AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1999
REGISTRATION NO. 333-74883
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRISM FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 6162 36-4279417
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
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)
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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)
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COPIES TO:
RODD M. SCHREIBER LARRY A. BARDEN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) SIDLEY & AUSTIN
333 WEST WACKER DRIVE ONE FIRST NATIONAL PLAZA
CHICAGO, IL 60606 CHICAGO, IL 60603
(312) 407-0700 (312) 853-7000
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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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
EXHIBIT NO. DESCRIPTION
1.1* Form of Underwriting 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* Registration Rights Agreement, dated as of ,
among the Registrant and the stockholders of the Registrant.
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 D. 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 D. Francis.
10.7** Prism 2000 Profit Sharing Plan.
11.1* Statement Regarding Computation of Per Share Earnings.
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.
24.1*** Power of Attorney (included on signature page).
27.1*** Financial Data Schedule.
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* To be filed by amendment.
** Filed herewith.
+ Filed herewith with a confidential treatment request.
*** Filed with Prism Financial Corporation's Registration
Statement on Form S-1, dated March 23, 1999.
(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.
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 April 1, 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 April 1, 1999.
SIGNATURE TITLE
/s/ Bruce C. Abrams* Chairman and Chief
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Bruce C. Abrams Executive Officer
(Principal Executive Officer)
/s/ David A. Fisher* Chief Financial Officer and
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David A. Fisher Senior Vice President
(Principal Financial Officer)
/s/ James P. Hayes* Controller (Principal
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James P. Hayes Accounting Officer)
/s/ Mark A. Filler* Director
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Mark A. Filler
/s/ Terry A. Markus* Director
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Terry A. Markus
*By /s/ David A. Fisher
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David A. Fisher
Attorney-in-fact
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
1.1* Form of Underwriting 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* Registration Rights Agreement, dated as of , among
the Registrant and the stockholders of the Registrant.
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 D. 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 D. Francis.
10.7** Prism 2000 Profit Sharing Plan.
11.1* Statement Regarding Computation of Per Share Earnings.
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.
24.1*** Power of Attorney (included on signature page).
27.1*** Financial Data Schedule.
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* To be filed by amendment.
** Filed herewith.
+ Filed herewith with a confidential treatment request.
*** Filed with Prism Financial Corporation's Registration Statement
on Form S-1, dated March 23, 1999.
Exhibit 10.1
PRISM FINANCIAL CORPORATION
1999 OMNIBUS STOCK INCENTIVE PLAN
Section 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Prism Financial Corporation 1999
Omnibus Stock Incentive Plan (the "Plan"). The Plan was adopted by the
Board (defined below) on March 23, 1999, subject to the approval of the
stockholders of the Company (defined below), which approval was obtained on
, 1999. The purpose of the Plan is to enable the Company to
attract and retain highly qualified personnel who will contribute to the
Company's success and to provide incentives to Participants (defined below)
that are linked directly to increases in stockholder value and will
therefore inure to the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as
set forth below:
(1) "Administrator" means the Board, or if and to the extent the
Board does not administer the Plan, the Committee in accordance with
Section 2 below.
(2) "Board" means the Board of Directors of the Company.
(3) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(4) "Committee" means the Compensation Committee of the Board or
any committee the Board may subsequently appoint to administer the Plan.
To the extent necessary and desirable, the Committee shall be composed
entirely of individuals who meet the qualifications referred to in Section
162(m) of the Code and Rule 16b-3 under the Securities Exchange Act of
1934, as amended. If at any time or to any extent the Board shall not
administer the Plan, then the functions of the Board specified in the Plan
shall be exercised by the Committee.
(5) "Company" means Prism Financial Corporation, a Delaware
corporation (or any successor corporation).
(6) "Deferred Stock" means an award made pursuant to Section 7
below of the right to receive Stock at the end of a specified deferral
period.
(7) "Disability" means the inability of a Participant to perform
substantially his duties and responsibilities to the Company or any Parent
Corporation or Subsidiary by reason of a physical or mental disability or
infirmity (i) for a continuous period of six months, or (ii) at such
earlier time as the Participant submits medical evidence satisfactory to
the Administrator that the Participant has a physical or mental disability
or infirmity that will likely prevent the Participant from returning to the
performance of the Participant's work duties for six months or longer. The
date of such Disability shall be the last day of such six-month period or
the day on which the Participant submits such satisfactory medical
evidence, as the case may be.
(8) "Eligible Recipient" means an officer, director, employee,
consultant or advisor of the Company or any Parent Corporation or
Subsidiary.
(9) "Employee Director" means any director of the Company who is
also an employee of the Company, Parent Corporation or any Subsidiary.
(10) "Fair Market Value" means, as of any given date, with respect
to any awards granted hereunder, (A) if the Stock is publicly traded, the
closing sale price of the Stock on such date as reported in the Western
Edition of the Wall Street Journal, (B) the fair market value of the Stock
as determined in accordance with a method prescribed in the agreement
evidencing any award hereunder, (C) in the case of a Limited Stock
Appreciation Right, the "Change in Control Price" (as defined in the
agreement evidencing such Limited Stock Appreciation Right) of the Stock as
of the date of exercise or (D) the fair market value of the Stock as
otherwise determined by the Administrator in the good faith exercise of its
discretion.
(11) "Incentive Stock Option" means any Stock Option intended to
be designated as an "incentive stock option" within the meaning of Section
422 of the Code.
(12) "Limited Stock Appreciation Right" means a Stock Appreciation
Right that can be exercised only in the event of a "Change in Control" (as
defined in the award evidencing such Limited Stock Appreciation Right).
(13) "Non-Employee Director" means a director of the Company who
is not an employee of the Company, Parent Corporation or any Subsidiary.
(14) "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option, including any Stock Option that provides (as
of the time such option is granted) that it will not be treated as an
Incentive Stock Option.
(15) "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if
each of the corporations in the chain (other than the Company) owns stock
possessing 50% or more of the combined voting power of all classes of stock
in one of the other corporations in the chain.
(16) "Participant" means (i) any Eligible Recipient selected by
the Administrator, pursuant to the Administrator's authority in Section 2
below, to receive grants of Stock Options, Stock Appreciation Rights,
Limited Stock Appreciation Rights, Restricted Stock awards, Deferred Stock
awards, Performance Share awards or any combination of the foregoing, or
(ii) any Non-Employee Director who is eligible to receive grants of Stock
Options pursuant to Section 5(9) below.
(17) "Performance Shares" means an award of shares of Stock
pursuant to Section 7 below that is subject to restrictions based upon the
attainment of specified performance objectives.
(18) "Registration Statement" means the registration statement on
Form S-1 filed with the Securities and Exchange Commission for the initial
underwritten public offering of the Company's Stock.
(19) "Restricted Stock" means an award granted pursuant to Section
7 below of shares of Stock subject to certain restrictions.
(20) "Stock" means the common stock, par value $0.01 per share, of
the Company.
(21) "Stock Appreciation Right" means the right pursuant to an
award granted under Section 6 below to receive an amount equal to the
excess, if any, of (A) the Fair Market Value, as of the date such Stock
Appreciation Right or portion thereof is surrendered, of the shares of
Stock covered by such right or such portion thereof, over (B) the aggregate
exercise price of such right or such portion thereof.
(22) "Stock Option" means an option to purchase shares of Stock
granted pursuant to Section 5 below.
(23) "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of
the corporations (other than the last corporation) in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
Section 2. ADMINISTRATION.
The Plan shall be administered in accordance with the requirements
of Section 162(m) of the Code (but only to the extent necessary and
desirable to maintain qualification of awards under the Plan under Section
162(m) of the Code) and, to the extent applicable, Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3"), by the Board
or, at the Board's sole discretion, by the Committee, which shall be
appointed by the Board, and which shall serve at the pleasure of the Board.
Pursuant to the terms of the Plan, the Administrator shall have the
power and authority to grant to Eligible Recipients pursuant to the terms
of the Plan: (a) Stock Options, (b) Stock Appreciation Rights or Limited
Stock Appreciation Rights, (c) Restricted Stock, (d) Performance Shares,
(e) Deferred Stock or (f) any combination of the foregoing; provided,
however, that automatic, nondiscretionary grants of Stock Options shall be
made to Non-Employee Directors pursuant to and in accordance with the terms
of Section 5(9) below. Except as otherwise provided in Section 5(9) below,
the Administrator shall have the authority:
(a) to select those Eligible Recipients who shall be
Participants;
(b) to determine whether and to what extent Stock Options,
Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Performance Shares or a combination of the
foregoing, are to be granted hereunder to Participants;
(c) to determine the number of shares of Stock to be covered
by each such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but
not limited to, (x) the restrictions applicable to Restricted Stock or
Deferred Stock awards and the conditions under which restrictions
applicable to such Restricted or Deferred Stock shall lapse, and (y) the
performance goals and periods applicable to the award of Performance
Shares);
(e) to determine the terms and conditions, not inconsistent
with the terms of the Plan, which shall govern all written instruments
evidencing the Stock Options, Stock Appreciation Rights, Limited Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Performance Shares
or any combination of the foregoing granted hereunder to Participants; and
(f) to reduce the exercise price of any Stock Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Stock Option has declined since the date such Stock Option
was granted.
The Administrator shall have the authority, in its sole discretion,
to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable;
to interpret the terms and provisions of the Plan and any award issued
under the Plan (and any agreements relating thereto); and to otherwise
supervise the administration of the Plan.
All decisions made by the Administrator pursuant to the provisions
of the Plan shall be final, conclusive and binding on all persons,
including the Company and the Participants.
Section 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
issuance under the Plan shall be . Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
The aggregate number of shares of Stock as to which Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, and Performance
Shares may be granted to any individual during any calendar year may not,
subject to adjustment as provided in this Section 3, exceed 20% of the
shares of Stock reserved for the purposes of the Plan in accordance with
the provisions of this Section 3.
Consistent with the provisions of Section 162(m) of the Code, as
from time to time applicable, to the extent that (i) a Stock Option expires
or is otherwise terminated without being exercised, or (ii) any shares of
Stock subject to any Restricted Stock, Deferred Stock or Performance Share
award granted hereunder are forfeited, such shares shall again be available
for issuance in connection with future awards under the Plan. If any
shares of Stock have been pledged as collateral for indebtedness incurred
by a Participant in connection with the exercise of a Stock Option and such
shares are returned to the Company in satisfaction of such indebtedness,
such shares shall again be available for issuance in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Stock, an equitable substitution or proportionate adjustment
shall be made in (i) the aggregate number of shares reserved for issuance
under the Plan, (ii) the kind, number and option price of shares subject to
outstanding Stock Options granted under the Plan, and (iii) the kind,
number and purchase price of shares issuable pursuant to awards of
Restricted Stock, Deferred Stock and Performance Shares, in each case as
may be determined by the Administrator, in its sole discretion. Such other
substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion. An adjusted option price shall also
be used to determine the amount payable by the Company upon the exercise of
any Stock Appreciation Right or Limited Stock Appreciation Right related to
any Stock Option. In connection with any event described in this
paragraph, the Administrator may provide, in its sole discretion, for the
cancellation of any outstanding awards and payment in cash or other
property therefor.
Section 4. ELIGIBILITY.
Officers, directors and employees of the Company or any Parent or
Subsidiary, and consultants and advisors to the Company or any Parent or
Subsidiary, who are responsible for or are in a position to contribute to
the management, growth and/or profitability of the business of the Company
shall be eligible to be granted Stock Options, Stock Appreciation Rights,
Limited Stock Appreciation Rights, Restricted Stock awards, Deferred Stock
awards, Performance Shares or any combination of the foregoing hereunder.
Except for grants of Stock Options to Non-Employee Directors made pursuant
to Section 5(9) below, Participants under the Plan shall be selected from
time to time by the Administrator, in its sole discretion, from among the
Eligible Recipients recommended by the senior management of the Company,
and the Administrator shall determine, in its sole discretion, the number
of shares of Stock covered by each such award.
Section 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be
in such form as the Administrator may from time to time approve, and the
provisions of Stock Option awards need not be the same with respect to each
optionee. Recipients of Stock Options shall enter into a subscription
and/or award agreement with the Company, in such form as the Administrator
shall determine, which agreement shall set forth, among other things, the
exercise price of the option, the term of the option and provisions
regarding exercisability of such option granted thereunder.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any officer or
employee of the Company (including directors who are also officers of the
Company) Incentive Stock Options, Non-Qualified Stock Options, or both
types of Stock Options (in each case with or without Stock Appreciation
Rights or Limited Stock Appreciation Rights). Directors who are not
officers of the Company, consultants and advisors may only be granted Non-
Qualified Stock Options (with or without Stock Appreciation Rights or
Limited Stock Appreciation Rights). To the extent that any Stock Option
does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option. More than one option may be granted
to the same optionee and be outstanding concurrently hereunder.
Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable:
(1) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Administrator in its sole
discretion at the time of grant but shall not, in the case of Incentive
Stock Options, be less than 100% of the Fair Market Value of the Stock on
such date and shall not, in any event, be less than the par value (if any)
of the Stock. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company,
any Parent Corporation or Subsidiary and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock Option
(to the extent required by the Code at the time of grant) shall be no less
than 110% of the Fair Market Value of the Stock on the date such Incentive
Stock Option is granted.
(2) Option Term. The term of each Stock Option shall be fixed by
the Administrator, but no Stock Option shall be exercisable more than ten
years after the date such Stock Option is granted; provided, however, that
if an employee owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Company, any Parent Corporation or
Subsidiary and an Incentive Stock Option is granted to such employee, the
term of such Incentive Stock Option (to the extent required by the Code at
the time of grant) shall be no more than five years from the date of grant.
(3) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after the time of grant. The
Administrator may provide at the time of grant, in its sole discretion,
that any Stock Option shall be exercisable only in installments, and the
Administrator may waive such installment exercise provisions at any time,
in whole or in part, based on such factors as the Administrator may
determine, in its sole discretion, including but not limited to in
connection with any "change in control" of the Company as defined in any
Stock Option agreement.
(4) Method of Exercise. Subject to paragraph (3) of this Section
5, Stock Options may be exercised in whole or in part at any time during
the option period, by giving written notice of exercise to the Company
specifying the number of shares to be purchased, accompanied by payment in
full of the purchase price in cash or its equivalent, as determined by the
Administrator. As determined by the Administrator, in its sole discretion,
payment in whole or in part may also be made (i) by means of any cashless
exercise procedure approved by the Administrator, (ii) in the form of
unrestricted Stock already owned by the optionee which, (x) in the case of
unrestricted Stock acquired upon exercise of an option, have been owned by
the optionee for more than six months on the date of surrender, and (y)
have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Stock as to which such Stock Option shall be
exercised, or (iii) in the case of the exercise of a Non-Qualified Stock
Option, in the form of Restricted Stock or Performance Shares subject to an
award hereunder (based, in each case, on the Fair Market Value of the Stock
on the date the option is exercised); provided, however, that in the case
of an Incentive Stock Option, the right to make payment in the form of
already owned shares may be authorized only at the time of grant. If
payment of the option exercise price of a Non-Qualified Stock Option is
made in whole or in part in the form of Restricted Stock or Performance
Shares, the shares received upon the exercise of such Stock Option shall be
restricted in accordance with the original terms of the Restricted Stock or
Performance Share award in question, except that the Administrator may
direct that such restrictions shall apply only to that number of shares
equal to the number of shares surrendered upon the exercise of such option.
An optionee shall generally have the rights to dividends and any other
rights of a stockholder with respect to the Stock subject to the Stock
Option only after the optionee has given written notice of exercise, has
paid in full for such shares, and, if requested, has given the
representation described in paragraph (1) of Section 10 below.
The Administrator may require the surrender of all or a portion of
any Stock Option granted under the Plan as a condition precedent to the
grant of a new Stock Option. Subject to the provisions of the Plan, such
new Stock Option shall be exercisable at the price, during such period and
on such other terms and conditions as are specified by the Administrator at
the time the new Stock Option is granted. Consistent with the provisions
of Section 162(m), to the extent applicable, upon their surrender, Stock
Options shall be canceled and the shares previously subject to such
canceled Stock Options shall again be available for grants of Stock Options
and other awards hereunder.
(5) Loans. The Company may make loans available to Stock Option
holders in connection with the exercise of outstanding options granted
under the Plan, as the Administrator, in its sole discretion, may
determine. Such loans shall (i) be evidenced by promissory notes entered
into by the Stock Option holders in favor of the Company, (ii) be subject
to the terms and conditions set forth in this Section 5(5) and such other
terms and conditions, not inconsistent with the Plan, as the Administrator
shall determine, (iii) bear interest at the applicable Federal interest
rate or such other rate as the Administrator shall determine, and (iv) be
subject to Board approval (or to approval by the Administrator to the
extent the Board may delegate such authority). In no event may the
principal amount of any such loan exceed the sum of (x) the exercise price
less the par value (if any) of the shares of Stock covered by the Stock
Option, or portion thereof, exercised by the holder, and (y) any Federal,
state, and local income tax attributable to such exercise. The initial
term of the loan, the schedule of payments of principal and interest under
the loan, the extent to which the loan is to be with or without recourse
against the holder with respect to principal or interest and the conditions
upon which the loan will become payable in the event of the holder's
termination of employment shall be determined by the Administrator. Unless
the Administrator determines otherwise, when a loan is made, shares of
Stock having a Fair Market Value at least equal to the principal amount of
the loan shall be pledged by the holder to the Company as security for
payment of the unpaid balance of the loan, and such pledge shall be
evidenced by a pledge agreement, the terms of which shall be determined by
the Administrator, in its sole discretion; provided, however, that each
loan shall comply with all applicable laws, regulations and rules of the
Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.
(6) Non-Transferability of Options. Except under the laws of
descent and distribution, unless otherwise determined by the Administrator,
the optionee shall not be permitted to sell, transfer, pledge or assign any
Stock Option, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee; provided, however, that the
optionee shall be permitted to transfer one or more Non-Qualified Stock
Options to a trust controlled by the optionee during the optionee's
lifetime for estate planning purposes.
(7) Termination of Employment or Service. If an optionee's
employment with or service as a director, consultant or advisor to the
Company terminates by reason of death, Disability or for any other reason,
the Stock Option may thereafter be exercised to the extent provided in the
applicable subscription or award agreement, or as otherwise determined by
the Administrator.
(8) Annual Limit on Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of shares of Stock with respect to which Incentive
Stock Options granted to an optionee under this Plan and all other option
plans of the Company, any Parent Corporation or Subsidiary become
exercisable for the first time by the optionee during any calendar year
exceeds $100,000, such Stock Options shall be treated as Non-Qualified
Stock Options.
(9) Automatic Grants of Stock Options to Non-Employee Directors.
The Company shall grant Non-Qualified Stock Options to Non-Employee
Directors pursuant to this subsection (9), which grants shall be automatic and
nondiscretionary and otherwise subject to the terms and conditions set forth
in this subsection (9) and the terms of the Plan ("Automatic Non-Employee
Director Options"). On the later of (i) the date on which the Securities and
Exchange Commission declares the Company's Registration Statement effective
(the "IPO date") or (ii) the date a Non-Employee Director first becomes a
director of the Company, whether through election by the stockholders of
the Company or appointment by the Board to fill a vacancy, the Company
shall grant to each director of the Company who is, at that time, a Non-
Employee Director a Non Qualified Stock Option to purchase shares (an
"Initial Option"). Thereafter, each Non-Employee Director shall be
automatically granted a Non-Qualified Stock Option to purchase
shares on the date immediately following the Company's annual meeting of
stockholders; provided, however, that he or she is then a director of the
Company and, provided, further, that as of such date, such director shall
have served on the Board for at least the preceding six (6) months. The
term of each Automatic Non-Employee Director Option shall be ten (10)
years, and the option price per share of Stock purchasable under an
Automatic Non-Employee Director Option shall be no less than 100% of the
Fair Market Value of the Stock on the date of grant, provided, however,
that for purposes of Initial Options granted on the IPO Date only, Fair
Market Value shall equal the initial price to the public as set forth in
the final prospectus included within the Registration Statement and,
provided, further, that in no event shall the option price per share of
Stock purchasable under an Automatic Non-Employee Director Option be less
than the par value (if any) of the Stock. Each Automatic Non-Employee
Director Option shall vest in equal twenty percent (20%) installments on
each of the first, second, third, fourth and fifth anniversaries of the
date of grant.
Section 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION
RIGHTS.
(1) Grant and Exercise. Stock Appreciation Rights and Limited
Stock Appreciation Rights may be granted either alone ("Free Standing
Rights") or in conjunction with all or part of any Stock Option granted
under the Plan ("Related Rights"). In the case of a Non-Qualified Stock
Option, Related Rights may be granted either at or after the time of the
grant of such Stock Option. In the case of an Incentive Stock Option,
Related Rights may be granted only at the time of the grant of the
Incentive Stock Option.
A Related Right or applicable portion thereof granted in
conjunction with a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
except that, unless otherwise provided by the Administrator at the time of
grant, a Related Right granted with respect to less than the full number of
shares covered by a related Stock Option shall only be reduced if and to
the extent that the number of shares covered by the exercise or termination
of the related Stock Option exceeds the number of shares not covered by the
Related Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (2) of this Section 6, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee
shall be entitled to receive an amount determined in the manner prescribed
in paragraph (2) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the
extent the Related Rights have been so exercised.
(2) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the provisions
of the Plan, as shall be determined from time to time by the Administrator,
including the following:
(a) Stock Appreciation Rights that are Related Rights
("Related Stock Appreciation Rights") shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and
this Section 6 of the Plan; provided, however, that no Related Stock
Appreciation Right shall be exercisable during the first six months of its
term, except that this additional limitation shall not apply in the event
of death or Disability of the optionee prior to the expiration of such six-
month period.
(b) Upon the exercise of a Related Stock Appreciation Right,
an optionee shall be entitled to receive up to, but not more than, an
amount in cash or that number of shares of Stock (or in some combination of
cash and shares of Stock) equal in value to the excess of the Fair Market
Value of one share of Stock as of the date of exercise over the option
price per share specified in the related Stock Option multiplied by the
number of shares of Stock in respect of which the Related Stock
Appreciation Right is being exercised, with the Administrator having the
right to determine the form of payment.
(c) Related Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option would be
transferable under paragraph (6) of Section 5 of the Plan.
(d) Upon the exercise of a Related Stock Appreciation Right,
the Stock Option or part thereof to which such Related Stock Appreciation
Right is related shall be deemed to have been exercised for the purpose of
the limitation set forth in Section 3 of the Plan on the number of shares
of Stock to be issued under the Plan, but only to the extent of the number
of shares issued under the Related Stock Appreciation Right.
(e) A Related Stock Appreciation Right granted in connection
with an Incentive Stock Option may be exercised only if and when the Fair
Market Value of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Stock Option.
(f) Stock Appreciation Rights that are Free Standing Rights
("Free Standing Stock Appreciation Rights") shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after grant; provided, however, that
no Free Standing Stock Appreciation Right shall be exercisable during the
first six months of its term, except that this limitation shall not apply
in the event of death or Disability of the recipient of the Free Standing
Stock Appreciation Right prior to the expiration of such six-month period.
(g) The term of each Free Standing Stock Appreciation Right
shall be fixed by the Administrator, but no Free Standing Stock
Appreciation Right shall be exercisable more than ten years after the date
such right is granted.
(h) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more than,
an amount in cash or that number of shares of Stock (or any combination of
cash or shares of Stock) equal in value to the excess of the Fair Market
Value of one share of Stock as of the date of exercise over the price per
share specified in the Free Standing Stock Appreciation Right (which price
shall be no less than 100% of the Fair Market Value of the Stock on the
date of grant) multiplied by the number of shares of Stock in respect of
which the right is being exercised, with the Administrator having the right
to determine the form of payment.
(i) Free Standing Stock Appreciation Rights shall be
transferable only when and to the extent that a Stock Option would be
transferable under paragraph (6) of Section 5 of the Plan.
(j) In the event of the termination of employment or service
of a Participant who has been granted one or more Free Standing Stock
Appreciation Rights, such rights shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Administrator at or after grant.
(k) Limited Stock Appreciation Rights may only be exercised
within the 30-day period following a "Change in Control" (as defined by the
Administrator in the agreement evidencing such Limited Stock Appreciation
Right) and, with respect to Limited Stock Appreciation Rights that are
Related Rights ("Related Limited Stock Appreciation Rights"), only to the
extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6 of the Plan.
(l) Upon the exercise of a Limited Stock Appreciation Right,
the recipient shall be entitled to receive an amount in cash equal in value
to the excess of the "Change in Control Price" (as defined in the agreement
evidencing such Limited Stock Appreciation Right) of one share of Stock as
of the date of exercise over (A) the option price per share specified in
the related Stock Option, or (B) in the case of a Limited Stock
Appreciation Right which is a Free Standing Stock Appreciation Right, the
price per share specified in the Free Standing Stock Appreciation Right,
such excess to be multiplied by the number of shares in respect of which
the Limited Stock Appreciation Right shall have been exercised.
Section 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
(1) General. Restricted Stock, Deferred Stock or Performance
Share awards may be issued either alone or in addition to other awards
granted under the Plan. The Administrator shall determine the Eligible
Recipients to whom, and the time or times at which, grants of Restricted
Stock, Deferred Stock or Performance Share awards shall be made; the number
of shares to be awarded; the price, if any, to be paid by the recipient of
Restricted Stock, Deferred Stock or Performance Share awards; the
Restricted Period (as defined in paragraph (3) of this Section 7)
applicable to Restricted Stock or Deferred Stock awards; the performance
objectives applicable to Performance Share or Deferred Stock awards; the
date or dates on which restrictions applicable to Restricted Stock or
Deferred Stock awards shall lapse during the Restricted Period; and all
other conditions of the Restricted Stock, Deferred Stock and Performance
Share awards. Subject to the requirements of Section 162(m) of the Code,
as applicable, the Administrator may also condition the grant of Restricted
Stock, Deferred Stock awards or Performance Shares upon the exercise of
Stock Options, or upon such other criteria as the Administrator may
determine, in its sole discretion. The provisions of Restricted Stock,
Deferred Stock or Performance Share awards need not be the same with
respect to each recipient. In the sole discretion of the Administrator,
loans may be made to Participants in connection with the purchase of
Restricted Stock under substantially the same terms and conditions as
provided in paragraph (5) of Section 5 of the Plan with respect to the
exercise of stock options.
(2) Awards and Certificates. The prospective recipient of a
Restricted Stock, Deferred Stock or Performance Share award shall not have
any rights with respect to such award, unless and until such recipient has
executed an agreement evidencing the award (a "Restricted Stock Award
Agreement," "Deferred Stock Award Agreement" or "Performance Share Award
Agreement," as appropriate) and delivered a fully executed copy thereof to
the Company, within a period of sixty days (or such other period as the
Administrator may specify) after the award date. Except as otherwise
provided below in this Section 7(2), (i) each Participant who is awarded
Restricted Stock or Performance Shares shall be issued a stock certificate
in respect of such shares of Restricted Stock or Performance Shares; and
(ii) such certificate shall be registered in the name of the Participant,
and shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award.
The Company may require that the stock certificates evidencing
Restricted Stock or Performance Share awards hereunder be held in the
custody of the Company until the restrictions thereon shall have lapsed,
and that, as a condition of any Restricted Stock award or Performance Share
award, the Participant shall have delivered a stock power, endorsed in
blank, relating to the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the
Restricted Period, stock certificates in respect of such shares of Deferred
Stock shall be delivered to the participant, or his legal representative,
in a number equal to the number of shares of Stock covered by the Deferred
Stock award.
(3) Restrictions and Conditions. The Restricted Stock, Deferred
Stock and Performance Share awards granted pursuant to this Section 7 shall
be subject to the following restrictions and conditions:
(a) Subject to the provisions of the Plan and the Restricted
Stock Award Agreement, Deferred Stock Award Agreement or Performance Share
Award Agreement, as appropriate, governing such award, during such period
as may be set by the Administrator commencing on the grant date (the
"Restricted Period"), the Participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock, Performance Shares
or Deferred Stock; awarded under the Plan; provided, however, that the
Administrator may, in its sole discretion, provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions
in whole or in part based on such factors and such circumstances as the
Administrator may determine, in its sole discretion, including, but not
limited to, the attainment of certain performance related goals, the
Participant's termination of employment or service, death or Disability or
the occurrence of a "Change in Control" as defined in the agreement
evidencing such award.
(b) Except as provided in paragraph (3)(a) of this Section 7,
the Participant shall generally have, with respect to shares of Restricted
Stock or Performance Shares, all of the rights of a stockholder with
respect to such stock during the Restricted Period. The Participant shall
generally not have the rights of a stockholder with respect to stock
subject to Deferred Stock awards during the Restricted Period; provided,
however, that dividends declared during the Restricted Period with respect
to the number of shares covered by a Deferred Stock award shall be paid to
the Participant. Certificates for shares of unrestricted Stock shall be
delivered to the Participant promptly after, and only after, the Restricted
Period shall expire without forfeiture in respect of such shares of
Restricted Stock, Performance Shares or Deferred Stock, except as the
Administrator, in its sole discretion, shall otherwise determine.
(c) The rights of holders of Restricted Stock, Deferred Stock
and Performance Share awards upon termination of employment or service for
any reason during the Restricted Period shall be set forth in the
Restricted Stock Award Agreement, Deferred Stock Award Agreement or
Performance Share Award Agreement, as appropriate, governing such awards.
Section 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made that would impair
the rights of a Participant under any award theretofore granted without
such Participant's consent, or that, without the approval of the
stockholders (as described below), would:
(1) except as provided in Section 3 of the Plan, increase the
total number of shares of Stock reserved for the purpose of the Plan;
(2) change the class of directors, officers, employees,
consultants and advisors eligible to participate in the Plan; or
(3) extend the maximum option period under paragraph (2) of
Section 5 of the Plan.
Notwithstanding the foregoing, stockholder approval under this
Section 8 shall only be required at such time and under such circumstances
as stockholder approval would be required under Section 162(m) of the Code
or other applicable law, rule or regulation with respect to any material
amendment to any employee benefit plan of the Company.
The Administrator may amend the terms of any award theretofore
granted, prospectively or retroactively, but, subject to Section 3 of Plan,
no such amendment shall impair the rights of any holder without his or her
consent.
Section 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant
by the Company, nothing contained herein shall give any such Participant
any rights that are greater than those of a general creditor of the
Company.
Section 10. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares
pursuant to a Stock Option to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to
distribution thereof. The certificates for such shares may include any
legend which the Administrator deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall
be subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, and any applicable federal or state
securities law, and the Administrator may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions.
(2) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
stockholder approval, if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
The adoption of the Plan shall not confer upon any officer, director,
employee, consultant or advisor of the Company any right to continued
employment or service with the Company, as the case may be, nor shall it
interfere in any way with the right of the Company to terminate the
employment or service of any of its officers, directors, employees,
consultants or advisors at any time.
(3) Each Participant shall, no later than the date as of which the
value of an award first becomes includible in the gross income of the
Participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
federal, state, or local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the Company under the Plan
shall be conditional on the making of such payments or arrangements, and
the Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the
Participant.
(4) No member of the Board or the Administrator, nor any officer
or employee of the Company acting on behalf of the Board or the
Administrator, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and
all members of the Board or the Administrator and each and any officer or
employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
Section 11. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon approval by the stockholders
of the Company.
Section 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock
Appreciation Right, Restricted Stock, Deferred Stock or Performance Share
award shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date, but awards theretofore granted may
extend beyond that date.
Exhibit 10.2
AGREEMENT FOR THE PURCHASE AND SALE
OF THE CAPITAL STOCK OF
PACIFIC GUARANTEE MORTGAGE CORPORATION
TABLE OF CONTENTS
PAGE
ARTICLE 1
Definitions.........................................................1
ARTICLE 2
Purchase and Sale of Shares.........................................5
2.1 Agreement to Sell and Purchase.............................5
2.2 Closing....................................................6
ARTICLE 3
Consideration and Payment of Terms .................................6
3.1 Purchase Price.............................................6
3.2 Additional Consideration...................................7
ARTICLE 4
Representations and Warranties of Sellers...........................11
4.1 Organization and Standing..................................11
4.2 Qualification..............................................11
4.3 No Restrictions; Binding Effect; Approval of Change of
Control.........................................12
4.4 Noncontravention...........................................12
4.5 Capital Structure..........................................13
4.6 Title to the Shares........................................13
4.7 No Subsidiaries............................................13
4.8 Corporate Records and Action...............................14
4.9 Financial Statements.......................................14
4.10 Liabilities................................................14
4.11 Events Since December 31, 1997.............................15
4.12 Taxes......................................................16
4.13 Title to Assets............................................18
4.14 Condition of Assets........................................18
4.15 Accounts Receivable; Notes Receivable......................18
4.16 Intellectual Property and Software.........................18
4.17 Material Contracts.........................................20
4.18 Litigation; Regulatory Examination.........................22
4.19 Insurance..................................................22
4.20 Schedule of Loans..........................................22
4.21 Compliance with Law Including Consumer Law.................23
4.22 Forms; Policies and Procedures.............................23
4.23 Licenses and Permits.......................................23
4.24 Environmental Warranties...................................24
4.25 Payroll List...............................................25
4.26 Labor Relations............................................25
4.27 Employee Benefit Plans.....................................25
4.28 Employee Policies..........................................26
4.29 Referral Sources; Investors................................26
4.30 Bank Accounts..............................................26
4.31 Powers of Attorney.........................................26
4.32 Personal Guarantees........................................26
4.33 Brokerage Fee..............................................26
4.34 Full Disclosure............................................27
4.35 Business Records...........................................27
ARTICLE 5
Representations and Warranties of Purchaser.........................27
5.1 Organization and Standing..................................27
5.2 No Restrictions; Authorization; Binding Effect; Approval
of Change of Control............................27
5.3 Noncontravention...........................................28
5.4 Capitalization.............................................28
5.5 Capital Structure..........................................28
5.6 Authorization for Common Stock Issued by Purchaser.........28
5.7 Financial Statements.......................................28
5.8 No Material Adverse Change or Extraordinary Dividends
or Distributions................................29
5.9 No Subsidiaries............................................29
5.10 Corporate Records and Action...............................29
5.11 Events Since December 31, 1997.............................29
5.12 Taxes......................................................31
5.13 Title to Assets............................................31
5.14 Condition of Assets........................................32
5.15 Accounts Receivable; Notes Receivable......................32
5.16 Litigation; Regulatory Examination.........................32
5.17 Insurance..................................................32
5.18 Compliance with Consumer Law...............................32
5.19 Licenses and Permits.......................................33
5.20 Labor Relations............................................33
5.21 Brokerage Fee..............................................33
5.22 Full Disclosure............................................33
5.23 Warehouse Line and Gestation Repo Line Terms...............34
ARTICLE 6
Covenants of Sellers................................................34
6.1 Conduct of Businesses; Notification of Breaches in
Representations or Warranties...................34
6.2 Notification of Breach of Representation, Warranty or
Covenant........................................34
6.3 Forebearances by PGM.......................................34
6.4 Good Faith Negotiations....................................36
6.5 Acquisition Proposals......................................36
6.6 Consents...................................................37
6.7 Government Approval........................................37
6.8 Additional Financial Statements............................37
6.9 Supplements to Schedules...................................37
6.10 Consents of Third Parties..................................38
6.11 Transfer of Shares.........................................38
6.12 Guarantees and Collateral Pledges..........................38
6.13 Subordination..............................................38
ARTICLE 7
Covenants of Purchaser..............................................39
7.1 Notification of Breach of Warranty or Covenant.............39
7.2 Forebearances by Purchaser.................................39
7.3 Good Faith Negotiations....................................40
7.4 Government Approvals.......................................40
ARTICLE 8
Joint Covenants.....................................................40
8.1 Access and Information.......................................
8.2 Publicity..................................................42
8.3 Shareholders Agreement.....................................42
8.4 Employment Agreements......................................42
8.5 Other Documentation........................................42
ARTICLE 9
Conditions to Obligation to Close...................................42
9.1 Mutual Conditions..........................................42
9.2 Conditions to Obligations of Purchaser to Effect the
Purchase...........................................43
9.3 Conditions to Obligations of Sellers to Effect the Closing.45
ARTICLE 10
Post Closing Covenants..............................................46
10.1 Post Closing Covenants of Purchaser Regarding
Financing of PGM...................................46
10.2 Covenant Not to Compete and Not to Solicit by Sellers
Surviving Closing..................................47
10.3 Limited Indemnification by Sellers.........................50
10.4 Exposure on Breach of Warranty by Purchaser................54
10.5 Taxes......................................................54
10.6 Personal Guaranties........................................54
10.7 New Joint Venture Operations...............................55
10.8 Oak Park Estates REO.......................................55
10.9 Further Assurances.........................................55
ARTICLE 11
Termination.........................................................55
11.1 Termination and Cure Upon Material Adverse Change..........55
11.2 Other Termination..........................................56
11.3 Effect of Termination......................................56
ARTICLE 12
Miscellaneous.......................................................56
12.1 Survival of Representations and Warranties.................56
12.2 Expenses...................................................57
12.3 Press Releases; Employee Communications....................57
12.4 Right of Offset............................................57
12.5 Written Agreement to Govern................................57
12.6 Severability...............................................57
12.7 Injunctive Remedy for Breach...............................58
12.8 Notices and Other Communications...........................58
12.9 Counterparts...............................................60
12.10 Successors and Assigns.....................................60
12.11 Further Assurances.........................................60
12.12 Interpretation.............................................61
12.13 Schedules and Exhibits.....................................61
12.14 Modification...............................................61
12.15 Waiver of Provisions.......................................61
12.16 ARBITRATION; GOVERNING LAW; CONSENT TO
JURISDICTION....................................61
12.17 Waiver of Conditions.......................................64
12.18 Construction...............................................64
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
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
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.
"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 product for
PGM and Purchaser and its Affiliates. Such gross revenue shall be allocated
as PGM Mortgage Banking Net Income based on (i) [*] the Purchaser or its
Affiliates [*] 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 [*] 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 [*]
Purchaser and PGM [*] Purchaser and its Affiliates (including PGM) [*],
(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.
[*].
By way of example, assume [*].
[*].
PGM Mortgage Banking Net Income would equal [*].
**[*].
"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 [*]. 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.
"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 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:
Value of Stock or = [*] X PGM Net X [*]%
Appreciation Rights to Income [*]
be received by Seller
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 = [*] x x [*]%
Appreciation Rights to PGM Net Income [*]
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 [*]% = $[*]
- ----------
[*]%
= [*]% 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 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.
(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.
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 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 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 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;
(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 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 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
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.
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;
(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
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 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 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 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 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 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, 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.
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;
(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 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.
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 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
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 (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 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.
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.
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 (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,
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 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.
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.
(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 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 (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.
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 / 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 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 / 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:
(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 respective 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 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.
(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,
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 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
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, 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.
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;
(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 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, 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.
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
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.
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.
(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. ss.ss. 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 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. ss.ss. 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 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
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
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
Exhibit 10.3
AGREEMENT FOR THE PURCHASE AND SALE
OF THE CAPITAL STOCK OF
MORTGAGE MARKET, INC.
PAGE
TABLE OF CONTENTS
PAGE
1 Definitions..................................................1
2 Purchase and Sale of Shares..................................5
2.1 Agreement to Sell and Purchase.......................5
2.2 Closing..............................................5
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 [*].................................................13
3.5 No Other Equity or Ownership Interest Implied.......13
4 Representations and Warranties of Sellers...................14
4.1 Organization and Standing...........................14
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........................16
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..................19
4.17 Material Contracts..................................21
4.18 Litigation; Regulatory Examination..................22
4.19 Insurance...........................................22
4.20 Schedule of Loans...................................23
4.21 Compliance with Law Including Consumer Law..........23
4.22 Forms; Policies and Procedures......................23
4.23 Licenses and Permits................................24
4.24 Environmental Warranties............................24
4.25 Payroll List........................................25
4.26 Labor Relations.....................................25
4.27 Employee Benefit Plans..............................25
4.28 Employee Policies...................................26
4.29 Referral Sources; Investors.........................26
4.30 Bank Accounts.......................................26
4.31 Powers of Attorney..................................26
4.32 Personal Guarantees.................................26
4.33 Brokerage Fee.......................................26
4.34 Full Disclosure.....................................27
4.35 Business Records....................................27
5 Representations and Warranties of Purchaser.................27
5.1 Organization and Standing...........................27
5.2 No Restrictions; Authorization; Binding Effect;
Approval of Change of Control.......................27
5.3 Noncontravention....................................28
5.4 Litigation; Regulatory Examination..................28
5.5 Financial Statement.................................28
5.6 Full Disclosure.....................................28
6 Covenants of Sellers........................................29
6.1 Conduct of Businesses; Notification of
Breaches in Representations or Warranties...........29
6.2 Notification of Breach of Representation,
Warranty or Covenant................................29
6.3 Forebearances by MMI................................29
6.4 Good Faith Negotiations; Due Diligence..............30
6.5 Other Acquisition Proposals.........................31
6.6 Intentionally Deleted...............................31
6.7 Consents............................................31
6.8 Government Approval.................................31
6.9 Additional Financial Statements.....................31
6.10 Supplements to Schedules............................32
6.11 Consents of Third Parties...........................32
6.12 Transfer of Shares..................................32
6.13 Guarantees and Collateral Pledges...................32
7 Covenants of Purchaser......................................33
7.1 Notification of Breach of Warranty or Covenant......33
7.2 Good Faith Negotiations.............................33
7.3 Notification of Material Adverse Information........33
7.4 [Deliberately Omitted]..............................33
7.5 Consents............................................33
8 Joint Covenants.....................................33
8.1 Confidential Information............................33
8.2 Publicity...........................................34
8.3 Put Agreement.......................................35
8.4 Employment Agreements...............................35
8.5 Other Documentation.................................35
9 Conditions to Obligation to Close...........................35
9.1 Mutual Conditions...................................35
9.2 Conditions to Obligations of Purchaser to
Effect the Purchase.................................35
9.3 Conditions to Obligations of Sellers to
Effect the Closing..................................37
10 Post Closing Covenants......................................37
10.1 Post Closing Covenants of Purchaser Regarding
Financing of MMI....................................37
10.2 Covenant Not to Compete by Sellers..................38
10.3 Limited Indemnification by Sellers..................42
10.4 Tax Liability of Francis, Sellers...................43
10.5 Covenant Regarding Record Keeping by Purchaser......44
10.6 Release of Personal Guarantees......................44
10.7 Recognition of MMI's Past Success; MMI Board........44
10.8 Intent to Investigate an IPO........................44
10.9 Name................................................45
10.10 Territorial Expansion...............................45
10.11 MMI Acquisition and Expansion.......................45
10.12 Rates...............................................46
10.13 Further Assurances..................................46
10.14 Contribution of Capital; Payments to Bob Barnett....46
11 Termination.................................................46
11.1 Cure by Sellers Upon Material Adverse Change........46
11.2 Other Termination...................................46
11.3 Effect of Termination...............................47
12 Miscellaneous...............................................47
12.1 Survival of Representations and Warranties..........47
12.2 Expenses............................................47
12.3 Press Releases; Employee Communications.............47
12.4 Right of Offset.....................................48
12.5 Written Agreement to Govern.........................48
12.6 Severability........................................48
12.7 Injunctive Remedy for Breach........................48
12.8 Notices and Other Communications....................48
12.9 Counterparts........................................50
12.10 Successors and Assigns..............................51
12.11 Further Assurances..................................51
12.12 Interpretation......................................51
12.13 Schedules and Exhibits..............................51
12.14 Modification........................................51
12.15 Waiver of Provisions................................51
12.16 ARBITRATION; LAW; JURISDICTION; WAIVER
OF JURY TRIAL.......................................51
12.17 Waiver of Conditions................................54
12.18 Construction........................................54
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
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
Definition of Terms
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
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
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
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:
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.
"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) [*] MMI,
Purchaser or its Affiliates (including MMI) [*] 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 [*] 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 [*] MMI and funded by
Purchaser or its Affiliates (including MMI) [*] Purchaser or its Affiliates
[*]; (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.
By way of example, assume [*].
MMI Mortgage Banking Net Income would equal [*].
"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 [*]
of MMI Operations, such as [*].
"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.
"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:
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
- --------------------------------------------------------------------------------------
NAME SHARES/SENIOR
MANAGER
INTERESTS
SIGNING BONUS RESTRICTIVE COVENANT TOTAL
- --------------------------------------------------------------------------------------
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
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.
o 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) [*]. 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 [*].
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
IPO had occurred on the final day of the quarter immediately
preceding such date, i.e., the [*] shall be calculated [*].
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 [*], 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
[*], 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) [*]. 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 [*].
By way of example:
Example 1: If Purchaser completed an IPO prior to 24
months following the Closing and [*], 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.
o 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) [*]. 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 [*].
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 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
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.
(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 [*]. [*].
Immediately prior to such sale, the Purchaser shall issue [*] 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
[*] 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 [*] 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 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 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 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 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 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.
(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.
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.
(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;
(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, 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 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 (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, 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 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.
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
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 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);
(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 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 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 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.
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 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.
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.
(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 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 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 / 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:
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 / 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 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 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 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 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, 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 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.
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 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 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 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
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
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.: 03/968-3178
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 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 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
(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. ss.ss. 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 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. ss.ss. 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 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
Exhibit 10.4
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.
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 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 [ * ]; 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 [ * ]; 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 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.
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.
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 : 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;
(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
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.
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
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 SECTION 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 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
-------------------------------------
Exhibit 10.5
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:
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) [*] the Purchaser or its Affiliates
[*] 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 [*] 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 [*] Purchaser and PGM [*] Purchaser and its
Affiliates (including PGM) [*], (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.
[*].
By way of example, assume [*].
[*]
PGM Mortgage Banking Net Income would equal [*].
[*].**
**[*].
(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 [*]. 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.
(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 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,
reimbursement 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.
(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 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.
(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.
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.
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.
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.
(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.
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
--------------------
Exhibit 10.6
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 other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. DEFINITION
(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 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 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) [*] MMI,
Prism or its Affiliates (including MMI) [*] 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 [*] 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 [*], (C) any
costs and expenses associated with any repurchase obligations of
MMI to the extent they are not solely 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 Mortgage Banking Net Income would equal [*].
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
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
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;
(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 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:
(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, information, 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.
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, 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 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 PORTLAND, 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
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 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.
IN WITNESS WHEREOF, this Agreement is effective as of the day and
year first above written.
MORTGAGE MARKET, INC.
By:/s/ Martin D. Francis /s/ Martin D. Francis
------------------------------ --------------------------
Title: President Martin D. Francis
-----------------------
ACKNOWLEDGED BY:
PRISM MORTGAGE COMPANY
By:/s/ David Fisher
---------------------------
Title:Vice President
---------------------
Exhibit 10.7
PRISM MORTGAGE COMPANY
PRISM2000 PROFIT SHARING PLAN
Article 1. Introduction
The Prism2000 Profit Sharing Plan, as set forth in this document, has
been approved by the Board of Directors of Prism Mortgage Company (the
"Company") as an incentive compensation program which provides participants
with tangible recognition for their contributions to the growth in the
value and profitability of the Company.
Article 2. Incentive Share Units
The Incentive Share Units (ISUs) awarded under the Plan are intended
to reward employees who perform at an exceptional level and who enable the
Company to meet certain goals. The resulting payout for a participant shall
be determined by the value of vested ISUs held by the participant.
The terms and conditions governing the selection of participants, the
grant and allocation of ISUs, the value of the ISUs, the time and manner of
payments with respect thereto, and the effect of termination of employment
are set forth in Appendix A of this Plan, Schedule of Terms and Conditions.
Article 3. Plan Document Controls
In the event of a conflict between this Plan document (which includes
Appendix A hereto) and any other information or materials provided to a
participant (whether written or oral), the provisions of this plan document
shall control.
Article 4. Other Terms and Conditions
4.01 Claims. No person shall have any legal claim to be granted ISUs
under the Plan. Except as may be otherwise required by law, payouts under
the Plan shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment,
execution, or levy of any kind, either voluntary or involuntary. Plan
payouts shall be payable from the general assets of the Company and no
participant shall have any claim with respect to any specific assets of the
Company.
4.02 No Employment Rights. Neither the Plan nor any action taken under
the Plan shall be construed as giving an employee the right to be retained
in the employ of the Company or to maintain any participant's compensation
at any level.
4.03 No Stockholder Rights. Nothing in this Plan or any ISUs granted
hereunder shall confer upon any participant or his beneficiaries any of the
rights of a stockholder of the Company.
4.04 Withholding. The Company shall have the power and the right to
deduct or withhold, or require a participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes (including the
participant's Social Security and Medicare tax obligation) required by law
to be withheld.
4.05 Beneficiaries. Each Participant may designate, on a form to be
provided by and filed with the Company, a beneficiary or beneficiaries to
receive any Plan payouts in the event of the participant's death. In the
absence of a designation, any such Plan payout shall be made to the
participant's surviving spouse, or to the participant's estate, if no
surviving spouse.
Article 5. Administration
5.01 Power and Authority of the Board. The President of the Company
shall have full power and authority to administer and interpret the
provisions of the Plan and to adopt such rules, regulations, agreements,
guidelines, and instruments for the administration of the Plan as the
President deems appropriate or advisable.
5.02 Board Delegation of Authority. The President shall have full
power to delegate to any officer or employee of the Company the authority
to administer and interpret the procedural aspects of the Plan, subject to
the Plan's terms, including adopting and enforcing rules to decide
procedural and administrative issues.
5.03 Amending or Terminating the Plan. By action of the President, the
Plan may be amended, modified, suspended, or terminated, in whole or in
part, at any time for any reason; provided, however, that any such action
shall not, without the participant's written consent, adversely affect the
rights of any participant with respect to any vested ISUs awarded to such
participant hereunder.
APPENDIX A
PRISM MORTGAGE COMPANY
PRISM 2000 PROFIT SHARING PLAN
Schedule of Terms and Conditions
Effective Date: January 1, 1998
Participants: Loan Officers: Average annual gross commissions less
waived fees must exceed $65,000, and
average commission per loan less
waived fees (excluding second
mortgages) must exceed $1,600 for the
period beginning 1/1/98 (or date of
hire if later) and ending 12/31/2000.
Senior Managers: Must be employed by 1/1/2000.
Other Teammates: Must be employed by 1/1/2000. This group
includes all operations and administrative
staff.
COMPANY GOALS:
All Employees: 1. $100 million or more in revenue for the year 2000.
Award Pool: $1,000,000
2. Average after-tax profit margin for 1998, 1999 and
2000 of at least 10%.
Award Pool: $1,000,000
3. 90% use of our mortgage insurance partners.
Award Pool: $100,000
4. 90% use of Illinois Guaranty Title ("IGT") on
Illinois refinancings, and on refinancings in any
other state which IGT or one of its affiliates
services.
Award Pool: $100,000
Loan Officers: A separate, additional award pool will be
allocated among loan officers. This award pool
will only be distributed if both Company Goals 1
and 2 are achieved. ISUs for this pool will be
granted by the President of the Company in his
discretion based on relative performance with
respect to the following:
1. Gross commissions less waived fees (i.e.
profitability)
2. Use of the Conduit (Prism, Infiniti,
PointSource)
3. Use of Illinois Guaranty Title
4. Customer Service Surveys
5. Home Equity Loans
6. State or Federal Mortgage Professional
Accreditation
Award Pool: $1,000,000
Allocation of Award
Pools: The award pool for Company Goals 1 and 2
will be divided among the three
categories of participants and allocated
provided that both Company Goals 1 and 2
are achieved. The award pool for Company
Goal 3 will be divided among the three
categories of participants provided that
goal is achieved and Company Goals 1 and
2 are achieved. The award pool for
Company Goal 4 will be divided among the
three categories of participants provided
that goal is achieved and Company Goals 1
and 2 are achieved. Shares from award
pools of goals that are achieved and meet
the above criteria will be allocated
among all eligible participants in each
category based on the ratio of each
participant's ISUs to the total ISUs of
all eligible participants in the same
category.
Loan Officers will be credited with ISUs based on
their gross commission less waived fees during
1998, 1999 and 2000 relative to the other
eligible loan officers. Other Teammates will be
credited with ISUs based on their compensation
earned during 1998, 1999 and 2000. If Loan
Officers or Other Teammates begin employment
between January 1, 1998 and December 31, 1999,
then they will be credited with ISUs based on the
period beginning the January 1st immediately
following their hire date and ending December 31,
2000. ISUs will be credited to Senior Managers as
determined in the discretion of the Company. In
addition, participants may earn ISUs by achieving
certain short-term goals as the Company may
announce from time to time.
Vesting of Shares: The right to receive a payout of the value of a
participant's ISUs will be governed by a vesting
schedule.
ISUs will become vested as follows:
December 31, 2001 - 1/3
December 31, 2002 - 1/3
December 31, 2003 - 1/3
Effect of Termination Termination of employment for any reason,
of Employment: with or without cause, prior to December 31, 2001
will result in a complete forfeiture of all ISUs.
Termination of employment after December 31, 2001
but prior to December 31, 2003 for any reason,
with or without cause, will result in a forfeiture
of all unvested ISUs.
Notwithstanding the above, in the event of the
death of a participant, all ISUs will become fully
vested.
Payment Schedule: ISUs will be paid on the February 28th immediately
following the date the ISUs are vested.
Conversion to Company
Stock: In the event the Company becomes publicly
traded, the Company, in its discretion,
may convert all ISUs from a cash payout
into a payout of shares of Company stock.
The number of shares will be determined
based on the value of the ISUs and the
value of the Company shares at the time
of conversion, which value will be based
on the publicly traded price of the
Company stock. At the discretion of the
Company, ISUs may be converted based on a
discount to the publicly-traded price of
the Company stock.
