hazardous Substance, human health
or the environment, and shall include without limitation, the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 ET SEQ., and the Occupational Health and Safety Act, 29
U.S.C. 651, ET SEQ.
4.25 PAYROLL LIST. Schedule 4.25 sets forth a complete list
of all employees of PGM and of each PGM Joint Venture, including their date
of birth, date of first hire, rates of compensation, unpaid accrued vacation
and any other material terms of their employment as of the date set forth in
Schedule 4.25, the bonuses paid to them with respect to the year ended
December 31, 1997 and all other benefits payable to or on behalf of employees
by PGM or any PGM Joint Venture, including without limitation any benefits
with respect to car or phone rental, entertainment, travel or per diem
allowances, club memberships, and similar such benefits, whether related to
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business entertainment or otherwise, and separately lists all current
employees who have in either 1997 or 1998 had an increase in their total
annual salary (including any bonuses) from the previous calendar year and the
amount of each such increase.
4.26 LABOR RELATIONS. Neither PGM nor any PGM Joint Venture
is a party to or bound by any collective bargaining agreement. To the best
of Sellers' knowledge, there is no current union organizational activity with
respect to the employees of PGM or any PGM Joint Venture and there has not
been any such activity in the past twelve months. No allegation, charge or
complaint of age, disability, sex, race or other unlawful discrimination or
similar charge whether under federal, state or local law, or of any violation
of the Americans with Disabilities Act, has been made or, to the knowledge of
PGM or any PGM Joint Venture, threatened against PGM or any PGM Joint Venture.
4.27 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule
4.27, neither PGM nor the PGM Joint Ventures sponsor, maintain or contribute
to any "employee benefit plan" (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
employee fringe benefit plan or program, nonqualified deferred compensation
plan or program, incentive compensation plan or program, stock option plan or
program, restrictive stock plan or program, stock appreciation rights plan or
program, phantom stock plan or program, or any other plan, program,
agreement, trust, fund or arrangement for the benefit of any employee
(collectively all of such plans or programs are referred to as "Employee
Plans"). Complete and accurate copies of each document under which an
Employee Plan is sponsored or maintained, related amendments, employee
summaries (including, but not limited to, summary plan descriptions), trust
agreements, Internal Revenue Service ("IRS") determination letters, if
applicable, and the three most current Form 5500 series filings (and related
schedules and reports), if applicable, have been provided to Purchaser.
Except as set forth on Schedule 4.27, each Employee Plan: (a) which is
intended or treated as a qualified retirement plan under Section 401(a) of
the Code is, in fact, qualified thereunder, has received a favorable
determination letter from the IRS and no event has occurred which could
result in the revocation of such plan's qualified status; (b) which is
otherwise intended or treated as providing tax-advantaged benefits under the
Code, is in compliance with the applicable requirements under the Code; (c)
is not subject to, or governed by, Title IV of ERISA; (d) has been operated
and administered in compliance with all applicable requirements under Federal
and state law; and (e) is not the subject of, or a party to, any pending or
threatened litigation, investigation or audit. Except as set forth on
Schedule 4.27, no Employee Plan provides for any medical or health care
coverage following termination of employment, except to the extent
specifically required under Sections 601 through 608 of ERISA and Section
4980B of the Code (collectively such requirements are referred to as "COBRA
Continuation Coverage). Except as set forth on Schedule 4.27, no person is
currently receiving COBRA Continuation Coverage with respect to any Employee
Plan.
4.28 EMPLOYEE POLICIES. A current and accurate copy of the
employee handbook of PGM currently in effect has been made available to
Purchaser. Except as
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set forth in Schedule 4.28, such handbook covers all employees of PGM and PGM
Joint Ventures and fairly and accurately summarizes all material employee
policies, vacation policies and payroll practices of PGM and the PGM Joint
Ventures. To PGM's knowledge, none of its employees or those of PGM Joint
Ventures is party to an agreement with a prior employer with respect to
confidentiality or a covenant not to compete or non-solicitation which is
still in force and effect.
4.29 REFERRAL SOURCES; INVESTORS. Except as set forth on
Schedule 4.29, PGM has not been advised that any of its loan officers,
referral sources or investors intend to cease doing business with PGM which
cessation in the aggregate or otherwise could have a material adverse effect
on the Business, financial condition or prospects of PGM or those of the PGM
Joint Ventures.
4.30 BANK ACCOUNTS. Schedule 4.30 sets forth a complete list
of each financial institution in which PGM and the PGM Joint Ventures have an
account or safe deposit box, together with a list of all assets held in such
box as of the date set forth in Schedule 4.30, the number of each such
account or box and the names of all persons authorized to draw thereon, to
give instructions with respect thereto or to have access thereto.
4.31 POWERS OF ATTORNEY. Except as set forth in Schedule
4.31, there are no outstanding powers of attorney executed on behalf of PGM
or any PGM Joint Venture.
4.32 PERSONAL GUARANTEES. Schedule 4.32 describes all
guaranties of Sellers of any obligations of PGM (the "Personal Guaranties").
4.33 BROKERAGE FEE. Except for the arrangements with the
STRATMOR Group, the terms of which have been fully disclosed to Purchaser,
neither Sellers nor PGM have engaged any investment banker, finder, broker or
similar agent with respect to the transactions contemplated by this Agreement
which may give rise to any brokerage fee, finder's fee, commission or similar
liability on the part of Sellers, PGM or Purchaser.
4.34 FULL DISCLOSURE. The representations and warranties of
Sellers contained in this Agreement, all schedules prepared for this Article
by or on behalf of Sellers and elsewhere described herein (the "Disclosure
Schedules") and the documents executed and delivered to Purchaser pursuant
hereto, taken as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
4.35 BUSINESS RECORDS. No material records of accounts,
personnel records or other business records related to the Business have been
destroyed within the last five (5) years, other than in the ordinary course
of business consistent with past
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practices, and, there exists no such records other than those records
delivered by Seller and PGM to Purchaser at the Closing on the Closing Date.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers, on the date hereof and
on the Closing Date, as follows:
5.1 ORGANIZATION AND STANDING. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, and has full corporate power and authority to enter into
and perform this Agreement and consummate the transactions contemplated
hereby. Schedule 5.1 hereto contains a complete and accurate list of the
officers and directors of Purchaser.
5.2 NO RESTRICTIONS; AUTHORIZATION; BINDING EFFECT; APPROVAL
OF CHANGE OF CONTROL. Purchaser is not subject to any material restriction,
agreement, law, rule, regulation, ordinance, code, writ, injunction, award,
judgment or decree which would prohibit or be violated by the execution and
delivery hereof or the consummation of the transactions contemplated hereby.
Purchaser has all necessary power and authority and has taken, or will have
taken prior to the Closing, as applicable, all action necessary to execute
and deliver this Agreement and the instruments, documents and agreements to
be executed and delivered pursuant hereto, to consummate the transactions
contemplated by this Agreement and to perform its obligations under this
Agreement and the instruments, documents and agreements to be executed and
delivered pursuant hereto. This Agreement and each of the instruments,
documents and agreements to be executed and delivered pursuant hereto has
been duly executed and delivered by Purchaser, and each constitutes a legal,
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditor's rights generally and subject to the
availability of equitable remedies. Except as provided otherwise in this
Agreement and as set forth on Schedule 5.2, Purchaser is not required to give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
5.3 NONCONTRAVENTION. Neither the execution and delivery of
this Agreement by Purchaser nor the consummation of the transactions
contemplated hereby and thereby will (a) violate any statute, regulation,
rule, judgment, order, decree, stipulation or injunction to which Purchaser
is subject, (b) conflict with or result in a breach of the provisions of the
Articles of Incorporation or By-laws of Purchaser, as amended to date, or (c)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any person or entity the right to accelerate,
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terminate, modify or cancel any contract, lease, license, indenture,
agreement, mortgage, instrument of indebtedness or other instrument to which
Purchaser is a party or by which Purchaser or any property of Purchaser is
bound.
5.4 CAPITALIZATION. The authorized capital Stock of
Purchaser consists of 1,000,000 shares of Common Stock, of which 101,000 were
issued and outstanding as of the date hereof.
5.5 CAPITAL STRUCTURE. The only record and beneficial
owners of the Stock as of the date hereof are set forth on Schedule 5.5 and
Schedule 5.5 hereto accurately sets forth the number of authorized and issued
and outstanding shares of Stock of Purchaser. All such issued and
outstanding shares of Stock are duly authorized, validly issued and
outstanding, and are fully paid and non-assessable. Except as set forth in
said Schedule 5.5, no other class or series of Stock is presently authorized.
Except as set forth in Schedule 5.5, there is no obligation, option or
warrant which is binding upon Purchaser to issue, sell, redeem, purchase or
exchange any of its Stock or any right relating thereto, and there are no
obligation, debt, liability or security of Purchaser is convertible into
Stock of Purchaser and there are no outstanding stock appreciation rights,
phantom stock or similar rights or agreements to pay a percentage of profits,
revenue of volume of loans originated, brokered or assigned.
5.6 AUTHORIZATION FOR COMMON STOCK ISSUED BY PURCHASER.
Purchaser has taken all action necessary to permit it to issue the number of
shares of Stock required to be issued pursuant to the Agreement at Closing.
The Stock issued pursuant to the Agreement at Closing, will, when issued, be
duly authorized, validly issued, fully paid and nonassessable, and no
stockholder of Purchaser will have any preemptive right of subscription or
purchase in respect thereof.
5.7 FINANCIAL STATEMENTS. The consolidated financial
statement dated December 31, 1997 set forth in Purchaser's audited financial
statements, including the balance sheets as of said date and the statements
of income, statements of stockholder's equity and statements of cash flow,
and unaudited financial statements for the first quarter of 1998, all
previously delivered to Sellers, have been prepared from the books and
records of Purchaser in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the consolidated
financial position of Purchaser and its consolidated subsidiaries as of its
dates included therein, and the results of operations, changes in equity and
cash flows of Purchaser for the periods covered by such financial statements.
5.8 NO MATERIAL ADVERSE CHANGE OR EXTRAORDINARY DIVIDENDS OR
DISTRIBUTIONS. Since December 31, 1997, there has been no material adverse
change in the business of Purchaser or any dividend, payment or other
distribution with respect to any of the Stock of Purchaser, other than (i) a
distribution to the shareholders of Purchaser in January, 1998 in the amount
of $600,000, and (ii) distributions in the amount of $514,000 required to pay
estimated first quarter 1998 taxes and (iii) distributions required in the
ordinary course of business.
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5.9 NO SUBSIDIARIES. Except as set forth on Schedule 5.9,
Purchaser does not own any shares of or equity interest in any corporation,
partnership, limited liability company, joint venture, association (excluding
memberships in trade associations) or other entity and the execution and
delivery of this Agreement and consummation of the transactions contemplated
thereby and hereby do not and will not violate or conflict with or create a
default under, or give the counterparty to such agreement the right to
terminate, the agreements governing any of the joint ventures set forth on
Schedule 5.9.
5.10 CORPORATE RECORDS AND ACTION. Purchaser has previously
furnished to Purchaser a copy of the Articles of Incorporation and all
amendments thereto of Purchaser, and prior to the Closing shall furnish to
Purchaser a copy of the foregoing, certified as being true, correct and
complete by the Secretary of State of Illinois. Purchaser has previously
furnished to Sellers a complete copy of the By-laws and all amendments
thereto of Purchaser, and prior to the Closing shall furnish to Sellers a
copy of such By-laws and all amendments thereto, certified by the Secretary
of Purchaser. Purchaser has previously made available to Sellers the
complete minute books of Sellers. As of the Closing, all corporate actions
taken by the shareholders, Board of Directors or any committee of the Board
of Directors of Purchaser is fairly and accurately summarized in all material
respects in the minute books of Purchaser. Purchaser has previously made
available to Sellers the stock ledger books of Purchaser. All issuances,
cancellations, transfers and exchanges of capital stock of Purchaser as of
the Closing are reflected in its stock ledger books.
5.11 EVENTS SINCE DECEMBER 31, 1997. Since December 31,
1997, except as disclosed on Schedule 5.11, there has not been:
(a) Any casualty damage, destruction, loss or forfeiture
(whether or not covered by insurance) or adverse change, actual or threatened,
to or affecting (i) any material property or asset of Purchaser, or (ii) the
material business or condition (financial or other) of Purchaser, or (iii) the
material results of operations or prospects of Purchaser;
(b) Any direct or indirect redemption, purchase or other
acquisition by Purchaser of any capital stock of Purchaser, or any declaration,
setting aside or payment of any dividend or distribution with respect to any
capital stock of Purchaser;
(c) Any material increase in the compensation or
benefits (including bonuses) payable or to become payable by Purchaser to any of
its respective directors, officers, employees or agents, other than increases in
the ordinary course of Purchaser's business to persons receiving annual
compensation of greater than Eighty Thousand Dollars ($80,000.00), including
increases in commission compensation to employees compensated solely on a
commission basis;
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(d) Any contractual commitment by Purchaser to any
third party, other than as provided in this Agreement or arising in the
ordinary course of Purchaser's business, relating to the acquisition or
disposition of material property or assets (including, without limitation,
any leasehold estate) of Purchaser;
(e) Any transaction, other than at arm's length in the
ordinary course of business, between Purchaser and any shareholder, director,
officer or affiliate of Purchaser or any affiliate of any such officer, director
or shareholder;
(f) Any waiver or surrender by Purchaser of any valuable
right or property other than for fair consideration;
(g) Any material change in the manner in which Purchaser
operates its Business which has had or may reasonably be expected to have an
adverse effect on the assets or properties, liabilities, condition (financial or
other) or results of operations of Purchaser;
(h) Any material change in any accounting policies,
procedures or practices employed with respect to Purchaser;
(i) Any sale of any of any material assets of Purchaser,
other than sales of loans in the ordinary course of business;
(j) Any redemption or purchase of (i) any Stock of
Purchaser or, (ii) any option to purchase Stock of Purchaser;
(k) Any issuance of any options, warrants or other
rights to purchase Stock of Purchaser; or
(l) Any other material transaction other than in the
ordinary course of business consistent with past practices.
5.12 TAXES.
(a) Except as disclosed in Schedule 5.12, Purchaser has
filed all returns and/or reports relating to Taxes (as hereinafter defined)
which Purchaser was required to file prior to the date of this representation
(collectively the "Prism Tax Returns"). All Taxes owed by Purchaser have been
paid.
(b) Proper and accurate amounts have been withheld by or
on behalf of Purchaser with respect to all compensation paid to employees of
Purchaser for all periods ending on or before the Closing Date. Purchaser has
required each employee who exercised an option to purchase Stock to pay to
Purchaser cash in an amount sufficient to satisfy in full Purchaser's obligation
to withhold Federal, state or local income or other taxes incurred by reason of
such exercise. All deposits required with
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respect to compensation paid to employees of Purchaser have been made in
compliance with applicable laws.
(c) Purchaser has not made any payment, and is not
obligated to make any payment, and is not a party to any agreement that could
obligate it to make any payment that will not be deductible (in whole or in
part) for Federal income tax purposes by reason of Section 280G of the Code or
under Proposed Treasury Regulation Section 1.280G-1. No provision of this
Agreement, the Agreement of Closing or any agreement executed and delivered
pursuant hereto or thereto obligates Purchaser to make any payment in the nature
of compensation that will not be deductible (in whole or in part) for federal
income tax purposes by reason of Section 280G of the Code or under Proposed
Treasury Regulation Section 1.280G-1.
(d) Purchaser has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) Except as set forth on Schedule 5.12(e), none of
Purchaser's tax returns has been audited or is currently the subject of an audit
by a governmental agency. Except as set forth on Schedule 5.12(e), Purchaser
has not received any notice of a deficiency or proposed deficiency in any of the
taxes paid by Purchaser and Purchaser has not entered into any settlements or
tax agreements, and has not been the subject of audits or proceedings by any
federal or state taxing authority.
5.13 TITLE TO ASSETS. Purchaser owns all its assets free and
clear of any mortgage, pledge, lien, encumbrance or other security interest,
other than liens for real estate taxes not yet due or payable, liens for
capitalized leases entered into in the ordinary course of business and the
liens described in Schedule 5.13. Purchaser does not own and has not in the
past owned any real property.
5.14 CONDITION OF ASSETS. The personal property owned and
leased by Purchaser is in good operating condition and repair, ordinary wear
and tear excepted. The real estate leased by Purchaser is in good condition
and Purchaser is not obligated to perform any material repairs or maintenance
to such real estate.
5.15 ACCOUNTS RECEIVABLE; NOTES RECEIVABLE. The accounts
receivable and notes receivable set forth in the financial statements of
Purchaser for the period ended December 31, 1997 and the material accounts
receivable of Purchaser arising after that date represent valid claims
payable to Purchaser for the provision of services or other charges arising
in the ordinary course of business of Purchaser on or before the date
thereof. Each of the account receivables or note receivables on such
Financial Statements, constitute valid claims arising from bona fide
transactions in the ordinary course of Purchaser's business and are not
subject to any claim for set-off, reduction or rebate.
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5.16 LITIGATION; REGULATORY EXAMINATION. Except as set forth
on Schedule 5.16, Purchaser is not (a) subject to any outstanding injunction,
judgment, order, decree, ruling, memorandum of understanding, cease and
desist order or administrative sanction or (b) a party or, to the knowledge
of Purchaser, threatened to be such a party to any action, suit, proceeding,
hearing, audit, investigation, initial investigation or criminal proceeding
of or before any grand jury, court, quasi-judicial agency, administration
agency or arbitration, and during the past five years, Purchaser has not been
audited or investigated by any instrumentality, commission, division,
subdivision, department, agency or procuring office or other entity of the
federal or state government other than routine examinations by federal and
state regulators, and such routine examinations have not revealed any
material non-compliance with law, regulation or applicable standards.
5.17 INSURANCE. Purchaser maintains and has maintained such
insurance as is required by law and such other insurance, in amounts and
insuring against hazards and other liabilities, as is customarily maintained
by companies similarly situated.
5.18 COMPLIANCE WITH CONSUMER LAW. Purchaser has complied
with all applicable material laws, rules, regulations, ordinances and codes,
whether federal, state, local or foreign and, including, without limitation,
all laws and regulations relating to occupational health and safety, equal
employment opportunities, fair employment practices, and sex, race,
religious, age and other prohibited discrimination, all labor laws,
including, without limitation, the Family and Medical Leave Act, and all
licensure, disclosure, usury and other consumer credit laws and regulations
governing residential mortgage lending and brokering, including, but not
limited to, all applicable rules, regulations, standards and guidelines
promulgated by HUD, GNMA, FHLMC, FNMA and VA and the Board of Governors of
the Federal Reserve System, the state agencies and all applicable provisions
of Consumer Credit Law, and, except as set forth on Schedule 5.18, no notice
or correspondence (whether regarding litigation, regulatory action or
otherwise) has been received by Purchaser from or on behalf of consumers
which is likely to have a material adverse effect on Purchaser's business or
the manner in which it conducts its business or notice from any regulatory
agency in which such regulatory agency alleges noncompliance with any
Consumer Credit Law or other applicable law. Purchaser has complied with all
applicable appraisal and accounting standards.
5.19 LICENSES AND PERMITS. Purchaser has obtained all
licenses, permits, qualifications, franchises and other governmental
authorizations and approvals, including, without limitation, all state
mortgage brokers and mortgage bankers licenses and, as applicable, approvals
by HUD, FHLMC, GNMA, FNMA and the VA, required in order for it conduct the
businesses as presently conducted, all of which are listed on Schedule 5.19
hereto. All of such licenses, permits, qualifications, franchises and other
authorizations are in full force and effect and will remain in full force and
effect immediately after the Closing and shall not be violated by or
affected, impaired or require any further action to remain effective as a
result of the Closing. No material
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violation exists in respect of any such license, permit, qualification,
franchise, authorization or approval. No proceeding is pending, or to the
knowledge of Purchaser, threatened to revoke or limit any such license,
permit, qualification, franchise, authorization or approval.
5.20 LABOR RELATIONS. Purchaser is not a party to or bound
by any collective bargaining agreement. There is no current union
organizational activity with respect to the employees of Purchaser and there
has not been any such activity in the past twelve months. No allegation,
charge or complaint of age, disability, sex, race or other unlawful
discrimination or similar charge whether under federal, state or local law,
or of any violation of the Americans with Disabilities Act, has been made or,
to the knowledge of Purchaser, threatened against Purchaser.
5.21 BROKERAGE FEE. Except for the arrangements with the
STRATMOR Group, the terms of which have been fully disclosed to Sellers,
neither Purchaser nor any of its shareholders has engaged any investment
banker, finder, broker or similar agent with respect to the transactions
contemplated by this Agreement which may give rise to any brokerage fee,
finder's fee, commission or similar liability on the part of Purchaser.
5.22 FULL DISCLOSURE. The representations and warranties of
Purchaser contained in this Agreement, the Schedules and the documents
executed and delivered to Shareholders pursuant hereto, taken as a whole, do
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
5.23 WAREHOUSE LINE AND GESTATION REPO LINE TERMS. Schedule
5.23 provides a full and complete list of the terms of all of Purchaser's
warehouse line and gestation repo line arrangements including maximum lending
limits, rates and rate adjustments and any other information pertinent to
such agreements.
ARTICLE 6
COVENANTS OF SELLERS
Sellers, with respect to PGM, hereby covenant to Purchaser the following,
from the date hereof through the Closing:
6.1 CONDUCT OF BUSINESSES; NOTIFICATION OF BREACHES IN
REPRESENTATIONS OR WARRANTIES. Until the Closing, except as required or
specifically contemplated by this Agreement, the Sellers and PGM covenant
that PGM and the PGM Joint Ventures will conduct the Business in the ordinary
and usual course of business, consistent with past practices, and shall use
its best efforts to preserve the goodwill of its employees, representatives
and suppliers. PGM will promptly notify Purchaser in
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writing if PGM is advised that any of the loan officers, referral sources or
investors of PGM or PGM Joint Ventures intends to cease doing business with
PGM or PGM Joint Ventures because of the Closing or the announcement thereof
or otherwise which cessation either alone or when aggregated with other such
cessations could have a material adverse effect on the Business, financial
condition or prospects of PGM or PGM Joint Ventures.
6.2 NOTIFICATION OF BREACH OF REPRESENTATION, WARRANTY OR
COVENANT. The Sellers will notify Purchaser immediately if any of the
representations, warranties or covenants in Section 4 hereof become untrue in
any material respect, and shall make immediate efforts to correct or cure
such breach.
6.3 FOREBEARANCES BY PGM. Except as contemplated by this
Agreement or consented to by Purchaser in writing, during the period from the
date hereof through the Closing, the Sellers covenant that PGM shall not:
(a) authorize or effect any change in its charter or
by-laws;
(b) grant any option, warrant or other right to purchase
or obtain any of its capital stock, or issue, sell or otherwise dispose of any
of its capital stock (except upon the conversion or exercise of options
presently outstanding and in accordance with the respective terms thereof);
(c) declare, set aside or pay any dividend or
distribution with respect to its capital stock, or redeem, repurchase or
otherwise acquire any of its capital stock;
(d) create, incur, assume or guaranty any indebtedness
for borrowed money other than indebtedness incurred in the ordinary course of
business including, without limitation, under any warehouse line of credit;
(e) grant any lien, pledge, security interest or other
encumbrance upon any of its assets other than capitalized leases permitted under
Section 4.11(k);
(f) make any capital expenditure except capital
expenditures incurred in the ordinary course of business which do not exceed
$20,000 for any single item or group of related items;
(g) make any loan to or investment in, or acquire any
securities or assets of any other person or entity, except for mortgage loans
made in the ordinary course of business made under the same standards and
guidelines as such loans were made prior to December 31, 1997;
(h) increase the rate of compensation or materially
increase the benefits payable or to become payable to any of its directors,
officers or employees
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(other than raises made in the ordinary course of business to employees who
are not directors or officers provided that such raise to any such employee
shall not exceed 10% of the base compensation of such employee in effect at
December 31, 1997 and an increase in the annual salary of Carol Asnault,
VP/Accounting, from $51,900 to $60,000 effective April 1, 1998) or make any
material change in any of the terms of employment of any of its directors,
officers or employees;
(i) change any material accounting policies, procedures
or practices employed by it;
(j) sell any of its assets, other than sales of loans in
the ordinary course of business where applicable pursuant to appropriate
guidelines of the governing federal agency or issue, sell, encumber or give any
option or right to purchase any shares of PGM's capital stock or other
securities;
(k) amend any Tax Return;
(l) enter into any material contract, agreement or lease
other than in the ordinary course which would be required to be disclosed
hereunder without Purchaser's consent which consent shall not be unreasonably
withheld, or make any change in any existing contracts, agreements or leases
other than in the ordinary course of business without Purchaser's consent which
consent shall not be unreasonably withheld;
(m) pay or discharge any long-term liability other than
in accordance with its terms;
(n) take or omit to take any action, the effect of which
act or omission would render inaccurate any of the representations and
warranties set forth in Article 4 herein as of the Closing Date;
(o) implement or agree to any implementation of or
amendment or supplement to any employee profit sharing, pension, bonus,
commission, incentive, retirement, medical reimbursement, life insurance,
deferred compensation or any other employee benefit plan or arrangement; or
(p) agree or commit to do any of the foregoing.
6.4 GOOD FAITH NEGOTIATIONS. Sellers agree to negotiate and
proceed in good faith to promptly consummate the transactions hereunder.
6.5 ACQUISITION PROPOSALS. Neither Sellers, PGM nor the PGM
Joint Ventures nor any of PGM's or the PGM Joint Ventures' respective
officers, directors, members, managers, employees, representatives or agents,
shall (a) directly or indirectly take (nor shall PGM or any PGM Joint Venture
permit any of their respective officers, directors, members, managers,
employees, investment bankers, attorneys, accountants
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or other agents or affiliates to take) any action to encourage, solicit,
initiate or otherwise facilitate the submission by a third party of, or
negotiate or enter into any agreement with a third party with respect to, a
proposal to acquire, directly or indirectly, any of the capital stock of PGM
or the partner, joint venture or other ownership interest of any PGM Joint
Venture, whether by stock purchase, merger, sale of shares of capital stock,
or partnership or membership interest or by license agreement or otherwise or
sale of any material portion of its assets (except sales of loans in the
ordinary course of business) (any such submission, negotiations or agreement
called an "Acquisition Proposal"), and Sellers, PGM or the PGM Joint
Ventures, as applicable, shall immediately terminate any current negotiations
and contacts, or (b) disclose directly or indirectly to any person preparing
to make an Acquisition Proposal any confidential information regarding PGM or
any PGM Joint Venture, or (c) enter into any understanding, agreement or
commitment with any third party providing for a business combination, equity
investment, or sale or license of any significant assets of PGM or any PGM
Joint Venture. Upon receipt of any such Acquisition Proposal by any third
party, Sellers shall promptly advise Purchaser of the proposal and provide it
copies of all materials pertaining thereto. If the parties have not
consummated the Closing prior to July 5, 1998 for any reason other than due
to the failure to obtain State Required Regulatory Approvals, then, subject
to the obligation to negotiate in good faith set forth in Section 6.4 above,
the provisions of this Section 6.5 shall be void with respect to any
Acquisition Proposal first received after such date.
6.6 CONSENTS. Prior to the Closing, Sellers and PGM shall
use reasonable efforts to obtain the consents, waivers and other approvals,
which may be required from any lender, lessor or non-government customer in
order to effectuate the Closing.
6.7 GOVERNMENT APPROVAL. Promptly following the execution
of this Agreement, PGM with the reasonable cooperation of Purchaser and the
Sellers shall in good faith notify and with the assistance of Purchaser as
provided in Section 7.4, make best efforts to obtain approvals from the
States of Massachusetts, Nevada and Washington and the District of Columbia
(the "Required Regulatory Approvals") and the States of Florida, Georgia,
Michigan and Virginia (the "Other State Regulatory Approvals") and to the
extent otherwise required or appropriate under applicable law all other
governing federal and state agencies regarding the transactions contemplated
by this Agreement to the extent such notice or approval is required by
applicable law. PGM shall immediately notify Purchaser if PGM receives any
inquiry from such agencies regarding the Closing or any indication that PGM's
licensed status with such agency will be impaired by the Closing. PGM's
reasonable costs of obtaining such consents, including but not limited to
those of outside counsel, shall be costs payable by PGM pursuant to Section
12.2. To the extent such costs incurred prior to Closing (exclusive of
Purchaser's costs pursuant to Section 7.4) when aggregated with other costs
described in Section 12.2 exceed the $[*] maximum set forth in Section 12.2,
the costs of PGM shall be borne by Sellers. All costs of obtaining the
foregoing approvals and consents incurred after Closing shall be borne by PGM.
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6.8 ADDITIONAL FINANCIAL STATEMENTS. PGM shall furnish to
Purchaser unaudited financial statements for PGM for each month which closes
more than 25 days prior to the Closing within 25 days after the end of such
month. Such financial statements shall be certified by the Chief Financial
Officer or Treasurer of PGM, in his or her capacity as such, as having been
prepared in accordance with generally accepted accounting principles on a
basis consistent with the Financial Statements and as fairly presenting the
financial position of PGM as of their respective dates and the results of its
operations for the periods then ended (subject in the case of the monthly
financial statements to normal year end adjustments which, in the aggregate,
are not material).
6.9 SUPPLEMENTS TO SCHEDULES. From time to time after the
date hereof and prior to the Closing Date, PGM will promptly supplement or
amend the Disclosure Schedules with respect to any matter which PGM deems
necessary or advisable to include therein. However, no such supplement or
amendment of the Disclosure Schedules shall be deemed to cure any breach of
any representation or warranty made in this Agreement even if Purchaser
proceeds with the Closing. Notwithstanding any supplement or amendment to the
Schedules, Purchaser shall be entitled to its rights and remedies under
Section 10.3 and Section 11.1.
Sellers shall have no liability under Section 10.3 or 11.1 hereof for
Ordinary Course Disclosures. As used herein, "Ordinary Course Disclosures"
mean supplements to the Disclosure Schedule to reflect (a) events which occur
after the date hereof which are required to be disclosed pursuant to Section
4.11 and to which Purchaser has consented pursuant to Section 6.3, and (b)
contracts entered into in the ordinary course of business after the date
hereof which are required to be disclosed pursuant to Section 4.17 and to
which Purchaser has consented.
6.10 CONSENTS OF THIRD PARTIES. On or prior to the Closing
Date, Sellers, at their expense, shall obtain or cause to be obtained all
consents and other approvals of all lessors, lenders, governmental
authorities and other third parties including, without limitation, any
spousal consents which are required to be obtained by Sellers, PGM or PGM
Joint Ventures as a result of the transactions contemplated by this
Agreement, which consents and approvals shall continue each applicable lease,
loan or other arrangement related to PGM on substantially identical terms as
exist on the date hereof. The reasonable costs of obtaining such consents,
including but not limited to those of outside counsel, shall be costs payable
by PGM pursuant to Section 12.2. To the extent such costs when aggregated
with other costs described in Section 12.2 exceed the $[*] maximum set forth
in Section 12.2, such costs incurred prior to Closing shall be borne by
Sellers.
6.11 TRANSFER OF SHARES. At the Closing, Sellers shall cause
the certificate or certificates for the Shares to be delivered to Purchaser,
duly endorsed for transfer or with executed stock powers attached.
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6.12 GUARANTEES AND COLLATERAL PLEDGES. Except for those
guaranties set forth on Schedule 6.12, Sellers acknowledges that PGM has not
guaranteed the indebtedness of any affiliates of Sellers other than PGM or
such PGM Joint Venture, itself (collectively the "Affiliate Guarantees") at
any banks or lending institutions or otherwise which have not been
terminated, cancelled and of no further force or effect, and any security
interest or lien right or security interest which such bank or lending
institution had or may have had with respect to the Affiliate Guarantees have
been released. At the Closing on the Closing Date, Sellers shall deliver to
Purchaser written evidence of the termination of any Affiliate Guarantees and
any liens or security interests securing such Affiliate Guarantees. Except
for Personal Guaranties, Sellers have not guarantied the indebtedness of PGM
or the PGM Joint Ventures.
6.13 SUBORDINATION. At Closing, Sellers covenant to cause
the obligees on the Sellers' Indebtedness and the Willat Indebtedness to be
subordinated to other indebtedness of Purchaser whether now existing or
hereafter arising which subordination shall be evidenced by subordination
agreements or such other documentation which shall be in form and substance
acceptable to Purchaser and Purchaser's lender or lenders, provided that, in
lieu of the foregoing subordination with respect to the Willat Indebtedness,
such Willat Indebtedness, at Purchaser's option, shall be repaid from PGM's
capital.
ARTICLE 7
COVENANTS OF PURCHASER
Purchaser hereby covenants to Sellers that from the date hereof through
the Closing as follows:
7.1 NOTIFICATION OF BREACH OF WARRANTY OR COVENANT.
Purchaser will notify Sellers immediately if any of the warranties or
covenants in Section 5 hereof become untrue in any material respect and shall
make immediate efforts to correct or cure such breach.
7.2 FOREBEARANCES BY PURCHASER. Except as contemplated by this
Agreement or consented to by Sellers in writing, during the period from the date
hereof through the Closing, Purchaser covenants that it shall not:
(a) authorize or effect any change in its charter or
by-laws;
(b) declare, set aside or pay any dividend or
distribution with respect to its capital stock, or redeem, repurchase or
otherwise acquire any of its capital stock;
(c) increase the rate of compensation or materially
increase the benefits payable or to become payable to any of its directors,
officers or employees
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(other than raises made in the ordinary course of business to employees who
are not directors or officers provided that such raise to any such employee
shall not exceed 10% of the base compensation of such employee in effect at
December 31, 1997) or make any material change in any of the terms of
employment of any of its directors, officers or employees;
(d) change any material accounting policies, procedures
or practices employed by it;
(e) sell any of its assets, other than sales of loans in
the ordinary course of business where applicable pursuant to appropriate
guidelines of the governing federal agency or issue, sell, encumber or give any
option or right to purchase any shares of Purchaser's capital stock or other
securities;
(f) amend any Prism Tax Return;
(g) pay or discharge any long-term liability other than
in accordance with its terms;
(h) implement or agree to any implementation of or
amendment or supplement to any employee profit sharing, pension, bonus,
commission, incentive, retirement, medical reimbursement, life insurance,
deferred compensation or any other employee benefit plan or arrangement; or
(i) agree or commit to do any of the foregoing.
7.3 GOOD FAITH NEGOTIATIONS. Purchaser agrees to negotiate
and proceed in good faith to promptly consummate the transactions hereunder.
7.4 GOVERNMENT APPROVALS. Prior to the Closing, Purchaser
shall use reasonable efforts to cooperate with Purchaser in obtaining the
Required Regulatory Approvals, the Other State Regulatory Approvals and the
other consents, waivers and other approvals set forth in Section 6.7.
Purchaser shall cause PGM to bear all costs of obtaining the Required
Regulatory Approvals and the Other State Regulatory Approvals incurred after
the Closing.
ARTICLE 8
JOINT COVENANTS
8.1 ACCESS AND INFORMATION. Each of the Sellers and
Purchaser will afford to the other and its Representatives (as hereinafter
defined) such access during normal business hours throughout the period prior
to the Closing Date to its, and in the case of the Sellers', PGM's or the PGM
Joint Ventures' books records, offices, and other facilities and to its
shareholders, officers, directors, employees, investment bankers,
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attorneys, accountants and other agents or affiliates as the other party may
reasonably request, provided that such investigation shall not unreasonably
interfere with such party's ability to conduct its business in the ordinary
course and that neither party shall contact any of the other party's key
employees, vendors, or customers without first obtaining consent of the other
party, which consent shall not be unreasonably withheld. No investigation or
absence of investigation by Purchaser of PGM and the PGM Joint Ventures or by
Seller of Purchaser prior to the date hereof or pursuant to this Section
shall be deemed to modify any of the representations or warranties contained
herein.
(a) All Information (as hereinafter defined) disclosed
to a Recipient (as hereinafter defined) and its Representatives shall be
utilized by the Recipient and its Representative for the sole purpose of
evaluating the Closing and shall be kept confidential until the Closing is
consummated. In the event the Closing is not consummated, each Recipient and
its Representatives shall continue to keep the Information confidential and
shall not directly or indirectly utilize such Information in any way detrimental
to the Disclosing Party.
(b) As used herein, "Disclosing Party" means Purchaser,
PGM, or the Sellers, whichever discloses Information (as hereinafter defined),
and "Recipient" means Purchaser, its subsidiaries, Purchaser or the Sellers,
whichever is receiving Information from a Disclosing Party.
(c) As used herein, "Information" means all information
delivered by or on behalf of a Disclosing Party, its subsidiaries or their
respective officers, directors, employees and/or agents to the Recipient or its
Representatives before or after the date of this Agreement, whether orally or in
writing, and all reproductions, copies, notes, analyses, compilations, studies,
interpretations or other documents prepared by the Recipient or others which
contain, are based upon, or otherwise reflect such information, but does not
include any information which at the time of disclosure to the Recipient or
thereafter (i) is generally available to and known by the public (other than as
a result of a disclosure directly or indirectly by the Recipient or its
Representatives), (ii) was available to the Recipient on a nonconfidential basis
from a source other than the Disclosing Party and its subsidiaries and
Representatives, provided that such source is not, and was not, bound by a
confidentiality agreement with the Disclosing Party or another party or
otherwise prohibited from transmitting such information by a contractual, legal
or fiduciary obligation to the Disclosing Party, its subsidiaries or another
party, or (iii) has been independently acquired or developed by the Recipient as
shown by written records without violating any of the Recipient's obligations
under this Agreement.
(d) As used herein, "Representatives" mean those
directors, officers, employees, representatives, auditors, legal counsel,
advisors and other authorized representatives of the Recipient who need to know
Information for the purpose of evaluating the Recipient's participation in the
Closing (it being understood that prior to any disclosure of Information by a
Recipient to any Representative, the Recipient will inform such Representative
of the confidential nature of the Information
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and obtain from such Representative an agreement to be bound by the terms of
this Section to the same extent as if such Representative had joined this
Agreement for the purpose of agreeing to be bound by this Section). A
Recipient shall be responsible for any breach of the terms of this Section by
any of its Representatives.
(e) If a Recipient or any of its Representatives becomes
legally compelled (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or similar process) to disclose any of the
Information, or reasonably determines that such disclosure is required in order
to defend itself against a legal proceeding brought by a third party, the
Recipient shall provide the Disclosing Party with prompt prior written notice of
such requirement or determination so that the Disclosing Party may seek a
protective order or other appropriate remedy and/or waive compliance with the
terms of this Section. In the event that such protective order or other remedy
is not obtained, or that the Disclosing Party waives compliance with the
provisions of this Section, the Recipient shall exercise reasonable commercial
efforts to obtain assurance that confidential treatment will be accorded such
Information. The provisions of this paragraph shall not apply to Purchaser and
its Representatives after the Closing.
(f) If the Closing is not consummated, each Recipient
will return to the Disclosing Party all copies of Information in the Recipient's
possession or in the possession of its Representatives, and each Recipient will
destroy all copies of any analyses, compilations, studies or other documents
prepared by such Recipient or for its use containing or reflecting any
Information.
8.2 PUBLICITY. Neither Purchaser nor Sellers shall announce
or disclose publicly the terms or provisions hereof without the prior written
approval of the other party, except such disclosure as may be required under
securities law or common law (subject to giving the other party notice as
promptly as possible of the intention to make such disclosure and providing
the other party an opportunity to review the wording of such disclosure), and
disclosure to its attorneys, accountants, lenders, bankers, investment
bankers, government agencies and employees.
8.3 SHAREHOLDERS AGREEMENT. Purchaser and Sellers shall
enter into the Shareholders Agreement.
8.4 EMPLOYMENT AGREEMENTS. At the Closing, Purchaser and
each of Barbera and Osenton shall enter into their respective Executive
Employment Agreements in the form annexed hereto as Exhibit "C" and "D",
respectively (the "Employment Agreements").
8.5 OTHER DOCUMENTATION. At the Closing, Sellers shall
deliver all the Shares, together with stock powers and all other documents
required or appropriate to effect the transactions contemplated hereby.
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ARTICLE 9
CONDITIONS TO OBLIGATION TO CLOSE
9.1 MUTUAL CONDITIONS. The obligations of each party to
effect the Closing shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) LITIGATION. Immediately prior to the Closing, there
shall be no material action or proceeding initiated by any governmental agency
or third party which seeks to restrain, prohibit or invalidate the transactions
hereunder or to recover substantial damages or other substantial relief with
respect thereto, and no injunction or restraining order shall have been issued
by any court restraining, prohibiting or invalidating the transactions
hereunder.
(b) SHAREHOLDERS AGREEMENT. Purchaser and the Sellers
shall have entered into the Shareholders Agreement.
(c) EMPLOYMENT. Barbera and Osenton shall each have
entered the respective Employment Agreement with PGM.
9.2 CONDITIONS TO OBLIGATIONS OF PURCHASER TO EFFECT THE
PURCHASE. The obligations of Purchaser to effect the Closing shall be subject
to the fulfillment on or prior to the Closing Date of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Sellers set forth in Article 4 of this Agreement shall be true
and correct on the date of this Agreement and as of the Closing Date. It being
understood that Ordinary Course Disclosures and any breach of a representation
or warranty disclosed to the Purchaser which in the reasonable discretion of the
Purchaser has no material adverse effect (either alone or when aggregated with
any other breach) on the ability to consummate the transaction, the value of PGM
or the Business shall not constitute a breach of such representations and
warranties. Purchaser shall have received a certificate, executed by the
President and Executive Vice President of PGM, dated the Closing Date, to the
effect that the representations and warranties of PGM set forth in Article 4 of
this Agreement are true and correct on the date of this Agreement and, except as
disclosed to Purchaser and accepted by Purchaser, as of the Closing Date, as if
made again on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS. The Sellers and PGM
shall have performed all obligations required to be performed by it under this
Agreement on and prior to the Closing Date, except for the failure to perform
obligations which do not, in the reasonable discretion of the Purchaser have no
material adverse effect on the ability to consummate the Closing and the
Business of PGM. Purchaser shall have received a certificate executed by the
President and Executive Vice President of PGM to that effect dated the Closing
Date.
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(c) DUE DILIGENCE. Purchaser shall have completed its
due diligence investigation of PGM and nothing shall have come to Purchaser's
attention in the course of such due diligence which causes Purchaser to
determine not to proceed with the Closing.
(d) OPINION OF COUNSEL. Purchaser shall have received
written opinion of Weiner, Brodsky, Sidman & Kider, P.C. and Daniel A. Gamer,
both counsel to PGM, dated the Closing Date, in the form of Exhibit "F-1" and
"F-2", respectively, hereto.
(e) EXECUTION AND DELIVERY OF ALL ANCILLARY DOCUMENTS.
There shall have been executed by the parties thereto and delivered to Purchaser
all other documents reasonably necessary to effect the transactions
contemplated.
(f) REGULATORY APPROVAL. All Required Regulatory
Approvals and any other applicable Federal and State agency approvals and
consents, including all described in Section 6.7, shall have been obtained to
the extent they are required or appropriate as a result of the change in control
of PGM effected by the Closing.
(g) CONSENTS. PGM shall have received all consents,
waivers and other approvals other than regulatory consents described in
Section 9.2(f) necessary in order for it to effect the Closing.
(h) CASUALTY. No casualty shall have occurred at the
facilities of PGM as a result of which Purchaser reasonably expects that PGM
will be unable to conduct its business in substantially the same manner as
previously conducted for a period of at least thirty (30) days after the Closing
Date.
(i) DELIVERY OF CORPORATE DOCUMENTS AND LIEN SEARCHES.
Sellers, at their sole expense, shall have delivered to Purchaser:
(a) Certificates of Good Standing of PGM and any PGM Joint Ventures, dated
within twenty (20) days of the Closing Date, for any state within which PGM or
any PGM Joint Venture is qualified to do business as a foreign corporation as
described in Section 4.2; (b) a certified copy of the Certificate of
Incorporation and By-Laws, and all continuations thereof and amendments thereto,
of PGM and of all joint venture agreements, partnership agreements, articles of
organization, or other organizational documents of each PGM Joint Venture; and
Purchaser shall at Purchaser's sole expense have obtained to its reasonable
satisfaction lien searches under the Uniform Commercial Code and other
applicable statutes for each County, and, where appropriate, other local
jurisdictions in which PGM or any PGM Joint Venture maintains inventory or a
place of business, as well as a judgment and tax lien search respecting PGM or
any PGM Joint Venture in each such jurisdiction.
(j) CERTIFICATE OF SELLERS. Purchaser shall have
received a certificate from Sellers dated as at the Closing Date: (a)
certifying, without qualification
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or exception, that the conditions set forth in Sections 9.1 and 9.2 hereof
have been fully satisfied; and (b) specifying in which respects, if any, the
representations and warranties contained herein or in any certificate or
other writing delivered pursuant hereto or in connection herewith are
inaccurate on and as of the Closing Date. Such certificate shall be deemed a
representation and warranty by Sellers.
Notwithstanding anything herein to the contrary, Purchaser may waive any of the
foregoing conditions in Section 9.2 hereof, or to the extent such conditions are
imposed on PGM or Shareholders, in Section 9.1, or at Purchaser's option, cure
any such noncompliance with such conditions and subject to such limitations as
provided in Section 11.1.
9.3 CONDITIONS TO OBLIGATIONS OF SELLERS TO EFFECT THE
CLOSING. The obligations of Sellers to effect the Closing shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser set forth in Article 5 of this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date, as
if made again on such date. PGM shall have received a certificate, executed by
the President or an Executive Vice President of Purchaser, to the effect that
the representations and warranties of Purchaser set forth in Article 5 of this
Agreement are true and correct on the date of this Agreement and, except as
disclosed to PGM, as of the Closing Date, as if made again on and as of the
Closing Date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall at its
own cost have performed all material obligations required to be performed by it
under this Agreement prior to the Closing Date, and PGM shall have received a
certificate executed by the President or an Executive Vice President of
Purchaser to that effect dated the Closing Date.
(c) GENERAL COUNSEL. The General Counsel of Purchaser
shall have delivered a legal opinion to Sellers in form and substance reasonably
satisfactory to Sellers.
(d) REQUIRED REGULATORY APPROVALS. Sellers shall have
obtained either (i) the Required Regulatory Approvals or, (ii) if the Required
Regulatory Approvals have not been obtained, an Indemnification of Sellers by
Purchaser, in form and substance reasonably acceptable to Purchaser and to
Sellers, indemnifying Sellers for any and all losses personally caused Sellers
(including but not limited to the payment of all penalties and reasonable
attorneys fees) due to effecting the Closing without the Required Regulatory
Approvals as defined in Section 6.7.
(e) CERTIFICATE OF PURCHASER. Sellers shall have
received a certificate from Purchaser dated as at the Closing Date:
(a) certifying, without qualification or exception, that the conditions set
forth in Sections 9.1 and 9.3(a), (b) and
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(c) hereof have been fully satisfied; and (b) specifying in which respects,
if any, the representations and warranties contained herein or in any
certificate or other writing delivered pursuant hereto or in connection
herewith are inaccurate on and as of the Closing Date. Such certificate shall
be deemed a representation and warranty by Purchaser.
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ARTICLE 10
POST CLOSING COVENANTS
10.1 POST CLOSING COVENANTS OF PURCHASER REGARDING FINANCING OF
PGM
(a) After the Closing, Purchaser will arrange warehouse
lines reasonably necessary for the current and, to the extent necessary, the
future operations of PGM and PGM Joint Ventures and will charge PGM quarterly a
15% per annum cost of capital to the extent additional capital is required in
excess of capital generated by PGM from its operations to support the warehouse
lines being used for the operations of PGM and of the PGM Joint Ventures. For
purposes of determining whether additional capital is necessary, (i) PGM's Post
Tax Net Income will be allocated to PGM's balance sheet and (ii) a leverage
ratio will be assumed equal to the greater of (x) 20 to 1 and (y) the actual
leverage ratio permitted under Purchaser's warehouse lines which determination
shall be made at the end of each fiscal quarter.
By way of example assume PGM's net worth as of the end of the first
greater of 1998 is $1 million (giving PGM full credit in the calculation of its
net worth for any distributions or dividends by PGM to Prism). Further assume
that PGM generated $2 million of capital in the second quarter of 1998 (i.e.
after tax estimated net income for such quarter) and that capital was not needed
for operations or other purposes. Finally, assume that the maximum dollar
amount of PGM loans outstanding on Purchaser's warehouse lines at any time
during such quarter was $80 million. PGM would be charged a 15% per annum cost
of capital on $1 million ($37,500 for the quarter) computed as follows:
(80,000,000)
------------
20 = 4,000,000
4,000,000 - (2,000,000 + 1,000,000) = $1,000,000
$1,000,000 x 15% per annum = $150,000
$150,000 DIVIDED BY 4 = $37,500
(b) After the Closing, if PGM identifies acquisition
opportunities in Northern California, and Purchaser, in its reasonable
discretion, approves such acquisitions, then Purchaser shall make capital
available to PGM to implement such acquisition opportunities to the extent
additional capital over and above that generated by and credited to PGM is
required. PGM will be charged a 15% (per annum) cost of capital on such capital
in excess of capital generated from operations after subtracting capital
required to support warehouse lines described in 10.1(a) above. It is
understood that, at the request of Purchaser, PGM shall make any filing required
by Section 25.116 of the California General Corporate Law or otherwise, to
assure that
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such 15% charge on capital shall not violate applicable usury law and that if
it is determined by Purchaser that such rate is nonetheless violative of
applicable law, the rate shall be reduced to a lawful rate.
By way of example, assume PGM's net worth (calculated as described in
Section 10.1(a)) as of the end of the last quarter of 1998 is $1 million.
Further assume that PGM generated $2 million of capital in 1998 and that was
not needed for operations or other purposes except $2.75 million of such
capital was needed to support PGM's warehouse lines in accordance with
Section 10.1(a). If $1.5 million is needed to implement an acquisition, PGM
will be charged a 15% (per annum) cost of capital on $1,250,000 ($187,500 for
the quarter) computed as follows:
PGM available capital = (2,000,000 + 1,000,000) - 2,750,000 = $250,000
Additional capital = 1,500,000 - 250,000 = $1,250,000
1,250,000 X 15% per annum = $187,500
187,500 DIVIDED BY 4 = $46,875
It is understood that, at the request of Purchaser, PGM shall at its own cost
make any filing required by Section 25.116 of the California General
Corporate Law or otherwise, to assure that such 15% charge on capital shall
not violate applicable usury law and that if it is determined by Purchaser
that such rate is nonetheless violative of applicable law, the rate shall be
reduced to a lawful rate.
10.2 COVENANT NOT TO COMPETE AND NOT TO SOLICIT BY SELLERS
SURVIVING CLOSING. The following covenants are made by Osenton and Barbera
to Purchaser and PGM in consideration of the transaction contemplated by this
Agreement, and it is expressly acknowledged and agreed by Osenton and Barbera
that such covenants are material inducements for Purchaser to enter into this
Agreement and to consummate the transaction contemplated hereby. In
addition, Osenton and Barbera each acknowledge that PGM, Purchaser and their
Affiliates have and will expend considerable time, money and resources in
recruiting, training and developing the skills and abilities of their
employees; developing business relationships with referral sources and
customers so as to improve the goodwill of PGM; establishing branches of PGM,
including, but not limited to, entering into long term leases for office
space; and establishing and maintaining close business relationships between
PGM's employees and PGM's customers. Osenton and Barbera each acknowledge
and agree that PGM is entitled to protect its investment in the foregoing and
to keep the results of its efforts for its exclusive use. Accordingly,
Osenton and Barbera agree to the covenants and conditions set forth in
Sections 10.2(a) through 10.2(g) hereof, and acknowledge and agree that they
are necessary to preserve and protect the legitimate business interests of
PGM, and shall be binding upon Osenton and Barbera during and after their
respective employment with PGM in accordance with their terms:
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(a) NON-COMPETITION. During Osenton's and Barbera's
employment with PGM, pursuant to their respective Employment Agreements or
otherwise under another employment agreement or arrangement with PGM, Prism
or their Affiliates, and for the lesser of (i) a three (3) year period after
their employment under the Employment Agreements or otherwise under another
employment agreement or arrangement with PGM or its Affiliates is terminated
by either party thereto, for any reason, and (ii) the longest period of time
allowed by applicable law, Osenton and Barbera each covenant to not, directly
or indirectly, compete with PGM or its Affiliates (including without
limitation Purchaser and its Affiliates) with respect to the business (i.e.,
the residential mortgage lending and brokerage business) of PGM or its
Affiliates (including without limitation Purchaser and its Affiliates),
including any expansion of such business of PGM or its Affiliates (including
without limitation Purchaser and its Affiliates), which occurs during the
term of their employment, and any renewal term, including ancillary and
related activities which occur during the term of the Employment Agreement or
other employment agreement or arrangement with PGM, Purchaser or their
respective Affiliates, in the geographic region which is the smaller of (i)
all areas in which PGM or its Affiliates (including Purchaser and its
Affiliates), conduct any of their residential mortgage operations and where
they maintain branches, and (ii) the largest geographical area allowed by
law. Competition, for the purpose of this Agreement, shall include, but not
be limited to: (i) owning, maintaining, operating or engaging in the same or
similar line of business as PGM or its Affiliates (including without
limitation Purchaser and its Affiliates), or in any business which competes
with PGM or its Affiliates (including without limitation Purchaser and its
Affiliates); (ii) serving, advising, consulting with or being employed by any
individual, firm, agency, partnership, company or corporation (including any
pre-incorporated association) which engages in the same or similar business
as PGM or its Affiliates (including without limitation Purchaser and its
Affiliates), or which competes with PGM or its Affiliates (including without
limitation Purchaser and its Affiliates); and (iii) undertaking any efforts
or activities toward pre-incorporating, incorporating, organizing, financing
or commencing any competing business or activity which engages in the same or
similar line of business as PGM or its Affiliates (including without
limitation Purchaser and its Affiliates), provided that upon the termination
of Barbera's or Osenton's employment under their respective Employment
Agreement between Barbera or Osenton and PGM, Barbera or Osenton may be
employed by another mortgage company or become self-employed in their own
business, solely in the position of a commissioned loan officer, provided
that such employment shall not impair, abridge or otherwise affect Barbera's
or Osenton's duties, covenants or obligations as to competition hereunder and
with respect to solicitations of employees, agents, customers or referral
sources or otherwise under their re spective Employment Agreement.
(b) NON-SOLICITATION OF EMPLOYEES OR AGENTS. Osenton
and Barbera each hereby agree that, so long as either is employed by PGM
under the Employment Agreement or otherwise, and for the lesser of (i) a
three (3) year period after their employment is terminated for any reason,
and (ii) the longest period of time allowed by law, he shall not engage in
soliciting, diverting, hiring or inducing, or attempting to solicit, divert,
hire or induce, directly or indirectly (whether on their own
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behalf, or that of any other person, business or entity) any employee or
agent of PGM or of any Affiliate, including without limitation Purchaser and
its Affiliates, who was employed by or under contract with PGM or any
Affiliate, including without limitation Purchaser and its Affiliates, within
three (3) years of the date of the termination of their employment
thereunder, to terminate his or her relationship with PGM or any such
Affiliate, including without limitation Purchaser and its Affiliates.
(c) NON-SOLICITATION OF CUSTOMERS AND REFERRAL
SOURCES. Osenton and Barbera each hereby agree that so long as employed, and
for the lesser of (i) a three (3) year period after their employment is
terminated by either party hereto, for any reason, and (ii) the longest
period of time allowed by law, they shall not, either directly or indirectly,
engage in calling upon, soliciting, diverting or inducing, or attempting to
call upon, solicit, divert or induce, and shall not, directly or indirectly,
use any non-public information relating to a customer of PGM or its
Affiliates, including without limitation Purchaser and its Affiliates,
obtained during their employment with PGM for calling upon, diverting,
soliciting or inducing, or attempting to call upon, divert, solicit or
induce, any customer or referral source of PGM (except loan clients obtained
through general marketing and clients with whom Osenton or Barbera,
individually, had a specific prior relationship), or of any Affiliate,
including without limitation Purchaser and its Affiliates, including any
individual or entity which has done business with PGM or its Affiliates,
including without limitation Purchaser and its Affiliates, at any time within
the three (3) years preceding the termination of their employment hereunder
(i) to do business with a competitor of PGM or (ii) not to do business with
PGM, or any of its Affiliates, including without limitation Purchaser and its
Affiliates.
(d) ENFORCEMENT. Osenton and Barbera each recognize
that the provisions of this Section 10.2 are vitally important to the
continuing welfare of PGM and its Affiliates and that money damages
constitute an inadequate remedy for any violation thereof. Accordingly, in
the event of any such violation by Osenton, Barbera, PGM and its Affiliates,
in addition to any other remedies they may have, shall have the right to
institute and maintain a proceeding to compel specific performance thereof or
to issue an injunction restraining any action by Osenton or Barbera in
violation of this Section 10.2, without the necessity of posting a bond.
(e) SURVIVAL OF COVENANTS. The provisions of this
Section 10.2 shall survive termination of Osenton's and Barbera's employment
for any reason. In addition, notwithstanding anything contained herein to
the contrary, any Indemnification Claims because of a breach of this Section
10.2 shall not be subject to the Indemnification Threshold Amounts or
Indemnification Cap contained in Section 10.3(b), provided that the covenants
in this Section 10.2 shall not survive the dissolution of Purchaser except
for a dissolution caused by the sale, merger or consolidation of the
Purchaser rather than the winding up of the business or affairs of Purchaser.
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(f) EXCLUSIVITY. Osenton and Barbera each hereby
represent, covenant and warrant that as of the date of this Agreement, he is
bound by no employment agreement or non-competition agreement with a party
other than PGM and Purchaser, or any other similar agreement, except for this
Agreement and the Employment Agreement. Furthermore, during any period of
employment with Purchaser, PGM or otherwise, he shall not enter into, or
otherwise become bound by, any other Agreement or non-competition agreement,
or other similar agreement with any other party other than Purchaser, PGM and
its Affiliates.
10.3 LIMITED INDEMNIFICATION BY SELLERS.
(a) INDEMNIFICATION BY SELLERS FOR UNDISCLOSED
LIABILITIES OR LOSS FOR SCHEDULED ITEMS. The Sellers hereby jointly and
severally indemnify and hold harmless Purchaser and PGM and their respective
Affiliates with respect to any Indemnification Claim for Undisclosed
Liabilities or Loss from Scheduled Items resulting in an actual loss or any
liability, provided that such indemnification shall only be effective (i) for
any Indemnification Claim for Undisclosed Liabilities or Loss for Scheduled
Items submitted to Sellers before the [*] year anniversary of the date of the
Closing and (ii) to the extent the aggregate of all Indemnification Claims
exceeds $[*](the "Indemnification Threshold Amount"), and after PGM's rights
under all insurance policies, including, but not limited to errors and
omissions policies, have been exhausted, provided that, to the extent not
paid by PGM Branch Managers and other parties who may be responsible for such
Indemnification Claim (other than Purchaser, PGM or their Affiliates), all
deductibles on such policies shall be paid by Sellers as if such deductible
were Undisclosed Liabilities. Notwithstanding the foregoing, the aggregate
of such claims shall not be payable to the extent they exceed the
Indemnification Cap as defined below.
(b) DEFINITIONS FOR INDEMNIFICATION. For the
purposes of this Section 10.3, the following terms shall have the meaning set
forth below:
(i) "INDEMNIFICATION CAP" shall mean the
total of (1) [*] plus (2) the stock of Purchaser received by the
Sellers at Closing, having a value of such Stock not to exceed
$[*] at the time payment on such Indemnification Claim is made
(subject to any adjustment, if any, made in Section 11.1 hereto).
(ii) "INDEMNIFICATION CLAIM FOR UNDISCLOSED
LIABILITIES OR LOSS FOR SCHEDULED ITEMS" or "INDEMNIFICATION
CLAIM" shall mean any and all liabilities, claims, demands,
damages, losses, costs and expenses (after exhausting all
reasonable remedies available through insurance remedies in force)
incurred by PGM, PGM Joint Ventures or Purchaser or their
respective Affiliates which arise as a result of any liabilities,
demands, liens, damages, claims, expenses, causes of action
including without limitation cross-claims, counterclaims, rights
of set-off and recoupment, suits, administrative action,
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agreements, damages, compensations, demands, actions, losses,
court costs and filing fees, attorneys' and paralegals' fees and
expenses of every kind and nature, including, without limitation,
those in law or in equity, arising with respect to any liability,
whether known or unknown, which are caused in whole or in part or
arise from occurrences, events, acts, omissions or situations
existing or occurring prior to May 1, 1998, including, without
limitation, those arising from a breach of warranty,
representation or covenant and those (i) which are not disclosed
in the Financial Statements delivered in connection herewith or
the Disclosure Schedules attached hereto or (ii) which are
disclosed in the Disclosure Schedules (including, without
limitation, those set forth in Disclosure Schedule 10.3(b)(ii))
other than those in Disclosure Schedule 10.3(e) and which, after
reasonable and diligent efforts to mitigate by PGM, result in
actual liabilities, losses, costs or expenses, provided that any
costs of such mitigation shall be included as a cost for the
purposes of this definition PROVIDED THAT Purchaser shall not,
during the period from June 30, 1999 through the end of the [*]
year anniversary of the date of Closing, conduct any extraordinary
or special audit, document or file review for the sole or primary
purpose of discovering new Indemnification Claims.
(c) ESCROW ACCOUNT FOR PAYMENT. At the Closing,
Purchaser shall deposit $1,000,000 (the Indemnification Amount) plus the
Indemnification Amount Interest Adjustment, if any, into an account to be
maintained at the Cole Taylor Bank or such depository institution chosen by
Purchaser and reasonably acceptable to Sellers which account shall bear interest
at a rate reasonably acceptable to Sellers, and disclosed to Sellers prior to
Closing, and which shall be in the name and under the domain and control of the
Purchaser but subject to the terms of this Agreement provided that upon the
later of (i) thirty (30) days after the [*]-year indemnification period set
forth in Section 10.3(a) (i) or (ii) the payout or settlement of the
Indemnification Claim timely and properly made during such period, all principal
and interest remaining in the account (the "Indemnification Account") that has
not been paid on an Indemnification Claim shall thereupon be paid to Sellers in
accordance with the terms of this Agreement, provided that if the payout of the
Indemnification Account is to occur under this clause (ii), the Purchaser shall
retain in the Indemnification Account after the [*]-year period only those
amounts necessary to pay all Indemnification Claims then outstanding as
determined by Purchaser in its reasonable discretion, remitting the balance to
Sellers no later than thirty (30) days after the [*]-year indemnification period
set forth in Section 10.3(a)(i).
(d) PAYMENT OF INDEMNIFICATIONS. Any Indemnification
Claim described in this Section 10.3 shall first be paid in cash out of the
Indemnification Account after giving written notice reasonably supported by
appropriate documentation and an opportunity to Sellers to object and, if
possible within forty-five (45) days of such notice, cure such
Indemnification Claim. Any amount in excess of the amount in such
Indemnification Account that is still owed for an Indemnification Claim under
the terms of this Agreement shall then be paid in Stock of Purchaser as
provided in
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Section 10.3(b)(i) above, PROVIDED THAT if either Seller no longer holds the
Stock of Purchaser adequate to pay such Indemnification Claim, such
Indemnification Claim shall be paid in cash in an amount equal to the value
of Stock described in the Indemnification Cap to the extent of such
deficiency. Such Indemnification Claim shall be payable on demand, after
notice as described in this Section 10.3(c), provided that in any
circumstances to which this indemnification provision applies, the Sellers
may at their own cost first employ their own legal counsel and consultants to
investigate and cure such claim and to facilitate their rights to be
consulted under Section 10.3(f); provided that they shall not have the right
to represent, prosecute, negotiate or defend PGM with respect to any such
liability.
(e) CERTAIN LOSSES NOT INDEMNIFIABLE. Notwithstanding
anything else to the contrary contained herein and in addition to the other
limitations set forth herein, the Sellers shall not be required to indemnify
Purchaser (or credit Purchaser with amounts toward the satisfaction of the
Indemnification Cap described in Section 10.3(b)(i) above), and Purchaser
shall not seek indemnity from the Sellers, and Sellers shall not be liable to
Purchaser, for any of the following types of losses:
(i) losses which arise from or in
connection with any claim made by Purchaser against the
Shareholders for consequential damages (which consequential
damages shall include, without limitation, lost profits (other
than a decrease in the value of a loan caused by a breach of
warranty, representation or covenant), lost investment or business
opportunity, lost interest or damages to reputation but which
shall not include the following losses, which SHALL be included in
the losses covered by the indemnification contained herein:
PUNITIVE DAMAGES, EXEMPLARY DAMAGES, TREBLE DAMAGES AND OPERATING
LOSSES);
(ii) losses attributable to or arising from
overhead allocations or administrative costs, the internal costs
of administering the requirements imposed by or under this
Agreement (provided, however, that Purchaser shall not contract
out to third parties any such costs of administering this
Agreement which, as of the date of this Agreement, would generally
be performed in the ordinary course of business by Purchaser) or,
except to the extent otherwise expressly contemplated by
Section 12.2 and otherwise hereby, including without limitation
the costs of complying with the requirements imposed by this
Agreement;
(iii) losses to the extent such loss or
causes arising solely after the Closing arising from Purchaser's
failure in any material respect to comply with its obligations
under this Agreement, provided, however, that Purchaser's
noncompliance with such obligations after the Closing Date shall
not limit Purchaser's ability to recover losses otherwise
indemnifiable by the Sellers under this Agreement unless such
noncompliance (A) adversely affects the Sellers' ability to
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administer a claim made by Purchaser against the Sellers, in which
case the Sellers may withhold payment on those portions of such
claims to the extent caused by such noncompliance for which
Purchaser seeks reimbursement until Purchaser complies with its
obligations hereunder, or (B) adversely affects Purchaser's
ability to cure a breach, mitigate a loss or defend a claim (to
the extent such noncompliance has caused such adverse effect), or
(C) otherwise results in or increases the amount of loss (to the
extent the Purchaser's noncompliance unreasonably increased the
amount of loss), in which case the Sellers shall not be obligated
to indemnify Purchaser with respect to any such increase in the
amount of a loss;
(iv) losses arising from the items set
forth in Disclosure Schedule 10.3(e), provided that any claims,
demands, damages, losses, costs and expenses existing or arising
from similar occurrences, complaints and events that may be
litigated as part of a class action with the items set forth in
Schedule 10.3(e) shall be covered by the indemnification contained
herein, and provided further that and with respect to the
potential loss of relationship with Norwest, set forth in item 10
of Schedule 10.3(e), any litigation related to the incident
described in such item 10 shall be covered by the indemnification
contained herein;
(v) losses to the extent they occur in the
ordinary course of PGM's business.
(f) CONSULTATION WITH SELLERS; REASONABLENESS
STANDARD. Purchaser agrees to make all reasonable efforts (i) to advise
Sellers of claims and potential claims under the indemnification contained in
Section 10.3(a) and (ii) to consult with Sellers on an ongoing basis in
connection with litigation, prosecution, negotiation and settlement of any
such claims, and further agrees to act reasonably and in consultation with
Sellers and at Sellers' request with Sellers' attorneys and consultants in
litigating, prosecuting, negotiating and settling such claims.
(g) EXCLUSIVE REMEDY. Except as provided in
subsection 10.3(h) below and for any injunctive or other equitable relief,
after the Closing, the remedies contained in Section 10.3(a) - (e) shall be
Purchaser's exclusive remedy for a breach of representation, warranty or
covenant hereunder or any claim by Purchaser for losses that have occurred as
a result of the transaction.
(h) INDEMNITY WITH RESPECT TO BREACH, FRAUD OR
VIOLATION OF COVENANTS. Notwithstanding anything else in Section 10.3(a) - (g)
herein to the contrary, the Sellers further agree to indemnify Purchaser and
PGM for any claims, demands, damages or costs with respect to or arising from
any breach of the covenants contained in Section 10.2 hereof (e.g., the
covenants not to compete and not to solicit, etc.), any fraud on the part of
PGM or of any Seller occurring at any time, or any wilful,
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knowing or intentional breach of any MATERIAL representation, warranty or
covenant of PGM or the Sellers contained in this Agreement, without regard to
any Indemnification Threshold Amount or Indemnification Cap.
10.4 EXPOSURE ON BREACH OF WARRANTY BY PURCHASER. Other than
with respect to fraud on the part of Purchaser, Purchaser shall not be liable
for any claim for breach of any representation, warranty or covenant by
Purchaser arising hereunder or under the transaction consummated hereunder if
at the time of such claim the value of the Purchaser, reasonably valued, is
equal to or greater than $50 million, and to the extent that the value of
Purchaser is less than $50 million, only then to the extent that such claims
when proven exceed in the aggregate $[*].
10.5 TAXES. Purchaser agrees to pay taxes or make
distributions to pay taxes arising under Sections 1366 and 1347(a)(2) of the
Internal Revenue Code arising from Sellers' ownership of shares of PGM for
the period from January 1, 1998 through the date of Closing, and Purchaser
and PGM agrees to pay or make distributions for such taxes of Sellers arising
out of Sellers' ownership of stock of Purchaser and PGM after the Closing on
a going forward basis, if such payment is not prohibited by applicable law or
any applicable provision of any credit documentation to which Purchaser is a
party or by which Purchaser is bound provided that Purchaser shall remain
liable for the unpaid balance and shall pay the same when legally permitted
and, shall to the extent permitted by applicable law and by the provisions
of such credit documentation, deliver a promissory note to such Sellers for
any such unpaid amount bearing a note of interest which to be adjusted
monthly equal to the Prime Rate as published in the Money Rate Tables of the
Midwest Edition of THE WALL STREET JOURNAL on the last day of the immediate
preceding month payable upon the removal of such legal or contractual
impediment. Purchaser agrees that it shall not enter into any loan agreement
containing any covenant explicitly prohibiting the payment of such taxes on
behalf of Sellers or PGM Shareholders generally.
10.6 PERSONAL GUARANTIES. Purchaser shall make best efforts
to obtain the release or termination of all Personal Guaranties from PGM's
lenders within ninety (90) days from the date of Closing. If any such
Personal Guaranties are not released within ninety (90) days of the Closing,
Purchaser shall indemnify Sellers and hold them harmless for and from any and
all claims and any and all losses by and all losses arising under such
Personal Guaranties for obligations under such Personal Guaranties arising
because of advances or obligations arising under the Guarantied Loans after
the Closing.
10.7 NEW JOINT VENTURE OPERATIONS. Purchaser agrees that it
shall not establish or seek in its own name or on behalf of any Affiliate
other than PGM to establish any net branch or joint venture arrangement with
a PGM Joint Venture or partner of a PGM Joint Venture, either directly or
indirectly, that PGM has requested that Purchaser approve, and that Purchaser
has failed to approve, as a "PGM Operation" under the definition of "PGM
Operations" in Article 1 hereof.
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10.8 OAK PARK ESTATES REO. Osenton and Purchaser hereby
agree that to the extent that the amount realized on the payment or
liquidation of those certain assets, including the notes and the real estate,
described in Schedule 10.8, either by the payment of the notes or through the
foreclosure sale of the real property described therein, is less than the
book value of such assets as reflected on the books of PGM, Osenton shall on
demand pay PGM such difference, and to the extent such amount realized on
such assets exceed the book values of such assets, Purchaser shall cause PGM
to distribute to Osenton the amount of such difference. Osenton's and PGM's
obligation to pay the amounts under this Section 10.8 shall not be subject to
any limitations, i.e., the Indemnification Cap or Indemnification Threshold
Amount, contained in Section 10.3 or any of the limitations contained in
Section 10.4 hereof.
10.9 FURTHER ASSURANCES. The parties hereto agree to execute
such further documents, instruments and consents and to perform such further
acts, as may reasonably be necessary to effect the Closing and the
transactions contemplated hereunder.
ARTICLE 11
TERMINATION
11.1 TERMINATION AND CURE UPON MATERIAL ADVERSE CHANGE. If,
prior to the Closing, there has been a material adverse change, a material
breach of a representation, warranty or covenant which cannot be cured or
condition not satisfied or there have been any distributions by either
Purchaser or PGM to Sellers not permitted by this Agreement, the other party
shall have the option to either (i) terminate this Agreement immediately in
which event the parties shall have no further obligation to consummate the
Closing, (ii) waive such material adverse change, breach or distribution or
(iii) if the material adverse change, breach of representation, warranty or
covenant or distribution can be cured by an amount not to exceed $500,000
such adjustment in the Base Cash Price, with the consent of the other party,
consummate the Closing and adjust the Base Cash Price (it being understood
that if there is such adjustment, then there shall be an identical adjustment
in the Indemnification Cap as defined in Section 10.3 hereof), or (iv)
pursue any other remedies available to such party at law or equity; provided,
however, if the material adverse change or distribution was done with the
intent to impair or prevent the Closing, then the other party may elect to
consummate the Closing and adjust the Base Cash Price by the full amount of
the material adverse change, cost of curing the breach or the amount of the
distribution and pursue any other remedies available to such party at law or
equity.
11.2 OTHER TERMINATION. This Agreement may be terminated at
any time prior to the Closing Date:
(a) by mutual consent of Sellers and Purchaser;
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(b) by either Sellers or Purchaser if the Closing Date
or Closing has not occurred by July 30, 1998 unless such delay in the Closing
Date or Closing is due to a failure to obtain a Required Regulation Approval or
caused by any act or omission of the party attempting to affect such
termination.
(c) by Purchaser, if any condition imposed on Sellers
(unless waived by Purchaser) in Section 9.1 or 9.2 cannot be satisfied by July
30, 1998; or
(d) by PGM and the Sellers if any condition imposed on
Purchaser (unless waived by PGM) in Section 9.1 or 9.3 cannot be satisfied by
July 30, 1998.
Any such termination shall be effected by the party asserting such termination
notifying the other party hereto as set forth in Section 12.8 hereof.
Notwithstanding the foregoing, all parties agree to act in good faith to effect
the transactions hereunder and reconcile and mitigate any technical or
nonmaterial noncompliance with the terms of this Agreement.
11.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 11.1 or 11.2, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of the Purchaser,
PGM or their respective directors and officers under this Agreement except as
set forth in Sections 6.4, 7.3, 8.1, 8.3, 12.1, 12.2, 12.3 and 12.16.
ARTICLE 12
MISCELLANEOUS
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations or warranties contained herein shall survive the Closing, and
any claims arising therefrom shall expire after [*] years from the later of
the date hereof or the date of Closing unless notified prior to [*] ([*])
years from the date hereof as provided in Section 10.3, except for breach of
covenants or claims of fraud or intentional, willful or knowing
misrepresentation to the other party until the applicable statute of
limitation has expired. Nothing contained in this Article shall affect the
obligations of any party to perform the agreements and covenants to be
performed by such party hereunder or in connection herewith either before or
after the Closing.
12.2 EXPENSES. Purchaser and Sellers will each be solely
responsible for and have all of its own respective expenses, activities and
other advisors, incurred at any time in documenting, negotiating,
consummating or executing this Agreement and the transactions contemplated
thereby; provided that PGM shall pay an amount not in excess of $[*] for the
costs of Sellers' accountants, attorneys, and other advisors and costs of
obtaining government approvals and other consents as all other costs incurred
in connection with the consummation of the sale (including all costs
associated with
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PGM's arrangements with the STRATMOR Group), any such costs incurred prior to
the Closing in excess of such amount to be borne by Sellers.
12.3 PRESS RELEASES; EMPLOYEE COMMUNICATIONS. Any press
releases, news releases or other communication issued or to be issued to the
press, the media or otherwise to the public or any communication to the
employees or customers of PGM by any of the parties hereunder shall first be
reviewed and approved in writing by both Purchaser and Sellers.
12.4 RIGHT OF OFFSET. To the extent any indemnification
claim is not paid on demand, after reasonable time for investigation and
confirmation of such claim, the party making such claim may offset such claim
against any amount or claim due or owing to such party to the extent such
claim is not limited by or subject to limitation by this Agreement or
otherwise precluded by law.
12.5 WRITTEN AGREEMENT TO GOVERN. This Agreement, together
with all Exhibits, Schedules and other documents to be delivered pursuant
hereto, set forth the entire understanding and supersede all prior oral or
written agreements among the parties hereto relating to the subject matter
contained herein and all prior and contemporaneous discussions among the
parties hereto are merged herein. No party hereto shall be bound by any
definition, condition, representation, warranty, covenant or provision other
than as expressly stated in this Agreement or the Exhibits and other
documents to be delivered pursuant hereto, or as hereafter set forth in a
written instrument executed by such party or by a duly authorized
representative of such party.
12.6 SEVERABILITY. The parties hereto expressly agree that
it is not the intention of any party hereto to violate any public policy,
statutory or common law rules, regulations, treaties or decisions of any
government or agency thereof. If any provision of this Agreement is
judicially or administratively interpreted or construed as being in violation
of any such provision, such articles, sections, sentences, words, clauses or
combinations thereof shall be modified to the extent necessary to make them
enforceable or, if necessary, shall be inoperative, and the remainder of this
Agreement shall remain binding upon the parties hereto.
12.7 INJUNCTIVE REMEDY FOR BREACH. The parties agree that
irreparable damage would occur if any provision of this Agreement is not
performed in accordance with its specific terms or is otherwise breached.
The parties accordingly agree that the party not in breach shall be entitled
to injunction to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in addition to any other right
or remedy provided hereunder or at law or in equity.
12.8 NOTICES AND OTHER COMMUNICATIONS. All notices, demands
or requests provided for or permitted to be given pursuant to this Agreement
must be in writing. All notices, demands and requests shall be deemed to
have been properly served if given by personal delivery, or if transmitted by
telecopy, or if delivered to Federal Express or other reputable overnight
carrier for next business day delivery,
56
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charges billed to or prepaid by shipper, or if deposited in the United States
mail, registered or certified with return receipt requested, proper postage
prepaid, addressed as follows:
If to PGM prior to the Closing, to: 501 Canal Boulevard, Suite H
Point Richmond, California 94804
Attn: Bruce Barbera/
William Osenton
Facsimile No.: (510) 970-0740
With a copy to: Weiner, Brodsky, Sidman & Kider
1350 New York Avenue, N.W.
Suite 800
Washington, D.C. 20005
Attn: James Brodsky, Esq.
Facsimile No.: 202/628-2011
If to PGM after the Closing, to: c/o Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: Mark Filler, Esq.
Facsimile: 312/494-0184
c/o Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: General Counsel
Facsimile: 312/494-0184
If to Sellers prior to the Closing, to: Bruce P. Barbera
c/o 501 Canal Boulevard, Suite H
Point Richmond, California 94804
Facsimile No.: 510/970-7949
William D. Osenton
c/o 501 Canal Boulevard, Suite H
Point Richmond, California 94804
Facsimile No.: 510/970-0740
With a copy to: Weiner, Brodsky, Sidman & Kider
1350 New York Avenue, N.W.,
Suite 800
Washington, D.C. 20005
Attn: James Brodsky, Esq.
57
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Facsimile No.: 202/628-2011
If to Sellers after the Closing, to: Bruce P. Barbera
781 St. Francis Avenue
Novato, California 94947
Facsimile No.: 510/970-7949
William D. Osenton
103 Trinidad Drive
Tiburon, California 94920
Facsimile No.: 510/970-7940
With a copy to: Weiner, Brodsky, Sidman & Kider
1350 New York Avenue, N.W.,
Suite 800
Washington, D.C. 20005
Attn: James Brodsky, Esq.
Facsimile No.: 202/628-2011
If to Purchaser before or after
Closing, to: Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: General Counsel
Facsimile: 312/494-0184
58
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Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: Mark Filler, Esq.
Facsimile: 312/494-0184
With a copy to: Rudnick & Wolfe
Suite 1800
203 North LaSalle Street
Chicago, Illinois 60601
Attn: John R. Mussman, Esq.
Facsimile No.: (312) 630-5390
Each notice, demand or request shall be effective upon personal
delivery, or upon confirmation of receipt of the applicable telecopy, or one
(1) business day after delivery to a reputable overnight carrier in
accordance with the foregoing, or upon return of a duly executed and proper
receipt of the same is deposited in the United States mail in accordance with
the foregoing. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given shall not
adversely impact the effectiveness of any such notice, demand or request.
Service by personal delivery upon Purchaser shall be valid only if delivered
personally to the President, Executive Vice President or General Counsel of
the Purchaser.
Any addressee may change its address for notices hereunder by giving
written notice in accordance with this Section.
12.9 COUNTERPARTS. This Agreement may be executed in
multiple counterparts and by the parties in separate counterpart, and shall
become effective when at least one counterpart has been signed by each party
and delivered personally or by facsimile machine to the other party. Each
counterpart shall constitute an original document, and all counterparts taken
together shall constitute one and the same document. The parties intend that
a facsimile signature shall have the same force and effect as an original
signature.
12.10 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns.
12.11 FURTHER ASSURANCES. At any time on or after the
closing on the Closing Date, the parties hereto shall each perform such acts,
execute and deliver such instruments, assignments, endorsements and other
documents and do all such other things consistent with the terms of this
Agreement as may be reasonably necessary to accomplish the transaction
contemplated in this Agreement or otherwise carry out the purpose of this
Agreement.
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12.12 INTERPRETATION. The masculine, feminine or neuter
pronouns used herein shall be interpreted without regard to gender, and the
use of the singular or plural shall be deemed to include the other whenever
the context so requires. The headings in this Agreement and in the Schedules
and Exhibits hereto are inserted for convenience of reference only and shall
not be a part of or control or affect the meaning of this Agreement. All
references herein to "including" shall mean "including, but not limited to".
12.13 SCHEDULES AND EXHIBITS. The Schedules and Exhibits
referred to herein, whether or not attached hereto, are incorporated herein
by such reference as if fully set forth in the text hereof.
12.14 MODIFICATION. The parties to this Agreement may, by
mutual written consent executed by all of the parties hereto, modify or
supplement this Agreement.
12.15 WAIVER OF PROVISIONS. The terms, covenants,
representations, warranties and conditions of this Agreement may be waived
only by a written instrument executed by the party waiving compliance. The
failure of any party at any time to require performance of any provisions
hereof shall, in no manner, affect the right at a later date to enforce the
same. No waiver by any party of any condition, or breach of any provision,
term, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement. A breach of any
representation, warranty or covenant shall not be affected by the fact that a
more general or more specific representation, warranty or covenant was not
also breached.
12.16 ARBITRATION; GOVERNING LAW; CONSENT TO JURISDICTION
(a) NEGOTIATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR
CLAIMS RELATED TO OR BASED ON SELLERS' USE OF THE TRADEMARKS OR SELLERS' OR ANY
AFFILIATED PARTY'S COVENANT NOT TO COMPETE OR TO PROTECT TRADE SECRETS, FOR
WHICH PURCHASER OR PGM MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS SUCH PARTY
MAY DEEM APPROPRIATE, OR LITIGATION WITH CONSUMERS OR ANY GOVERNMENTAL AGENCIES,
NEITHER PARTY SHALL INSTITUTE ANY PROCEEDING IN ANY COURT OR ADMINISTRATIVE
AGENCY OR ANY ARBITRATION TO RESOLVE A DISPUTE BETWEEN THE PARTIES BEFORE THAT
PARTY HAS SOUGHT TO RESOLVE THE DISPUTE THROUGH DIRECT NEGOTIATION WITH THE
OTHER PARTY. IF THE DISPUTE IS NOT RESOLVED WITHIN THREE WEEKS AFTER A DEMAND
FOR DIRECT NEGOTIATION, THE PARTIES SHALL THEN ATTEMPT TO RESOLVE THE DISPUTE
THROUGH ARBITRATION AS PROVIDED IN THIS SECTION.
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(b) SCOPE OF ARBITRATION. EXCEPT FOR CONTROVERSIES,
DISPUTES OR CLAIMS RELATED TO OR BASED ON SELLERS' USE OF THE TRADEMARKS OR
SELLERS' OR ANY AFFILIATED PARTY'S COVENANT NOT TO COMPETE OR TO PROTECT TRADE
SECRETS, FOR WHICH PURCHASER OR PGM MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS
SUCH PARTY MAY DEEM APPROPRIATE, OR LITIGATION WITH CONSUMERS OR ANY
GOVERNMENTAL AGENCIES, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN PURCHASER
AND SELLERS (AND ANY OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES THEREOF, IF
APPLICABLE) ARISING OUT OF OR RELATED TO
(i) THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN PURCHASER AND SELLERS THAT DO NOT HAVE THEIR OWN SPECIFIC
ARBITRATION PROVISIONS ("OTHER COVERED AGREEMENTS"); OR
(ii) THE VALIDITY OF THIS AGREEMENT OR ANY
OTHER COVERED AGREEMENT BETWEEN PURCHASER AND SELLERS OR ANY
PROVISION OF ANY SUCH AGREEMENT
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE CHICAGO, ILLINOIS OFFICE
OF JAMS/ENDISPUTE ON DEMAND OF PURCHASER OR SELLERS. SUCH ARBITRATION
PROCEEDING WILL BE CONDUCTED IN CHICAGO, ILLINOIS AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT RULES OF THE JAMS/ENDISPUTE. ALL
MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY THE FEDERAL
ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ.) AND NOT BY ANY STATE
ARBITRATION LAW.
THE DECISION AND AWARD OF THE ARBITRATOR SHALL BE BINDING AND CONCLUSIVE
UPON BOTH PURCHASER AND SELLERS, AND ENFORCEABLE IN ANY COURT OF COMPETENT
JURISDICTION. THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE
AWARD ANY LAWFULLY APPROPRIATE RELIEF AND TO ASSESS COSTS OR EXPENSES TO ONE OR
BOTH PARTIES, PROVIDED THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE
ANY TRADEMARK GENERIC OR OTHERWISE INVALID.
PURCHASER AND SELLERS AGREE TO BE BOUND BY THE PROVISIONS OF ANY
LIMITATION ON THE PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER
APPLICABLE LAW OR THIS AGREEMENT, WHICHEVER EXPIRES EARLIER. PURCHASER AND
SELLERS FURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING,
EACH MUST SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTI-
61
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TUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF
CIVIL PROCEDURE) (EXCEPT ONE THAT COULD BE FILED UNDER ANOTHER AGREEMENT
HAVING ITS OWN ARBITRATION AGREEMENT) WITHIN THE SAME PROCEEDING AS THE CLAIM
TO WHICH IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS
DESCRIBED ABOVE WILL BE FOREVER BARRED.
EACH PARTY AGREES THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL,
NOT A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN PURCHASER
AND SELLERS MAY NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING
BETWEEN PURCHASER OR SELLERS, AS APPLICABLE, AND ANY OTHER PERSON,
CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP EXCEPT BY THE AGREEMENT
OF THE PARTIES, PROVIDED THAT PURCHASER OR SELLERS MAY CONSOLIDATE ANY
ARBITRATION PROCEEDING COMMENCED UNDER THIS SECTION 12 WITH ANY ARBITRATION
PROCEEDING COMMENCED BY PURCHASER OR SELLERS UNDER ANY OTHER COVERED
AGREEMENT EXECUTED IN CONNECTION HEREWITH.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION,
PURCHASER AND SELLERS SHALL EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN
TEMPORARY RESTRAINING ORDERS AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF
FROM A COURT OF COMPETENT JURISDICTION; PROVIDED, HOWEVER, THAT PURCHASER OR
SELLERS MUST CONTEMPORANEOUSLY SUBMIT THE DISPUTE FOR ARBITRATION ON THE
MERITS AS PROVIDED HEREIN.
THE PROVISIONS OF THIS SECTION WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(a) GOVERNING LAW WITH RESPECT TO ARBITRATION AND
OTHERWISE. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY THE
FEDERAL ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ). EXCEPT TO THE EXTENT
GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK ACT OF
1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW, THIS
AGREEMENT AND ALL CLAIMS ARISING BETWEEN PURCHASER AND SELLERS FROM OR UNDER
THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS AND THE
UNITED STATES OF AMERICA WITHOUT REGARD TO THEIR CONFLICT OF LAWS PRINCIPLES.
(b) CONSENT TO JURISDICTION. EACH PARTY AGREES THAT
THE OTHER PARTY MAY INSTITUTE ANY ACTION AGAINST IT (WHICH IS NOT REQUIRED TO
BE ARBITRATED HEREUNDER OR UNDER ANOTHER ARBITRATION AGREEMENT IN ANY OTHER
AGREEMENT) IN
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ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF
SUCH COURTS AND WAIVES ANY OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION
OF OR VENUE IN SUCH COURTS.
(c) WAIVER OF JURY TRIAL. PURCHASER AND SELLERS
IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM,
WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER OF THEM AGAINST THE OTHER.
12.17 WAIVER OF CONDITIONS. The conditions to each of the
parties' obligations to consummate the Closing are for the sole benefit of
such party and may be waived by such party in whole or in part to the extent
permitted to applicable law.
12.18 CONSTRUCTION. Each of the parties has been advised by
counsel and actively negotiated the terms of this Agreement. Accordingly,
the fact that this Agreement or any particular provision hereof was drafted
by counsel for any party shall not be considered in construing this Agreement.
IN WITNESS WHEREOF, each of Purchaser and PGM has caused this
Agreement to be executed on its behalf by its officer thereunto duly
authorized, all on or as of the day and year first above written.
PRISM MORTGAGE COMPANY,
an Illinois corporation
By: /s/ David Fisher
-----------------------------------
Its: Vice President
-----------------------------------
SHAREHOLDERS:
/s/ William D. Osenton
---------------------------------------
William D. Osenton
/s/ Bruce P. Barbera
---------------------------------------
Bruce P. Barbera
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CONSENT OF SPOUSE
I am the spouse of the Seller, Bruce Barbera, and hereby join in the
execution of this Agreement to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this
Agreement and that I desire to bind to the performance of this Agreement my
interest, if any, in any shares of capital stock of PGM and any options
therefor ("PGM Securities") and any securities of Prism in which the Seller
may receive an interest in connection with the transactions. Accordingly, I
agree that my community property interest, if any, in such PGM Securities and
any securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Agreement and that
such consent is binding upon my executors, administrators, heirs and assigns.
I acknowledge that the foregoing is not intended to, and shall not be
construed as, conferring or creating in me any interest in any PGM Securities
and any securities of Prism which the Seller may receive in connection with
the transactions. I hereby acknowledge that I have been afforded the
opportunity to have this Agreement and this Consent reviewed by a counsel of
my own choosing.
/s/ Bettye Becker Barbera
------------------------------------
Bettye Becker Barbera
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CONSENT OF SPOUSE
I am the spouse of the Seller, William Osenton, and hereby join in the
execution of this Agreement to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this
Agreement and that I desire to bind to the performance of this Agreement my
interest, if any, in any shares of capital stock of PGM and any options
therefor ("PGM Securities") and any securities of Prism in which the Seller
may receive an interest in connection with the transactions. Accordingly, I
agree that my community property interest, if any, in such PGM Securities and
any securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Agreement and that
such consent is binding upon my executors, administrators, heirs and assigns.
I acknowledge that the foregoing is not intended to, and shall not be
construed as, conferring or creating in me any interest in any PGM Securities
and any securities of Prism which the Seller may receive in connection with
the transactions. I hereby acknowledge that I have been afforded the
opportunity to have this Agreement and this Consent reviewed by a counsel of
my own choosing.
/s/ Francine M. Osenton
------------------------------------
Francine M. Osenton
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Exhibit 10.3
AGREEMENT FOR THE PURCHASE AND SALE
OF THE CAPITAL STOCK OF
MORTGAGE MARKET, INC.
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omitted text has been marked with a bracketed asterisk ("[*]") and has
been filed separately with the Securities and Exchange Commission.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 2
Purchase and Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 Agreement to Sell and Purchase . . . . . . . . . . . . . . . . . . . . .5
2.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 3
Consideration and Payment Terms . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 Additional Consideration and Additional Compensation . . . . . . . . . .7
3.3 Additional Consideration or Additional Compensation for Senior
Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Tag-Along Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 No Other Equity or Ownership Interest Implied. . . . . . . . . . . . . 13
ARTICLE 4
Representations and Warranties of Sellers . . . . . . . . . . . . . . . . . . 13
4.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 No Restrictions; Binding Effect; Approval of Change of Control . . . . 14
4.4 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6 Title to the Shares or Other Interests in the Company. . . . . . . . . 15
4.7 No Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.8 Corporate Records and Action . . . . . . . . . . . . . . . . . . . . . 15
4.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.10 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.11 Events Since December 31, 1997 and March 31, 1998. . . . . . . . . . . 16
4.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.13 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.14 Condition of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.15 Accounts Receivable; Notes Receivable. . . . . . . . . . . . . . . . . 19
4.16 Intellectual Property and Software . . . . . . . . . . . . . . . . . . 20
4.17 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.18 Litigation; Regulatory Examination . . . . . . . . . . . . . . . . . . 23
4.19 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.20 Schedule of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.21 Compliance with Law Including Consumer Law . . . . . . . . . . . . . . 24
4.22 Forms; Policies and Procedures.. . . . . . . . . . . . . . . . . . . . 24
4.23 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.24 Environmental Warranties . . . . . . . . . . . . . . . . . . . . . . . 25
i
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TABLE OF CONTENTS (CONT'D.)
<CAPTION>
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4.25 Payroll List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.26 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.27 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 26
4.28 Employee Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.29 Referral Sources; Investors. . . . . . . . . . . . . . . . . . . . . . 27
4.30 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.31 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.32 Personal Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.33 Brokerage Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.34 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.35 Business Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 5
Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . 28
5.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . 28
5.2 No Restrictions; Authorization; Binding Effect; Approval of Change
of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.3 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.4 Litigation; Regulatory Examination . . . . . . . . . . . . . . . . . . 29
5.5 Financial Statement. . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.6 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 6
Covenants of Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.1 Conduct of Businesses; Notification of Breaches in Representations
or Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.2 Notification of Breach of Representation, Warranty or
Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3 Forebearances by MMI . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4 Good Faith Negotiations; Due Diligence . . . . . . . . . . . . . . . . 32
6.5 Other Acquisition Proposals. . . . . . . . . . . . . . . . . . . . . . 32
6.6 Intentionally Deleted. . . . . . . . . . . . . . . . . . . . . . . . . 33
6.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 Government Approval. . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.9 Additional Financial Statements. . . . . . . . . . . . . . . . . . . . 33
6.10 Supplements to Schedules . . . . . . . . . . . . . . . . . . . . . . . 33
6.11 Consents of Third Parties. . . . . . . . . . . . . . . . . . . . . . . 34
6.12 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.13 Guarantees and Collateral Pledges. . . . . . . . . . . . . . . . . . . 34
ARTICLE 7
Covenants of Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Notification of Breach of Warranty or Covenant . . . . . . . . . . . . 34
ii
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7.2 Good Faith Negotiations. . . . . . . . . . . . . . . . . . . . . . . . 35
7.3 Notification of Material Adverse Information . . . . . . . . . . . . . 35
7.4 [Deliberately Omitted] . . . . . . . . . . . . . . . . . . . . . . . . 35
7.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 8
Joint Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . 35
8.2 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.3 Put Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.4 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 37
8.5 Other Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 9
Conditions to Obligation to Close . . . . . . . . . . . . . . . . . . . . . . 37
9.1 Mutual Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.2 Conditions to Obligations of Purchaser to Effect the Purchase. . . . . 37
9.3 Conditions to Obligations of Sellers to Effect the Closing . . . . . . 39
ARTICLE 10
Post Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.1 Post Closing Covenants of Purchaser Regarding Financing
of MMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.2 Covenant Not to Compete by Sellers . . . . . . . . . . . . . . . . . . 41
10.3 Limited Indemnification by Sellers . . . . . . . . . . . . . . . . . . 45
10.4 Tax Liability of Francis, Sellers. . . . . . . . . . . . . . . . . . . 46
10.5 Covenant Regarding Record Keeping by Purchaser . . . . . . . . . . . . 47
10.6 Release of Personal Guarantees . . . . . . . . . . . . . . . . . . . . 47
10.7 Recognition of MMI's Past Success; MMI Board . . . . . . . . . . . . . 47
10.8 Intent to Investigate an IPO . . . . . . . . . . . . . . . . . . . . . 47
10.9 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.10 Territorial Expansion. . . . . . . . . . . . . . . . . . . . . . . . . 48
10.11 MMI Acquisition and Expansion. . . . . . . . . . . . . . . . . . . . . 48
10.12 Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.14 Contribution of Capital; Payments to Bob Barnett . . . . . . . . . . . 49
ARTICLE 11
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.1 Cure by Sellers Upon Material Adverse Change . . . . . . . . . . . . . 49
11.2 Other Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . 50
iii
<PAGE>
TABLE OF CONTENTS (CONT'D.)
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 12
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.1 Survival of Representations and Warranties . . . . . . . . . . . . . . 50
12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.3 Press Releases; Employee Communications. . . . . . . . . . . . . . . . 51
12.4 Right of Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.5 Written Agreement to Govern. . . . . . . . . . . . . . . . . . . . . . 51
12.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.7 Injunctive Remedy for Breach . . . . . . . . . . . . . . . . . . . . . 51
12.8 Notices and Other Communications . . . . . . . . . . . . . . . . . . . 51
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 54
12.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.12 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.13 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . 54
12.14 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.15 Waiver of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.16 ARBITRATION; LAW; JURISDICTION; WAIVER OF JURY TRIAL . . . . . . . . . 55
12.17 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.18 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SCHEDULES AND EXHIBITS
Schedule 4.1 -- Organization and Good Standing of MMI
Schedule 4.2 -- Qualifications
Schedule 4.3 -- Governmental Notices, Authorizations, Filings, Etc. Required
to effect Change of Control
Schedule 4.4 -- Conflicts
Schedule 4.5 -- Current Capitalization of MMI
Schedule 4.7 -- Subsidiaries, Joint Ventures
Schedule 4.10 -- Undisclosed Liabilities
Schedule 4.11 -- Events Since March 31, 1998 and December 31, 1997
Schedule 4.12 -- Taxes
Schedule 4.13 -- Liens
Schedule 4.16 -- Intellectual Property
Schedule 4.17 -- Material Contracts
Schedule 4.18 -- Litigation, Administration
Schedule 4.19 -- Insurance
Schedule 4.20 -- Description of Loan Portfolio, Loan Locks and Branches
Schedule 4.23 -- Licenses and Permits
iv
<PAGE>
TABLE OF CONTENTS (CONT'D.)
<CAPTION>
PAGE
----
<S> <C>
Schedule 4.25 -- Payroll List
Schedule 4.28 -- Employee Policies
Schedule 4.29 -- Referral Sources; Investors
Schedule 4.30 -- Bank Accounts
Schedule 4.31 -- Powers of Attorney
Schedule 6.7 -- Required Consents
</TABLE>
v
<PAGE>
DEFINITION OF TERMS
<TABLE>
<S> <C>
Acquisition Proposal 6.5
Additional Compensation 3.2
Additional Compensation Agreement 8.4
Affiliate 1
Affiliate Guarantees 6.13
After Tax Profits 1
Base Cash Price 3.1(a)
Base Cash Price Adjustment 3.1(b)
Branch Managers Agreement 1
Business Day 1
Closing 2.2
Closing Date 2.2
Closing Date Purchase Price 3.1(a)
Confidential Information 8.1(c)
Consumer Credit Law 4.21
Consumer Forms 4.22
Contract Year 1
Disclosing Party 8.1(b)
Disclosure Schedules 4.34
Employee Plans 4.27
Employee Retirement Income Security Act of 1974 4.27
Employment Agreements 8.4
vi
<PAGE>
DEFINITION OF TERMS (CONT'D.)
Environmental Law 4.24
Equity Value Plan 1
Equity Value Plan Agreement 1
Federal Home Loan Mortgage Corporation 4.21
Federal National Mortgage Association 4.21
Financial Statements 4.9
Government National Mortgage Association 4.21
Guaranteed Loans 6.13
Hazardous Substance 4.24
Indemnification Claim 10.3(b)
Indemnification Claim for Undisclosed 10.3(b)
Liabilities or Loss from Liabilities
Not Arising in the Ordinary Course of Business
Intellectual Property 4.16
IPO or Sale of Purchaser 1
Key Employees Sec. 1
Know-How 4.16(d)
Licensed Intellectual Property 4.16(a)
MMI Net Income 1
MMI Operations 1
MMI's Mortgage Banking Net Income 1
Ordinary Course of Business 1
Personal Guaranties 4.32
Purchaser Net Income 1
vii
<PAGE>
DEFINITION OF TERMS (CONT'D.)
Purchaser Shareholders 1
Put Agreement 1
Real Property 4.24
Recipient 8.1(b)
Representatives 8.1(d)
Seller Guaranties 6.13
Senior Managers Introductory Paragraph
Software 4.16(f)
Tax Returns 4.12(b)
Taxes 4.12
Third Parties 1
Trademarks 4.16(b)
United States Department of Housing .21
and Urban Development
Veteran's Administration 4.21
</TABLE>
viii
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT FOR THE PURCHASE AND SALE OF THE CAPITAL STOCK OF
MORTGAGE MARKET, INC. (this "Agreement") is made and entered into as of this
30th day of September, 1998, by and between PRISM MORTGAGE COMPANY, an
Illinois corporation ("Purchaser"), and MARTIN E. FRANCIS ("Francis"),
KENNETH BARTLEY ("Bartley"), MELISSA STASHIN ("Stashin"), and CURT
VANDERZANDEN ("VanderZanden") (Bartley, Stashin and VanderZanden sometimes
called collectively the "Senior Managers" and Senior Managers and Francis
sometimes called collectively the "Sellers" and each individually a "Seller").
W I T N E S S E T H:
WHEREAS, Francis owns all of the issued and outstanding shares of
capital stock of Mortgage Market, Inc. ("MMI"); and
WHEREAS, Senior Managers have certain rights ("Senior Manager
Interests") to receive stock or proceeds upon the sale of MMI pursuant to
their existing employment agreements with MMI; and
WHEREAS, MMI, which has its principal place of business at 6 Center
Pointe Drive (the "Premises") is in the business of originating, brokering,
funding and closing residential mortgage loans (collectively, the
"Business"); and
WHEREAS, Francis desires to sell and transfer to Purchaser all of the
issued and outstanding shares of capital stock of MMI and the Senior Managers
desire to sell and transfer the Senior Manager Interests and Purchaser
desires to purchase from Sellers all of the issued and outstanding shares of
capital stock of MMI and Senior Manager Interests (the capital stock and
Senior Manager Interests called collectively, the "Shares") subject to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties hereto do hereby agree as follows:
1
<PAGE>
ARTICLE 1
DEFINITIONS
Capitalized Terms herein, not otherwise defined, shall have the
meanings set forth in this Article:
"ADDITIONAL COMPENSATION AGREEMENT" shall have the meaning set forth
in Section 8.4.
"AFFILIATE" shall mean any legal entity or person which directly or
indirectly through one or more intermediaries, owns and controls or is owned
and controlled by a company. The term "control" means the power to direct or
cause the direction of the management and policies of an entity; "ownership"
shall mean ownership of 25% or more of the voting power or equity value of a
company or 25% or more of a capital and profits interest of an unincorporated
entity.
"AFTER TAX PROFITS" shall be calculated by deducting from the income
of MMI which is passed through and taxed to its shareholders an amount equal
to the sum of the taxes payable thereon by each shareholder which shall be
determined for each shareholder by multiplying each shareholder's share of
the income so allocated by the effective combined federal and state income
tax rate applicable to that shareholder for the same taxable period.
"ANNIVERSARY DATE" shall mean any of the first five anniversary dates
of the Closing.
"BRANCH MANAGERS AGREEMENT" shall mean those certain agreements
between MMI and branch managers substantially in the form as provided to
Purchaser by MMI as of the Closing.
"BUSINESS DAY" shall mean any day which is not a Saturday or Sunday
and which is not a day on which national banks in Chicago, Illinois are
required or permitted to be closed.
"CONTRACT YEAR" shall mean a one year period ending on an Anniversary
Date.
"EQUITY VALUE PLAN" shall mean that certain Equity Value Plan
established among MMI, Purchaser, the Senior Managers and the Key Employees,
pursuant to an Equity Value Plan Agreement for the purpose of providing
"Additional Compensation" as defined in the Equity Value Plan Agreement.
"EQUITY VALUE PLAN AGREEMENT" shall mean that certain Equity Value
Plan Agreement entered into by and between the Purchaser, the Senior Managers
and the Key Employees in form and substance acceptable to the Purchaser, MMI
and the Sellers.
2
<PAGE>
"FOR CAUSE" shall have the meaning set forth in Section 10.2(a).
"GEM OFFERING" shall mean that certain private placement made by Prism
as described in that certain term sheet dated August 25, 1998 between Prism,
the Pritzker Family and GEM Investors, Inc., a copy of which has been
delivered by Prism to Sellers.
"IPO OR SALE OF PURCHASER" shall mean the consummation of (a) any
initial public offering of shares of capital stock of Purchaser or of a
corporation controlling or controlled by Purchaser ("Purchaser Shares"), (b)
the sale of all or substantially all of the assets of Purchaser or (c) the
sale of 80% or more of the capital stock of Purchaser, effected directly or
indirectly in a transaction or series of transactions of any kind or nature,
including without limitation, a merger, consolidation or reorganization.
"KEY EMPLOYEES" shall mean Key Employees as such term is defined in
the Equity Value Plan Agreement.
"ORDINARY COURSE OF BUSINESS" shall mean in the ordinary course of
business in accordance with appropriate and legal past practices and
procedures by the Purchaser or MMI, as applicable, in ordinary business
circumstances.
"MMI'S MORTGAGE BANKING NET INCOME" shall include all service release
premiums, incentive income, gain on sale income, interest income, income
generated as a result of bulk sales, assignment of trade or co-issuer
transactions and all similar income and fees generated from the sale of loans
in the secondary market and shall be computed on a product by product basis
by calculating the total gross revenues generated by each product for MMI and
Purchaser and its Affiliates. Such gross revenue shall be allocated as MMI
Mortgage Banking Net Income based on (i) the ratio of the [*] MMI, Purchaser
or its Affiliates (including MMI) relative to the [*] Purchaser and its
Affiliates (including the MMI loans) multiplied by (ii) [*] from which total
(i.e., the aggregate sum of the foregoing calculations [*]) is subtracted the
following: (A) all mortgage banking expenses incurred in connection with such
revenues allocated to MMI based on the ratio of [*] MMI and funded by
Purchaser or its Affiliates (including MMI) relative to [*] Purchaser and its
Affiliates [*], (B) all hedging costs (e.g. all costs, including transaction
costs, of purchasing and selling marketable securities obtained to hedge
pipeline loans against interest rate risk together with the pair-off losses
and gains associated with such hedges) allocated to MMI based on the [*] MMI
and funded by Purchaser or its Affiliates (including MMI) to the [*]
Purchaser or its Affiliates (including MMI) taking into account [*] compared
to [*]; (C) any costs and expenses associated with any repurchase
obligations of MMI to the extent they are not solely caused by Purchaser and
its Affiliates other than MMI, and (D) any special fees paid to, or reduced
premiums received from, purchasers of loan product of MMI, Purchaser or its
Affiliates due to [*] such loan products closed by MMI (e.g. surcharges by
purchasers of loans based on [*] the loans) and (E) adjusted further by adding
or subtracting any [*] reflected on the rate sheets of MMI distributed to its
loan officers vis-a-vis the rate sheets of Purchaser and its Affiliates
(other than MMI) distributed to their loan officers.
3
<PAGE>
By way of example, assume MMI [*] of $500 Million [*] of $200 Million
[*] of $300 Million, that mortgage banking operations [*] $250 Million [*]
$300 Million [*] and $500 Million [*] Assume further Purchaser and its
Affiliates [*] of $10 Million [*] $5 Million in [*] and $15 Million [*] $1
Million in hedging costs [*] $10 Million in mortgage banking operating
expenses [*] 3,000 loans [*].
MMI Mortgage Banking Net Income would equal [*].
($500 Million/$750 Million x $10 Million) + ($200 Million/$500 Million
x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)
[*] [3,000/10,000 x $10 Million - [($1 Billion/$2.05 Billion x $1
Million]
[*] [$6,666,666.66 + 2,000,000 + $5,625,000] - [$3,000,000 - $487,804]
[*] $10,803,862
"MMI NET INCOME" shall equal MMI's Mortgage Banking Net Income plus
all other income generated by the MMI Operations calculated in accordance
with GAAP, including, without limitation, revenues from loan origination
minus (i) all operational, administrative and out-of-pocket expenses
including, without limitation, all underwriting and closing costs, directly
associated with MMI Operations and (ii) all indirect or other expenses of
Purchaser and its Affiliates to the extent they are associated with services
provided to MMI and apply to MMI Operations (including, without limitation,
accounting, financial, legal and other services relating to the provision of
technology, human resources, accounting, insurance, national marketing,
national senior management and otherwise provided by national senior
management) allocated to or on behalf of MMI based on the ratio of the number
of loans closed by MMI in any period compared to the number of loans closed
by Purchaser and its Affiliates including those closed by MMI in such period,
provided that no such indirect expenses of Purchaser incurred in the sixty
(60) days immediately following the Closing shall be allocated to MMI,
provided further that any costs or a portion of any costs related to [*] that
MMI has incurred, or incurred on behalf of MMI, which are necessitated solely
by the [*] of MMI Operations with Purchaser and incurred within [*] days
immediately following the Closing, rather than the [*] of MMI Operations,
such as [*] shall not be a direct or indirect expense [*].
"PURCHASER NET INCOME" shall mean all net income of Purchaser and its
Affiliates (including all of MMI Net Income) calculated in accordance with
GAAP.
"MMI OPERATIONS" shall mean (i) all current operations of MMI existing
as of the Closing plus (ii)any new operations (including acquisitions) which
are expressly approved as a MMI Operation by Purchaser in writing, in its
reasonable discretion and consistent with Section 10 hereof.
"PURCHASER SHAREHOLDERS" shall mean the shareholders of Purchaser.
4
<PAGE>
"PUT AGREEMENT" shall mean that certain Put and Call and Restrictions
on Transfer Agreement dated of even date herewith between Purchaser and the
Sellers and the Key Employees.
"REQUISITE COMPENSATION LEVEL" shall mean 50% of full-time employment.
"SELLERS' RESTRICTIVE COVENANT" shall mean those covenants of Sellers
set forth in Section 10.2.
"THIRD PARTIES" shall mean any person or entity other than Purchaser,
MMI or any Affiliate of Purchaser or MMI.
ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 AGREEMENT TO SELL AND PURCHASE Upon the terms and subject to
the conditions set forth herein, and in reliance on the respective
representations and warranties of the parties, Sellers shall sell the Shares
to Purchaser, and Purchaser shall purchase the Shares from Sellers, on the
Closing Date and at the time and place of Closing referred to in Section 2.2
below, for the price and in accordance with the provisions specified in
Article 3 hereof, free and clear of all claims, liens, charges, security
interests, equities and encumbrances of any nature whatsoever and free and
clear of any sale, transfer or transaction taxes of any kind whatsoever
relating to the transfer of the Shares to Purchaser hereunder.
2.2 CLOSING. The consummation of the purchase and sale of the
Shares (the "Closing") shall take place at the offices of Purchaser, 440
North Orleans, Chicago, Illinois at 10:30 a.m. local time as of the date
hereof (hereinafter the "Closing Date").
ARTICLE 3
CONSIDERATION AND PAYMENT TERMS
3.1 PURCHASE PRICE. Purchaser shall pay the following
consideration subject to the terms set forth below:
(a) AMOUNT OF THE CLOSING DATE PURCHASE PRICE. The aggregate
consideration and signing bonuses to be paid by Purchaser to Sellers for
the Shares, the Senior Manager Interests and the Sellers' Restrictive
Covenant on the Closing Date (the "Closing Date Purchase Price") as
follows:
5
<PAGE>
The "BASE CASH PRICE" equal to One Million Six Hundred
Twenty-Five Thousand Dollars ($1,625,000) paid to the Sellers and
allocated to the Shares and to the Sellers' Restrictive Covenant
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NAME SHARES RESTRICTIVE COVENANT TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Francis $1,405,000 $20,000 $1,425,000
- -------------------------------------------------------------------------------
<CAPTION>
NAME SHARES/SENIOR
MANAGER
INTERESTS
SIGNING BONUS RESTRICTIVE COVENANT TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bartley 90,000 10,000 100,000
- -------------------------------------------------------------------------------
Stashin 52,500 7,500 60,000
- -------------------------------------------------------------------------------
VanderZanden 35,000 5,000 40,000
- -------------------------------------------------------------------------------
</TABLE>
Any adjustment or modification in the Base Cash Price pursuant to
Section 3.1(b) or (c) hereof shall be made in the amount payable
to Francis for that portion of the Base Cash Price allocated to the
Shares.
(b) BASE CASH PRICE ADJUSTMENTS. In addition to the
foregoing consideration, Purchaser shall pay to Francis in cash:
(i) within sixty (60) days after the Closing, an
amount equal to fifty percent (50%) of the amount, if any,
by which the stockholders equity of MMI as shown on its
consolidated balance sheet as of June 30, 1998, prepared
in accordance with GAAP by Stefani & Mathews, LLP, subject
to the reasonable review by Purchaser, but without deduction
for any distributions made pursuant to Section 10.4 of this
Agreement, exceeds Two Million Dollars ($2,000,000); and
(ii) no later than April 1, 1999, an amount equal to
[*] percent ([*]%) of the after-tax net income of MMI for the
period beginning August 1 and ending on the Closing Date;
provided that such net income shall be calculated without a
deduction for attorneys' fees incurred in connection with this
transaction.
The calculations in the preceding sentence will be made after taking
into account reasonable accruals for income and liabilities.
(c) OTHER MODIFICATIONS OF BASE CASH PRICE. It is
acknowledged by the parties hereto that MMI has certain assets and
related liabilities which may not be appropriate to include as part
of this transaction. Such assets and related liabilities will be
excluded after they have been clearly identified by the parties in
the course of such parties' due diligence and only pursuant to an
6
<PAGE>
agreement by the parties with respect to excluding such items and
the procedure and effects of excluding such items. The Base Cash
Price will be reduced to the extent the value of the excluded assets
reasonably determined by the parties exceeds the value of the excluded
liabilities. Notwithstanding anything in the foregoing, prior to
Closing, Francis shall be entitled to cause MMI to distribute to
Francis the life insurance for Francis which MMI has been paying and
Francis' country club membership with [*] reduction in the Base Cash
Price. The parties also acknowledge that certain uncollected debts
identified on Schedule 3.1(c) attached hereto are not included as
assets on the Financial Statements of MMI and that in the event
amounts are collected with respect thereto such amounts shall be
paid to Francis.
3.2 ADDITIONAL CONSIDERATION AND ADDITIONAL COMPENSATION
(a) COMPUTATION OF ADDITIONAL CONSIDERATION AND ADDITIONAL
COMPENSATION TO FRANCIS. In addition to the consideration set forth
in Section 3.1 above, Purchaser shall pay to Francis "Additional
Consideration" and "Additional Compensation" all on the terms and
conditions set forth in this Section 3.2.
- ADDITIONAL CONSIDERATION.
(A) Except as otherwise provided below, at the
time of an IPO or Sale of Purchaser, Francis will be entitled
to receive Purchaser Shares, or, at the option of Purchaser the
equivalent in cash, in an amount computed by multiplying 3%
(or, if the IPO or Sale of Purchaser does not occur before 24
months after the date of Closing, 6%) by the product of (i) [*]
as computed below and (ii) [*] twelve-month period ending with
the final day of the calendar quarter immediately prior to such
IPO or Sale of Purchaser. If the Sale of Purchaser is a Sale
of the Stock of Purchaser and Purchaser has not opted to pay
Francis such Additional Consideration in cash as provided
hereinabove at Francis' option such Additional Consideration
shall be received in cash or a mixture of cash and Purchaser
Shares, in the same proportions as that received by the other
current stockholders of Purchaser. For purposes of this
Paragraph A, the [*] shall be computed by [*] the value of [*]
in the IPO or Sale of Purchaser [*] after the IPO or
immediately prior to the Sale [*] twelve month period ending
with the final day of the quarter immediately prior to such IPO
or Sale of Purchaser.
If, and only if, an IPO occurs within 15 months of the
Closing AND Francis has so elected in writing prior to the
Closing (a "Special Election"), Francis shall receive the
Additional Consideration in the foregoing Paragraph A on the
date occurring 15 months after the Closing (and not at the
IPO), and the above calculations shall be made as if the
7
<PAGE>
IPO had occurred on the final day of the quarter immediately
preceding such date, i.e., the [*] shall be calculated [*] the
final day of the quarter immediately preceding the date 15
months after the [*] for the twelve-month period ending on such
final day of the quarter preceding the date 15 months after the
[*].
By way of example:
EXAMPLE 1: If Purchaser completes an IPO for
$100,000,000 for 100% of Purchaser in the fifteen months after
the Closing and Francis has not made a Special Election and at
the time of the offering [*] for the twelve-month period ending
on the final day of the quarter immediately preceding the IPO
[*], the value of the Purchaser Shares to be received by
Francis at the time of the IPO would equal the following: [*].
EXAMPLE 2: If Purchaser completed an IPO for $75 Million
for 50% of Purchaser and at the time of the offering [*] for
the twelve-month period ending on the final day of the quarter
immediately preceding the IPO [*], the value of the Purchaser
Shares to be received by Francis would equal the following: [*].
(B) If the IPO or Sale of Purchaser occurs prior to
the end of the 24th month after the date of the Closing, at the
end of the twenty-fourth month Francis will be entitled to
receive (1) additional Purchaser Shares or (2) the equivalent
amount of cash, at Purchaser's option, in an amount equal to
the product of 3% times the product of (i) the [*] (as computed
below) and (ii) [*] for the twelve-month period ending on the
final day of the last quarter ending within twenty-four (24)
months of the [*]. If the Sale of Purchaser is a Sale of the
Stock of Purchaser and Purchaser has not opted to pay Francis
such Additional Consideration in cash as hereinabove provided,
at Francis' option, such Additional Consideration shall be
received in cash or a mixture of cash and Purchaser Shares, in
the same proportions as that received by the other current
shareholders of Purchaser. For the purposes of this Paragraph
B, the [*] shall be computed by [*] as of the final day of the
final quarter ending within 24 months of the date of [*] for
the 12-month period ending on the final day of the final
quarter ending within twenty-four (24) months of the [*].
8
<PAGE>
By way of example:
EXAMPLE 1: If Purchaser completed an IPO prior to 24
months following the Closing and [*] for the twelve-month
period ending on the final day of the last quarter ending
within twenty-four (24) months of the [*] the value of the
stock to be received by Francis would equal the following: [*].
[*]
If the Purchaser Shareholders enter into any restriction
on the sale of their stock for a period of time following any
public offering, Francis shall be subject to the same
restriction with respect to stock received as Additional
Consideration for a period not to exceed two (2) years
following the IPO.
- ADDITIONAL COMPENSATION.
(C) If Francis is employed by MMI, Purchaser or their
Affiliates at the Requisite Compensation Level on the third
Anniversary Date following the Closing, at the time of an IPO
or Sale of Purchaser Francis will be entitled to receive the
following Additional Compensation at the time of an IPO or Sale
of Purchaser or, if such IPO or Sale of Purchaser has occurred
prior to the third Anniversary Date, at the time of such third
Anniversary Date: Purchaser Shares, or, at the option of
Purchaser, the equivalent in cash, in an amount computed by
multiplying one percent (1%) times the product of (i) [*](as
computed below) and (ii) [*] for the twelve month period
ending with the final day of the calendar quarter immediately
prior to such IPO or Sale or Purchaser [*] for the twelve
month period ending with the final day of the calendar quarter
immediately prior to [*]. If the Sale of Purchaser is a Sale
of Stock and Purchaser has not opted to pay Francis such
Additional Compensation in cash as provided hereinabove, at
Francis' option such Additional Compensation shall be received
in cash or a mixture of cash and Purchaser Shares in the same
proportions as that received by the other current stockholders
of Purchaser. For the purposes of this paragraph (C), the [*]
shall be computed by [*] for the twelve month period ending
with the final day of the quarter immediately prior to such IPO
or Sale of Purchaser [*] for the twelve-month period ending
with the final day of the quarter immediately prior to such [*].
If Francis is employed by MMI, Purchaser or the
Affiliates at the Requisite Compensation Level on the fourth
Anniversary Date following the Closing, then on the fourth
Anniversary Date, Francis shall be entitled to receive an
additional one percent Additional Compensation
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on such fourth Anniversary Date, or if the IPO has not yet
occurred on the date of the IPO or Sale of Purchaser, computed
in the same manner as set forth in the immediately preceding
paragraph but replacing the "third Anniversary Date" with the
"fourth Anniversary Date."
For the purposes of this subsection (C), the Additional
Compensation shall vest on the third or fourth Anniversary
Date, as applicable, only if Francis is employed by MMI,
Purchaser or any of its Affiliates or its successor on such
third or fourth Anniversary Date as provided in the immediately
preceding paragraph or prior to such date has terminated his
employment "for cause" as defined in the final sentence of
Section 10.2(a) of this Agreement or has his employment
terminated by Purchaser "without cause" as defined in the
penultimate sentence of Section 10.2(a) of this Agreement. If
Francis shall die or become permanently disabled, Francis'
rights with respect to Additional Compensation for such
12-month period ending on the next Anniversary Date shall vest
on [*] but shall be prorated to the date of death or such
disability. All other Additional Compensation not vested on or
paid on any Anniversary Date shall not vest to Francis and
shall, at the option of the Board, be reallocated to other Key
Employees of MMI as provided in Section 3.3 of this Agreement.
(D) If the Purchaser completes an IPO and the
Purchaser has elected to pay Francis Additional Compensation in
the form of cash rather than Shares and Francis elects to
purchase Purchaser Shares with such cash concurrently with the
payment, Purchaser agrees to pay Francis for all brokerage
commissions incurred by Francis for such purchases and, if the
Additional Compensation is paid concurrently with the IPO, any
additional price in excess of the IPO price which Francis pays
for the Purchaser Shares.
(b) TAX TREATMENT; PAYMENT OF ADDITIONAL CONSIDERATION AND
ADDITIONAL COMPENSATION. For purposes of computing the Additional
Consideration and Additional Compensation: MMI Net Income and [*]
shall be computed on a pretax basis for such periods as MMI [*] S
Corporations, but shall be computed on an after-tax basis for such
periods as MMI [*] C Corporations if and when MMI [*] C Corporations.
A report setting forth in reasonable detail the computation of the
Additional Consideration or Additional Compensation shall be delivered
to Francis concurrently with the payment of the Additional
Consideration or Additional Compensation. Francis will receive such
Additional Consideration or Additional Compensation as soon as
possible after the event giving rise to the computation (e.g. the
Anniversary Date or the IPO or Sale) of the Additional Consideration
or Additional Compensation above and shall be paid by check if the
Additional Consideration or Additional
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Compensation is "cash" and shall otherwise be paid in the manner
hereinabove provided.
(c) RECORDS AND INSPECTION OF RECORDS AND FINANCIAL
STATEMENTS FOR CALCULATION OF ADDITIONAL CONSIDERATION AND ADDITIONAL
COMPENSATION. During the five (5) years following the Closing,
Purchaser shall permit Francis and his representatives, agents,
accountants and advisors reasonable access to examine MMI's and
Purchaser's consolidated and unconsolidated income statements and
balance sheets and review the computations relevant to the calculation
of MMI Net Income, including the allocation of income and costs. The
costs of any such inspection shall be borne by Francis, provided that
if the inspection and any consequent verification of such records or
computations reveals a mistake of any kind, including, but not limited
to, an improper allocation, that results in a discrepancy of more than
10% of such payment, and which discrepancy is acknowledged by
Purchaser or confirmed by the dispute resolution mechanism set forth
in this Subsection 3.2(c) hereinbelow, then the cost of such
inspection shall be borne by Purchaser. If Francis' inspection
discloses a mistake or discrepancy resulting in an underpayment of the
Additional Consideration or Additional Compensation, Francis shall
notify Purchaser thereof in writing, which notice shall specify the
basis for such mistake or discrepancy in reasonable detail. Within
twenty (20) Business Days after Purchaser's receipt of such notice,
Purchaser shall either (i) pay to Francis the aggregate amount of such
underpayment, or (ii) notify Francis in writing that it disputes the
amount of such underpayment, stating its grounds therefor in
reasonable detail. If Purchaser and Francis are unable to resolve
Purchaser's objections within twenty (20) Business Days after
Purchaser has notified Francis of its objections, and the matter in
dispute concerns only the calculation of the amount of the Additional
Consideration or Additional Compensation the matter in dispute shall
be referred to an investment banker or accountant mutually acceptable
to the parties hereto, which shall be instructed to resolve the matter
in dispute promptly (and the fees of such investment banker or
accountant shall be borne equally by Purchaser and Francis).
If the investment banker or accountant cannot resolve the
dispute or if Francis and the Purchaser cannot agree on an investment
banker or accountant, Francis shall select one investment banker or
accountant, Purchaser another and each of such investment bankers or
accountants shall together select a third investment banker or
accountant who shall make such determination. The determination of
such investment banker or accountant shall be final, binding and
conclusive on Purchaser and Francis. The fees of their first two
investment bankers or accountants shall be borne by the party --
Purchaser or Francis -- retaining such investment banker or accountant
and the fees of the third shall be borne equally by Purchaser and
Francis.
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(d) RESTRICTIONS ON ASSIGNMENT. The right to receive the
Additional Consideration or Additional Compensation may not be
transferred by Francis, except as follows:
(i) such right may be transferred upon the death of
Francis to his heirs or to a beneficiary so designated in a
testamentary document;
(ii) such right may be transferred by Francis to the
spouse and children of Francis or to a trust created for the
primary benefit of Francis or his spouse and children; and
(iii) in accordance with the Put Agreement,
(each a "Permitted Assignee"); PROVIDED, that Purchaser shall not be
obligated to make any payment to a Permitted Assignee unless (i)
Purchaser has received notice of such transfer from the assignor,
setting forth the name, address and employer identification number or
social security number of such Permitted Assignee and (ii) such notice
has been received by Purchaser at least ten (10) Business Days before
the next payment of the Additional Consideration or Additional
Compensation is made.
(e) DEATH OR DISABILITY OF FRANCIS. All Additional
Compensation owed to Francis set forth herein shall continue to be
payable to Francis or his heirs notwithstanding his disability or
death.
3.3 ADDITIONAL CONSIDERATION OR ADDITIONAL COMPENSATION FOR SENIOR
MANAGERS. Additional Compensation shall be paid to the Senior Managers as
provided in the several Additional Compensation Agreements and Equity Value
Agreement between Purchaser and Senior Managers and other Key Employees of
MMI unless such Senior Manager or other Key Employee of MMI dies, becomes
disabled or otherwise ceases to be employed and thereby is no longer vested,
in which case the portion of the Additional Compensation that by the terms of
such Additional Compensation Agreement or Equity Value Agreement no longer
payable to such Key Employee or Senior Manager shall be reallocated to the
remaining Senior Managers and Key Employees as determined by Purchaser
subject to the reasonable approval of Francis.
3.4 TAG-ALONG RIGHT. If at any time any sales of the stock of the
Purchaser (exclusive of the GEM Offering) either through one sale or a series
of sales, which in the aggregate exceeds 15% of the then existing outstanding
stock of Purchaser, the selling shareholder or Purchaser shall first give
written notice thereof (a "Tag-Along Notice") to Francis specifying the
amount of stock to be sold, the percentage in the Purchaser that such stock
represents and the price and terms of such sale. Francis may elect to
participate in any such transaction as an additional selling or transferring
shareholder on identical terms and conditions by delivering a written notice
thereof (a "Tag-Along Election Notice") to the Purchaser within fifteen (15)
days after Francis'
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receipt of such Tag-Along Notice, thereby electing to sell or transfer in
such transaction all or a portion of the vested Additional Consideration or
Additional Compensation of Francis up to the amount computed as provided
below. Upon receipt of the Tag-Along Election Notice, the Purchaser shall
first compute the amount of stock in the Purchaser that would be represented
by the vested Additional Consideration or Additional Compensation of Francis
expressed as a percentage (the "Vested Interest") upon the sale of all the
stock of the Purchaser. The maximum amount of stock to be transferred by
Francis shall then be computed by multiplying (i) the total aggregate stock
which is proposed to be transferred in the transaction by (ii) a fraction,
the numerator of which is the Vested Interest of Francis, and the denominator
of which is the aggregate percentage of the Purchaser owned by the selling
shareholder or shareholders and the Vested Interest of all Sellers electing
to participate in such transaction.
Immediately prior to such sale, the Purchaser shall issue Purchaser
Shares necessary to effect such sale or transfer by Francis if he has made a
Tag-Along Election and the percentage used to calculate the amount of
Additional Consideration or Additional Compensation to be received by such
Seller on any future occasion shall be reduced by the percentage used to
calculate the Additional Consideration or Additional Compensation received to
effect the Tag-Along Election computed at the time of such initial sale.
3.5 NO OTHER EQUITY OR OWNERSHIP INTEREST IMPLIED. Neither a
Seller's rights with respect to Additional Consideration or Additional
Compensation hereunder nor the tag-along right under Section 3.4 or in the
Additional Compensation Agreements shall confer on any Seller any equity or
ownership interest in the Purchaser or any concomitant rights other than the
rights set forth hereunder and the right to receive stock or cash when and as
described hereunder, and no equity or ownership interest in Purchaser shall
be conferred on any Seller by virtue of the "vesting" of any Additional
Consideration or Additional Compensation prior to the issuance of Purchaser
Shares pursuant to this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, as to themselves and for and on behalf of MMI, represent and
warrant to Purchaser on the date hereof and as of the Closing Date as follows:
4.1 ORGANIZATION AND STANDING. MMI is a corporation which is duly
organized, validly existing and in good standing under the laws of Oregon.
Sellers have delivered to Purchaser complete and correct copies of the
Articles of Incorporation and By-Laws, as amended, of MMI. MMI has all
necessary corporate powers and authority to engage in the business in which
it is presently engaged (as such business is presently being conducted), to
own all property now owned by it, and to lease all of the property
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used by it under lease. Complete copies of the corporate minutes and stock
transfer records of MMI have been delivered to Purchaser for Purchaser's
review, and contain minutes and consents for all actions taken by the
shareholders and directors of MMI for which such consents were required, and
complete and accurate records of all issuances and transfer of shares of its
capital stock. Schedule 4.1 hereto contains a complete and accurate list of
the officers and directors of MMI.
4.2 QUALIFICATION. MMI has not failed to qualify in any
jurisdiction where a failure to so qualify would have an adverse effect on
the financial condition or results of operations of MMI. Schedule 4.2 hereto
identifies each jurisdiction where MMI is duly qualified to do business as a
foreign corporation, and MMI is in good standing in each such jurisdiction.
4.3 NO RESTRICTIONS; BINDING EFFECT; APPROVAL OF CHANGE OF CONTROL.
Except as contemplated by this Agreement or as set forth in Schedule 4.3,
neither Sellers nor MMI is subject to any material restriction, agreement,
law, rule, regulation, ordinance, code, writ, injunction, award, judgment or
decree which would prohibit or be violated by the execution and delivery
hereof or the consummation of the transactions contemplated hereby. Sellers
have all power to execute and deliver this Agreement and the instruments,
documents and agreements to be executed and delivered pursuant hereto and to
consummate the transactions contemplated hereby and thereby. This Agreement
and each of the instruments, documents and agreements to be executed and
delivered pursuant hereto have been or will be duly executed and delivered by
Sellers, and each constitutes a legal, valid and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally and subject to the availability of equitable remedies.
Except as contemplated by this Agreement or as set forth in Schedule 4.3,
neither Sellers nor MMI are required to give any notice to, make any filing
with, or obtain any authorization, consent or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.
4.4 NONCONTRAVENTION. Except as set forth in Schedule 4.4, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby and thereby nor any direct or indirect
change of control of MMI will (a) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, memorandum of understanding
regulatory order or understanding to which MMI is a party or is otherwise
subject, (b) conflict with or result in a breach of the provisions of the
Articles of Incorporation or By-laws of MMI, as amended to date, or (c)
conflict with, result in the breach of, constitute a default under, result in
the acceleration of, create in any person or entity the right to accelerate,
terminate, modify or cancel, or require any notice under, any material
contract, lease, license, indenture, agreement, mortgage, instrument of
indebtedness or other instrument to which MMI is a party or by which MMI or
any property of MMI is bound or result in the creation or imposition of any
lien or encumbrance on any of such property, and MMI and the
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Sellers shall obtain all consents, waivers and amendments necessary to
resolve any such violation or conflict identified on Schedule 4.4 on or
before the Closing.
4.5 CAPITAL STRUCTURE. Francis is the only record and beneficial
owner of the capital stock of MMI as of the date hereof and Schedule 4.5
hereto accurately sets forth the number of authorized and issued and
outstanding shares of capital stock of MMI. All such issued and outstanding
shares of capital stock are duly authorized, validly issued and outstanding,
and are fully paid and non-assessable. Except as set forth in said Schedule
4.5, no other class or series of capital stock of MMI is presently
authorized. Except as set forth in Schedule 4.5, (i) there is no obligation,
option or warrant which is binding upon MMI to issue, sell, redeem, purchase
or exchange any of its capital stock or any right relating thereto, (ii)
there is no obligation, debt, liability or security of MMI that is
convertible into capital stock of MMI, (iii) there are no outstanding stock
appreciation rights, phantom stock or similar rights, and (iv) there are no
agreements to pay a percentage of profits, revenue or volume of loans
originated, brokered or assigned.
4.6 TITLE TO THE SHARES OR OTHER INTERESTS IN THE COMPANY
(a) Francis is the record and beneficial owner and holder
of the Shares consisting of capital stock and the Senior Managers
are the beneficial owners and holders of the Senior Manager Interests
and each respectively has good title to his or her respective Shares
or interest, free and clear of all liens, encumbrances, pledges,
security interests, options, claims, charges and restrictions of
any nature whatsoever, except those that will be released at Closing;
and
(b) Francis has full voting power over his Shares, which
represent all capital stock of MMI, subject to no proxy, shareholders
agreement or voting trust, and have full right, power and authority
to sell and deliver the Shares to Purchaser in the manner provided
for in this Agreement.
4.7 NO SUBSIDIARIES. Except as set forth on Schedule 4.7, MMI does
not own any shares of or equity interest in any corporation, partnership,
limited liability company, joint venture, association (excluding memberships
in trade associations) or other entity and the execution and delivery of this
Agreement and the consummation of the transactions contemplated thereby and
hereby do not and will not violate or conflict with or create a default
under, or give the counterparty to such agreement the right to terminate, the
agreements governing any of the joint ventures set forth on Schedule 4.7.
4.8 CORPORATE RECORDS AND ACTION. MMI has previously furnished to
Purchaser a copy of the Articles of Incorporation and all amendments thereto
of MMI, and prior to the Closing shall furnish to Purchaser a copy of the
foregoing, certified as being true, correct and complete by the Secretary of
State of Oregon. MMI has previously furnished to Purchaser a complete copy
of the By-laws and all amendments
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thereto of MMI and prior to the Closing shall furnish to Purchaser
certification by the Secretary of MMI as to the accuracy of such documents.
MMI has previously made available to Purchaser the complete minute books of
MMI. As of the Closing, all corporate actions taken by the shareholders,
Board of Directors or any committee of the Board of Directors of MMI is
fairly and accurately summarized in all material respects in the minute books
of MMI. MMI has previously made available to Purchaser the stock ledger
books of MMI. All issuances, cancellations, transfers and exchanges of
capital stock of MMI as of the Closing are reflected in its stock ledger
books.
4.9 FINANCIAL STATEMENTS. The financial statements of MMI for the
years ended December 31, 1996 and 1997, the quarter ending March 31, 1998,
and the period ending June 30, 1998, including the balance sheets as of said
dates and the statements of income, statements of stockholders' equity and
statements of cash flows, reviewed by Stefani & Mathews, LLP, certified
public accountants (collectively, the "Financial Statements"), copies of
which have been previously delivered to Purchaser, (a) have been prepared
from the books and records of MMI in accordance with generally accepted
accounting principles applied on a consistent basis, and (b) fairly present
the financial position of MMI as of the respective dates included therein and
the results of operations, changes in equity and cash flows of MMI for the
respective periods covered by the Financial Statements.
4.10 LIABILITIES. Except as set forth in Schedule 4.10, MMI has no
liabilities (whether absolute or contingent, liquidated or unliquidated and
whether due or to become due), including any liability for Taxes (as defined
in Section 4.12), except for (a) liabilities set forth on the balance sheet
of MMI as of June 30, 1998 included in Financial Statements, (b) liabilities
incurred since that date in the ordinary course of business in accordance
with past practices, and (c) costs and expenses incurred in connection with
the transactions contemplated by this Agreement subject to the $[*]
limitation set forth in Section 12.2 hereof. Sellers acknowledge that, to
the extent there are other liabilities not disclosed on Schedule 4.10 that
are not known to Sellers, they shall constitute an Indemnification Claim
under Section 10.3 hereof. Except as set forth in Schedule 4.10, MMI is not
liable upon or with respect to or obligated in any other way to provide funds
in respect of or to guaranty or indemnification or assume in any manner
(including, without limitation, under or pursuant to any agreement,
arrangement, commitment or understanding, whether written or oral), any debt,
obligation or dividend of any other person or entity.
4.11 EVENTS SINCE DECEMBER 31, 1997 AND MARCH 31, 1998. Since
December 31, 1997 and March 31, 1998 except as disclosed on Schedule 4.11,
there has not been:
(a) Any material increase in the compensation or benefits
(including bonuses) payable or to become payable by MMI to any of its
respective directors, officers, employees or agents, other than
increases in the ordinary course of MMI's business to persons
receiving annual compensation, including
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increases in commission compensation to employees compensated solely
on a commission basis;
(b) Any contractual commitment by MMI to any third party,
other than as provided in this Agreement or arising in the ordinary
course of MMI's business, relating to (i) the property, assets or
business of MMI, or (ii) the acquisition or disposition of property or
assets (including, without limitation, any leasehold estate) of MMI;
(c) Any transaction, other than at arm's length in the
ordinary course of business, between MMI and any shareholder,
director, officer or affiliate of MMI or any affiliate of any such
officer, director or shareholder;
(d) Any material change in the manner in which MMI operates
its Business which has had or may reasonably be expected to have an
adverse effect on the assets or properties, liabilities, condition
(financial or other) or results of operations of MMI;
(e) Any indebtedness for borrowed money incurred by MMI
other than in the ordinary course not exceeding $10,000 in the
aggregate;
(f) Any material change in any accounting policies,
procedures or practices employed with respect to MMI;
(g) Any sale of any of the assets of MMI, other than sales
of loans in the ordinary course of business;
(h) Any acceleration, termination, cancellation or adverse
modification of any material agreement, contract, lease or license to
which MMI is a party or by which it is bound;
(i) Any other material transaction of MMI other than in the
ordinary course of business consistent with past practices;
(j) Any casualty damage, destruction, loss or forfeiture
(whether or not covered by insurance) or adverse change, actual or
threatened, to or affecting (i) any material property or asset of MMI,
or (ii) the material business or condition (financial or other) of
MMI, or (iii) the results of operations or prospects of MMI;
(k) Any direct or indirect redemption, purchase or other
acquisition by MMI of any capital stock of MMI, or any declaration,
setting aside or payment of any dividend, distribution or payment
(other than any wages, salary or other compensation in the ordinary
course consistent with past practices) with
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respect to any capital stock of MMI or any payment to or on behalf of
any of the Sellers;
(l) Any waiver or surrender by MMI of any valuable right or
property other than for fair consideration; or
(m) Any capital expenditures paid or incurred by MMI other
than capital expenditures incurred in the ordinary course of business
which do not exceed $30,000 for any single item or group of related
items.
Since March 31, 1998, except as disclosed on Schedule 4.11, there has not been:
(n) Any redemption or purchase of any Shares or any option
to purchase MMI Common Shares or any dividend, payment or other
distribution;
(o) Any issuance of any Shares (other than the sale or
distribution to Sellers, which Shares are to be purchased pursuant to
the terms hereof) or of any options, warrants or other rights to
purchase such shares; or
(p) Any material adverse change in the Business or finances
of MMI.
4.12 TAXES.
(a) MMI is an S Corporation under Section 1360, ET SEQ., of
the Code.
(b) Except as disclosed in Schedule 4.12, MMI has filed all
returns and/or reports relating to Taxes (as hereinafter defined)
which MMI was required to file prior to the date of this
representation (collectively the "Tax Returns"). All Taxes due and
owing by MMI have been paid. As used herein, "Taxes" mean any
federal, state, local or foreign income, gross receipts, franchise,
payroll, employment, excise, unemployment, personal property, sales,
use, value added, alternative, estimated or other tax or tax
obligation of any kind whatsoever, including any interest, penalty or
addition thereto.
(c) Proper and accurate amounts have been withheld by MMI
with respect to all compensation paid to employees of MMI for all
periods ending on or before the Closing Date. MMI has required each
employee who exercised an option to purchase MMI common shares to pay
to MMI cash in an amount sufficient to satisfy in full MMI's
obligation to withhold Federal, state or local income or other taxes
incurred by reason of such exercise. All deposits required with
respect to compensation paid to employees of MMI have been made in
compliance with applicable laws.
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(d) MMI has not made any payment, and is not obligated to
make any payment, and is not a party to any agreement that could
obligate it to make any payment that will not be deductible (in whole
or in part) for Federal income tax purposes by reason of Section 280G
of the Code or under Proposed Treasury Regulation Section 1.280G-1.
No provision of this Agreement, or any agreement executed and
delivered pursuant hereto or thereto obligates MMI to make any payment
in the nature of compensation that will not be deductible (in whole or
in part) for federal income tax purposes by reason of Section 280G of
the Code or under Proposed Treasury Regulation Section 1.280G-1.
(e) MMI has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(f) Except as set forth on Schedule 4.12, none of MMI's tax
returns has been audited or is currently the subject of an audit by a
governmental agency. Except as set forth on Schedule 4.12, MMI has
not received any notice of a deficiency or proposed deficiency in any
of the taxes paid by or on behalf of MMI and MMI has not entered into
any settlements or tax agreements, and has not been the subject of
audits or proceedings by any federal or state taxing authority.
4.13 TITLE TO ASSETS. MMI owns all its assets free and clear of any
mortgage, pledge, lien, encumbrance or other security interest, other than
liens for real estate taxes not yet due or payable, liens for capitalized
leases entered into in the ordinary course of business and the liens
described in Schedule 4.13. Other than the real estate set forth in Schedule
4.13, MMI does not currently own any real property and has not owned any real
estate during the last three years.
4.14 CONDITION OF ASSETS. The personal property owned and leased by
MMI is in good operating condition and repair, ordinary wear and tear
excepted. Any real estate owned or leased by MMI is in good condition and MMI
is not obligated to perform any material repairs or maintenance to such real
estate.
4.15 ACCOUNTS RECEIVABLE; NOTES RECEIVABLE. The accounts receivable
(other than that certain receivable from Francis in the amount of $108,000)
and notes receivable set forth in the Financial Statements and the accounts
receivable of MMI arising after that date represent valid claims payable to
MMI for the provision of services or other charges arising in the ordinary
course of business of MMI on or before the date thereof and are enforceable
in accordance with their terms. Each of the account receivables (other than
that certain receivable from Francis in the amount of $108,000) or note
receivables on such Financial Statements, constitute valid claims arising
from bona fide transactions in the ordinary course of MMI's business and are
not subject to any claim for set-off, reduction or rebate.
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4.16 INTELLECTUAL PROPERTY AND SOFTWARE.
(a) Schedule 4.16 correctly identifies (where applicable, by
owner, place of registration, registration or application number and
registration or application dates) all issued domestic and foreign
patents, patent applications pending, patent applications in process,
trademarks, trademark registrations, trademark registration
applications, service marks, service mark registrations, service mark
registration applications, copyright registrations, copyright
registration applications, license agreements, rights acquired through
litigation, logos, trade names, slogans owned by MMI and all books and
training manuals published or printed by or on behalf of MMI and which
are presently used in the business of MMI, and are material to the
operation of MMI (the foregoing, along with know-how and trade secrets
owned by MMI which are material to the operation of MMI are
hereinafter collectively referred to as the "Intellectual Property").
Schedule 4.16 correctly identifies all issued patents, patent
applications pending, patent applications in process, trademarks,
trademark registrations, trademark registration applications, service
marks, service mark registrations, service mark registration
applications, copyright registration applications, licenses, rights
acquired through litigation, logos, trade names, slogans, know-how and
trade secrets other than Software (as defined in Section 4.16(g)
below) that are currently expressly licensed to or by MMI and are
material to the operation of MMI ("Licensed Intellectual Property").
Except for any implied licenses, neither Sellers nor MMI has granted
any license to any person with respect to any Intellectual Property or
Licensed Intellectual Property, except those set forth in Schedule
4.16. Except as set forth in Schedule 4.16, the agreements and/or
arrangements for the Licensed Intellectual Property are in full force
and effect, and are free and clear of all adverse claims, options,
liens, charges, security interests, covenants, conditions, agreements,
restrictions, encumbrances and defenses and no material default by MMI
exists thereunder.
(b) Intellectual Property consisting of issued trademarks
("Trademarks") are valid and subsisting and there are no challenges
pending or, to the knowledge of Sellers, threatened, to the validity
of any Trademarks.
(c) Except as disclosed on Schedule 4.16, MMI is not a party
to any license or agreement relating to any unpatented inventions,
discoveries, specifications, data, processes, formulae, trade secrets,
proprietary technical information or know-how used by MMI with respect
to its business (hereinafter collectively "Know-How"). Except as
disclosed on Schedule 4.16, MMI owns and is legally entitled to
exploit the Know-How as used in the business as currently conducted
without restrictions and free of any adverse claim or claim of
infringement.
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(d) There are no interference, opposition or cancellation
proceedings or infringement suits pending or, to the knowledge of
Sellers, threatened, with respect to any Intellectual Property or
Licensed Intellectual Property, except to the extent disclosed in
Schedule 4.16 hereto. To Sellers' knowledge, no other person is
infringing any Intellectual Property, Licensed Intellectual Property,
or Know-How currently owned by or licensed to MMI, except as disclosed
in Schedule 4.16 hereto, and MMI is not infringing, nor within the
last five (5) years has MMI infringed or been charged with infringing,
any patent or trademark right of any person, or the rights of any
person with respect to Know-How, except to the extent disclosed in
Schedule 4.16 hereto.
(e) The Intellectual Property, Licensed Intellectual
Property and Know-How comprise all of the intellectual property rights
owned or expressly licensed to MMI and pertaining to the conduct of
its business as now operated, or as presently planned to be operated,
and there are no limitations or restrictions and no conflict or
asserted conflict with intellectual property rights of others.
(f) Except as set forth on Schedule 4.16 hereto, all of the
computer software used by or for MMI in the conduct of its business
(the "Software") is either (i) owned by MMI free and clear of any and
all liens, claims, equities, security interests and encumbrances
whatsoever, or (ii) used by MMI pursuant to a fully-paid license
granted to MMI by the third party pursuant to the terms of such
license. Except as set forth on Schedule 4.16, no such computer
software license shall terminate or become terminable as a result of
the transaction contemplated herein. There are no infringement suits
pending or, to the knowledge of Sellers or MMI, threatened, against
MMI with respect to any of the Software, and, to the knowledge of
Sellers, no fact or condition exists which could give rise to any such
infringement suit.
4.17 MATERIAL CONTRACTS. Schedule 4.17 lists the following material
contracts, leases and agreements in effect to which MMI is a party or is
bound:
(a) any agreement for the lease, as lessee, of vehicles;
(b) any agreement (or group of related agreements) for the
lease of personal property to or from any person or entity providing
for rent in excess of $20,000 during any twelve month period;
(c) any agreement for the lease of real property;
(d) any agreement (or group of related agreements) or
indemnity under which MMI has created, incurred, assumed, guaranteed
any debt or obligation including without limitation any indebtedness
for borrowed money, warehouse lines of credit, or any capitalized
lease or purchase money obligation;
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(e) any agreement under which MMI has granted a lien,
pledge, security interest or other encumbrance upon any of its assets;
(f) licenses of any of the Software, other than licenses to
customers granted in the ordinary course of business pursuant to
agreements which restrict the use and right to copy such Software in a
manner which protects the proprietary rights of MMI in the Software
and do not restrict MMI's right to use and exploit such Software;
(g) any agreement under which MMI has an obligation to
indemnify a director, officer or employee or an obligation to
indemnify any person or entity including, without limitation, with
respect to any representation, warranty or covenant made by MMI;
(h) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis other than oral
retainers of professionals terminable at will except for employment
agreements of employees with a salary of less than $40,000 who have
signed MMI's standard form employment agreement;
(i) any agreement concerning confidentiality or
noncompetition given by MMI other than those employment agreements set
forth on Schedule 4.17(i) and those agreements with employees on MMI's
standard form employment agreement;
(j) any other plan, contract or arrangement, whether formal
or informal, which involve direct or indirect compensation (including
bonus, stock option, severance, golden parachute, deferred
compensation, special retirement, consulting and similar agreements)
for the benefit of one or more of the current or former directors,
officers or employees of MMI (other than employee policies described
in Schedule 4.28);
(k) any guaranty or suretyship, performance bond or
contribution agreement;
(l) any distribution, marketing, sales representative or
dealership agreement;
(m) any Branch Manager Agreement; and
(n) any other contract or commitment.
With respect to each such agreement, except as otherwise disclosed in
Schedule 4.17: (i) such agreement is in full force and effect and
constitutes the legal, valid and binding obligation of MMI and, to the
knowledge of Sellers, the other parties thereto,
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enforceable in accordance with its terms, (ii) such agreement will not be
terminated as a result of the Closing, (iii) MMI is not in default in any
material respect under such agreement and no event has occurred which, with
the passage of time, would constitute such a default, and (iv) to the
knowledge of Sellers, no other party is in default in any material respect
under such agreement. Notwithstanding the foregoing, in the event MMI is in
default with respect to any contract not disclosed as material as provided
hereinabove, any loss or damage arising from any such contract not disclosed
herein because such contract was deemed immaterial by Sellers, shall be
covered by the Indemnification contained in Section 10.3 hereof. In the case
of the Branch Managers Agreement, Schedule 4.17 accurately sets forth the
salaries of all branch managers and summarizes the other material terms
thereof. Except as disclosed in Schedule 4.17 or as provided in this
Agreement in the agreements executed in connection herewith, no bonus or
severance will become due and payable under any existing agreement between
MMI and any of its employees as a result of the Closing and the change of
control effected thereby.
4.18 LITIGATION; REGULATORY EXAMINATION. Except as set forth on
Schedule 4.18 or as disclosed in writing to Purchaser, neither MMI nor
Sellers (a) are or have been subject to any outstanding injunction, judgment,
order, decree, ruling, criminal charges, memorandum of understanding, cease
and desist order or administrative sanction; (b) are or have been a party or,
to the knowledge of MMI or Sellers, threatened to be made a party to any
action, suit, proceeding, hearing, audit or investigation, of or before any
court, quasi-judicial agency, grand jury, administrative agency or
arbitrator; or (c) have engaged in any activity that would reasonably be
expected to lead to litigation or criminal proceedings. Neither MMI nor any
Seller has been audited or investigated by any instrumentality, commission,
division, subdivision, department, agency or procuring office or other entity
of the federal or state government other than routine examinations by federal
and state regulators, and such routine examinations have not revealed any
material non-compliance with law, regulation or applicable standards.
4.19 INSURANCE. MMI maintains and has maintained such insurance as
is required by law or agreements to which they are a party and such other
insurance, in amounts and insuring against hazards and other liabilities, as
is customarily maintained by companies similarly situated. Except as set
forth on Schedule 4.19, MMI does not maintain any insurance on the lives of
any of its shareholders, other than group insurance on those shareholders who
are also employees. Schedule 4.19 also describes all health insurance, life
insurance, disability, or other health policies and any "stop-loss" policy
entered into for or on behalf of MMI employees and the periodic premiums due
thereon.
4.20 SCHEDULE OF LOANS. Schedule 4.20, prepared as of the date of
this Agreement, contains a detailed description of the loan portfolio
currently held by MMI and all loans currently outstanding on MMI's warehouse
line, includes a detailed schedule of all delinquencies and payment
histories, the discount or actual prices at
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which loans were sold to government agencies or other third parties,
accurately describes all loans subject to repurchase obligations of MMI, and
a list of all uninsured FHA and VA loans. Except as set forth in Schedule
4.20, all mortgage insurance premiums and all VA funding fees are current
with respect to each loan for which such insurance is required. Schedule 4.20
also sets forth a list of all loan locks taken by MMI and all losses caused
by such loan locks within one hundred eighty (180) days of the date of this
Agreement which are still outstanding (provided that despite such listing on
Schedule 4.20, any such losses suffered by MMI that are not mitigated shall
constitute an Indemnification Claim as defined in Section 10.3(b)(ii)).
Schedule 4.20 also lists all branches, including all branches of MMI for the
eighteen (18) month period immediately preceding the Closing (including any
branches sold or closed) and setting forth the volume of loans made at each
such branch.
4.21 COMPLIANCE WITH LAW INCLUDING CONSUMER LAW. Except as
described on Schedule 4.21, MMI has complied with all applicable material
laws, rules, regulations, ordinances and codes, whether federal, state, local
or foreign and, including, without limitation, all laws and regulations
relating to occupational health and safety, equal employment opportunities,
fair employment practices, and sex, race, religious, age and other prohibited
discrimination, all other labor laws, including without limitation the Family
and Medical Leave Act, and all licensure, disclosure, usury and other
consumer credit laws and regulations governing residential mortgage lending
and brokering, including, but not limited to, all applicable rules,
regulations, standards and guidelines promulgated by the United States
Department of Housing and Urban Development ("HUD"), the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), the Veterans
Administration ("VA") and the Board of Governors of the Federal Reserve
System, the state agencies and all applicable provisions of the Real Estate
Settlement Procedures Act of 1974, the Flood Insurance Protection Act, the
Consumer Credit Protection Act, the Truth in Lending Act, the Equal Credit
Opportunity Act and the Fair Credit Reporting Act, all as amended from time
to time, and all regulations promulgated thereunder (the foregoing statutes
and laws called "Consumer Credit Law") and except as set forth on Schedule
4.21, no notice or correspondence (whether regarding litigation, regulatory
action or otherwise) has been received by MMI from or on behalf of consumers
or from any regulatory agency in which such consumer or regulatory agency has
alleged noncompliance with any Consumer Credit Law or other applicable law.
MMI has complied with all applicable appraisal and accounting standards.
4.22 FORMS; POLICIES AND PROCEDURES. MMI has provided Purchaser
with all its standard consumer forms, including all form disclosures and
notices, brokers agreements, notes, mortgages, instruments and agreements
used in the Business (the "Consumer Forms"). MMI has provided Purchaser with
a copy of MMI's internal practices and procedures and MMI and its employees
have complied and are in compliance with such practices and procedures in all
material respects. All such practices and procedures and all Consumer Forms
comply in all material respects with
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(i) all applicable Consumer Credit Law and (ii) any standards imposed by HUD,
FHLMC, GNMA, FNMA and the VA, to the extent applicable, and (iii) any other
applicable law or regulation.
4.23 LICENSES AND PERMITS. MMI has obtained all licenses, permits,
qualifications, franchises and other governmental authorizations and
approvals, including, without limitation, all state mortgage brokers and
mortgage bankers licenses and, as applicable, approvals by HUD, FHLMC, GNMA,
FNMA and the VA, required in order for it to conduct the Business as
presently conducted, all of which are listed on Schedule 4.23 hereto. All of
such licenses, permits, qualifications, franchises and other authorizations
are in full force and effect and will remain in full force and effect
immediately after the Closing and shall not be violated by or affected,
impaired or require any further action to remain effective as a result of the
Closing, except as set forth on Schedule 4.23. No material violation exists
in respect of any such license, permit, qualification, franchise,
authorization or approval. No proceeding is pending, or to the knowledge of
MMI, threatened to revoke or limit any such license, permit, qualification,
franchise, authorization or approval.
4.24 ENVIRONMENTAL WARRANTIES. No real property owned or leased by
MMI ("Real Property") contains any Hazardous Substance (as hereinafter
defined) or any underground or above-ground storage tank containing or which
has contained any Hazardous Substance. Neither MMI nor any of its Affiliates
or tenants (a) has conducted or authorized the generation, transportation,
storage, treatment, or disposal of any Hazardous Substance at any parcel of
real estate, except in compliance with Environmental Law (as defined below in
this Section 4.24); (b) has handled, treated, stored, transported, released
or disposed of any Hazardous Substance at any off-site facility except in
compliance with Environmental Law; (c) has allowed the migration of any
Hazardous Substance from any parcel of the Real Property onto any neighboring
property; (d) is aware of the migration of any Hazardous Substance from any
neighboring property onto the Real Property; (e) is aware of any pending or
threatened litigation or proceedings before any court or any administrative
agency in which any person or entity has alleged the presence, release,
threat of release, or placement of any Hazardous Substance on or in any
parcel of the Real Property, or the generation, transportation, storage,
treatment, or disposal of any Hazardous Substance at any parcel of the Real
Property; (f) possesses actual knowledge that any governmental or
quasi-governmental authority or agency (federal, state or local) has
determined, or threatens to determine, that there is a presence, release,
threat of release, or placement of any Hazardous Substance on or in any
parcel of the Real Property, or the generation, transportation, storage,
treatment or disposal of any Hazardous Substance at any parcel of the Real
Property; or (g) has received any communications or entered into any
agreement with any governmental or quasi-governmental authority or agency
(federal, state or local) or any other person or entity including, but not
limited to, any prior owners of any parcel of the Real Property, relating in
any way to the presence, release, threat of release, damages from a release,
placement of any Hazardous Substance on or in any parcel of the Real
Property, or the generation, transportation, storage, treatment,
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or disposal of any Hazardous Substance at the Real Property. For purposes of
this Agreement, "Hazardous Substance" shall mean any asbestos,
polychlorinated biphenyls (PCBs), petroleum and petroleum by-products, and
any other substance, waste, pollutant, contaminant, or other material which
is listed, defined, identified or regulated as such by any Environmental Law.
For purposes of this Agreement "Environmental Law" shall mean any applicable
federal, state or local law, rule, regulation, order, governmental policy,
guideline or procedure or rule or theory of common law (including theories
based on nuisance or strict liability), and any judicial interpretation of
any of the foregoing, which pertains to any Hazardous Substance, human health
or the environment, and shall include without limitation, the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 ET SEQ., and the Occupational Health and Safety Act, 29
U.S.C. 651, ET SEQ.
4.25 PAYROLL LIST. Schedule 4.25 sets forth a complete list of all
employees of MMI, including their date of birth, date of first hire, rates of
compensation, unpaid accrued vacation and any other material terms of their
employment as of the date set forth in Schedule 4.25, the bonuses paid to
them with respect to the year ended December 31, 1997 and all other benefits
payable to or on behalf of employees by MMI, including without limitation any
benefits with respect to car or phone rental, entertainment, travel or per
diem allowances, club memberships, and similar such benefits, whether related
to business entertainment or otherwise, and separately lists all current
employees who have in either 1997 or 1998 had an increase in their total
annual salary (including any bonuses) from the previous calendar year and the
amount of each such increase.
4.26 LABOR RELATIONS. MMI is not a party to or bound by any
collective bargaining agreement. There are no current union organizational
activity with respect to the employees of MMI and there has not been any such
activity in the past twelve months. All employee policies, including all
policies with respect to salary, promotion and other terms of employment,
including, without limitation, all policies set forth in the employee
handbook, have been and are applied on the basis of merit and without regard
to race, color, religion, sex, national origin, handicap, unfavorable
discharge from the military and without regard to family relationship with
Sellers, Key Employees or other Affiliates of MMI. No allegation, charge or
complaint of age, disability, sex, race or other unlawful discrimination or
similar charge whether under federal, state or local law, or of any violation
of the Americans with Disabilities Act, has been made or, to the knowledge of
MMI, threatened against MMI.
4.27 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 4.27,
MMI does not sponsor, maintain or contribute to any "employee benefit plan"
(within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), employee fringe benefit plan or
program or program, nonqualified deferred compensation plan or program,
incentive compensation plan or program, stock option plan or program,
restrictive stock plan or program, stock appreciation rights plan
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or program, phantom stock plan or program, or any other plan, program,
agreement, trust, fund or arrangement for the benefit of any employee
(collectively all of such plans or programs are referred to as "Employee
Plans"). Complete and accurate copies of each document under which an
Employee Plan is sponsored or maintained, related amendments, employee
summaries (including, but not limited to, summary plan descriptions), trust
agreements, Internal Revenue Service ("IRS") determination letters, if
applicable, and the three most current Form 5500 series filings (and related
schedules and reports), if applicable, have been provided to Purchaser.
Except as set forth on Schedule 4.27, each Employee Plan: (a) which is
intended or treated as a qualified retirement plan under Section 401(a) of
the Code is, in fact, qualified thereunder, has received a favorable
determination letter from the IRS and no event has occurred which could
result in the revocation of such plan's qualified status; (b) which is
otherwise intended or treated as providing tax-advantaged benefits under the
Code, is in compliance with the applicable requirements under the Code; (c)
is not subject to, or governed by, Title IV of ERISA; (d) has been operated
and administered in compliance with all applicable requirements under Federal
and state law; and (e) is not the subject of, or a party to, any pending or
threatened litigation, investigation or audit. Except as set forth on
Schedule 4.27, no Employee Plan provides for any medical or health care
coverage following termination of employment, except to the extent
specifically required under Sections 601 through 608 of ERISA and Section
4980B of the Code (collectively such requirements are referred to as "COBRA
Continuation Coverage). Except as set forth on Schedule 4.27, no person is
currently receiving COBRA Continuation Coverage with respect to any Employee
Plan.
4.28 EMPLOYEE POLICIES. A current and accurate copy of the employee
handbook of MMI currently in effect has been made available to Purchaser.
Except as set forth in Schedule 4.28, such handbook covers all employees of
MMI and fairly and accurately summarizes all material employee policies,
vacation policies and payroll practices of MMI. Schedule 4.28 sets forth a
list of all noncompete and nonsolicitation agreements that MMI's employees
have signed with MMI. To MMI's knowledge, none of its employees is party to
an agreement with a prior employer with respect to confidentiality or a
covenant not to compete or non-solicitation which is still in force and
effect.
4.29 REFERRAL SOURCES; INVESTORS. Except as set forth on Schedule
4.29, MMI has not been advised that any of its loan officers, referral
sources or investors may cease doing business with MMI, which cessation in
the aggregate or otherwise could have a material adverse effect on the
Business, financial condition or prospects of MMI.
4.30 BANK ACCOUNTS. Schedule 4.30 sets forth a complete list of
each financial institution in which MMI has an account or safe deposit box,
together with a list of all assets held in such box as of the date set forth
in Schedule 4.30, the number of each such account or box and the names of all
persons authorized to draw thereon, to give instructions with respect thereto
or to have access thereto.
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4.31 POWERS OF ATTORNEY. Except as set forth in Schedule 4.31,
there are no outstanding powers of attorney executed on behalf of MMI.
4.32 PERSONAL GUARANTEES. Schedule 4.32 describes all guaranties of
Sellers of any obligations (including, without limitation, any lease
obligations) of MMI (the "Personal Guaranties").
4.33 BROKERAGE FEE. Neither Sellers nor MMI have engaged any
investment banker, finder, broker or similar agent with respect to the
transactions contemplated by this Agreement which may give rise to any
brokerage fee, finder's fee, commission or similar liability on the part of
Sellers, MMI or Purchaser.
4.34 FULL DISCLOSURE. The representations and warranties of Sellers
contained in this Agreement, all schedules prepared for this Article by or on
behalf of Sellers and elsewhere described herein (the "Disclosure Schedules")
and the documents executed and delivered to Purchaser pursuant hereto, taken
as a whole, do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made,
not misleading.
4.35 BUSINESS RECORDS. No material records of accounts, personnel
records or other business records related to the Business have been destroyed
within the last five (5) years, other than in the ordinary course of business
consistent with past practices, and, there exist no such records other than
those records delivered by Seller and MMI to Purchaser at or prior to the
Closing.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers, on the date hereof and
on the Closing Date, as follows:
5.1 ORGANIZATION AND STANDING Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Illinois, and has full corporate power and authority to enter into and
perform this Agreement and consummate the transactions contemplated hereby.
5.2 NO RESTRICTIONS; AUTHORIZATION; BINDING EFFECT; APPROVAL OF
CHANGE OF CONTROL. Purchaser is not subject to any material restriction,
agreement, law, rule, regulation, ordinance, code, writ, injunction, award,
judgment or decree which would prohibit or be violated by the execution and
delivery hereof or the consummation of the transactions contemplated hereby.
Purchaser has all necessary power and authority and has taken, or will have
taken prior to the Closing, as applicable, all corporate action
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necessary to execute and deliver this Agreement and the instruments,
documents and agreements to be executed and delivered pursuant hereto, to
consummate the transactions contemplated by this Agreement and to perform its
obligations under this Agreement and the instruments, documents and
agreements to be executed and delivered pursuant hereto. This Agreement and
each of the instruments, documents and agreements to be executed and
delivered pursuant hereto has been duly executed and delivered by Purchaser,
and each constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditor's
rights generally and subject to the availability of equitable remedies.
5.3 NONCONTRAVENTION. Neither the execution and delivery of this
Agreement by Purchaser nor the consummation of the transactions contemplated
hereby and thereby will (a) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, memorandum of understanding,
regulatory order or understanding to which Purchaser is subject, (b) conflict
with or result in a breach of the provisions of the Articles of Incorporation
or By-laws of Purchaser, as amended to date, or (c) conflict with, result in
a breach of, constitute a default under, result in the acceleration of,
create in any person or entity the right to accelerate, terminate, modify or
cancel or require any notice under any contract, lease, license, indenture,
agreement, mortgage, instrument of indebtedness or other instrument to which
Purchaser is a party or by which Purchaser or any property of Purchaser is
bound.
5.4 LITIGATION; REGULATORY EXAMINATION. Except as set forth on
Schedule 5.16, Purchaser is not subject to any outstanding injunction,
judgment, order, decree, ruling, memorandum of understanding, cease and
desist order or administrative sanction. During the past five years,
Purchaser has not been audited by any instrumentality, commission, division,
subdivision, department, agency or procuring office or other entity of the
federal or state government other than routine examinations by federal and
state regulators, and such routine examinations have not revealed any
material non-compliance with law, regulation or applicable standards.
5.5 FINANCIAL STATEMENT. The consolidated financial statements of
Purchaser and its subsidiaries for the years ended December 31, 1996 and
1997, including both the consolidated and the consolidating balance sheets as
of said dates and the statements of income, and statements of cash flows,
audited by McGladrey & Pullen, LLP, Certified Public Accountants, and the
income statement and balance sheet for the period ending April 30, 1998
(collectively, the "Purchaser's Financial Statements"), copies of which have
been previously delivered to MMI, (a) have been prepared from the books and
records of Purchaser in accordance with generally accepted accounting
principles applied on a consistent basis, and (b) fairly present the
financial position of Purchaser as of the respective dates included therein
and results of operations, changes in equity, and cash flows of Purchaser for
the respective periods covered by the
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Purchaser's financial statements. There have been no material adverse
changes in the financial condition of Purchaser and its subsidiaries since
April 30, 1998.
5.6 FULL DISCLOSURE. The representations and warranties of
Purchaser contained in this Agreement, the Schedules and the documents
executed and delivered to Shareholders pursuant hereto, taken as a whole, do
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE 6
COVENANTS OF SELLERS
Sellers, individually and on behalf of MMI, hereby covenant to
Purchaser the following, from the date hereof through the Closing:
6.1 CONDUCT OF BUSINESSES; NOTIFICATION OF BREACHES IN
REPRESENTATIONS OR WARRANTIES. Until the Closing, except as required or
specifically contemplated by this Agreement, the Sellers and MMI covenant
that MMI will conduct the Business in the ordinary and usual course of
business, consistent with past practices, and shall use its best efforts to
preserve the goodwill of its employees, representatives and suppliers. MMI
will promptly notify Purchaser in writing if MMI is advised that any of the
loan officers, referral sources or investors of MMI intends to cease doing
business with MMI because of the Closing or the announcement thereof or
otherwise which cessation either alone or when aggregated with other such
cessations could have a material adverse effect on the Business, financial
condition or prospects of MMI.
6.2 NOTIFICATION OF BREACH OF REPRESENTATION, WARRANTY OR COVENANT.
The Sellers will notify Purchaser immediately if any of the representations,
warranties or covenants in Section 4 hereof become untrue, and shall make
immediate efforts to correct or cure such breach.
6.3 FOREBEARANCES BY MMI. Except as contemplated by this Agreement
or consented to by Purchaser in writing, during the period from the date
hereof through the Closing, the Sellers covenant that MMI shall not:
(a) authorize or effect any change in its Articles of
Incorporation or by-laws;
(b) grant any option, warrant or other right to purchase or
obtain any of its capital stock, or issue, sell or otherwise dispose
of any of its capital stock (except upon the conversion or exercise
of options presently outstanding and in accordance with the respective
terms thereof or as disclosed in Schedule 4.17);
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(c) declare, set aside or pay any dividend or distribution
with respect to its capital stock, or redeem, repurchase or otherwise
acquire any of its capital stock;
(d) create, incur, assume or guaranty any indebtedness for
borrowed money other than indebtedness incurred in the ordinary course
of business including, without limitation, under any warehouse line
of credit;
(e) grant any lien, pledge, security interest or other
encumbrance upon any of its assets other than capitalized leases
permitted under Section 4.11(m);
(f) make any capital expenditure except capital expenditures
incurred in the ordinary course of business which do not exceed $20,000
for any single item or group of related items;
(g) make any loan to or investment in, or acquire any
securities or assets of any other person or entity, except for
mortgage loans made in the ordinary course of business made under the
same standards and guidelines as such loans were made prior to
December 31, 1997 and loans disclosed in Schedule 4.11(e);
(h) increase the rate of compensation or materially increase
the benefits payable or to become payable to any of its directors,
officers or employees (other than raises made in the ordinary course
of business to employees who are not directors or officers provided
that such raise to any such employee shall not exceed 10% of the base
compensation of such employee in effect at December 31, 1997) or make
any material change in any of the terms of employment of any of its
directors, officers or employees;
(i) change any material accounting policies, procedures or
practices employed by it;
(j) sell any of its assets, other than sales of loans in the
ordinary course of business made, where applicable, pursuant to
appropriate guidelines of the appropriate governing federal agency, or
issue, sell, encumber or give any option or right to purchase any
shares of MMI's capital stock or other securities;
(k) amend any Tax Return;
(l) enter into any material contract, agreement or lease
other than in the ordinary course which would be required to be
disclosed hereunder without Purchaser's consent which consent shall
not be unreasonably withheld, or make any change in any existing
contracts, agreements or leases other than in the
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ordinary course of business without Purchaser's consent which consent
shall not be unreasonably withheld;
(m) pay or discharge any long-term liability other than in
accordance with its terms;
(n) take or omit to take any action, the effect of which act
or omission would render inaccurate any of the representations and
warranties set forth in Article 4 herein as of the Closing Date;
(o) implement or agree to any implementation of or amendment
or supplement to any employee profit sharing, pension, bonus,
commission, incentive, retirement, medical reimbursement, life
insurance, deferred compensation or any other employee benefit plan or
arrangement; or
(p) agree or commit to do any of the foregoing.
6.4 GOOD FAITH NEGOTIATIONS; DUE DILIGENCE. Sellers agree to
negotiate and proceed in good faith to promptly consummate the transactions
hereunder. Prior to the Closing Date, each of the Sellers shall afford or
shall cause MMI to afford to Purchaser and Purchaser's Representatives (as
defined in Section 8.1 hereof) such access during normal business hours and
at such other times as may be required under the circumstances to inspect,
investigate, and audit the contracts, operations and business of MMI and its
books records, offices, and other facilities and Purchaser and MMI shall
undertake, and shall cause each of their respective shareholders, officers,
directors, employees, investment bankers, attorneys, accountants, and other
agents or affiliates to undertake, their best efforts to promptly and
completely provide all information reasonably requested by Purchaser and its
Representatives. No investigation or absence of investigation by Purchaser
of MMI prior to the date hereof or pursuant to this Section shall be deemed
to modify any of the representations or warranties contained herein.
6.5 OTHER ACQUISITION PROPOSALS. Neither Sellers nor MMI nor any
of MMI's officers, directors, employees, representatives or agents, shall (a)
directly or indirectly take (nor shall MMI permit any of its respective
officers, directors, employees, investment bankers, attorneys, accountants or
other agents or affiliates to take) any action to encourage, solicit,
initiate or otherwise facilitate the submission by a third party of, or
negotiate or enter into any agreement with a third party with respect to, a
proposal to acquire, directly or indirectly, any of the capital stock of MMI,
whether by stock purchase, merger, sale of shares of capital stock by license
agreement or otherwise or sale of any material portion of its assets (except
sales of loans in the ordinary course of business) (any such submission,
negotiations or agreement called an "Acquisition Proposal"), and Sellers or
MMI, as applicable, shall immediately terminate any current negotiations and
contacts, or (b) disclose directly or indirectly to any person preparing to
make an Acquisition Proposal any confidential information regarding MMI, or
(c) enter into any understanding, agreement or commitment with any third
party
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providing for a business combination, equity investment, or sale or license
of any significant assets of MMI. Upon receipt of any such Acquisition
Proposal by any third party, Sellers shall promptly advise Purchaser of the
proposal and provide it copies of all materials pertaining thereto. If the
parties have not consummated the Closing prior to August 15, 1998 for any
reason other than due to the failure to obtain Required Regulatory Approvals
then, subject to the obligation to negotiate in good faith set forth in
Section 6.4 above, the provisions of this Section 6.5 shall be void with
respect to any Acquisition Proposal first received after such date.
6.6 Intentionally Deleted.
6.7 CONSENTS. Prior to the Closing, Sellers and MMI shall use
reasonable efforts to obtain the consents, waivers and other approvals, which
may be required from any lender, lessor or non-government customer in order
to effectuate the Closing.
6.8 GOVERNMENT APPROVAL. Promptly following the execution of this
Agreement, MMI with the reasonable cooperation of Purchaser and Sellers shall
notify, or obtain approvals from, to the extent required or appropriate under
applicable law, all governing federal and state agencies regarding the
transactions contemplated by this Agreement to the extent such notice or
approval is required to continue the current business and operations of MMI
after the Closing (those approvals required to be obtained prior to the
Closing called the "Required Regulatory Approvals"). MMI shall immediately
notify Purchaser if MMI receives any inquiry from such agencies regarding the
Closing or any indication that MMI's licensed status with such agency will be
impaired by such merger. The reasonable costs of obtaining such consents,
including but not limited to those of outside counsel, shall be costs payable
by MMI pursuant to Section 12.2. To the extent such costs when aggregated
with other costs described in Section 12.2 exceed the $[*] maximum set forth
in Section 12.2, such costs shall be borne by Sellers.
6.9 ADDITIONAL FINANCIAL STATEMENTS. MMI shall furnish to
Purchaser unaudited financial statements for MMI for each month which closes
more than 25 days prior to the Closing within 25 days after the end of such
month. Such financial statements shall be certified by the Chief Financial
Officer or Treasurer of MMI, in his or her capacity as such, as having been
prepared in accordance with generally accepted accounting principles on a
basis consistent with the Financial Statements and as fairly presenting the
financial position of MMI as of their respective dates and the results of its
operations for the periods then ended (subject in the case of the monthly
financial statements to normal year end adjustments which, in the aggregate,
are not material).
6.10 SUPPLEMENTS TO SCHEDULES. From time to time after the date
hereof and prior to the Closing Date, MMI will promptly supplement or amend
the Disclosure Schedules with respect to any matter which MMI deems necessary
or advisable to include therein. However, no such supplement or amendment of
the Disclosure Schedules shall be deemed to cure any breach of any
representation or warranty made
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in this Agreement even if Purchaser proceeds with the Closing.
Notwithstanding any supplement or amendment to the Schedules, Purchaser shall
be entitled to its rights and remedies under Section 10.3 or Section 11.1.
6.11 CONSENTS OF THIRD PARTIES. On or prior to the Closing Date,
Sellers, at their expense, shall obtain or cause to be obtained all consents
and other approvals of all lessors, lenders, governmental authorities and
other third parties including, without limitation, any spousal consents which
are required to be obtained by Sellers or MMI as a result of the transactions
contemplated by this Agreement, which consents and approvals shall continue
each applicable lease, loan or other arrangement related to MMI on
substantially identical terms as exist on the date hereof. The reasonable
costs of obtaining such consents, including but not limited to those of
outside counsel, shall be costs payable by MMI pursuant to Section 12.2. To
the extent such costs when aggregated with other costs described in Section
12.2 exceed the $[*] maximum set forth in Section 12.2, such costs shall be
borne by Sellers.
6.12 TRANSFER OF SHARES. At the Closing, Sellers shall cause the
certificate or certificates for the Shares to be delivered to Purchaser, duly
endorsed for transfer or with executed stock powers attached.
6.13 GUARANTEES AND COLLATERAL PLEDGES. Except for those guaranties
set forth on Schedule 6.13, Sellers acknowledges that MMI has not guaranteed
the indebtedness of any affiliates of Sellers other than MMI itself
(collectively the "Affiliate Guarantees") at any banks or lending
institutions or otherwise which have not been terminated, cancelled and of no
further force or effect, and any security interest or lien right or security
interest which such bank or lending institution had or may have had with
respect to the Affiliate Guarantees have been released. At the Closing on
the Closing Date, Sellers shall deliver to Purchaser written evidence of the
termination of any Affiliate Guarantees and any liens or security interests
securing such Affiliate Guarantees. Except for the Personal Guaranties (as
defined in Section 4.32), Sellers have not guarantied the indebtedness or any
obligations of MMI.
ARTICLE 7
COVENANTS OF PURCHASER
Purchaser hereby covenants to Sellers that from the date hereof
through the Closing as follows:
7.1 NOTIFICATION OF BREACH OF WARRANTY OR COVENANT. Purchaser will
notify Sellers immediately if any of the warranties or covenants in Section 5
hereof become untrue in any material respect and shall make immediate efforts
to correct or cure such breach.
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7.2 GOOD FAITH NEGOTIATIONS. Purchaser agrees to negotiate and
proceed in good faith to promptly consummate the transactions hereunder.
7.3 NOTIFICATION OF MATERIAL ADVERSE INFORMATION. If, prior to
Closing, Purchaser discovers any material adverse information regarding MMI
unknown to Sellers, it shall promptly notify Sellers.
7.4 [Deliberately Omitted]
7.5 CONSENTS. Prior to the Closing, Purchaser shall use reasonable
efforts to cooperate with Purchaser in obtaining the consents, waivers and
other approvals set forth in Schedule 6.7, which may be required in order to
effectuate the Closing.
ARTICLE 8
JOINT COVENANTS
8.1 CONFIDENTIAL INFORMATION.
(a) All Confidential Information (as hereinafter defined)
disclosed to a Recipient (as hereinafter defined) and its
Representatives shall be utilized by the Recipient and its
Representative for the sole purpose of evaluating the Closing and
shall be kept confidential until the Closing is consummated. In the
event the Closing is not consummated, each Recipient and its
Representatives shall continue to keep the Confidential Information
confidential and shall not directly or indirectly utilize such
Information in any way detrimental to the Disclosing Party.
(b) As used herein, "Disclosing Party" means Purchaser, MMI
or the Sellers, whichever discloses Confidential Information (as
hereinafter defined), and "Recipient" means Purchaser, its
subsidiaries, MMI or the Sellers, whichever is receiving Information
from a Disclosing Party.
(c) As used herein, "Confidential Information" means all
information delivered by or on behalf of a Disclosing Party, its
subsidiaries or their respective officers, directors, employees and/or
agents to the Recipient or its Representatives before or after the
date of this Agreement, whether orally or in writing, and identified
as "confidential" by the Disclosing Party, but does not include any
information which at the time of disclosure to the Recipient or
thereafter (i) is generally available to and known by the public
(other than as a result of a disclosure directly or indirectly by the
Recipient or its Representatives), (ii) was available to the Recipient
on a nonconfidential basis from a source other than the Disclosing
Party and its subsidiaries and Representatives, provided that such
source is not, and was not, bound by a confidentiality
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agreement with the Disclosing Party or another party or otherwise
prohibited from transmitting such information by a contractual, legal
or fiduciary obligation to the Disclosing Party, its subsidiaries
or another party, or (iii) has been independently acquired or developed
by the Recipient as shown by written records without violating any
of the Recipient's obligations under this Agreement.
(d) As used herein, "Representatives" mean those directors,
officers, employees, representatives, auditors, legal counsel,
advisors and other authorized representatives of the Recipient who
need to know Information for the purpose of evaluating the Recipient's
participation in the Closing (it being understood that prior to any
disclosure of Confidential Information by a Recipient to any
Representative, the Recipient will inform such Representative of the
confidential nature of the Confidential Information and obtain from
such Representative an agreement to be bound by the terms of this
Section to the same extent as if such Representative had joined this
Agreement for the purpose of agreeing to be bound by this Section). A
Recipient shall be responsible for any breach of the terms of this
Section by any of its Representatives.
(e) If a Recipient or any of its Representatives becomes legally
compelled (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or similar process) to disclose
any of the Confidential Information, or reasonably determines that
such disclosure is required in order to defend itself against a legal
proceeding brought by a third party, the Recipient shall provide the
Disclosing Party with prompt prior written notice of such requirement
or determination so that the Disclosing Party may seek a protective
order or other appropriate remedy and/or waive compliance with the
terms of this Section. In the event that such protective order or
other remedy is not obtained, or that the Disclosing Party waives
compliance with the provisions of this Section, the Recipient shall
exercise reasonable commercial efforts to obtain assurance that
confidential treatment will be accorded such Confidential Information.
The provisions of this paragraph shall not apply to Purchaser and its
Representatives after the Closing Date.
(f) If the Closing is not consummated, each Recipient will return
to the Disclosing Party all copies of Confidential Information in the
Recipient's possession or in the possession of its Representatives.
8.2 PUBLICITY. Prior to Closing, neither Purchaser nor Sellers
shall announce or disclose publicly the terms or provisions hereof without
the prior written approval of the other party, except such disclosure as may
be required under securities law or common law (subject to giving the other
party notice as promptly as possible of the intention to make such disclosure
and providing the other party an opportunity to review the wording of such
disclosure), and disclosure to its attorneys, accountants, lenders, bankers,
investment bankers, government agencies and employees.
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8.3 PUT AGREEMENT. Purchaser and Sellers shall enter into the Put
Agreement.
8.4 EMPLOYMENT AGREEMENTS. At the Closing, Purchaser and each of
the Sellers shall enter into their respective Executive Employment Agreements
in the form and substance acceptable to the parties thereto (the "Employment
Agreements") and the Senior Managers shall enter into the Additional
Compensation Agreements (the "Additional Compensation Agreements") in form
and substance acceptable to the parties thereto.
8.5 OTHER DOCUMENTATION. At the Closing, Sellers shall deliver all
the Shares, together with stock powers and all other documents required or
appropriate to effect the transactions contemplated hereby.
ARTICLE 9
CONDITIONS TO OBLIGATION TO CLOSE
9.1 MUTUAL CONDITIONS. The obligations of each party to effect the
Closing shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) LITIGATION. Immediately prior to the Closing, there
shall be no material action or proceeding initiated by any governmental
agency or third party which seeks to restrain, prohibit or invalidate
the transactions hereunder or to recover substantial damages or other
substantial relief with respect thereto, and no injunction or
restraining order shall have been issued by any court restraining,
prohibiting or invalidating the transactions hereunder.
(b) PUT AGREEMENT. Purchaser and the Sellers shall have
entered into the Put Agreement.
9.2 CONDITIONS TO OBLIGATIONS OF PURCHASER TO EFFECT THE PURCHASE.
The obligations of Purchaser to effect the Closing shall be subject to the
fulfillment on or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Sellers set forth in Article 4 of this Agreement shall
be true and correct on the date of this Agreement and as of the Closing
Date.
(b) PERFORMANCE OF OBLIGATIONS. The Sellers and MMI shall
have performed all obligations required to be performed by it under
this Agreement on and prior to the Closing Date. Purchaser shall
have received a certificate executed by the President of MMI to that
effect dated the Closing Date.
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(c) DUE DILIGENCE. Purchaser shall have completed its due
diligence investigation of MMI and nothing shall have come to
Purchaser's attention in the course of such due diligence which causes
Purchaser to determine not to proceed with the Closing.
(d) EMPLOYMENT. Francis, Bartley, Stashin and VanderZanden
shall each have entered his or her respective Employment Agreement
with MMI and Bartley, Stashin and VanderZanden shall each have entered
into his or her respective Additional Compensation Agreement.
(e) EQUITY VALUE PLAN AGREEMENT. Senior Managers and the
Key Employees shall have entered into the Equity Value Plan Agreement
among MMI, Purchaser, Senior Managers and Key Employees.
(f) OPINION OF COUNSEL. Purchaser shall have received
written opinions of Hanna, Kerns & Strader, counsel to MMI and Martin
Francis, and Ambrose Hanlon LLP, counsel to Sellers, both dated the
Closing Date and in form and substance acceptable to the Purchaser.
(g) EXECUTION AND DELIVERY OF ALL ANCILLARY DOCUMENTS.
There shall have been executed by the parties thereto and delivered to
Purchaser all other documents necessary to effect the transactions
contemplated.
(h) REGULATORY APPROVAL. All Required Regulatory Approvals
shall have been obtained.
(i) CONSENTS. MMI shall have received all consents, waivers
and other approvals, including, without limitation, any consents of
landlords or other counter-parties, as required by any change of
control or other material provision in any lease, sublease or other
contract or agreement necessary in order for it to effect the Closing
without causing a default under any note, loan agreement, contract,
instrument, lease or mortgage or any material adverse effect on the
business or assets of MMI.
(j) CASUALTY. No casualty shall have occurred at the
facilities of MMI as a result of which Purchaser reasonably expects
that MMI will be unable to conduct the business in substantially the
same manner as previously conducted for a period of at least thirty
(30) days after the Closing Date.
(k) DELIVERY OF CORPORATE DOCUMENTS AND LIEN SEARCHES.
Sellers, at their sole expense, shall have delivered to Purchaser:
(i) Certificates of Good Standing of MMI, for any state within which
MMI is qualified to do business as a foreign corporation, all of which
shall be dated within ten (10) business days of the Closing Date; (ii)
a certified copy of the Certificate of Incorporation and
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By-Laws, and all continuations thereof and amendments thereto, of MMI;
and (iii) Purchaser shall, at Seller's sole expense, have obtained to
its reasonable satisfaction lien searches under the Uniform Commercial
Code and other applicable statutes for each County and, where
appropriate, other local jurisdictions in which MMI or any Affiliate
of MMI makes loans or has a place of business, as well as a judgment
and tax lien search respecting MMI in each such jurisdiction.
(l) MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the business or financial condition of MMI.
Notwithstanding anything herein to the contrary, Purchaser may waive any of
the foregoing conditions in Section 9.2 hereof, or to the extent such
conditions are imposed on MMI or Sellers, in Section 9.1, or at Purchaser's
option, cure any such noncompliance with such conditions as provided in
Section 11.1.
9.3 CONDITIONS TO OBLIGATIONS OF SELLERS TO EFFECT THE CLOSING.
The obligations of Sellers to effect the Closing shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser set forth in Article 5 of this Agreement shall
be true and correct as of the date of this Agreement and as of the
Closing Date, as if made again on such date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have
performed all material obligations required to be performed by it
under this Agreement prior to the Closing Date, and MMI shall have
received a certificate executed by the President or an Executive Vice
President of Purchaser to that effect dated the Closing Date.
ARTICLE 10
POST CLOSING COVENANTS
10.1 POST CLOSING COVENANTS OF PURCHASER REGARDING FINANCING OF MMI.
(a) After the Closing, Purchaser will arrange warehouse
lines reasonably necessary for MMI Operations and will charge MMI
quarterly a 15% per annum cost of capital to the extent additional
capital is required in excess of capital generated by MMI from MMI
Operations to support the warehouse lines being used for MMI
Operations. For purposes of determining whether additional capital is
necessary, (i) MMI Net Income will be allocated to MMI's balance sheet
and (ii) a leverage ratio of 20 to 1 will be assumed. For purposes
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of computing the MMI Net Income for this Section 10.1(a), MMI Net
Income shall be computed on a pretax basis for such periods when MMI
is an S Corporation, but shall be computed on an after-tax basis for
such periods as MMI and Purchaser are C Corporations if and when MMI
becomes a C Corporation.
By way of example assume MMI's net worth as of the Closing is
$2 million. Further assume that MMI generated $1 million of capital
in the fourth quarter of 1998 (i.e. after tax estimated net income for
such quarter) and that capital was not needed for operations or other
purposes. Finally, assume that the maximum dollar amount of MMI loans
outstanding on Purchaser's warehouse lines at any time during such
quarter was $80 million. MMI would be charged a 15% per annum cost of
capital on $1 million ($37,500) for the quarter computed as follows:
(80,000,000)
------------
20 = 4,000,000 required capital
4,000,000 - (2,000,000 + 1,000,000) = $1,000,000
$1,000,000 x 15% per annum = $150,000
$150,000 DIVIDED BY 4 = $37,500
(b) After the Closing, if MMI identifies acquisition
opportunities and Purchaser, in its reasonable discretion, approves
such acquisition, then Purchaser shall make capital available to MMI
to implement such acquisition opportunities to the extent additional
capital over and above that generated by and credited to MMI is
required. MMI will be charged a 15% cost of capital on such capital
in excess of capital generated from MMI Operations after subtracting
capital required to support warehouse lines described in 10.1(a) above.
By way of example, assume MMI's net worth as of the end of the
last quarter of 1998 is $2 million. Further assume that MMI generated
$2 million of capital in 1999 and that was not needed for operations
or other purposes except $2.75 million of such capital was needed to
support MMI's warehouse lines in accordance with Section 10.1(a). If
$1.5 million is needed to implement an acquisition, MMI would be
charged a 15% per annum cost of capital on $250,000 computed as
follows:
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MMI Available Capital = (2,000,000 + 2,000,000) - 2,750,000 = $1,250,000
Additional Capital = 1,500,000 - 1,250,000 = $250,000
$250,000 x 15% = $37,500
$37,500 DIVIDED BY 4 = $9,375 per quarter
10.2 COVENANT NOT TO COMPETE BY SELLERS. The following covenants
are made by Sellers to Purchaser and MMI in consideration of the transaction
contemplated by this Agreement, and it is expressly acknowledged and agreed
by Sellers that such covenants are material inducements for Purchaser to
enter into this Agreement and to consummate the transaction contemplated
hereby. In addition, Sellers each acknowledge that MMI, Purchaser and their
Affiliates have and will expend considerable time, money and resources in
recruiting, training and developing the skills and abilities of their
employees; developing business relationships with referral sources and
customers so as to improve the goodwill of MMI; establishing branches of MMI,
including, but not limited to, entering into long term leases for office
space; and establishing and maintaining close business relationships between
MMI's employees and MMI's customers. Sellers each acknowledge and agree that
MMI is entitled to protect its investment in the foregoing and to keep the
results of its efforts for its exclusive use. Accordingly, Sellers agree to
the covenants and conditions set forth in Sections 10.2(a) through 10.2(f)
hereof, and acknowledge and agree that they are necessary to preserve and
protect the legitimate business interests of MMI, and shall be binding upon
Sellers during and after their respective employment with MMI in accordance
with their terms:
(a) NON-COMPETITION. During Francis and each Senior
Manager's employment with MMI, pursuant to their respective Employment
Agreements or otherwise under another employment agreement or
arrangement with Purchaser, MMI or its Affiliates and for the lesser
of (i) a three (3) year period after their employment under the
Employment Agreement or other employment agreement or arrangement with
Purchaser, MMI or its Affiliates is terminated by Purchaser, unless
such termination is "without cause" as defined in the penultimate
sentence of this Section 10.2(a) or such termination by such Seller is
"for cause" as provided in the final sentence of this Section 10.2(a)
[*] and (ii) the longest period of time allowed by applicable law,
Sellers each covenant to not, directly or indirectly, compete with MMI
or its Affiliates (including without limitation Purchaser and its
Affiliates), with respect to the business (i.e., the residential
mortgage lending and brokerage business) of MMI or its Affiliates
(including without limitation Purchaser and its Affiliates), including
any expansion of such business of MMI or its Affiliates (including
without limitation Purchaser and its Affiliates), which occurs during
the term of the Employment Agreement or other employment agreement or
arrangement with MMI, Purchaser or their respective Affiliates, and
any renewal term, including ancillary and related activities which
occur during the term of the Employment
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Agreement or other employment agreement or arrangement with MMI,
Purchaser or their respective Affiliates, in the geographic region
which is the smaller of (i) all areas in which MMI or its Affiliates,
including Purchaser, conduct any of their residential mortgage
operations and where they maintain branches, and (ii) the largest
geographical area allowed by law.
Competition, for the purpose of this Agreement, shall include,
but not be limited to: (i) owning, maintaining, operating or engaging
in the same or similar line of business as MMI or its Affiliates
(including without limitation Purchaser and its Affiliates), or in any
business which competes with MMI or its Affiliates (including without
limitation Purchaser and its Affiliates); (ii) serving, advising,
consulting with or being employed by any individual, firm, agency,
partnership, company or corporation (including any pre-incorporated
association) which engages in the same or similar business as MMI or
its Affiliates (including without limitation Purchaser and its
Affiliates), or which competes with MMI or its Affiliates, including
without limitation Purchaser and its Affiliates; and (iii) undertaking
any efforts or activities toward pre-incorporating, incorporating,
organizing, financing or commencing any competing business or activity
which engages in the same or similar line of business as MMI or its
Affiliates, including without limitation Purchaser and its Affiliates,
provided that Francis may make (i) "hard money" loans from his
personal funds or funds raised from private individual investors, or
if the loans are not funded with private money they must be brokered
to MMI or Purchaser, and (ii) to borrowers whose credit does not meet
FNMA or FHMLC guidelines (provided that such loans are brokered to MMI
or Purchaser) and Francis may engage a staff of one (1) assistant and
one (1) originator in the first twelve (12) months and a staff of
three (3) assistants and three (3) originators thereafter, and may
consult with Bob Barnett as a technical consultant, provided further
that except as expressly provided herein this proviso shall not
impair, abridge or otherwise affect Francis' covenants or obligations
as to competition hereunder and with respect to solicitations of
employees, agents, customers or referral sources or otherwise under
his Employment Agreement or other employment agreements or employment
arrangements between Francis and Purchaser, MMI or their respective
Affiliates. If any Sellers' employment with Purchaser, MMI or their
respective Affiliates, is terminated by Purchaser, MMI or its
Affiliates without cause, this Section 10.2(a) shall be void with
respect to such Seller.
For purposes of this provision, "without cause" shall mean (as
applied separately to each Seller) an involuntary discharge by MMI,
Purchaser or any of their respective Affiliates for a reason other
than the following: (i) conviction of fraud, embezzlement or theft;
(ii) disclosing of confidential or proprietary information of MMI,
Purchaser or their Affiliates; aiding a competitor of MMI, Purchaser
or their Affiliates, or misappropriation of a corporate opportunity of
MMI, Purchaser or their Affiliates, which disclosure, aid or
misappropriation is in breach of such Seller's fiduciary duty to MMI
as an officer or employee of
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MMI; (iii) conviction of such Seller of a felony or entry of any
guilty plea or plea of NOLO CONTENDERE to a felony or Seller's
conviction of, or entry of any guilty plea or plea of NOLO CONTENDERE
to any criminal charge (x) resulting in MMI, Purchaser or their
Affiliates being in violation of any mortgage brokerage licensing act
in any state in which MMI, Purchaser or their Affiliates is then
licensed or relating to the business of MMI, Purchaser or their
Affiliates; (y) involving moral turpitude resulting in harm or
embarrassment to MMI, Purchaser or their Affiliates; (iv) any material
misrepresentation to Purchaser or MMI by such Seller in connection
with such Seller's employment; (v) gross negligence in the performance
of any employment duties with MMI, Purchaser or their Affiliates
defined as a "Principal Responsibility" or words of like import in
such Seller's employment agreement with MMI (such employment duties
called "Principal Duties"), Purchaser or their Affiliates; (vi) any
charge brought in a court of competent jurisdiction or with an
appropriate regulatory agency of unlawful tortious conduct involving
moral turpitude or unlawful discrimination is made against such Seller
which MMI or Purchaser reasonably and in good faith believes to be
credible, which charge results in (x) substantial and material damage
or harm to the business of MMI, Purchaser, or their Affiliates; or (y)
negative publicity which embarrasses and materially damages the image
or reputation of MMI, Purchaser, or their Affiliates; or (vii) failure
or breach in performing or complying with any obligations under any
employment agreement between such Seller and MMI, Purchaser or any of
their Affiliates relating to any breach of his or her covenants in his
or her employment agreement [*], or repeated negligent acts or
omissions with respect to, or repeated incompetent performance of,
Principal Duties after such Seller has been given written notice
specifying the nature of the failure or breach and has failed to
correct or discontinue such failure or breach within thirty (30) days
after such notice.
A termination by Francis or a Senior Manager "for cause" shall
mean the voluntary resignation by such Seller as a result of (i) any
failure by MMI to comply with the provisions of any employment
agreement concerning the payment of wages, salary or other
compensation, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by MMI
promptly after receipt of notice thereof given by such Seller; or (ii)
MMI's imposition of a requirement that such Seller be permanently
located at any office or location more than 25 miles distant from the
current employment location of employee.
(b) NON-SOLICITATION OF EMPLOYEES OR AGENTS. Sellers each
hereby agree that, so long as such Seller is employed by MMI under the
Employment Agreement or otherwise, and for the lesser of (i) a three
(3) year period after their employment is terminated for any reason,
and (ii) the longest period of time allowed by law, such Sellers shall
not engage in soliciting, diverting, hiring or inducing, or attempting
to solicit, divert, hire or induce to terminate his or her
relationship with MMI or any such Affiliate, including without
limitation
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Purchaser and its Affiliates, directly or indirectly, whether on such
Seller's own behalf, or that of any other person, business or entity,
any employee or agent of MMI or of any Affiliate, including without
limitation Purchaser and its Affiliates, who was employed by or under
contract with MMI or any Affiliate, including without limitation
Purchaser and its Affiliates, within three (3) years of the date of
the termination of such Seller's employment thereunder.
(c) NON-SOLICITATION OF CUSTOMERS AND REFERRAL SOURCES.
Sellers each hereby agree that so long as employed, and for the lesser
of (i) a three (3) year period after their employment is terminated by
either party hereto, for any reason, and (ii) the longest period of
time allowed by law, they shall not, either directly or indirectly,
engage in calling upon, soliciting, diverting or inducing, or
attempting to call upon, solicit, divert or induce (i) to do business
with a competitor of MMI except to the extent such Business is outside
the scope of the business of MMI, provided that this subclause (i)
shall not be deemed to modify, impair or diminish a Seller's
obligations concerning confidentiality or records in such Seller's
respective Employment Agreement, or (ii) not to do business with MMI,
or any of its Affiliates, including without limitation Purchaser and
its Affiliates, and shall not, directly or indirectly, use any
non-public information relating to a customer or referral source of
MMI or its Affiliates, including without limitation Purchaser and its
Affiliates, obtained during their employment with MMI for calling
upon, diverting, soliciting or inducing, or attempting to call upon,
divert, solicit or induce, any customer or referral source of MMI, or
of any Affiliate, including without limitation Purchaser and its
Affiliates, including any individual or entity which has done business
with MMI or its Affiliates, including without limitation Purchaser and
its Affiliates, at any time within the three (3) years preceding the
termination of their employment hereunder.
(d) ENFORCEMENT. Sellers each recognize that the provisions
of this Section 10.2 are vitally important to the continuing welfare
of MMI and its Affiliates and that money damages constitute an
inadequate remedy for any violation thereof. Accordingly, in the
event of any such violation by Sellers, MMI and its Affiliates, in
addition to any other remedies they may have, shall have the right to
institute and maintain a proceeding to compel specific performance
thereof or to issue an injunction restraining any action by Sellers in
violation of this Section 10.2, without the necessity of posting a
bond.
(e) SURVIVAL OF COVENANTS. Except as specifically set forth
in Section 10.2(a), the provisions of this Section 10.2 shall survive
termination of Sellers employment for any reason.
(f) EXCLUSIVITY. Sellers each hereby represent, covenant
and warrant that as of the date of this Agreement, he or she is bound
by no employment agreement or non-competition agreement with a party
other than MMI and
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Purchaser, or any other similar agreement, except for this Agreement
and the Employment Agreement. Furthermore, during any period of
employment with Purchaser, MMI or otherwise, he or she shall not enter
into, or otherwise become bound by, any other employment agreement,
consulting agreement or non-competition agreement, or other similar
agreement with any other party other than Purchaser, MMI and their
respective Affiliates.
10.3 LIMITED INDEMNIFICATION BY SELLERS.
(a) INDEMNIFICATION BY SELLERS FOR UNDISCLOSED LIABILITIES
OR LOSS FOR SCHEDULED ITEMS. Subject to the limitations of the two
final sentences of Section 10.3(b), the Sellers hereby jointly and
severally indemnify and hold harmless Purchaser and MMI with respect
to any Indemnification Claim for Undisclosed Liabilities or Loss for
Liabilities Not Arising in the Ordinary Course of Business resulting
in an actual loss or any liability, provided that such indemnification
shall only be effective (i) for any Claim for Undisclosed Liabilities
or Loss from for Liabilities Not Arising in the Ordinary Course of
Business before the [*] year anniversary of the date of Closing and
(ii) to the extent the aggregate of all Indemnification Claims exceeds
$[*] (the "Indemnification Threshold Amount"). Notwithstanding the
foregoing, the aggregate of such claims shall not be payable to the
extent they exceed $[*](the "Indemnification Cap"), provided that
regardless of the joint and several nature of the foregoing
indemnification, the aggregate of such Claims for which an individual
Seller shall be liable -- either to Purchaser or, after all Claims to
Purchaser have been satisfied, by way of a contribution claim from
other individual Sellers -- shall not exceed the respective amounts
set forth next to such Seller's name below:
Francis -- $[*].
Bartley -- $[*].
Stashin -- $[*].
VanderZanden -- $[*].
(b) DEFINITION OF INDEMNIFICATION CLAIM. For the purposes
of this Section 10.3, "INDEMNIFICATION CLAIM FOR UNDISCLOSED
LIABILITIES OR LOSS FROM LIABILITIES NOT ARISING IN THE ORDINARY
COURSE OF BUSINESS" or "INDEMNIFICATION CLAIM" shall mean any
liabilities, losses, costs and expenses (after exhausting all
reasonable remedies available through insurance remedies in force)
incurred by MMI, Purchaser or their respective Affiliates which arise
as a result of any liabilities, demands, liens, damages, claims,
expenses, causes of action including without limitation cross-claims,
counterclaims, rights of set-off and recoupment, suits, administrative
action, agreements, damages,
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compensations, demands, actions, losses, court costs and filing fees,
attorneys' and paralegals' fees and expenses of every kind and nature,
including, without limitation, those in law or in equity, arising with
respect to any liability, whether known or unknown, which does not
arise in the Ordinary Course of Business of MMI, (i) which is not
disclosed in the Financial Statements delivered in connection herewith
or the Disclosure Schedules attached hereto, or (ii) which relates to
a breach of representations or warranties. In the case of
Indemnification Claims arising out of a breach of a representation or
warranty of a Senior Manager, such Indemnification Claim may be
asserted against such Senior Manager only to the extent that such
Senior Manager knew such representation or warranty was false,
incomplete or misleading at the time such representation or warranty
was made. Notwithstanding anything to the contrary in Sections 4.10,
4.17 and 4.20, an Indemnification Claim arising therefrom may be
asserted against a Senior Manager only to the extent such Senior
Manager had knowledge of the matters giving rise to the
Indemnification Claim.
(c) INDEMNITY WITH RESPECT TO BREACH, FRAUD OR VIOLATION OF
COVENANTS. Notwithstanding anything else in Section 10.3(a) - (b)
herein to the contrary, the Sellers further agree to jointly and
severally indemnify Purchaser and MMI without respect to any
Indemnification Threshold Amount or Indemnification Cap, for (i) any
breach of the covenants in this Section 10.2 of this Agreement, (ii)
any fraud on the part of MMI or of any Seller occurring at any time,
or (iii) any wilful, knowing or intentional breach of any
representation, warranty, or covenant of MMI or the Sellers contained
in this Agreement (it being understood that any other breach of
covenant (other than the covenants set forth in Section 10.2),
representation, or warranty if not willful, knowing or intentional,
shall be covered by the indemnification contained in Section 10.3(a)),
provided that no Senior Manager shall have any liability under this
Subparagraph (c) unless such claims were caused by such Senior
Manager's own action or inaction or such Senior Manager had knowledge
of the events from which such claim arose.
10.4 TAX LIABILITY OF FRANCIS, SELLERS. To the extent Francis has
income tax liability as a result of the income generated by MMI during 1998
prior to Closing, Purchaser agrees that it shall permit (if prior to Closing)
or cause MMI to pay on Francis' behalf or fully reimburse Francis, either
through a distribution prior to Closing or through such other method as the
parties shall reasonably agree, the full amount of such income tax liability
five (5) days prior to the date such tax is due, without penalty, adjusted
for tax distributions already paid by MMI which relate to liability for taxes
on income generated by MMI during 1998. Purchaser agrees to fully reimburse
Francis for all additional income tax liability to the extent it results from
any reimbursement pursuant to this Section 10.4 for Francis. Purchaser and
Francis agree that in determining the amount of such distribution the parties
shall assume that Francis shall receive a 5% per annum return by investing
such funds during the period from such distribution until income taxes are
required to be paid without penalty. At the option of
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Purchaser, the purchase of the Shares from Seller shall be treated as an
asset acquisition by Purchaser rather than as a stock acquisition provided
that to the extent there is additional tax liability to the Sellers resulting
from such tax treatment as an asset acquisition rather than a stock
acquisition, Purchaser and the Sellers shall each pay one-half of such
additional tax liability. Nothing in this Agreement shall be deemed to
require Purchaser or MMI to pay any late penalties, fees or interest for or
on behalf of the Sellers.
10.5 COVENANT REGARDING RECORD KEEPING BY PURCHASER. Regardless of
any merger, reorganization or liquidation of MMI after the Closing, Purchaser
shall maintain separate profit and loss statements and other financial data
and records reasonably necessary for determining Net Income and After Tax
Profits so long as the determination of MMI Net Income and After Tax Profits
is necessary for the determination of Additional Compensation as provided
herein.
10.6 RELEASE OF PERSONAL GUARANTEES. Purchaser and MMI shall use
all best efforts to cause all Personal Guarantees still in existence at the
Closing to be released within ninety (90) days thereof. If any such Personal
Guarantees are not released within ninety (90) days of the Closing, Purchaser
shall indemnify Sellers and hold them harmless for and from any and all
claims and any and all losses arising under such Personal Guarantees for
obligations under such Personal Guarantees arising because of advances or
obligations (including lease payments) arising after the Closing.
10.7 RECOGNITION OF MMI'S PAST SUCCESS; MMI BOARD. Purchaser
recognizes that the success of MMI has been built upon the management
procedures and guidelines MMI has developed. In order to foster the
continuation of such successful strategies, Purchaser agrees that for five
(5) years after the date of Closing Purchaser shall, as sole shareholder of
MMI, cause Francis and a designate of Francis (which designate shall be
subject to Purchaser's reasonable approval) to be elected as a director of
MMI, except upon the occurrence of one of the following events ("Director
Termination Events"): (i) any event that would permit Purchaser, MMI or
their respective Affiliates to terminate Francis pursuant to the penultimate
sentence of Section 10.2(a) regardless of whether Francis is still employed
by MMI; or (ii) Francis' resignation other than "for cause" (as such term is
defined in Section 10.2(a)). If one of the Director Termination Events
occurs or if Francis dies, becomes disabled or otherwise becomes disqualified
to serve as director, at the end of Francis' tenure as a director, Purchaser
agrees to cause a nominee of Francis' director designee (which nominee shall
be subject to Purchaser's reasonable approval) to be elected as a director of
MMI in Francis' place.
10.8 INTENT TO INVESTIGATE AN IPO. It is the present intention of
Purchaser to pursue an initial public offering at some point within the next
five years and Purchaser shall in good faith investigate the feasibility of
an IPO within such period, provided that such investigation shall not bind
Purchaser to go forward with any IPO if it decides in its sole discretion
that such IPO does not make sense in its sole business judgment.
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10.9 NAME. Purchaser agrees that for the first twelve months after
the Closing, MMI shall continue to use the name "Mortgage Market, Inc." and
other variations thereof, shall continue to take reasonable steps to protect
such trademark and tradename, consistent with past practices, except that
Purchaser may, after consultation with senior management and with the prior
approval of the Board of MMI, require MMI to use the phrases "member of the
Prism family," "a Prism lender," or similar phrases.
10.10 TERRITORIAL EXPANSION. For the 12 month period after the
Closing, Purchaser agrees that it shall not expand the mortgage origination
activities conducted by Purchaser or its other Affiliates, in the Washington
and Oregon markets, other than through the following venues (called
"Permissible Venues"): the Internet, computer mortgage or other online
mortgage lending networks or through comarketing or other affinity
relationships, existing branches of Purchaser and its Affiliates, new or
existing Net Branches of Purchaser's existing Affiliates, and Net Branches of
Affiliates that became Affiliates after the Closing, which Net Branches were
operated by such Affiliates at the commencement of such affiliation. For the
period from 12 to 60 months after the Closing, Purchaser shall not expand
such activities other than through Permissible Venues in the Oregon market,
if MMI is at least the [*] largest originator of mortgage loans (based on
volume) in such market. For the 60 months after Closing, Purchaser shall not
expand such activities in the Washington market other than through
Permissible Venues, (1) for the period 12 months through 18 months, if MMI is
the [*] largest originator of mortgage loans (based on volume) in the
Washington market, (2) for the period from 18 months through 24 months, the
[*] largest originator of mortgage loans (based on volume) in the Washington
market and (3) for the period from 24 months through 60 months, the [*]
largest originator of mortgage loans (based on volume) in the Washington
market. The determination of market share ranking shall be made during each
respective period at the end of each calendar quarter using market data on
the retail origination for such state for the immediately preceding quarter.
Notwithstanding the provision of the first sentence of Section 10.10
identifying mortgage origination activities through the Internet, computer
mortgage or other on-line mortgage lending network, during any period in
which the above provision limiting Purchaser's expansion into Oregon or
Washington is effective based on MMI's having met the foregoing benchmarks
established for market share, Purchaser covenants and agrees that all loans
originated on the Internet, computer mortgages or other on-line mortgage
lending network requiring personnel to effect a physical origination in
Oregon or Washington shall be originated by MMI. Upon the failure of MMI to
meet any of the foregoing benchmarks with respect to the Oregon or Washington
markets, all of Purchaser's obligations to MMI and the Sellers under this
Section 10.10 shall immediately and thereafter cease with respect to such
market.
10.11 MMI ACQUISITION AND EXPANSION. Purchaser agrees to act
reasonably in considering and, where it deems appropriate, approving requests
by MMI concerning expansion and agrees to respond to requests regarding
expansion within 30 days of
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Purchaser's request for approval thereof, and Purchaser's approval of such
expansion shall not be unreasonably withheld.
10.12 RATES. Purchaser agrees to extend for loans originated by MMI
interest rates at least as favorable as those extended by Purchaser for loans
originated by Purchaser and its other Affiliates, subject to adjustment for
fees and differentials based on geographic location.
10.13 FURTHER ASSURANCES. The parties hereto agree to execute such
further documents, instruments and consents and to perform such further acts,
as may be necessary to effect the Closing and the transactions contemplated
hereunder.
10.14 CONTRIBUTION OF CAPITAL; PAYMENTS TO BOB BARNETT. Immediately
following the Closing, Purchaser shall have contributed $40,000 to the
capital of MMI and shall cause MMI to pay $40,000 to Bob Barnett, in
discharge of MMI's obligations to Bob Barnett under Addendum C of Bob
Barnett's employment agreement with MMI.
ARTICLE 11
TERMINATION
11.1 CURE BY SELLERS UPON MATERIAL ADVERSE CHANGE. If prior to
Closing there has been a material adverse change in MMI, a material breach of
a representation, warranty or covenant of Sellers, Sellers shall have thirty
(30) days from the date of notice by Purchaser to cure or remedy the
situation which led to the notice. If Sellers and MMI are unable or
unwilling to cure or remedy the situation, Purchaser shall have the option to
pursue one of the following: (i) terminate this Agreement immediately in
which event the parties shall have no further obligation to consummate the
Closing, or (ii) waive such material adverse change, breach or distribution,
or pursue any other remedies available to such party at law or equity;
provided, however, that if and only if the material adverse change was done
with the intent to impair or prevent the Closing, Purchaser may elect to
consummate the Closing and adjust the Base Cash Price by the full amount of
the material adverse change or cost of curing the breach and pursue any other
remedies available to such party at law or equity.
11.2 OTHER TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual consent of Sellers and Purchaser;
(b) by either Sellers or Purchaser if the Closing Date or
Closing has not occurred by October 31, 1998 unless such delay in the
Closing Date or Closing is due to a failure to obtain an approval for
a federal or state regulating
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authority of a change of control application related to this Agreement
or caused by any act or omission of the party attempting to affect
such termination.
(c) by Purchaser, subject to the Sellers' right to cure and
subject to Section 11.1 if any condition imposed on Sellers (unless
waived by Purchaser) in Section 9.1 or 9.2 cannot be satisfied or
cured by October 31, 1998; or
(d) by MMI and the Sellers if any condition imposed on
Purchaser (unless waived by MMI) in Section 9.1 or 9.3 cannot be
satisfied by October 31, 1998.
Any such termination shall be effected by the party asserting such
termination notifying the other party hereto as set forth in Section 12.8
hereof. Notwithstanding the foregoing, all parties agree to act in good
faith to effect the transactions hereunder and reconcile and mitigate any
technical or nonmaterial noncompliance with the terms of this Agreement.
11.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 11.1 or 11.2, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of the Purchaser,
MMI or their respective directors and officers under this Agreement except as
set forth in Sections 8.1, 8.2, 12.1, 12.2, 12.3 and 12.16.
ARTICLE 12
MISCELLANEOUS
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants,
representations or warranties contained herein shall survive the Closing, and
any claims arising therefrom shall expire after [*] years from the later of
the date hereof or the date of Closing unless notified prior to [*] ([*])
years from the date hereof as provided in Section 10.3, except for breach of
covenants set forth in Sections 10.1 or 10.2 or claims of fraud or
intentional, willful or knowing misrepresentation to the other party until
the applicable statute of limitation has expired. Nothing contained in this
Article shall affect the obligations of any party to perform the agreements
and covenants to be performed by such party hereunder or in connection
herewith either before or after the Closing.
12.2 EXPENSES. Purchaser and Sellers will each be solely
responsible for and have all of its own respective expenses, activities and
other advisors, incurred at any time in documenting, negotiating,
consummating or executing this Agreement and the transactions contemplated
thereby; provided that MMI shall pay an amount not in excess of $[*] for the
reasonable costs of Sellers' accountants, attorneys, and other advisors and
costs of obtaining government approvals and other consents as all other costs
incurred
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in connection with the consummation of the sale, any such costs in excess of
such amount to be borne by Sellers.
12.3 PRESS RELEASES; EMPLOYEE COMMUNICATIONS. Any press releases,
news releases or other communication issued or to be issued to the press, the
media or otherwise to the public or any communication to the employees or
customers of MMI by any of the parties hereunder shall first be reviewed and
approved in writing by both Purchaser and Francis.
12.4 RIGHT OF OFFSET. To the extent any indemnification claim is
not paid on demand, after reasonable time for MMI's or Seller's investigation
and confirmation of such claim, Purchaser may offset indemnification claims
against any amount or claim due or owing to such Seller by MMI or Purchaser.
12.5 WRITTEN AGREEMENT TO GOVERN. This Agreement, together with
all Exhibits, Schedules and other documents to be delivered pursuant hereto,
set forth the entire understanding and supersede all prior oral or written
agreements among the parties hereto relating to the subject matter contained
herein and all prior and contemporaneous discussions among the parties hereto
are merged herein. No party hereto shall be bound by any definition,
condition, representation, warranty, covenant or provision other than as
expressly stated in this Agreement or the Exhibits and other documents to be
delivered pursuant hereto, or as hereafter set forth in a written instrument
executed by such party or by a duly authorized representative of such party.
12.6 SEVERABILITY. The parties hereto expressly agree that it is
not the intention of any party hereto to violate any public policy, statutory
or common law rules, regulations, treaties or decisions of any government or
agency thereof. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of any such
provision, such articles, sections, sentences, words, clauses or combinations
thereof shall be modified to the extent necessary to make them enforceable
or, if necessary, shall be inoperative, and the remainder of this Agreement
shall remain binding upon the parties hereto.
12.7 INJUNCTIVE REMEDY FOR BREACH. The parties agree that
irreparable damage could occur if any provision of this Agreement is not
performed in accordance with its specific terms or is otherwise breached.
The parties accordingly agree that the party not in breach shall be entitled
to injunction to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in addition to any other right
or remedy provided hereunder or at law or in equity.
12.8 NOTICES AND OTHER COMMUNICATIONS. All notices, demands or
requests provided for or permitted to be given pursuant to this Agreement
must be in writing. All notices, demands and requests shall be deemed to
have been properly served if given by personal delivery, or if transmitted by
telecopy, or if delivered to Federal Express or other reputable overnight
carrier for next business day delivery, charges billed to or
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prepaid by shipper, or if deposited in the United States mail, registered or
certified with return receipt requested, proper postage prepaid, addressed as
follows:
If to MMI prior to the Closing, to: Mortgage Market, Inc.
6 Center Pointe Drive
Suite 300
Lake Oswego, Oregon 97035
Facsimile No.: 503/940-8821
With a copy to: Hanna, Kerns & Strader
300 Hoffman Columbia Plaza
1300 S.W. State Avenue
Portland, Oregon 97201
Attn: Joseph J. Hanna, Jr.
Facsimile No.: 503/273-2712
If to MMI after the Closing, to: c/o Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: Mark Filler, Esq.
Facsimile No.: 312/494-0184
c/o Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: General Counsel
Facsimile No.: 312/494-0184
If to Sellers prior to the Closing, to: Martin E. Francis
c/o Mortgage Market Inc.
6 Center Pointe Drive
Suite 300
Lake Oswego, Oregon 97035
Facsimile No.: 503/968-3178
If to Sellers after the Closing, to: Kenneth Bartley
c/o Mortgage Market, Inc.
6 Center Pointe Drive, Suite 300
Lake Oswego, Oregon 97035
Facsimile No.: 503/968-3178
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Melissa Stashin
c/o Mortgage Market, Inc.
6 Center Pointe Drive, Suite 300
Lake Oswego, Oregon 97035
Facsimile No.: 503/968-3178
Curt VanderZanden
c/o Mortgage Market, Inc.
6 Center Pointe Drive, Suite 300
Lake Oswego, Oregon 97035
Facsimile No.: 503/968-3178
Martin E. Francis
c/o Mortgage Market, Inc.
6 Center Pointe Drive, Suite 300
Lake Oswego, Oregon 97035
Facsimile No.: 503/968-3178
If to Purchaser before or after
Closing, to: Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: General Counsel
Facsimile: 312/494-0184
Prism Mortgage Company
440 North Orleans, Suite 222
Chicago, Illinois 60610
Attn: Mark Filler, Esq.
Facsimile: 312/494-0184
With a copy to: Rudnick & Wolfe
Suite 1800
203 North LaSalle Street
Chicago, Illinois 60601
Attn: John R. Mussman, Esq.
Facsimile No.: (312) 630-5390
Each notice, demand or request shall be effective upon personal
delivery, or upon confirmation of receipt of the applicable telecopy, or one
(1) business day after delivery to a reputable overnight carrier in
accordance with the foregoing, or three (3) business days after the date on
which the same is deposited in the United States mail in accordance with the
foregoing. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given shall not adversely
impact the effectiveness of any such notice, demand or request. Service by
personal
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delivery upon Purchaser shall be valid only if delivered personally to the
President, Executive Vice President or General Counsel of the Purchaser.
Any addressee may change its address for notices hereunder by giving
written notice in accordance with this Section.
12.9 COUNTERPARTS. This Agreement may be executed in multiple
counterparts and by the parties in separate counterpart, and shall become
effective when at least one counterpart has been signed by each party and
delivered personally or by facsimile machine to the other party. Each
counterpart shall constitute an original document, and all counterparts taken
together shall constitute one and the same document. The parties intend that
a facsimile signature shall have the same force and effect as an original
signature.
12.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, personal representatives, successors and
assigns.
12.11 FURTHER ASSURANCES. At any time on or after the closing on
the Closing Date, the parties hereto shall each perform such acts, execute
and deliver such instruments, assignments, endorsements and other documents
and do all such other things consistent with the terms of this Agreement as
may be reasonably necessary to accomplish the transaction contemplated in
this Agreement or otherwise carry out the purpose of this Agreement.
12.12 INTERPRETATION. The masculine, feminine or neuter pronouns
used herein shall be interpreted without regard to gender, and the use of the
singular or plural shall be deemed to include the other whenever the context
so requires. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
this Agreement. Unless otherwise expressly stated herein, all references
herein to sections and paragraphs are to sections and paragraphs in this
Agreement and all references herein to Schedules and Exhibits are to
Schedules and Exhibits to this Agreement. All references herein to
"including" shall mean "including, but not limited to".
12.13 SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred
to herein, whether or not attached hereto, are incorporated herein by such
reference as if fully set forth in the text hereof.
12.14 MODIFICATION. The parties to this Agreement may, by mutual
written consent executed by all of the parties hereto, modify or supplement
this Agreement.
12.15 WAIVER OF PROVISIONS. The failure in any one or more instances
of a party to insist upon performance of any of the terms, covenants or
conditions of this Agreement, to exercise any right or privilege in this
Agreement conferred, or the waiver
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by said party of any breach of any of the terms, covenants or conditions of
this Agreement, shall not be construed as a subsequent waiver of any such
terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or
waiver had occurred. No waiver shall be effective unless it is in writing
and signed by the waiving party or an authorized representative of the
waiving party. A breach of any representation, warranty or covenant shall
not be affected by the fact that a more general or more specific
representation, warranty or covenant was not also breached.
12.16 ARBITRATION; LAW; JURISDICTION; WAIVER OF JURY TRIAL.
(a) NEGOTIATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS
RELATED TO OR BASED ON SELLERS' USE OF THE TRADEMARKS OR SELLERS' OR ANY
AFFILIATED PARTY'S COVENANT NOT TO COMPETE OR TO PROTECT TRADE SECRETS, FOR
WHICH PURCHASER OR MMI MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS SUCH PARTY
MAY DEEM APPROPRIATE, OR LITIGATION WITH CONSUMERS OR ANY GOVERNMENTAL
AGENCIES, NEITHER PARTY SHALL INSTITUTE ANY PROCEEDING IN ANY COURT OR
ADMINISTRATIVE AGENCY OR ANY ARBITRATION TO RESOLVE A DISPUTE BETWEEN THE
PARTIES BEFORE THAT PARTY HAS SOUGHT TO RESOLVE THE DISPUTE THROUGH DIRECT
NEGOTIATION WITH THE OTHER PARTY. IF THE DISPUTE IS NOT RESOLVED WITHIN THREE
WEEKS AFTER A DEMAND FOR DIRECT NEGOTIATION, THE PARTIES SHALL THEN ATTEMPT
TO RESOLVE THE DISPUTE THROUGH ARBITRATION AS PROVIDED IN THIS SECTION.
(b) SCOPE OF ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR
CLAIMS RELATED TO OR BASED ON SELLERS' USE OF THE TRADEMARKS OR SELLERS' OR
ANY AFFILIATED PARTY'S COVENANT NOT TO COMPETE OR TO PROTECT TRADE SECRETS,
FOR WHICH PURCHASER OR MMI MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS SUCH
PARTY MAY DEEM APPROPRIATE, OR LITIGATION WITH CONSUMERS OR ANY GOVERNMENTAL
AGENCIES, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN PURCHASER AND SELLERS
(AND ANY OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES THEREOF, IF APPLICABLE)
ARISING OUT OF OR RELATED TO:
(i) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN PURCHASER
AND SELLERS THAT DO NOT HAVE THEIR OWN SPECIFIC ARBITRATION PROVISIONS
("OTHER COVERED AGREEMENTS"), ANY DISPUTE BETWEEN PURCHASER AND
SELLERS OR ANY PROVISION OF ANY SUCH AGREEMENT; OR
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(ii) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER COVERED
AGREEMENT BETWEEN PURCHASER AND SELLERS OR ANY PROVISION OF ANY SUCH
AGREEMENT
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE CHICAGO, ILLINOIS OFFICE OF
AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF PURCHASER OR SELLERS. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN CHICAGO, ILLINOIS AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT RULES OF THE AMERICAN ARBITRATION
ASSOCIATION. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY THE
FEDERAL ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ.) AND NOT BY ANY STATE
ARBITRATION LAW.
THE DECISION AND AWARD OF THE ARBITRATOR SHALL BE BINDING AND
CONCLUSIVE UPON BOTH PURCHASER AND SELLERS, AND ENFORCEABLE IN ANY COURT OF
COMPETENT JURISDICTION. THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR
INCLUDE IN THE AWARD ANY LAWFULLY APPROPRIATE RELIEF AND TO ASSESS COSTS OR
EXPENSES TO ONE OR BOTH PARTIES, PROVIDED THAT THE ARBITRATOR WILL NOT HAVE
THE RIGHT TO DECLARE ANY TRADEMARK GENERIC OR OTHERWISE INVALID.
PURCHASER AND SELLERS AGREE TO BE BOUND BY THE PROVISIONS OF ANY
LIMITATION ON THE PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER
APPLICABLE LAW OR THIS AGREEMENT, WHICHEVER EXPIRES EARLIER. PURCHASER AND
SELLERS FURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION
PROCEEDING, EACH MUST SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTITUTE A
COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL
PROCEDURE) (EXCEPT ONE THAT COULD BE FILED UNDER ANOTHER AGREEMENT HAVING ITS
OWN ARBITRATION AGREEMENT) WITHIN THE SAME PROCEEDING AS THE CLAIM TO WHICH
IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS DESCRIBED
ABOVE WILL BE FOREVER BARRED.
EACH PARTY AGREES THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL,
NOT A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN PURCHASER
AND SELLERS MAY NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING
BETWEEN PURCHASER OR SELLERS, AS APPLICABLE, AND ANY OTHER PERSON,
CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP EXCEPT BY THE AGREEMENT
OF THE PARTIES, PROVIDED THAT PURCHASER OR SELLERS MAY CONSOLIDATE ANY
ARBITRATION PROCEEDING COMMENCED UNDER THIS SECTION 12 WITH ANY ARBITRATION
PROCEEDING
56
<PAGE>
COMMENCED BY PURCHASER OR SELLERS UNDER ANY OTHER COVERED AGREEMENT EXECUTED
IN CONNECTION HEREWITH.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION,
PURCHASER AND SELLERS SHALL EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN
TEMPORARY RESTRAINING ORDERS AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF
FROM A COURT OF COMPETENT JURISDICTION; PROVIDED, HOWEVER, THAT PURCHASER OR
SELLERS MUST CONTEMPORANEOUSLY SUBMIT THE DISPUTE FOR ARBITRATION ON THE
MERITS AS PROVIDED HEREIN.
THE PROVISIONS OF THIS SECTION WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(c) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ).
EXCEPT TO THE EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED
STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR
OTHER FEDERAL LAW, THIS AGREEMENT AND ALL CLAIMS ARISING FROM THE
RELATIONSHIP HEREUNDER BETWEEN PURCHASER AND SELLERS WILL BE GOVERNED BY THE
LAWS OF THE STATE OF ILLINOIS AND THE UNITED STATES OF AMERICA WITHOUT REGARD
TO ITS CONFLICT OF LAWS PRINCIPLES.
(d) CONSENT TO JURISDICTION. EACH PARTY AGREES THAT THE OTHER
PARTY MAY INSTITUTE ANY ACTION AGAINST IT (WHICH IS NOT REQUIRED TO BE
ARBITRATED HEREUNDER OR UNDER ANOTHER ARBITRATION AGREEMENT IN ANY OTHER
AGREEMENT) IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN
THE CITY OF CHICAGO, STATE OF ILLINOIS, AND IRREVOCABLY SUBMITS TO THE
JURISDICTION OF SUCH COURTS AND WAIVES ANY OBJECTION IT MAY HAVE TO EITHER
THE JURISDICTION OF OR VENUE IN SUCH COURTS.
(e) WAIVER OF JURY TRIAL. PURCHASER AND SELLERS IRREVOCABLY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN
EQUITY, BROUGHT BY EITHER OF THEM AGAINST THE OTHER.
12.17 WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Closing are for the sole benefit of such party
and may be waived by such party in whole or in part to the extent permitted
to applicable law.
12.18 CONSTRUCTION. Each of the parties has been advised by counsel
and actively negotiated the terms of this Agreement. Accordingly, the fact
that this
57
<PAGE>
Agreement or any particular provision hereof was drafted by counsel for any
party shall not be considered in construing this Agreement.
IN WITNESS WHEREOF, Purchaser has caused this Agreement to be executed
on its behalf by its officer thereunto duly authorized and each Seller has
executed said Agreement, all on or as of the day and year first above written.
PRISM MORTGAGE COMPANY,
an Illinois corporation
By: /s/ David Fisher
----------------------------------
Its: Vice President
----------------------------------
SELLERS:
/s/ Martin E. Francis
----------------------------------------
Martin E. Francis
/s/ Kenneth Bartley
----------------------------------------
Kenneth Bartley
/s/ Melissa Stashin
----------------------------------------
Melissa Stashin
/s/ Curt VanderZanden
----------------------------------------
Curt VanderZanden
58
<PAGE>
Exhibit 10.4
PRISM EQUITY VALUE PLAN
EFFECTIVE AS OF AUGUST 31, 1998
BY PRISM MORTGAGE COMPANY
AND BY PERSONNEL OF
PACIFIC GUARANTEE MORTGAGE CORPORATION
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omitted text has been marked with a bracketed asterisk ("[*]") and has
been filed separately with the Securities and Exchange Commission.
<PAGE>
PRISM EQUITY VALUE PLAN-I
This agreement establishing the Prism Equity Value Plan-I (the
"Agreement" or "Plan") is dated as of March 1999, but is effective as of
August 31, 1998 (the "Effective Date"), by PRISM MORTGAGE COMPANY, an
Illinois corporation ("Prism" or "Company"), and those Key Personnel of
PACIFIC GUARANTEE MORTGAGE CORP., a California corporation ("PGM"), who
become Participants and signatories in accordance with the terms hereof, and
is intended to supersede any previous understandings or agreements of the
parties with respect to the subject matter contained herein.
SECTION I: RECITALS
A. Prism has acquired all of the issued and outstanding shares of
capital stock of PGM from William D. Osenton and Bruce P. Barbera, pursuant
to that certain Agreement for the Purchase and Sale of the Capital Stock of
Pacific Guarantee Mortgage Corporation, dated July 23, 1998 (the "PGM
Purchase Agreement").
B. Pursuant to the PGM Purchase Agreement, Prism agreed to establish
this Plan to provide certain payments to Key Personnel at the time of an IPO
(as defined below) or Sale of Prism (as defined below), and certain payments
relating to PGM Net Income (as defined below).
C. Accordingly, in consideration of the covenants and mutual
agreements set forth below and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Prism hereby agrees
to establish this Plan and the Key Personnel hereby agree to the terms and
conditions contained herein.
SECTION II: DEFINITIONS
A. ADMINISTRATOR means the person or persons designated by the Board
to administer this Plan in accordance with the provisions of Section VII.
B. BENEFICIARY means the person or persons to whom a Participant's
benefits hereunder are payable to upon his or her death in accordance with
Section VI.
C. BOARD means the Board of Directors of Prism.
D. CLOSING means that corresponding definition as set forth in the PGM
Purchase Agreement, the definition of which is hereby specifically
incorporated by reference.
E. CODE means the Internal Revenue Code of 1986, as amended.
<PAGE>
F. COMMON STOCK means shares of common stock of the Company.
G. COMPANY means Prism or any successor thereto.
H. ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
I. IPO means an initial public offering of capital stock of Prism.
J. KEY PERSONNEL means those management employees, staff and
independent contractors affiliated with PGM initially designated by PGM
management who become a signatory to this Agreement plus those employees and
independent contractors affiliated with PGM or if PGM and Prism shall merge,
Prism (or the surviving entity of the merger), who are eligible to become
Participants in the Plan, as determined by the Board.
K. PARTICIPANTS mean those Key Personnel who are signatories to this
Agreement and who remain employed or affiliated with PGM.
L. PGM NET INCOME means that corresponding definition as set forth in
the PGM Purchase Agreement, the definition of which is hereby specifically
incorporated by reference.
M. PRISM NET INCOME means the definition corresponding to Purchaser
Net Income as set forth in the Purchase Agreement, the definition of which is
hereby specifically incorporated by reference.
N. SALE OF PRISM means the occurrence of (a) the sale of all or
substantially all of the assets of Prism or a successor of Prism or (b) the
sale of eighty percent (80%) or more of the outstanding shares of Prism,
whether such sale in (a) or (b) is effected directly or indirectly through a
merger, consolidation or reorganization.
O. SECURITIES ACT means the Securities Act of 1933, as amended.
SECTION III: PLAN PURPOSE AND FUNDING
A. PURPOSE: This Plan has been established to provide equity-related
compensation to the Participants in the event of an IPO or a Sale of Prism,
and certain payments relating to PGM Net Income.
B. FUNDING: All amounts payable or credited to Participants or their
Beneficiaries hereunder shall be paid in cash from the general assets of the
Company or by issuing shares of Common Stock of the Company, as determined by
the Administrator in accordance with the terms of the Plan. The Company
shall be under no obligation to establish a trust, a special or separate
fund, or to segregate any of its assets to assure payment of amounts under
this Plan. It is the intent
<PAGE>
of the Company and the Participants that this Plan shall not be deemed or
construed to defer the receipt of compensation past termination of employment
and, accordingly, shall not be deemed to be an "employee benefit plan," as
defined in section 3(3) of ERISA.
C. UNSECURED CREDITOR: Nothing contained in this Plan, and no action
taken pursuant to its provisions, shall create or be construed to create a
trust of any kind, nor a fiduciary relationship between the Company and the
Participants. To the extent that the a Participant acquires a right to
receive any amount from the Company under the Plan, such rights shall be no
greater than the right of a general unsecured creditor of the Company. Each
Participant acknowledges that, in the event the Company becomes financially
distressed (whether due to bankruptcy, insolvency or otherwise), the
Company's ability to pay benefits to the Participant under this Plan could be
adversely impacted. In agreeing to become a Participant hereunder, each
Participant represents and warrants that he or she is sufficiently familiar
with the financial condition of the Company.
SECTION IV: CALCULATION OF BENEFIT
A. IPO GRANTS. At the time of an IPO or a Sale of Prism, the
Participants shall be entitled to receive, in the aggregate, a grant of
shares of Common Stock, in an amount to be determined by the following
formula:
FIRST, the [ * ] value of [ * ] reduced by [ * ] multiplied by [ * ];
and
SECOND, the amount determined above shall be multiplied by 5%.
Thereafter, the number of shares of Common Stock allocated and distributed to
each Participant shall be determined under paragraph D below.
Notwithstanding any provision contained herein to the contrary, if counsel to
Prism determines that the grant of shares of Common Stock hereunder requires
registration, or compliance with an exemption from registration, under the
Securities Act or the securities laws of any state, then no shares of Common
Stock shall be distributed to Participants hereunder until such time that an
effective registration statement is filed or all of the conditions for an
exemption are met, as determined by Prism in its sole discretion. Each
participant agrees to cooperate with Prism and comply with any terms and
conditions imposed by Prism in connection with Prism filing a registration
statement or meeting the terms and conditions of an exemption from
registration. Prism will use its best efforts to ensure that shares of
Common Stock can be distributed to Participants in compliance with the
Securities Act as soon as practicable following an IPO.
B. SALE OF PRISM GRANTS. If there is a Sale of Prism prior to the time
of an IPO, the Participants shall be entitled to receive, in the aggregate, a
grant of shares of Common Stock, in an amount to be determined by the
following formula:
FIRST, the [ * ] value of [ * ] multiplied by [ * ]; and
SECOND, the amount determined above shall be multiplied by 5%.
<PAGE>
Thereafter, the number of shares of Common Stock allocated and distributed to
each Participant shall be determined under paragraph D below.
Notwithstanding the foregoing, in lieu of issuing shares of Common Stock to
the Participants under this paragraph B, Prism may, in its sole discretion,
distribute cash to the Participants in an amount equal to the Fair Market
Value of Common Stock that would have been distributed. Notwithstanding any
provision contained herein to the contrary, if counsel to Prism determines
that issuing shares of Common Stock to Participants under this paragraph B
requires registration, or compliance with an exemption from registration,
under the Securities Act of 1933 or the securities laws of any state, then no
payment shall be made to Participants hereunder until such time that an
effective registration statement is filed or all of the conditions for an
exemption are met, as determined by Prism in its sole discretion. Each
participant agrees to cooperate with Prism and comply with any terms and
conditions imposed by Prism in connection with Prism filing a registration
statement or meeting the terms and conditions of an exemption from
registration. Prism will use its best efforts to ensure that shares of
Common Stock can be distributed to Participants in compliance with the
Securities Act as soon as practicable following a Sale of Prism.
C. ALLOCATION OF IPO OR SALE OF PRISM GRANTS. In allocating the total
number of shares of Common Stock issued, or cash payment made, to a
Participant, as the case may be, in connection with an IPO or Sale of Prism,
the Administrator shall utilize the following process:
First, 20% of the shares of Common Stock or cash shall be designated as
EVP Pool 1 and shall be allocated among those Participants listed in
Exhibit A as EVP Pool 1 Participants, who were employed by or affiliated
with PGM prior to January 1, 1995. Allocation among EVP Pool 1
Participants shall be on the basis of the percentage arrived at by
dividing the total number of full months an EVP Pool 1 Participant was
employed at PGM prior to January 1, 1995 by the total number of full
months all EVP Pool 1 Participants were employed at PGM prior to January
1, 1995 multiplied by the percentage of shares of Common Stock allocated
to EVP Pool 1.
Second, 20% of the shares of Common Stock or cash shall be designated as
EVP Pool 2 and shall be allocated among Participants, who were employed
at PGM subsequent to December 31, 1994. Allocation among EVP Pool 2
Participants shall be determined as of the IPO or Sale of Prism date and
shall be on the basis of the percentage arrived at by dividing the total
number of full months an EVP Pool 2 Participant has been employed at
Prism or PGM subsequent to December 31, 1994 by the total number of full
months all EVP Pool 2 Participants have been employed at Prism or PGM
subsequent to December 31, 1994.
If any EVP Pool 1 or EVP Pool 2 Participant is no longer employed by PGM
or Prism, that Participants nonvested or forfeited share of Common Stock
or cash in EVP Pool 1 and/or EVP Pool 2 shall be reallocated to EVP Pool
3, described below.
<PAGE>
Third, the remaining 60% of the shares of Common Stock or cash, and any
nonvested or forfeited benefits corresponding to EVP Pool 1 and EVP Pool
2 Participants who have terminated employment, shall be designated as
EVP Pool 3 and shall be allocated among all remaining Participants based
on the following point system. For each full year of service completed
by a Participant after the Effective Date and prior to the IPO or Sale
of Prism date, the Administrator shall determine, in its sole
discretion, how many points, if any, to assign to a Participant out of a
total of 100 points per year. This shall be done for each of the first
five full years, measured from the Effective Date or, if less, the
number of full and partial years from the Effective Date preceding an
IPO or Sale of Prism. Points allocated for a partial year shall be
weighted, in relation to those allocated for a full year, in the ratio
of the number of months in the partial year to a full 12 month year.
Thereafter, the number of shares of Common Stock or cash assigned to a
Participant from EVP Pool 3 shall be determined by, first, multiplying
the aggregate number of shares of Common Stock or cash allocated to EVP
Pool 3, by the total number of points assigned to a Participant, as of
the IPO or Sale of Prism Date, and, then, dividing such amount by the
total number of points assigned to all Participants.
SECTION V: VESTING OF GRANTS
A. VESTING OF IPO AND SALE OF PRISM GRANTS: Notwithstanding any
provision contained herein to the contrary, a Participant's allocations and
payment of grants relating to an IPO (under Section IV-A) or the Sale of
Prism Grants (under Section IV-B) shall vest at a rate of 20% per year
following the Effective Date and each Participant shall be fully vested if he
or she terminates employment due to death or total and permanent disability
(as determined by the Administrator in its sole discretion); provided,
however, that EVP Pool 1 allocations shall be immediately vested as of the
Effective Date. Nonvested benefits shall be forfeited, and will be
reallocated to EVP Pool 3 to be allocated to other Participants according to
the method described in Section IV-D above.
B. NONCOMPETE AND CONFIDENTIALITY: Notwithstanding anything contained
in this Plan to the contrary, a Participant will forfeit all rights to unpaid
benefits under this Plan if the Participant, without the prior approval of an
independent majority of the Board, violates the provisions of any
confidentiality or noncompete agreement with, or policy of, the Company.
Forfeitures under this paragraph B shall be reallocated to other Participants
based on the method described in the last sentence of paragraph A above.
SECTION VI: PAYMENT OF DEATH BENEFITS
A. BENEFITS UPON DEATH OF PARTICIPANT BEFORE RECEIVING ALL BENEFITS:
If upon the Participant's death he remains entitled to receive any unpaid
benefit hereunder, his designated beneficiary shall receive any remaining
benefits to which the Participant remains entitled at such time as the
Participant would otherwise have received payment.
<PAGE>
B. DESIGNATION OF BENEFICIARY: The Participant, from time to time,
may designate in writing any legal or natural person or persons (who may be
designated contingently or successively) to whom his benefits are to be paid
if he dies before receiving all of his unpaid benefits hereunder. A
beneficiary designation will be effective only when signed by the Participant
and filed with the Administrator while the Participant is alive, and will
cancel all beneficiary designations signed earlier. If the Participant fails
to designate a beneficiary as provided in this Section VI, or if all
designated beneficiaries predecease the Participant or die prior to complete
distribution of the Participant's benefits, then the Participant's designated
beneficiary shall be deemed to be the person or persons surviving him in the
first of the following classes in which there is a survivor, share and share
alike:
i. the Participant's surviving spouse;
ii. the Participant's children, except that if any of the children
predecease the Participant but leave issues surviving, then such issue
shall take, by right of representation, the share their parent would
have taken if living; or
iii. the Participant's personal representative (executor or
administrator).
Any payment to a deemed beneficiary shall completely discharge the Company's
obligations under this Plan.
SECTION VII: PLAN ADMINISTRATION PROVISIONS
A. APPOINTMENT AND AUTHORITY Appointment And Authority : The Board
shall appoint one or more persons to administer the Plan (singularly or
collectively referred to as the Administrator). The Administrator, is
expressly granted the following powers:
(1) To determine all questions arising under the Plan, including
the power to determine the rights or eligibility of employees and their
beneficiaries and their respective benefits, and to remedy ambiguities,
inconsistencies or omissions in the text of the Plan;
(2) To direct all payments of benefits under the Plan;
(3) To request, receive and have custody of all records and
documents pertaining to administration of the Plan;
(4) To be agent for the service of legal process on behalf of the
Plan;
(5) To delegate in writing one (1) or more individuals, agents or
counsel on behalf of the Administrator or to carry out administrative
functions;
<PAGE>
(6) To interpret the terms of the Plan and make final binding
determinations regarding the Participant's rights under the Plan,
subject to the Participant's right to arbitrate a decision on the
grounds that it is clearly erroneous; or
(7) To perform any other acts necessary or appropriate to the
administration of the Plan and the discharge of its duties.
B. RIGHT TO AMEND OR TERMINATE: The Board may at any time and from
time to time to modify, suspend, amend or terminate the Plan in whole or in
part; provided, however, that no such action shall be effective with respect
to any Participant without the Participant's written consent.
C. INDEMNIFICATION OF THE ADMINISTRATOR: The Administrator shall be
indemnified by the Company against any and all liabilities, settlements,
judgments, losses, costs, and expenses (including reasonable legal fees and
expenses) of whatever kind and nature which may be imposed on, incurred by or
asserted against the Administrator by reason of the performance or
nonperformance of a Administrator function if such action did not constitute
gross negligence or willful misconduct. The foregoing right of
indemnification shall be in addition to other rights the Administrator by law
or by reason of insurance coverage of any kind. The Company may, at its own
expense, settle any claim asserted or proceeding brought against the
Administrator when such settlement appears to be in the best interests of the
Company.
D. CLAIMS PROCEDURE: A Participant or any designated beneficiary who
disputes the Administrator's determination of the benefits due to him or her
under the Plan may file a claim with the Administrator. A claim must be in
writing, in a form which gives the Administrator reasonable notice of the
claim, sets forth the basis of the claim, and authorizes the Administrator to
take all steps reasonably necessary to determine the validity of the claim
and to facilitate the payment of any benefits to which the claimant is
entitled. The Administrator will, if reasonably possible, decide whether to
grant or deny a claim within ninety (90) days after it is filed. If a longer
period is needed, the Administrator will, no later than the last day of the
ninety (90) day period, notify the claimant of the extension of time and the
reasons why it is needed. A decision must then be rendered within ninety (90)
days after the claimant was notified of the extension. If the Administrator
does not act within the time specified by this paragraph C, the claim is
automatically denied, and the claimant may appeal in accordance with this
paragraph C. If the Administrator determines that a claim should be denied,
it will give the claimant written notice of denial. This notice must be
written in a manner calculated to be understood by the claimant, state
specific reasons for denying the claim, citing the provisions of the Plan on
which the denial is based, explain the procedure for reviewing the
Administrator's decision, and if the claim is denied because the
Administrator lacks adequate information to reach a decision, state what
information is needed to make a decision possible and why it is needed. If a
claim is denied, the claimant may appeal to the Board. The claimant's appeal
must be submitted in writing to the Board no later than sixty (60) days after
the earlier of the date on which he receives notice of denial or the
expiration of the period within which the Board is required to render a
decision. The claimant or his representative may submit any documents or
written arguments that he desires in support of his claim, and the Board may,
but is not required to, hold a hearing on the claim. The Board will, if
reasonably possible, decide the claimant's appeal
<PAGE>
within sixty (60) days after it is filed. If a longer period is needed, the
Board will, no later than the last day of the sixty (60) day period, notify
the claimant of the extension of time and the reasons why it is needed. A
decision must then be rendered within sixty (60) days after the claimant was
notified of the extension. If the Board does not act within the time
specified by this paragraph C, the appeal is automatically denied. If the
Board determines that an appeal should be denied, it must give the claimant
written notice of the denial in the same manner as required on initial denial
of the claim by the Board.
SECTION VIII: MISCELLANEOUS PLAN PROVISIONS
A. NOT A CONTRACT OF EMPLOYMENT: The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between the Company
and the Participant, and the Participant (or his beneficiary) shall have no
rights against the Company except as may otherwise be specifically provided
herein. Moreover, nothing in this Plan shall be deemed to give the Participant
a right to be retained in the service of the Company or to interfere with the
right of the Company to discipline or discharge him or her at any time.
B. NONALIENATION OF BENEFITS: To the extent permitted by law, no amount
payable under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, garnishment, pledge or encumbrance. Any
attempt to anticipate, alienate, sell, transfer, assign, attach, pledge or
encumber the same shall be void, and no amount payable under the Plan shall be
in any manner liable to or subject to the debts, contracts, liabilities,
engagements or torts of any Participant or designated beneficiary.
C. PAYMENTS TO INCOMPETENTS: If the Participant or designated
beneficiary entitled to receive any benefit hereunder is deemed by the
Administrator, or is adjudged, to be legally incapable of giving valid receipt
and discharge for such benefit, such benefit shall be paid to such person(s) as
the Administrator may designate or to a duly appointed guardian. Any such
payment shall be in complete discharge of the liability of the Plan, the
Administrator and the Company to the Participant or the designated beneficiary.
D. MISSING PERSONS: If the Administrator cannot ascertain the
whereabouts of any designated beneficiary to whom a payment is due under the
Plan, and if, after five (5) years from the date such payment is due, a notice
of such payment due is mailed to the last known address of such designated
beneficiary as shown on the records of the Administrator, and within three (3)
months after such mailing such designated beneficiary has not made written claim
therefor, the Administrator, if it so elects, may direct that such payment and
all remaining payments otherwise due to such designated beneficiary be
permanently cancelled. Any such cancellation shall be in complete discharge of
the liability of the Plan, the Administrator and the Company to the Participant
and his designated beneficiaries.
E. GENDER AND NUMBER: Wherever used herein, the masculine gender shall
include the feminine gender and the singular shall include the plural, unless
the context indicates otherwise.
<PAGE>
F. WITHHOLDING: The Company may withhold from any benefits payable
under the Plan all federal, state, local or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
G. GOVERNING LAW: Except as provided in subparagraph (K)(1) below, the
provisions of the Plan shall be governed by and construed in accordance with
the laws of the State of Illinois.
H. SEVERABILITY: If any provision of this Plan or application thereof
to any designated beneficiary is held invalid or unenforceable, the remainder
of the Plan will not be affected thereby and to that extent the provisions of
this Plan are intended to be and are deemed to be severable.
I. HEADINGS. All headings in this Plan are for reference only and are
not to be utilized to construe its terms.
J. ARBITRATION:
(1) NEGOTIATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS
RELATED TO PARTICIPANTS' OR ANY AFFILIATED PARTY'S COVENANT NOT TO COMPETE,
FOR WHICH PRISM OR PGM MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS IT MAY
DEEM APPROPRIATE, NEITHER PARTY SHALL INSTITUTE ANY PROCEEDING IN ANY COURT
OR ADMINISTRATIVE AGENCY OR ANY ARBITRATION TO RESOLVE A DISPUTE BETWEEN THE
PARTIES BEFORE THAT PARTY HAS SOUGHT TO RESOLVE THE DISPUTE THROUGH DIRECT
NEGOTIATION WITH THE OTHER PARTY AND PURSUANT TO THE PLAN'S CLAIMS PROCEDURE.
IF THE DISPUTE IS NOT RESOLVED WITHIN THE TIME PERIODS SET FORTH IN SECTION
VII-C, THE PARTIES SHALL THEN ATTEMPT TO RESOLVE THE DISPUTE THROUGH
ARBITRATION AS PROVIDED IN THIS SECTION.
(2) SCOPE OF ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR
CLAIMS RELATED TO PARTICIPANTS' OR ANY AFFILIATED PARTY'S COVENANT NOT TO
COMPETE, FOR WHICH PRISM MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS SUCH
PARTY MAY DEEM APPROPRIATE, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN
PRISM AND PARTICIPANTS (AND ANY BENEFICIARY) ARISING OUT OF OR RELATED TO
(a) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN PRISM AND
PARTICIPANTS THAT DO NOT HAVE THEIR OWN SPECIFIC ARBITRATION PROVISIONS
("OTHER COVERED AGREEMENTS"); OR
(b) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER COVERED AGREEMENT
BETWEEN PRISM AND PARTICIPANTS OR ANY PROVISION OF ANY SUCH AGREEMENT
<PAGE>
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE CHICAGO, ILLINOIS OFFICE OF
JAMS/ENDISPUTE ON DEMAND OF PRISM OR PARTICIPANTS. SUCH ARBITRATION
PROCEEDING WILL BE CONDUCTED IN CHICAGO, ILLINOIS AND, EXCEPT AS OTHERWISE
PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN ACCORDANCE
WITH THE THEN CURRENT RULES OF THE JAMS/ENDISPUTE. ALL MATTERS RELATING TO
ARBITRATION WILL BE GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C.
Sections 1 ET SEQ.) AND NOT BY ANY STATE ARBITRATION LAW.
THE DECISION AND AWARD OF THE ARBITRATOR SHALL BE BINDING AND CONCLUSIVE
UPON BOTH PRISM AND PARTICIPANTS, AND ENFORCEABLE IN ANY COURT OF COMPETENT
JURISDICTION. THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE
AWARD ANY LAWFULLY APPROPRIATE RELIEF AND TO ASSESS COSTS OR EXPENSES TO ONE
OR BOTH PARTIES.
PRISM AND PARTICIPANTS AGREE TO BE BOUND BY THE PROVISIONS OF ANY
LIMITATION ON THE PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER
APPLICABLE LAW OR THIS AGREEMENT, WHICHEVER EXPIRES EARLIER. PRISM AND
PARTICIPANTS FURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION
PROCEEDING, EACH MUST SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTITUTE A
COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL
PROCEDURE) (EXCEPT ONE THAT COULD BE FILED UNDER ANOTHER AGREEMENT HAVING ITS
OWN ARBITRATION AGREEMENT) WITHIN THE SAME PROCEEDING AS THE CLAIM TO WHICH
IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS DESCRIBED
ABOVE WILL BE FOREVER BARRED.
EACH PARTY AGREES THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL,
NOT A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN PRISM AND
A PARTICIPANT (OR BENEFICIARY) MAY NOT BE CONSOLIDATED WITH ANY OTHER
ARBITRATION PROCEEDING BETWEEN PRISM OR ANOTHER PARTICIPANT (OR BENEFICIARY),
AS APPLICABLE, AND ANY OTHER PERSON, CORPORATION, LIMITED LIABILITY COMPANY
OR PARTNERSHIP EXCEPT BY THE AGREEMENT OF THE PARTIES, PROVIDED THAT PRISM OR
PARTICIPANT (OR BENEFICIARY) MAY CONSOLIDATE ANY ARBITRATION PROCEEDING
COMMENCED UNDER THIS SEXTION 12 WITH ANY ARBITRATION PROCEEDING COMMENCED BY
PRISM OR PARTICIPANT (OR BENEFICIARY) UNDER ANY OTHER COVERED AGREEMENT
EXECUTED IN CONNECTION HEREWITH.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION,
PRISM AND PARTICIPANTS SHALL EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN
TEMPORARY RESTRAINING ORDERS AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF
FROM A COURT OF COMPETENT JURISDICTION; PROVIDED, HOWEVER, THAT PRISM OR
PARTICIPANTS MUST
<PAGE>
CONTEMPORANEOUSLY SUBMIT THE DISPUTE FOR ARBITRATION ON THE MERITS AS
PROVIDED HEREIN.
THE PROVISIONS OF THIS SECTION WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(3) CONSENT TO JURISDICTION. EACH PARTY AGREES THAT THE OTHER PARTY
MAY INSTITUTE ANY ACTION AGAINST IT (WHICH IS NOT REQUIRED TO BE ARBITRATED
HEREUNDER OR UNDER ANOTHER ARBITRATION AGREEMENT IN ANY OTHER AGREEMENT) IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF
SUCH COURTS AND WAIVES ANY OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION
OF OR VENUE IN SUCH COURTS.
(4) WAIVER OF JURY TRIAL. PRISM AND PARTICIPANTS IRREVOCABLY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN
EQUITY, BROUGHT BY EITHER OF THEM AGAINST THE OTHER.
PRISM MORTGAGE CORP.
By: /s/ David Fisher
------------------------
Title: /s/ Vice President
------------------------
<PAGE>
Exhibit 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
DATED AS OF JULY 31, 1998
BY AND BETWEEN
PACIFIC GUARANTEE MORTGAGE CORPORATION
AND
WILLIAM D. OSENTON
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omitted text has been marked with a bracketed asterisk ("[*]") and has
been filed separately with the Securities and Exchange Commission.
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is dated as of July
31, 1998 by and between PACIFIC GUARANTEE MORTGAGE CORPORATION, a California
corporation ("PGM"), and WILLIAM D. OSENTON ('"Osenton").
WHEREAS, prior to the date of this Agreement, Osenton was a shareholder
of PGM;
WHEREAS, on even date herewith, PGM entered into that certain Purchase
and Sale Agreement dated July 23, 1998 (the "Purchase Agreement") between
Osenton and Bruce P. Barbera ("Barbera"), as sellers, and Prism Mortgage
Company, an Illinois corporation ("Prism"), as purchaser thereunder pursuant
to which Prism has purchased all of the shares of PGM;
WHEREAS, upon consummation of the transactions contemplated by the
Purchase Agreement, Prism will be the majority shareholder of PGM;
WHEREAS, PGM desires to retain the services of Osenton as an employee of
PGM and, to that end, desires to enter into this contract of employment with
Osenton, upon the terms and conditions herein set forth; and
WHEREAS, Osenton desires to be employed by PGM upon such terms and
conditions, and acknowledges that such terms and conditions, including but
not limited to the covenants contained in Section 7 hereof, constitute
material inducements for Prism to enter into and effect the transactions
contemplated in the Purchase Agreement and for PGM to employ Osenton pursuant
to this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the promises and
covenants herein contained, Ten and No/100 Dollars ($10.00), and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
<PAGE>
1. DEFINITIONS.
(a) "AFFILIATE". The term "Affiliate", as the term is used herein,
shall mean any person or entity: (i) which owns a voting interest in PGM;
(ii) in which PGM owns a voting interest; or (iii) in which a voting
interest is owned directly or indirectly by Prism.
(b) "BUSINESS". The term "Business", as the term is used herein,
shall mean PGM's residential mortgage lending and brokerage operations, as
well as all secondary market transactions conducted by PGM.
(c) "MARKET". The term "Market", as the term is used herein, shall
mean all areas in which PGM or its Affiliates, including Prism, while this
Agreement is in effect, conduct any of their residential mortgage
operations, and where they maintain branches or Net Branches.
(d) "NET BRANCHES" shall mean PGM branch operations operating under a
"PGM Branch Operators Agreement" as in effect on the date of this
Agreement, which branches are licensed and authorized to conduct the
Business and in which the responsibility and compensation to the Branch
Manager are as set forth in the PGM Branch Operators Agreement as in effect
as of the date of this Agreement.
(e) "NORTHERN CALIFORNIA" shall be defined as those counties in
California north of and including Salinas and Monterey counties.
(f) "PGM MANAGED BRANCH" shall mean offices other than Net Branches
operated directly by PGM.
(g) "PGM'S MORTGAGE BANKING NET INCOME" shall include all service
release premiums, incentive income, gain on sale income, interest income,
income generated as a result of bulk sales, assignment of trade or
co-issuer transactions and all similar income generated from the sale of
loans in the secondary market and shall be computed on a product by product
basis by calculating the total gross revenues generated by each product for
PGM and Purchaser and its Affiliates. Such gross revenue shall be
allocated as PGM Mortgage Banking Net Income based on (i) [*] ratio of the
[*] the Purchaser or its Affiliates relative to the [*] Purchaser and its
Affiliates (including the PGM loans), (ii) multiplied by [*] from which
total is sub-
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<PAGE>
tracted all mortgage banking expenses incurred in connection
with such revenues allocated to PGM based on the ratio of [*] PGM and
funded by PGM or Purchaser relative to [*] Purchaser and its Affiliates
(including PGM Loans), adjusted by subtracting (i) all hedging costs
allocated to PGM based on the [*] Purchaser and PGM to the [*] Purchaser
and its Affiliates (including PGM) taking into account [*] compared to [*]
(ii) any costs and expenses associated with any repurchase obligations of
PGM, and (iii) any special fees paid to or reduced premiums received from
purchasers of loan product of PGM or Purchaser due to [*] such loans by PGM
[*], and adjusted further by adding or subtracting any [*] reflected on the
rate sheet of PGM distributed to its loan officers vis-a-vis the rate
sheets of Purchaser and its Affiliates distributed to their loan officers.
If PGM retains underwriting and closing operations [*].
By way of example, assume PGM [*] of $500 Million [*] of $200 Million [*]
of $300 Million, that the mortgage banking operations [*] $250 Million [*]
$300 Million [*] and $500 Million [*] Assume further Purchaser and its
Affiliates [*] of $10 Million [*] $5 Million in [*] and $15 Million [*] $1
Million in hedging costs [*] $10 Million in mortgage banking operating expenses
[*] 3,000 loans [*].
If PGM does not retain underwriting and closing:
PGM Mortgage Banking Net Income would equal [*]
[*] ($500 Million/$750 Million x $10 Million)
($200 Million/$500 Million x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)]
[*] [3,000/10,000 x $10 Million] - [$1 Billion/$2.05 Billion x $1 Million)]
[*] [$6,666,666.66 + 2,000,000 + $5,625,000] - [$3,000,000 - $487,804]
[*] $10,803,862
If PGM retains underwriting and closing:
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<PAGE>
[*] [($500 Million/$750 Million x $10 Million) +
($200 Million/$500 Million x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)]
[*] [3,000/10,000 x ($10 Million - 3,000/10,000 x $2 Million))]
[*] [$1 Billion/$2.05 Billion x $1 Million]
[*] [$6,666,666.66 + 2,000,000 + $5,625,000]
[*] [3/10 x ($10 Million - $600,000] - [$487,804]
[*] $14,291,666 - ($2,820,000) - ($487,804)
[*] $10,983,862*
*[*] underwriting and closing [*] would then be [*]
(h) "PGM NET INCOME" shall equal PGM's pretax Mortgage Banking Net
Income plus all other pre-tax income generated by the PGM Operations
calculated in accordance with GAAP, including, without limitation, revenues
from loan origination including underwriting and other fee income, minus
all operational, administrative and out-of-pocket expenses including,
without limitation, all underwriting and closing costs in California,
directly associated with the operation of PGM included in the expenses and
subtracted from revenues in computing PGM Net Income and all indirect or
other expenses of Purchaser and its Affiliates to the extent they are
associated with services provided to PGM and apply to PGM Operations
(including, without limitation, accounting, financial, legal and other
services relating to the provision of technology, human resources,
accounting, insurance and national marketing and otherwise provided by
national senior management) allocated to or on behalf of PGM based on the
ratio of [*] compared to [*]. In no event shall [*] the purchase
contemplated hereby (other than [*]) be deemed to constitute direct or
indirect charges to PGM for the purpose of this definition.
(i) "PURCHASER NET INCOME" shall mean all pre-tax net income of
Purchaser and its Affiliates including all PGM Net Income.
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<PAGE>
(j) "PGM OPERATIONS" shall mean all operations of PGM existing as of
the Closing plus (i) all other operations of PGM located in Northern
California which may be opened after the Closing (including new branches
and/or acquisitions), (ii) any new operations (i.e., not acquisitions) in
California which are opened by PGM after the Closing, (iii) any existing
Net Branches which are operated by PGM throughout the United States, (iv)
any conversions to PGM Managed Branches of new or existing Net Branches
that at the time of such conversion have been opened for two (2) years or
more, (v) the joint venture to be established with Keystroke and (vi) any
other operations of a PGM Joint Venture created for assisting in loan
origination and processing for which PGM is a processing agent and which is
expressly approved as a PGM Operation by Purchaser in writing, in its
reasonable discretion.
(k) "PGM POST TAX NET INCOME" shall mean PGM Net Income minus all
payments of taxes on all distributions to pay taxes of Sellers and other
shareholders of PGM Purchasers.
2. EMPLOYMENT TERM.
(a) INITIAL TERM. The Term of this Agreement ("Term") shall commence
on the date hereof, and shall end on the last day of May, 2003, unless
otherwise terminated as set forth herein.
(b) RENEWAL TERM(s). To the extent Osenton remains employed by PGM
or Prism, is not in default hereunder and desires to continue fulfilling
the responsibilities set forth in Section 3 hereof, this Agreement may be
renewed, upon the terms and conditions set forth herein, for consecutive
one (1) year periods ("Renewal Term(s)") upon the mutual agreement of the
parties hereto at least ninety (90) days prior to the expiration of the
Term or the then current Renewal Term. Compensation for such Renewal Terms
shall be negotiated within such ninety (90) day period prior to the
expiration of such Term or Renewal Term of this Agreement.
3. MANAGEMENT RESPONSIBILITIES AND OTHER DUTIES. Osenton shall serve as
President and, together with the other officers of PGM, and subject to the
Board's control and direction, shall be responsible for the management of the
day-to-day operations of the Business. Osenton shall devote substantially all
of Osenton's time during business hours (reasonable sick leave and vacations
excepted), and shall use his best efforts, to fulfill faithfully, responsibly
and to the best of his
5
<PAGE>
ability, his duties to PGM. Other than those decisions requiring board or
shareholder consent or approval under PGM's articles of incorporation,
by-laws or applicable state law, or customarily made by the board of
directors or the shareholders, and subject to the Board's control and
direction, Osenton shall have managerial duties substantially similar to the
managerial duties which were rendered by Osenton to PGM during the twelve
(12) month period immediately preceding the date of this Agreement, and shall
include, but not be limited to: the day-to-day operation, development and
growth of PGM's business, origination of mortgage loans, management of the
Business, maximization of PGM's profits, and other such duties and
responsibilities as shall be reasonably set forth by the Board, from time to
time.
4. MANAGEMENT DISCRETION. Without limiting the foregoing, and subject to
the oversight of the Board's control and direction, the senior officers of PGM
shall have the authority to retain all current PGM employees in their present
positions, subject to their annual review, PROVIDED THAT nothing herein shall be
deemed to cause such employees to be deemed third-party beneficiaries of this
Agreement.
5. COMPENSATION.
(a) SALARY. During each calendar year of this Agreement, in addition
to any amounts due Osenton pursuant to section 5(b) hereof, to the extent
Osenton remains employed by PGM, Osenton shall receive a gross annual
salary, prior to required withholdings, equal to One Hundred Eighty
Thousand and No/100 ($180,000.00), payable on the fifteenth (15th) day and
the last day of each month.
(b) BONUS. During each year of the Term of this Agreement, and
subject to the provisions of Section 10 hereof, Osenton shall receive bonus
compensation of $70,000 if the Net Income of PGM exceeds $1,000,000 for
such calendar year ("Bonus"), which shall be paid to Osenton within 120
days of year end.
(c) BENEFITS. Osenton shall be entitled, while employed by PGM, to
such employee benefits (e.g., health insurance) which are in effect from
time to time, and offered by PGM to its management in accordance with the
policies promulgated by the Board.
(d) EXPENSE REIMBURSEMENT. Osenton shall be entitled to receive,
upon the submission of receipts and vouchers therefor, reimburse-
6
<PAGE>
ment for all reasonable business expenses, which may be incurred by
Osenton, directly related to the performance of his duties under this
Agreement. This provision shall be subject to, and shall at all times
conform with, the then current policies of PGM and Prism regarding expense
reimbursement, provided that Osenton shall be entitled to reimbursement
for all bridge tolls incurred in his crossing the Richmond/San Rafael
Bridge.
(e) VACATION; HOLIDAYS; SICK DAYS. Osenton shall be entitled to
vacations consistent with past practices, not to exceed six (6) weeks per
year and to paid holidays, and sick leave in accordance with the policies
for management level employees promulgated by the Board, then in effect.
(f) ONGOING OBLIGATION. If PGM terminates this Agreement without
"Cause" as defined in Section 6(a), PGM shall continue to pay Osenton the
compensation and benefits set forth in Sections 5(a), (b) and (c) hereof
for the balance of the period remaining in the then current Term or Renewal
Term of this Agreement had the Agreement not been terminated.
6. TERMINATION; SET-OFF.
(a) TERMINATION BY PGM. This Agreement may be terminated by the
Board of PGM, at any time, for "Cause" and for no other reason. For the
purposes of this Agreement, PGM will have "Cause" to terminate Osenton, if
Osenton has engaged in any of the following (for the purposes of this
Section, the term PGM shall include PGM and the Affiliates): fraud;
embezzlement; theft; improper disclosure of material confidential or
proprietary information of Prism or PGM; materially aiding a competitor of
Prism or PGM; conviction of a felony resulting in Osenton's conviction, or
conviction of Osenton of any criminal charge resulting in Prism or PGM
being in material violation of any mortgage brokerage or banking laws or
regulations or conviction of any other felony involving moral turpitude
resulting in harm or embarrassment to Prism or PGM; gross negligence or
incompetency in the performance of any employment duties; repeated and
continuing refusal or inability to perform any reasonable employment
duties; or repeated failure or material breach in performing or complying
with any of Osenton's obligations under this Agreement. This Agreement is
intended as a written statement of the economic relationship of the
parties, and not a guaranty of continued employment after the Term or if
Osenton is terminated for Cause.
7
<PAGE>
(b) TERMINATION BY OSENTON. After the first twelve (12) months of
the Term of this Agreement, Osenton shall, subject to the terms of this
Section 6(b), have the right, upon ninety (90) days' prior written notice,
to terminate his employment under the terms of this Agreement; provided,
however, that his right to receive compensation hereunder shall cease upon
the effective date of such termination and that all of the other covenants
and restrictions contained in the Purchase Agreement, including without
limitation those set forth in Section 6 thereof, and all covenants set
forth in Section 7 hereof shall remain in full force and effect.
7. COVENANTS OF OSENTON. The following covenants are made by and between
Osenton and PGM in consideration of the transaction contemplated by the Purchase
Agreement, and it is expressly acknowledged and agreed by Osenton that such
covenants are material inducements for PGM to enter into this Agreement, and for
Prism to consummate the transaction contemplated by the Purchase Agreement. The
following covenants are also made in consideration of the Term of this
Agreement, and all subsequent Renewal Terms, as provided in Section 2 hereof,
and the compensation to be paid Osenton as provided in Section 5 hereof. In
addition, Osenton acknowledges that PGM and its Affiliates, including, without
limitation, Prism, expend considerable time, money and resources in recruiting,
training and developing the skills and abilities of their employees; developing
business relationships with referral sources and customers so as to improve the
good will of PGM; establishing branches of PGM, including, but not limited to,
entering into a long term lease for office space; establishing and maintaining
close business relationships between PGM's employees and PGM's customers; and
obtaining, compiling and developing confidential customer lists, various
internal computer reports and other proprietary business information not readily
available to the public or through other sources. Osenton acknowledges and
agrees that PGM is entitled to protect its investment in the foregoing and to
keep the results of its efforts for its exclusive use. Accordingly, Osenton
agrees to the covenants and conditions set forth in Sections 7(a) through 7(d)
hereof, and acknowledges and agrees that they are necessary to preserve and
protect the legitimate business interests of PGM, and shall be binding upon
Osenton during and after Osenton's employment with PGM in accordance with their
terms:
(a) CONFIDENTIALITY. During the course of Osenton's employment,
Osenton will have access to certain trade secrets and other proprietary and
confidential business information regarding PGM, the Business and the
business of PGM's Affiliates. Osenton acknowledges, covenants and agrees
that such information is, and shall remain, the property of PGM and/or its
8
<PAGE>
Affiliates. Except on behalf of PGM as Osenton's legal duties may require,
Osenton shall keep confidential and shall not divulge to any other person
or entity, and shall not use for Osenton's own benefit, or the benefit of
others, during Osenton's employment or after Osenton's employment is
terminated by either party hereto for any reason, any information relating
to PGM or the Business, or otherwise pertaining to Osenton's employment, or
of the business secrets or other confidential information regarding PGM and
its Affiliates which have not otherwise become public knowledge; provided,
however, that nothing in this Agreement shall preclude Osenton from
disclosing necessary or appropriate information (i) to parties retained to
perform services for PGM or its Affiliates; (ii) under any other
circumstances to the extent such disclosure is appropriate or necessary to
further the best interests of PGM or its Affiliates; or (iii) as may be
required by law. For the purposes of this Agreement, confidential business
information shall have its ordinary and customary meaning and shall
include, without limitation: all business and marketing plans, customer and
prospect lists concerning referral sources, lists of employees of PGM and
its Affiliates, lists of the existence and locations of branches of the
Business, computer programs, internal business reports, agreements,
manuals, loan documents (including form documents such as PGM's loan
pricing disclosure agreements and the like), training materials, marketing
materials (including, without limitation, newsletters and correspondence),
financial information, information concerning financial arrangements with
outside lending institutions, terms of vendor agreements, internal pricing,
and fee and cost information, which are confidential and/or treated as
confidential business information by PGM.
(b) RECORDS. All documents, records, programs, computer media, files
and lists (including all originals and all copies) containing trade secrets
or confidential business information, and all papers, books, documents,
forms, handbooks, reports, computer disks and tapes, training manuals,
lending manuals and records of every kind and description relating to the
business and affairs of PGM and its Affiliates, whether or not prepared by
Osenton, and all tangible items obtained by Osenton during the course of
employment, and related to the Business, and the business of PGM's
Affiliates, including, without limitation, phones, keys, computers, credit
cards, lists, manuals, office equipment, furniture, and the like, shall be
the sole and exclusive property of PGM, and Osenton shall surrender them to
PGM upon termination of this Agreement, or at any time upon the request of
PGM.
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<PAGE>
(c) ENFORCEMENT. Osenton recognizes that the provisions of this
Section 7 are vitally important to the continuing welfare of PGM and its
Affiliates and that money damages constitute an inadequate remedy for any
violation thereof. Accordingly, in the event of any such violation by
Osenton, PGM and the Affiliates, in addition to any other remedies they may
have, shall have the right to institute and maintain a proceeding to compel
specific performance thereof or to issue an injunction restraining any
action by Osenton in violation of this Section 7, without the necessity of
posting a bond.
(d) SURVIVAL OF COVENANTS. The provisions of this Section 7 shall
survive termination of Osenton's employment for any reason.
8. EXCLUSIVITY. Osenton hereby represents, covenants and warrants that
as of the date of this Agreement, Osenton is bound by no other Agreement or
non-competition agreement, or other similar agreement with a party other than
PGM, Prism and the Affiliates, except for the Agreement. Furthermore, while
this Agreement is in effect, Osenton shall not enter into, or otherwise become
bound by, any other agreement or non-competition agreement, or other similar
agreement other than with PGM, Prism and its Affiliates.
9. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to PGM, to: Pacific Guarantee Mortgage Corporation
Prism Center
440 North Orleans Street
Chicago, Illinois 60610
Attn: Mark Filler, Esq.
Facsimile No.: (312) 494-0082
(b) If to Osenton, to: William D. Osenton
103 Trinidad Drive
Tiburon, California 94920
Facsimile No.: (510) 970-7940
Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.
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<PAGE>
10. TAX WITHHOLDING. PGM shall provide for the withholding of any taxes
required to be withheld by federal, state and local law with respect to any
payment in cash and/or other property made by or on behalf of PGM to or for the
benefit of Osenton under this Agreement or otherwise.
11. NO ASSIGNMENT. Except as otherwise expressly provided herein, this
Agreement is not assignable by either party hereto and no payment to be made
hereunder shall be subject to alienation, sale, transfer, assignment, pledge,
encumbrance or other charge provided that an assignment of this Agreement by PGM
to an Affiliate or by operation of or in connection with the merger, sale of
stock of substantially all the business or assets of PGM or Prism shall not be
deemed an assignment covered by such prohibition. Except as expressly set forth
herein, this Agreement is not intended to confer upon any other person or entity
any rights or remedies hereunder and shall be binding upon and inure to the
benefit solely of each party hereto.
12. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in two or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
13. SEVERABILITY. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement. Furthermore, if the scope of any restriction or requirement
contained in this Agreement is too broad to permit enforcement of such
restriction or requirement to its full extent, then such restriction or
requirement shall be enforced to the maximum extent permitted by law, and
Osenton consents and agrees that any court of competent jurisdiction may so
modify such scope in any proceeding brought to enforce such restriction or
requirement.
14. PRIOR UNDERSTANDING. This Agreement embodies the entire understanding
of the parties hereto, and supersedes all other oral or written agreements or
understandings between them regarding the employment relationship provided that
nothing in the Purchase Agreement shall be deemed to be effected or impaired by
this provision. No change, alteration or modification hereof may be made except
in a writing, signed by each of the parties hereto. The headings in this
Agreement are for convenience and reference only and shall not be construed as
part of this Agreement or to limit or otherwise affect the meaning hereof.
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<PAGE>
15. ARBITRATION.
(a) NEGOTIATION. NEITHER PARTY SHALL INSTITUTE ANY PROCEEDING IN ANY
COURT OR ADMINISTRATIVE AGENCY OR ANY ARBITRATION TO RESOLVE A DISPUTE
BETWEEN THE PARTIES BEFORE THAT PARTY HAS SOUGHT TO RESOLVE THE DISPUTE
THROUGH DIRECT NEGOTIATION WITH THE OTHER PARTY. IF THE DISPUTE IS NOT
RESOLVED WITHIN THREE WEEKS AFTER A DEMAND FOR DIRECT NEGOTIATION, THE
PARTIES SHALL THEN ATTEMPT TO RESOLVE THE DISPUTE THROUGH ARBITRATION AS
PROVIDED IN THIS SECTION.
(b) SCOPE OF ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR
CLAIMS RELATED TO OR BASED ON OSENTON'S COVENANTS IN SECTION 7, FOR WHICH
PGM MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS SUCH PARTY MAY DEEM
APPROPRIATE, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN PGM AND OSENTON
ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
THE VALIDITY OF THIS AGREEMENT, WILL BE SUBMITTED FOR BINDING ARBITRATION
TO THE SAN FRANCISCO, CALIFORNIA OFFICE OF THE JAMS/ENDISPUTE ON DEMAND OF
OSENTON OR PGM. SUCH ARBITRATION PROCEEDING WILL BE CONDUCTED IN SAN
FRANCISCO, CALIFORNIA AND, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT,
WILL BE HEARD BY ONE ARBITRATOR IN ACCORDANCE WITH THE THEN CURRENT RULES
OF THE JAMS/ENDISPUTE. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ) AND
NOT BY ANY STATE ARBITRATION LAW.
THE DECISION AND AWARD OF THE ARBITRATOR SHALL BE BINDING AND
CONCLUSIVE UPON BOTH OSENTON AND PGM, AND ENFORCEABLE IN ANY COURT OF
COMPETENT JURISDICTION. THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR
INCLUDE IN THE AWARD ANY LAWFULLY APPROPRIATE RELIEF AND TO ASSESS COSTS OR
EXPENSES TO ONE OR BOTH PARTIES.
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<PAGE>
OSENTON AND PGM AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION
ON THE PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW
OR THIS AGREEMENT, WHICHEVER EXPIRES EARLIER. OSENTON AND PGM FURTHER
AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH MUST
SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM
(AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE
SAME PROCEEDING AS THE CLAIM TO WHICH IT RELATES, ANY SUCH CLAIM WHICH IS
NOT SUBMITTED OR FILED AS DESCRIBED ABOVE WILL BE FOREVER BARRED.
EACH PARTY AGREES THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL,
NOT A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN OSENTON
AND PGM MAY NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING
BETWEEN OSENTON OR PGM, AS APPLICABLE, AND ANY OTHER PERSON, CORPORATION,
LIMITED LIABILITY COMPANY OR PARTNERSHIP, OR, EXCEPT UPON THE EXPRESS
WRITTEN CONSENT OF THE PARTIES HERETO, WITH ANY ARBITRATION PROCEEDING
COMMENCED BY PGM OR OSENTON UNDER ANY OTHER AGREEMENT.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION,
OSENTON AND PGM SHALL EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN
TEMPORARY RESTRAINING ORDERS AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF
FROM A COURT OF COMPETENT JURISDICTION; PROVIDED, HOWEVER, THAT OSENTON OR
PGM MUST CONTEMPORANEOUSLY SUBMIT THE DISPUTE FOR ARBITRATION ON THE MERITS
AS PROVIDED HEREIN.
THE PROVISIONS OF THIS SECTION WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
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(c) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ).
EXCEPT TO THE EXTENT GOVERNED BY OTHER FEDERAL LAW, THIS AGREEMENT AND ALL
CLAIMS ARISING FROM THE EMPLOYMENT RELATIONSHIP BETWEEN PGM AND OSENTON
WILL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND THE UNITED
STATES OF AMERICA WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES.
(d) WAIVER OF JURY TRIAL. PURCHASER AND SELLERS IRREVOCABLY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR
IN EQUITY, BROUGHT BY EITHER OF THEM AGAINST THE OTHER.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
PACIFIC GUARANTEE MORTGAGE
CORPORATION, a California corporation
By: /s/ David Fisher /s/ William D. Osenton
----------------------------- ------------------------------
Title: Vice President William D. Osenton
--------------------------
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Exhibit 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
DATED AS OF SEPTEMBER 30, 1998
BY AND BETWEEN
MORTGAGE MARKET, INC.
AND
MARTIN E. FRANCIS
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omitted text has been marked with a bracketed asterisk ("[*]") and has been
filed separately with the Securities and Exchange Commission.
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is dated as of
September 30, 1998 by and between MORTGAGE MARKET, INC. ("MMI"), and MARTIN D.
FRANCIS ("Francis").
R E C I T A L S:
WHEREAS, prior to the date of this Agreement, Francis was a
shareholder of MMI;
WHEREAS, Prism Mortgage Company ("Prism"), as Prism has entered into
that certain Purchase and Sale Agreement dated as of even date herewith (the
"Purchase Agreement") between Francis, Kenneth Bartley, Melissa Stashin and Curt
Vanderzanden, as Sellers, pursuant to which Prism has agreed to purchase all of
the shares of MMI;
WHEREAS, Francis has been employed by MMI and is currently serving as
President of MMI;
WHEREAS, upon consummation of the transactions contemplated by the
Purchase Agreement, Prism will be the sole shareholder of MMI;
WHEREAS, MMI desires to retain the services of Francis, as an employee
of MMI and, to that end, desires to enter into this contract of employment with
Francis, upon the terms and conditions herein set forth; and
WHEREAS, Francis desires to continue employment with MMI upon such
terms and conditions, and acknowledges that such terms and conditions, including
but not limited to the covenants contained in Section 7 hereof, constitute
material inducements for Prism to enter into and effect the transactions
contemplated in the Purchase Agreement and for MMI to employ Francis pursuant to
this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the promises
and covenants herein contained, Ten and No/l00 Dollars ($10.00), and
<PAGE>
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
(a) "AFFILIATE" shall mean any legal entity or person which
directly or indirectly, through one or more intermediaries, owns and
controls, or is owned and controlled by, a company. The term "control"
means the power to direct or cause the direction of the management and
policies of an entity; "ownership" shall mean ownership of 25% or more
of the voting power or equity value of a company or 25% or more of a
capital and profits interest of an unincorporated entity.
(b) "BUSINESS" shall mean MMI's residential mortgage lending and
brokerage operations, as well as all secondary market transactions
conducted by, or on behalf of, MMI.
(c) "CLOSING" shall mean the date on which MMI is sold pursuant
to the Purchase Agreement.
(d) "MMI NET INCOME" shall equal MMI's Mortgage Banking Net
Income plus all other income generated by the MMI Operations
calculated in accordance with GAAP, including, without limitation,
revenues from loan origination minus (i) all operational,
administrative and out-of-pocket expenses including, without
limitation, all underwriting and closing costs, directly associated
with MMI Operations and (ii) all indirect or other expenses of Prism
and its Affiliates to the extent they are associated with services
provided to MMI and apply to MMI Operations (including, without
limitation, accounting, financial, legal and other services relating
to the provision of technology, human resources, accounting,
insurance, national marketing, national senior management and
otherwise provided by national senior management) allocated to or on
behalf of MMI based on the ratio of the number of loans closed by MMI
in any period compared to the number of loans closed by Prism and its
Affiliates including those closed by MMI in such period, provided that
no such indirect expenses of Prism incurred in the sixty (60) days
immediately follow-
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ing the Closing shall be allocated to MMI, provided further that any
costs or a portion of any costs related to [*] that MMI has incurred,
or incurred on behalf of MMI, which are necessitated solely by the [*]
of MMI Operations with Prism and incurred within [*] days immediately
following the Closing rather than the [*] of MMI Operations, such as
[*]. For purposes of this Agreement, MMI Net Income shall be computed
on a pretax basis so long as MMI and Prism are S Corporations, but
shall be computed on an after-tax basis for such periods as MMI and
Prism are C Corporations if and when MMI and Prism become C
Corporations.
(e) "MMI OPERATIONS" shall mean (i) all current operations of
MMI existing as of the Closing plus (ii) any new operations (including
acquisitions) which are expressly approved as a MMI Operation by Prism
in writing, in its reasonable discretion.
(f) "MMI'S MORTGAGE BANKING NET INCOME" shall include all
service release premiums, incentive income, gain on sale income,
interest income, income generated as a result of bulk sales,
assignment of trade or co-issuer transactions and all similar income
and fees generated from the sale of loans in the secondary market and
shall be computed on a product-by-product basis by calculating the
total gross revenues generated by each product for MMI and Prism and
its Affiliates. Such gross revenue shall be allocated as MMI Mortgage
Banking Net Income based on (i) the ratio of the [*] MMI, Prism or its
Affiliates (including MMI) relative to the [*] Prism and its
Affiliates (including the MMI loans) multiplied by (ii) [*] from which
total (i.e., the aggregate sum of the foregoing calculations [*]) is
subtracted the following: (A) all mortgage banking expenses incurred
in connection with such revenues allocated to MMI based on the ratio
of [*] MMI and funded by Prism or its Affiliates (including MMI)
relative to [*] Prism or its Affiliates [*]; (B) all hedging costs
(e.g., all costs, including transaction costs, of purchasing and
selling marketable securities obtained to hedge pipeline loans against
interest rate risk together with the pair-off losses and gains
associated with such hedges) allocated to MMI [*] MMI and funded by
Prism or its Affiliates (including MMI) [*] Prism or its Affiliates
[*] taking into account [*] compared to [*], (C) any costs and
expenses associated with any repurchase obligations of MMI to the
extent they are not solely
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caused by Prism and its Affiliates other than MMI, and (D) any special
fees paid to, or reduced premiums received from, purchasers of loan
product of MMI, Prism or its Affiliates due to [*] such loan products
closed by MMI (e.g., surcharges by purchasers of loans based on [*]
the loans) and (E) adjusted further by adding or subtracting any [*]
reflected on the rate sheet of MMI distributed to its loan officers
vis-a-vis the rate sheets of Prism and its Affiliates (other than MMI)
distributed to their loan officers.
By way of example, assume MMI [*] of $500 Million [*] of $200 Million
[*] of $300 Million, that mortgage banking operations [*] $250 Million [*] $300
Million [*] and $500 Million [*] Assume further Prism and its Affiliates [*] of
$10 Million [*] $5 Million in [*] and $15 Million [*] $1 Million in hedging
costs [*] $10 Million in mortgage banking operating expenses [*] 3,000 loans
[*].
MMI Mortgage Banking Net Income would equal [*].
[*] ($500 Million/$750 Million x $10 Million) + ($200 Million/$500 Million
x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)]
[*] [3,000/10,000 x $10 Million] - [$1 billion/$2.05 billion x $1 Million]
[*] [$6,666,666.66 + 2,000,000 + $5,625,000] - [$3,000,000 - $487,804]
[*] $10,803,862
2. EMPLOYMENT TERM.
(a) INITIAL TERM. The Term of this Agreement ("Term") shall
commence on the date hereof, and shall end on the first anniversary
date of this Agreement, unless otherwise terminated as set forth
herein. Upon the written request of Francis at least ninety (90) days
prior to the end of the Term of this Agreement, the parties hereto
shall in good faith enter into negotiations regarding the renewal of
this Agreement.
(b) RENEWAL TERM(s). This Agreement may be renewed for
subsequent one-year terms, at the compensation and upon the other
terms and conditions set forth herein or as otherwise agreed by the
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<PAGE>
parties hereto ("Renewal Term(s)") upon the mutual agreement of the
parties hereto at least forty-five (45) days prior to the expiration
of the Term or the then current Renewal Term.
3. MANAGEMENT RESPONSIBILITIES AND OTHER DUTIES. During the Term,
Francis shall serve as President of MMI and shall have the responsibilities set
forth in Exhibit A (the "Principal Responsibilities"). Francis, together with
the other senior officers of MMI, and subject to MMI's Board of Directors'
("Board") control and direction, shall be responsible for the management of the
day-to-day operations of the Business. Francis shall devote substantially all of
his time during business hours (reasonable sick leave and vacations excepted),
and shall use his best efforts, to fulfill faithfully, responsibly and to the
best of his ability, his Principal Responsibilities and other duties to MMI.
Other than those decisions requiring board or shareholder consent or approval
under MMI's articles of incorporation, bylaws or applicable state law, and,
subject to Prism and the Board's control and direction, Francis shall have
decision-making authority similar to such authority afforded Francis by MMI
during the twelve (12) month period immediately preceding the date of this
Agreement. In addition to his Principal Responsibilities, Francis shall have
those duties, responsibilities and authority as shall be reasonably required or
authorized by the Board, from time to time, provided that none of the duties set
forth in Exhibit A may be reduced or limited without the prior consent of
Francis, except for a change or reduction of such responsibilities based on
Francis' failure to perform certain responsibilities described in Exhibit A,
which failure is not corrected by Francis within 30 days after such failure is
communicated to Francis in writing during his annual performance review or
otherwise communicated in writing AND which change or reduction is authorized by
the Board of MMI in its sole discretion.
4. NATIONAL ADVISORY BOARD. Prism shall appoint Francis as a member
of a "National Advisory Board," to be established by Prism, during the Term of
this Agreement. In the event Francis is no longer employed by MMI on the date
which is five (5) years from the Closing Date, Francis shall resign from such
National Advisory Board but may appoint a replacement member, who shall be an
employee of MMI, to serve for the remainder of such five (5) year period.
5. COMPENSATION.
(a) SALARY. During the Term of this Agreement, in addition to
any other amounts due Francis pursuant to Section 5 hereof, to the
extent Francis remains employed by MMI, MMI shall pay Francis a
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<PAGE>
gross annual salary, prior to required withholdings, equal to One
Hundred Fifty Thousand and No/100 ($150,000.00), payable in
twenty-four (24) equal installments on the fifteenth (15th) and the
last day of each month.
(b) BONUS. Beginning in 1999 and throughout the Term of this
Agreement, and subject to the provisions of Section 11 hereof, MMI
shall pay Francis bonus compensation of $50,000 if the MMI Net Income
exceeds $1,000,000 in the twelve (12) month period following the
Closing Date ("Bonus"), which shall be paid to Francis within sixty
(60) days of the close of such period.
(c) BENEFITS. Francis shall be entitled, while employed by MMI,
to such employee benefits set forth in Exhibit B, attached hereto and
made a part hereof, and, in addition and without reducing or limiting
the benefits set forth in Exhibit B, shall have the benefits,
including, without limitation, health insurance, which are in effect
from time to time, and offered by MMI to its other management
employees generally and in accordance with the policies promulgated by
the Board. Francis shall also be entitled to (i) occupy an office of
similar size with similar furnishings as that occupied by Francis
prior to the Closing, and (ii) secretarial and administrative support
services at least equivalent, as determined by MMI, to such services
available to Francis prior to the Closing. In addition, Francis shall
also be entitled to receive two (2) Portland Trailblazers season
tickets, provided that such tickets shall be used in part for MMI
business and business entertainment purposes.
(d) VACATION; HOLIDAYS; SICK DAYS. Francis shall be entitled to
six (6) weeks of vacation per calendar year (two (2) weeks for the
balance of 1998), and paid holidays and sick leave in accordance with
the policies for management and employees promulgated by the Board,
then in effect.
6. TERMINATION; RIGHT OF SETOFF. This Agreement may be terminated
by the Board of MMI only"with cause." For purposes of this provision, "with
cause" shall mean an involuntary discharge by MMI for any of the following:
(a) conviction of fraud, embezzlement, or theft;
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<PAGE>
(b) disclosing of confidential or proprietary information of
MMI, Prism or their Affiliates; aiding a competitor of MMI, Prism or
their Affiliates; or misappropriation of a corporate opportunity of
MMI, Prism or their Affiliates, which disclosure, aid or
misappropriation breaches Francis' fiduciary duty to MMI as an officer
or employee of MMI;
(c) conviction of a felony or entry of any guilty plea or plea
of nolo contendere to a felony;
(d) conviction of, or entry of any guilty plea or plea of nolo
contendere to, any criminal charge (1) resulting in MMI, Prism or
their Affiliates being in violation of any mortgage brokerage
licensing act in any state in which MMI, Prism or their Affiliates are
then licensed or relating to the business of MMI, Prism or their
Affiliates; (2) involving moral turpitude resulting in harm or
embarrassment to MMI, Prism or their Affiliates;
(e) any material misrepresentation to MMI or Prism by Francis in
connection with Francis' employment hereunder;
(f) gross negligence in performance of any Principal
Responsibilities;
(g) any charge brought in a court of competent jurisdiction or
with an appropriate regulatory agency of unlawful tortious conduct
involving moral turpitude or unlawful discrimination is made against
Francis which MMI or Prism reasonably and in good faith believes to be
credible, which charge results in (i) substantial and material damage
or harm to the business of MMI, Prism, or their Affiliates; or (ii)
negative publicity which embarrasses and materially damages the image
or reputation of MMI, Prism, or their Affiliates;
(h) failure or breach in performing or complying with any
obligations under this Agreement or in performing any Principal
Responsibilities (which shall include, without limitation, repeated
negligent acts or omissions, or repeated incompetent performance of
Principal Responsibilities) after Francis has been given written
notice specifying the nature of the failure or breach and has failed
to correct
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<PAGE>
or discontinue such failure or breach within thirty (30) days after
such notice.
RIGHT OF SETOFF. In addition to the rights to terminate referred to
above, MMI and Prism shall have the right to setoff against any amounts due
Francis, or his heirs or devisees, hereunder, any expense or damages incurred or
suffered by MMI or Prism, including, but not limited to, attorneys' fees and
costs, due to, or relating to, any breach or default by Francis under the terms
of, or in connection with, the Purchase Agreement, to the extent Prism is
entitled to indemnification under, and in accordance with, the provisions of
Section 10.3 of the Purchase Agreement, provided that such amounts are due and
owing to MMI or Prism and are allowed under applicable law.
7. COVENANTS OF FRANCIS. The following covenants are made by and
between Francis and MMI in consideration of the undertakings in this Agreement
and the transaction contemplated by the Purchase Agreement, and it is expressly
acknowledged and agreed by Francis that such covenants are material inducements
for MMI to enter into this Agreement, and for Prism to consummate the
transaction contemplated by the Purchase Agreement. The following covenants are
also made in consideration of the Term of this Agreement, and any subsequent
Renewal Terms, as provided in Section 2 hereof, and the compensation to be paid
Francis as provided in Section 7 hereof. In addition, Francis acknowledges that
MMI and its Affiliates, including, without limitation, Prism, expend
considerable time, money and resources in recruiting, training and developing
the skills and abilities of their employees; developing business relationships
with referral sources and customers so as to improve the good will of MMI;
establishing branches of MMI, including, but not limited to, entering into a
long-term lease for office space; establishing and maintaining close business
relationships between MMI's employees and MMI's customers; and obtaining,
compiling and developing confidential customer lists, various internal computer
reports and other proprietary business information not readily available to the
public or through other sources. Subject to the provisions of Section 7, Francis
acknowledges and agrees that MMI is entitled to protect its investment in the
foregoing and to keep the results of its efforts for its exclusive use.
Accordingly, Francis agrees to the covenants and conditions set forth in
Sections 7(a) through 7(d) hereof, and acknowledges and agrees that they are
necessary to preserve and protect the legitimate business interests of MMI, and
shall be binding upon Francis during and after Francis' employment with MMI in
accordance with their terms:
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(a) CONFIDENTIALITY. During the course of Francis' employment,
Francis will have access to certain trade secrets and other
proprietary and confidential business information regarding MMI, the
Business and the business of MMI's Affiliates. Francis acknowledges,
covenants and agrees that such information is, and shall remain, the
property of MMI and/or its Affiliates. Except on behalf of MMI as
Francis' duties may require, Francis shall keep confidential and shall
not divulge to any other person or entity, and shall not use for
Francis' own benefit, or the benefit of others, during Francis'
employment or after Francis' employment is terminated by either party
hereto for any reason, any information relating to MMI or the
Business, or otherwise pertaining to Francis' employment, or of the
business secrets or other confidential information regarding MMI and
its Affiliates which have not otherwise become public knowledge;
provided, however, that nothing in this Agreement shall preclude
Francis from disclosing necessary or appropriate information (i) to
parties retained to perform services for MMI or its Affiliates; (ii)
under any other circumstances to the extent such disclosure is
appropriate or necessary to further the best interests of MMI or its
Affiliates; or (iii) as may be required by law or to be disclosed in
any governmental, administrative, judicial or quasi-judicial
proceeding (providing that Francis permits MMI or its Affiliates the
opportunity to quash or oppose any subpoena or any other attempt to
force Francis to provide information in such forums and cooperates in
such effort). For the purposes of this Agreement, confidential
business information shall have its ordinary and customary meaning and
shall include, without limitation: all business and marketing plans,
customer and prospect lists concerning referral sources, lists of
employees of MMI and its Affiliates, lists of the existence and
locations of existing or planned branches of the Business, computer
programs, internal business reports, agreements, manuals, loan
documents (including form documents such as MMI's loan pricing
disclosure agreements and the like), training materials, marketing
materials (including, without limitation, newsletters and
correspondence), financial information, information concerning
financial arrangements with outside lending institutions, terms of
vendor agreements, internal pricing, and fee and cost information,
which are confidential or treated as confidential business information
by MMI. Notwithstanding the foregoing, confidential information
covered by this Agreement shall not include (i) agreements,
informa-
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tion, loan documents and other materials which are in the public
domain and which Francis receives or obtains after his employment
hereunder; and (ii) Francis' skills, knowledge of the trade, judgment,
training and experience (other than knowledge unique to or gained
exclusively from MMI).
(b) RECORDS. All documents, records, programs, computer media,
files and lists (including all originals and all copies) containing
trade secrets or confidential business information, and all papers,
books, documents, forms, handbooks, reports, computer disks and tapes,
training manuals, lending manuals and records of every kind and
description relating to the business and affairs of MMI or its
Affiliates, whether or not prepared by Francis, and all tangible items
obtained by Francis in the scope of or during the course of
employment, and related to the Business, and the business of MMI's
Affiliates, including, without limitation, phones, keys, computers,
credit cards, lists, manuals, office equipment, furniture, and the
like, shall be the sole and exclusive property of MMI, and Francis
shall surrender them to MMI upon termination of this Agreement, or at
any time upon the request of MMI. Notwithstanding the foregoing, the
restrictions in this Subsection 7(b) shall not include materials
regarding the mortgage business in general to the extent that such
materials have been gathered by Francis at his own cost and expense
and tangible materials such as office equipment, furniture and the
like to the extent purchased by Francis at his own cost and expense or
received by Francis as a gift.
(c) ENFORCEMENT. Francis recognizes that the provisions of this
Section 7 are vitally important to the continuing welfare of MMI and
its Affiliates and that money damages constitute an inadequate remedy
for any violation thereof. Accordingly, in the event of any such
violation by Francis, MMI and the Affiliates, in addition to any other
remedies they may have, shall have the right to institute and maintain
a proceeding to compel specific performance thereof or to issue an
injunction restraining any action by Francis in violation of this
Section 7, without the necessity of posting a bond.
(d) SURVIVAL OF COVENANTS. The provisions of this Section 7
shall survive termination of Francis' employment for any reason.
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8. EXCLUSIVITY. Francis hereby represents, covenants and warrants
that as of the date of this Agreement, Francis is bound by no other employment
agreement, consulting agreement, non-competition agreement or other similar such
agreement with a party other than MMI, Prism and the Affiliates, except for this
Agreement. Furthermore, during the term of his employment hereunder, Francis
shall not enter into, or otherwise become bound by, any other employment
agreement, consulting agreement, or non-competition agreement or other similar
such agreement other than with MMI, Prism and its Affiliates.
9. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to MMI, to: c/o Prism Mortgage Company
440 North Orleans
Suite 222
Chicago, Illinois 60610
Attn: Mark Filler, Esq.
Facsimile No.: (312) 494-0184
(b) If to Francis, to: Martin D. Francis
c/o Mortgage Market, Inc.
6 Center Pointe Drive
Suite 300
Lake Oswego, Oregon 97035
Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.
10. TAX WITHHOLDING. MMI shall provide for the withholding of any
taxes required to be withheld by federal, state and local law with respect to
any payment in cash and/or other property made by or on behalf of MMI to or for
the benefit of Francis under this Agreement, or otherwise made in connection
with Francis' employment with MMI.
11. NO ASSIGNMENT. Except as otherwise expressly provided herein,
this Agreement is not assignable by either party hereto and no payment to be
made hereunder shall be subject to alienation, sale, transfer, assignment,
pledge,
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encumbrance or other charge provided that an assignment of this Agreement by
MMI to an Affiliate or by operation of or in connection with the merger, sale
of stock or a sale of all or substantially all the business or assets of MMI
or Prism shall not be deemed an assignment covered by such prohibition.
Except as expressly set forth herein, this Agreement is not intended to
confer upon any other person or entity any rights or remedies hereunder and
shall be binding upon and inure to the benefit solely of each party hereto.
12. RELATIONSHIP BETWEEN MMI AND FRANCIS. The relationship between
MMI and Francis is that of employer and employee only. Francis shall have no
authority to enter into any contracts binding upon MMI or to create any
obligations on the part of MMI, except such authority as has been or from time
to time shall be authorized by the Board.
13. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in two or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
14. SEVERABILITY. If any provision of this Agreement shall be
adjudged by any court of competent jurisdiction to be invalid or unenforceable
for any reason, such judgment shall not affect, impair or invalidate the
remainder of this Agreement. Furthermore, if the scope of any restriction or
requirement contained in this Agreement is too broad to permit enforcement of
such restriction or requirement to its full extent, then such restriction or
requirement shall be enforced to the maximum extent permitted by law, and
Francis consents and agrees that any court of competent jurisdiction may so
modify such scope in any proceeding brought to enforce such restriction or
requirement.
15. PRIOR UNDERSTANDINGS. This Agreement together with the
employment manuals and policies of MMI and subsequent addenda and amendments
hereto and thereafter to the extent not inconsistent with this Agreement embody
the entire understanding of the parties hereto regarding the employment
relationship of MMI with Francis, provided that nothing in the Purchase
Agreement shall be deemed to be affected or impaired by this provision, and
supersede all other oral or written agreements or understandings between them,
regarding such employment relationship, it being understood that all previous
agreements relating to Francis' employment existing between MMI and Francis are
hereby deemed to be null and void and replaced hereby. No change, alteration or
modification hereof may be made except in
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a writing, signed by each of the parties hereto. The headings in this
Agreement are for convenience and reference only and shall not be construed
as part of this Agreement or to limit or otherwise affect the meaning hereof.
16. ARBITRATION.
(a) NEGOTIATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS
RELATED TO OR BASED ON FRANCIS' ALLEGED BREACH OF THE COVENANTS IN
SECTION 7, FOR WHICH MMI MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS
SUCH PARTY MAY DEEM APPROPRIATE, OR CLAIMS BROUGHT BY CONSUMERS OR
GOVERNMENTAL AUTHORITIES, NEITHER PARTY SHALL INSTITUTE ANY PROCEEDING
IN ANY COURT OR ADMINISTRATIVE AGENCY OR ANY ARBITRATION TO RESOLVE A
DISPUTE ARISING HEREUNDER BETWEEN THE PARTIES BEFORE THAT PARTY HAS
SOUGHT TO RESOLVE THE DISPUTE THROUGH DIRECT NEGOTIATION WITH THE
OTHER PARTY. IF THE DISPUTE IS NOT RESOLVED WITHIN THREE WEEKS AFTER A
DEMAND FOR DIRECT NEGOTIATION, THE PARTIES SHALL THEN ATTEMPT TO
RESOLVE THE DISPUTE THROUGH ARBITRATION AS PROVIDED IN THIS SECTION.
(b) SCOPE OF ARBITRATION. EXCEPT FOR CONTROVERSIES,
DISPUTES OR CLAIMS RELATED TO OR BASED ON AN ALLEGED BREACH OF
FRANCIS' COVENANTS IN SECTION 7, FOR WHICH MMI MAY SEEK
INJUNCTIVE OR SUCH OTHER RELIEF AS SUCH PARTY MAY DEEM
APPROPRIATE, OR CLAIMS BROUGHT BY CONSUMERS OR GOVERNMENTAL
AUTHORITIES, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN MMI
AND FRANCIS ARISING OUT OF OR RELATED TO THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION THE VALIDITY OF THIS AGREEMENT, WILL
BE SUBMITTED FOR BINDING ARBITRATION TO THE PORTLAND, OREGON
OFFICE OF AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF FRANCIS
OR MMI. SUCH ARBITRATION PROCEEDING WILL BE CONDUCTED IN
PORT-
13
<PAGE>
LAND, OREGON AND, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT,
WILL BE HEARD BY ONE ARBITRATOR IN ACCORDANCE WITH THE THEN
CURRENT RULES OF THE AMERICAN ARBITRATION ASSOCIATION. ALL
MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY THE FEDERAL
ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ.) AND NOT BY ANY
STATE ARBITRATION LAW.
THE DECISION AND AWARD OF THE ARBITRATOR SHALL BE BINDING
AND CONCLUSIVE UPON BOTH FRANCIS AND MMI, AND ENFORCEABLE IN ANY
COURT OF COMPETENT JURISDICTION. THE ARBITRATOR WILL HAVE THE
RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY LAWFULLY APPROPRIATE
RELIEF AND TO ASSESS COSTS OR EXPENSES TO ONE OR BOTH PARTIES.
FRANCIS AND MMI AGREE TO BE BOUND BY THE PROVISIONS OF ANY
LIMITATION ON THE PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT
UNDER APPLICABLE LAW OR THIS AGREEMENT, WHICHEVER EXPIRES
EARLIER. FRANCIS AND MMI FURTHER AGREE THAT, IN CONNECTION WITH
ANY SUCH ARBITRATION PROCEEDING, EACH MUST SUBMIT OR FILE ANY
CLAIM WHICH WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM (AS
DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL PROCEDURE)
(EXCEPT ONE THAT COULD BE FILED UNDER ANOTHER AGREEMENT HAVING
ITS OWN ARBITRATION AGREEMENT) WITHIN THE SAME PROCEEDING AS THE
CLAIM TO WHICH IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED
OR FILED AS DESCRIBED ABOVE WILL BE FOREVER BARRED.
EACH PARTY AGREES THAT ARBITRATION WILL BE CONDUCTED ON AN
INDIVIDUAL, NOT A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION
PROCEEDING BETWEEN FRANCIS AND MMI MAY NOT BE
14
<PAGE>
CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING BETWEEN
FRANCIS OR MMI, AS APPLICABLE, AND ANY OTHER PERSON, CORPORATION,
LIMITED LIABILITY COMPANY OR PARTNERSHIP, OR, EXCEPT UPON THE
EXPRESS WRITTEN CONSENT OF THE PARTIES HERETO, WITH ANY
ARBITRATION PROCEEDING COMMENCED BY MMI OR FRANCIS UNDER ANY
OTHER AGREEMENT.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
SECTION, FRANCIS AND MMI SHALL EACH HAVE THE RIGHT IN A PROPER
CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS AND TEMPORARY OR
PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT
JURISDICTION; PROVIDED, HOWEVER, THAT FRANCIS OR MMI MUST
CONTEMPORANEOUSLY SUBMIT THE DISPUTE FOR ARBITRATION ON THE
MERITS AS PROVIDED HEREIN.
THE PROVISIONS OF THIS SECTION WILL CONTINUE IN FULL FORCE
AND EFFECT SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR
TERMINATION OF THIS AGREEMENT.
(c) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ.).
EXCEPT TO THE EXTENT GOVERNED BY OTHER FEDERAL LAW, THIS AGREEMENT AND
ALL CLAIMS ARISING FROM THE EMPLOYMENT RELATIONSHIP BETWEEN MMI AND
FRANCIS WILL BE GOVERNED BY THE LAWS OF THE STATE OF OREGON AND THE
UNITED STATES OF AMERICA WITHOUT REGARD TO ITS CONFLICT OF LAWS
PRINCIPLES.
(d) WAIVER OF JURY TRIAL. MMI AND FRANCIS IRREVOCABLY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT
LAW
15
<PAGE>
OR IN EQUITY, BROUGHT BY EITHER OF THEM AGAINST THE OTHER.
(e) CONSENT TO JURISDICTION. EACH PARTY AGREES THAT THE OTHER
PARTY MAY INSTITUTE ANY ACTION AGAINST IT (WHICH IS NOT REQUIRED TO BE
ARBITRATED HEREUNDER OR UNDER ANOTHER ARBITRATION AGREEMENT IN ANY
OTHER AGREEMENT) IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION LOCATED IN THE CITY OF PORTLAND, STATE OF OREGON, AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND WAIVES ANY
OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION OF OR VENUE IN SUCH
COURTS.
16
<PAGE>
IN WITNESS WHEREOF, this Agreement is effective as of the day and year
first above written.
MORTGAGE MARKET, INC.
By: /s/ Martin E. Francis /s/ Martin E. Francis
-------------------------------------- -------------------------
Title: President Martin D. Francis
------------------------------
ACKNOWLEDGED BY:
PRISM MORTGAGE COMPANY
By: /s/ David Fisher
--------------------------------------
Title: Vice President
------------------------------
<PAGE>
Exhibit 10.9
FIRST AMENDMENT TO
PURCHASE AND SALE AGREEMENT
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omitted text has been marked with a bracketed asterisk ("[*]") and has
been filed separately with the Securities and Exchange Commission.
<PAGE>
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT is entered into on
April 25, 1999 ("First Amendment") by and among Bruce Barbera and William
Osenton ("Sellers") and Prism Mortgage Company ("Purchaser").
W I T N E S S E T H:
WHEREAS, on July 23, 1998, Purchaser entered into that certain Purchase and
Sale Agreement dated as of July 23, 1998 (the "Purchase Agreement") with Bruce
Barbera and William Osenton (together, the "Sellers"), pursuant to which
Purchaser has agreed to purchase all of the shares of Pacific Guarantee Mortgage
Corporation ("PGM");
WHEREAS, upon consummation of the transactions contemplated by the Purchase
Agreement, Purchaser was the sole shareholder of PGM;
WHEREAS, Robert Siefert ("Siefert") has served as a branch operator of PGM
and has agreed to continue to do so and in connection therewith has agreed to
perform certain other tasks thereunder;
WHEREAS, pursuant to the Purchase Agreement the Sellers each received
"Additional Consideration" as defined therein;
WHEREAS, in recognition of Siefert's unique and substantial contributions
as branch operator and as a further incentive to compensate Siefert for his
efforts on behalf of PGM which Sellers acknowledge is of benefit to Sellers and
Purchaser, Sellers have offered to amend the Purchase Agreement to relinquish
and reduce a portion of the Additional Consideration payable to Sellers so as to
allow Purchaser to give the Additional Compensation to Siefert for his
employment as a branch operator.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the adequacy of which is hereby
acknowledged, and subject to the terms and conditions hereof, the parties hereto
hereby agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, all
capitalized terms shall have the meaning given to them in the Purchase
Agreement.
SECTION 2. AMENDMENTS TO PURCHASE AGREEMENT. The Purchase Agreement is
hereby amended as set forth below.
<PAGE>
2.1 Section 3.2(i) shall be deleted in its entirety and the following
inserted in lieu thereof:
(i) SELLERS. At the time of an IPO or Sale of
Purchaser, the Sellers will be entitled to receive the
"Seller's Additional Stock Consideration" consisting of
additional stock in the case of an IPO or a sale of all or
substantially all of the assets, or stock, or at the option
of the Purchaser, stock appreciation rights (the dollar
equivalent value of the stock) in Purchaser in the case of a
sale of 80% or more of the stock of Prism, in an amount to
be determined by the following formula:
Value of Stock or PGM Net Income
Appreciation Rights to be = [*] x --------------------- x [*]%
received by Sellers [*]
By way of example, if Purchaser completes an IPO for [*] and at
the time of the offering, [*] and PGM Net Income was $22,500,000,
Sellers Additional Consideration would be computed as follows:
$[*] - $[*] $22,500,000 [*]% = $[*]
----------- x x
[*]% [*]
$[*] [*]% of Purchaser Stock
------------------------------------------- = after offering
$[*]
Alternatively, if there is a Sale of Purchaser, i.e. if
there is a sale of all or substantially all of the assets or
eighty percent (80%) or more of the Stock in a private sale,
[*] and, at the time of the sale, [*] and PGM Net Income was
$22,500,000, Sellers Additional Consideration would be computed
as follows:
$[*] $22,500,000 [*]% = $[*]
x x
[*]
$[*] [*]% of Purchaser
- ------------------------------------------- = Post-Sale Stock
$[*]
<PAGE>
For purposes of this calculation, PGM Net Income and
[*] will be determined on a trailing twelve-months basis.
Allocation of the [*]% Additional Consideration to each
individual Seller will be on the basis of shares of PGM
sold.
An additional [*]% of "Additional Compensation" computed on
the basis of Sellers' Additional Compensation shall be
allocated to Robert Siefert as provided in that certain
Additional Compensation Agreement attached hereto and made a
part hereof as Exhibit E.
2.2 Exhibit E attached hereto and made a part hereof shall be affixed
to and be deemed to be Exhibit E to the Purchase Agreement.
SECTION 3. FULL FORCE AND EFFECT. Except as expressly amended hereby,
the Purchase Agreement shall remain in full force and effect, and, as so
amended, is hereby acknowledged, confirmed and ratified in all respects.
SECTION 4. CONSTRUCTION AND INTERPRETATION OF THIS FIRST AMENDMENT. The
terms and provision of this Amendment shall be governed by the provisions,
including without limitation the construction, arbitration and choice of law
provisions, set forth in Section 12 of the Purchase Agreement, which terms are
expressly incorporated herein by this reference thereto.
SECTION 5. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
day and year specified above.
- ------------------------------------------------------------------------------
PURCHASER: SELLERS:
PRISM MORTGAGE COMPANY,
an Illinois corporation
/s/ William Osenton
---------------------
William Osenton
By: /s/ David Fisher
----------------------
Its: Senior Vice President
----------------------
/s/ Bruce Barbera
---------------------
Bruce Barbera
<PAGE>
CONSENT OF SPOUSE
I am the spouse of the Seller, Bruce Barbera, and hereby join in the
execution of this First Amendment to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this First
Amendment and that I desire to bind to the performance of this First Amendment
my interest, if any, in any shares of any securities of Prism in which the
Seller may receive an interest in connection with the transactions.
Accordingly, I agree that my community property interest, if any, in such
securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this First Amendment and that
such consent is binding upon my executors, administrators, heirs and assigns. I
acknowledge that the foregoing is not intended to, and shall not be construed
as, conferring or creating in me any interest in any securities of Prism which
the Seller may receive in connection with the transactions. I hereby
acknowledge that I have been afforded the opportunity to have this First
Amendment and this Consent reviewed by a counsel of my own choosing.
/s/ Bettye Becker Barbera
-------------------------
Bettye Becker Barbera
<PAGE>
CONSENT OF SPOUSE
I am the spouse of the Seller, William Osenton, and hereby join in the
execution of this First Amendment to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this First
Amendment and that I desire to bind to the performance of this First Amendment
my interest, if any, in any shares of any securities of Prism in which the
Seller may receive an interest in connection with the transactions.
Accordingly, I agree that my community property interest, if any, in such
securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this First Amendment and that
such consent is binding upon my executors, administrators, heirs and assigns. I
acknowledge that the foregoing is not intended to, and shall not be construed
as, conferring or creating in me any interest in any securities of Prism which
the Seller may receive in connection with the transactions. I hereby
acknowledge that I have been afforded the opportunity to have this First
Amendment and this Consent reviewed by a counsel of my own choosing.
/s/ Francine M. Osenton
-------------------------
Francine M. Osenton
<PAGE>
SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT is entered into on
April 27, 1999 ("Second Amendment") by and among Bruce Barbera and William
Osenton ("Sellers") and Prism Mortgage Company ("Purchaser").
W I T N E S S E T H:
WHEREAS, on July 23, 1998, Purchaser entered into that certain Purchase and
Sale Agreement dated as of July 23, 1998 (the "Original Purchase Agreement")
with Bruce Barbera and William Osenton (together, the "Sellers"), pursuant to
which Purchaser has agreed to purchase all of the shares of Pacific Guarantee
Mortgage Corporation ("PGM");
WHEREAS, upon consummation of the transactions contemplated by the Original
Purchase Agreement, Purchaser was the sole shareholder of PGM;
WHEREAS, on April 25, 1999, Sellers and Purchaser entered into that certain
First Amendment to the Original Purchase Agreement (as amended by such First
Amendment, the Original Purchase Agreement called the "Purchase Agreement");
WHEREAS, pursuant to the Purchase Agreement the Sellers each received
"Additional Consideration" as defined therein;
WHEREAS, Sellers and Purchaser wish to clarify and restate the Additional
Consideration to be received by Sellers.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the adequacy of which is hereby
acknowledged, and subject to the terms and conditions hereof, the parties hereto
hereby agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, all capitalized
terms shall have the meaning given to them in the Purchase Agreement.
SECTION 2. AMENDMENTS TO PURCHASE AGREEMENT. The Purchase Agreement is
hereby amended as set forth below.
2.1 Section 3.2(i) shall be deleted in its entirety and the following
inserted in lieu thereof:
(i) SELLERS. At the time of an IPO or Sale of Purchaser, the
Sellers will be entitled to receive the "Seller's Additional Stock
Consideration" consisting of additional stock of Prism Financial
<PAGE>
Corporation in the case of an IPO or a sale of all or substantially
all of the assets, or stock, or at the option of the Purchaser, stock
appreciation rights (the dollar equivalent value of the stock) in
Purchaser in the case of a sale of 80% or more of the stock of Prism,
in an amount valued at $6,421,538. In addition, for each of the
Contract Years ending in 2000 and 2001, Prism shall pay an additional
amount stock or cash of Prism Financial Corporation (at Purchaser's
option) to Sellers equal to 9% of the amount by which after-tax PGM
Net Income in such Contract Years exceeds $2,000,000. For purposes of
this calculation, PGM Net Income and Purchaser Net Income will be
determined on a trailing twelve-months basis.
Allocation of the above Additional Consideration to each individual
Seller will be on the basis of shares of PGM sold.
"Additional Compensation" equal to 1/9th of the Additional
Consideration payable to Sellers shall be allocated to Robert Siefert
as provided in that certain Additional Compensation Agreement attached
hereto and made a part hereof as Exhibit E. Said Additional
Compensation payable to Robert Siefert is in addition to the amounts
to be paid to Sellers described above.
In no event shall this provision cause Sellers to be deemed to have
received stock in Purchaser.
2.2 Section 3.2(a)(ii)(A) shall be amended by deleting such section
in its entirety and inserting the following in lieu thereof:
A. At the time of an IPO or Sale of Purchaser, the participants
in the Equity Value Plan will be entitled to receive the "Equity Value
Plan Stock Consideration" consisting of additional stock in the case
of an IPO or a sale of all or substantially all of the assets, or
stock, or, at the option of the Purchaser, stock appreciation rights
(the dollar equivalent value of the stock) in Prism Financial
Corporation in the case of a sale of 80% or more of the Stock of Prism
in an amount valued at $1,783,760.
2.3 Section 3.2(a)(ii)(B) of the Purchase Agreement shall be deleted
and Subsections 3.2(a)(ii)(C) and (D) renumbered accordingly.
SECTION 3. FULL FORCE AND EFFECT. Except as expressly amended hereby, the
Purchase Agreement shall remain in full force and effect, and, as so amended, is
hereby acknowledged, confirmed and ratified in all respects.
2
<PAGE>
SECTION 4. CONSTRUCTION AND INTERPRETATION OF THIS SECOND AMENDMENT. The
terms and provision of this Amendment shall be governed by the provisions,
including without limitation the construction, arbitration and choice of law
provisions, set forth in Section 12 of the Purchase Agreement, which terms are
expressly incorporated herein by this reference thereto.
SECTION 5. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
day and year specified above.
PURCHASER: SELLERS:
PRISM MORTGAGE COMPANY,
an Illinois corporation /s/ William Osenton
------------------------
William Osenton
By: David Fisher
------------------------ /s/ Bruce Barbera
Its: Senior Vice President ------------------------
------------------------ Bruce Barbera
3
<PAGE>
CONSENT OF SPOUSE
I am the spouse of the Seller, Bruce Barbera, and hereby join in the
execution of this Second Amendment to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this Second
Amendment and that I desire to bind to the performance of this Second Amendment
my interest, if any, in any shares of any securities of Prism in which the
Seller may receive an interest in connection with the transactions.
Accordingly, I agree that my community property interest, if any, in such
securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Second Amendment and
that such consent is binding upon my executors, administrators, heirs and
assigns. I acknowledge that the foregoing is not intended to, and shall not be
construed as, conferring or creating in me any interest in any securities of
Prism which the Seller may receive in connection with the transactions. I
hereby acknowledge that I have been afforded the opportunity to have this Second
Amendment and this Consent reviewed by a counsel of my own choosing.
/s/ Bettye Becker Barbera
--------------------------
Bettye Becker Barbera
4
<PAGE>
CONSENT OF SPOUSE
I am the spouse of the Seller, William Osenton, and hereby join in the
execution of this Second Amendment to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this Second
Amendment and that I desire to bind to the performance of this Second Amendment
my interest, if any, in any shares of any securities of Prism in which the
Seller may receive an interest in connection with the transactions.
Accordingly, I agree that my community property interest, if any, in such
securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Second Amendment and
that such consent is binding upon my executors, administrators, heirs and
assigns. I acknowledge that the foregoing is not intended to, and shall not be
construed as, conferring or creating in me any interest in any securities of
Prism which the Seller may receive in connection with the transactions. I
hereby acknowledge that I have been afforded the opportunity to have this Second
Amendment and this Consent reviewed by a counsel of my own choosing.
/s/ Francine M. Osenton
--------------------------
Francine M. Osenton
5
<PAGE>
THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT is entered into as of
May 11, 1999 ("Third Amendment") by and among Bruce Barbera and William Osenton
("Sellers") and Prism Mortgage Company ("Purchaser").
W I T N E S S E T H:
WHEREAS, on July 23, 1998, Purchaser entered into that certain Purchase and
Sale Agreement dated as of July 23, 1998 (the "Original Purchase Agreement")
with Bruce Barbera and William Osenton (together, the "Sellers"), pursuant to
which Purchaser has agreed to purchase all of the shares of Pacific Guarantee
Mortgage Corporation ("PGM");
WHEREAS, upon consummation of the transactions contemplated by the Original
Purchase Agreement, Purchaser was the sole shareholder of PGM;
WHEREAS, on April 25, 1999, Sellers and Purchaser entered into that certain
First Amendment (the "First Amendment") to the Original Purchase Agreement;
WHEREAS, on April 27, 1999, Sellers and Purchaser entered into that certain
Second Amendment (the "Second Amendment") to the Original Purchase Agreement (as
amended by such First Amendment and such Second Amendment, the Original Purchase
Agreement called the "Purchase Agreement");
WHEREAS, pursuant to the Purchase Agreement the Sellers each received
"Additional Consideration" as defined therein;
WHEREAS, Sellers and Purchaser wish to clarify and restate the Additional
Consideration to be received by Sellers.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the adequacy of which is hereby
acknowledged, and subject to the terms and conditions hereof, the parties hereto
hereby agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, all capitalized
terms shall have the meaning given to them in the Purchase Agreement.
SECTION 2. AMENDMENTS TO PURCHASE AGREEMENT. The Purchase Agreement is
hereby amended as set forth below.
2.1 Section 3.2(i) shall be deleted in its entirety and the
following inserted in lieu thereof:
<PAGE>
(i) SELLERS. At the time of an IPO or Sale of
Purchaser, the Sellers will be entitled to receive the
"Seller's Additional Stock Consideration" consisting of
additional stock of Prism Financial Corporation in the
case of an IPO or a sale of all or substantially all of
the assets, or stock, or at the option of the Purchaser,
stock appreciation rights (the dollar equivalent value of
the stock) in Purchaser in the case of a sale of 80% or
more of the stock of Prism, in an amount valued at
$6,196,637. In addition, for each of the Contract Years
ending in 2000 and 2001, Prism shall pay an additional
amount stock or cash of Prism Financial Corporation (at
Purchaser's option) to Sellers equal to 9% of the amount
by which after-tax PGM Net Income in such Contract Years
exceeds $2,000,000. For purposes of this calculation,
PGM Net Income and Purchaser Net Income will be
determined on a trailing twelve-months basis.
Allocation of the above Additional Consideration to each
individual Seller will be on the basis of shares of PGM
sold.
"Additional Compensation" equal to 1/9th of the
Additional Consideration payable to Sellers shall be
allocated to Robert Siefert as provided in that certain
Additional Compensation Agreement attached hereto and
made a part hereof as Exhibit E. Said Additional
Compensation payable to Robert Siefert is in addition to
the amounts to be paid to Sellers described above.
In no event shall this provision cause Sellers to be
deemed to have received stock in Purchaser.
2.2 Section 3.2(a)(ii)(A) shall be amended by deleting
such section in its entirety and inserting the following in lieu thereof:
A. At the time of an IPO or Sale of Purchaser, the
participants in the Equity Value Plan will be entitled to
receive the "Equity Value Plan Stock Consideration"
consisting of additional stock in the case of an IPO or a
sale of all or substantially all of the assets, or stock,
or, at the option of the Purchaser, stock appreciation
rights (the dollar equivalent value of the stock) in
Prism Financial Corporation in the case of a sale of 80%
or more of the Stock of Prism in an amount valued at
$1,783,760.
2
<PAGE>
SECTION 3. FULL FORCE AND EFFECT. Except as expressly amended hereby, the
Purchase Agreement shall remain in full force and effect, and, as so amended, is
hereby acknowledged, confirmed and ratified in all respects.
SECTION 4. CONSTRUCTION AND INTERPRETATION OF THIS THIRD AMENDMENT. The
terms and provision of this Amendment shall be governed by the provisions,
including without limitation the construction, arbitration and choice of law
provisions, set forth in Section 12 of the Purchase Agreement, which terms are
expressly incorporated herein by this reference thereto.
SECTION 5. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
day and year specified above.
PURCHASER: SELLERS:
- ---------- --------
PRISM MORTGAGE COMPANY, /s/ William Osenton
an Illinois corporation -----------------------------
William Osenton
By: /s/ David Fisher
------------------------
Its: Senior Vice President /s/ Bruce Barbera
------------------------ -----------------------------
Bruce Barbera
3
<PAGE>
CONSENT OF SPOUSE
I am the spouse of the Seller, Bruce Barbera, and hereby join in the
execution of this Third Amendment to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this Third
Amendment and that I desire to bind to the performance of this Third Amendment
my interest, if any, in any shares of any securities of Prism in which the
Seller may receive an interest in connection with the transactions.
Accordingly, I agree that my community property interest, if any, in such
securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Third Amendment and that
such consent is binding upon my executors, administrators, heirs and assigns. I
acknowledge that the foregoing is not intended to, and shall not be construed
as, conferring or creating in me any interest in any securities of Prism which
the Seller may receive in connection with the transactions. I hereby
acknowledge that I have been afforded the opportunity to have this Third
Amendment and this Consent reviewed by a counsel of my own choosing.
/s/ Bettye Becker Barbera
----------------------------------
Bettye Becker Barbera
4
<PAGE>
CONSENT OF SPOUSE
I am the spouse of the Seller, William Osenton, and hereby join in the
execution of this Third Amendment to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this Third
Amendment and that I desire to bind to the performance of this Third Amendment
my interest, if any, in any shares of any securities of Prism in which the
Seller may receive an interest in connection with the transactions.
Accordingly, I agree that my community property interest, if any, in such
securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Third Amendment and that
such consent is binding upon my executors, administrators, heirs and assigns. I
acknowledge that the foregoing is not intended to, and shall not be construed
as, conferring or creating in me any interest in any securities of Prism which
the Seller may receive in connection with the transactions. I hereby
acknowledge that I have been afforded the opportunity to have this Third
Amendment and this Consent reviewed by a counsel of my own choosing.
/s/ Francine M. Osenton
----------------------------------
Francine M. Osenton
5
