As filed with the Securities and Exchange Commission on June 29, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------------------
PRISM FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
------------------------
DELAWARE
(State of incorporation)
36-4279417
(I.R.S. employer identification number)
440 N. ORLEANS
CHICAGO, ILLINOIS 60610
(Address of principal executive offices, including zip code)
PRISM FINANCIAL CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN
PRISM FINANCIAL CORPORATION 1999 OMNIBUS STOCK INCENTIVE PLAN
PACIFIC GUARANTEE MORTGAGE EQUITY VALUE PLAN
MORTGAGE MARKET EQUITY VALUE PLAN
(FULL TITLE OF THE PLANS)
BRUCE C. ABRAMS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PRISM FINANCIAL CORPORATION
440 N. ORLEANS
CHICAGO, ILLINOIS 60610
(312) 494-0020
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
------------------------
WITH COPIES TO:
RODD M. SCHREIBER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
------------------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Securities to be Offering Price Offering Registration
to be Registered Registered per Share (6) Price Fee
<S> <C> <C> <C> <C>
Common Stock, par value 750,000(1) $19 7/8 $14,906,250 $4,144
$.01 per share
Common Stock, par value 1,500,000(2) $19 7/8 $25,406,250 $7,063
$.01 per share
Common Stock, par value 127,411(3) $19 7/8 $2,532,294 $704
$.01 per share
Common Stock, par value 53,542(4) $19 7/8 $1,064,147 $296
$.01 per share
Total: 2,430,953(5) $43,908,941 $12,207
======================= =========== ============ ============ =========
</TABLE>
(1) Represents the number of shares of common stock, par value $.01 per
share (the "Common Stock"), of Prism Financial Corporation ("Prism
Financial") available for issuance under the 1999 Employee Stock
Purchase Plan (the "ESPP").
(2) Represents the number of shares of Common Stock available for issuance
under the 1999 Omnibus Stock Incentive Plan (the "Omnibus Plan").
(3) Represents the number of shares of Common Stock available for issuance
under the Pacific Guarantee Mortgage Equity Value Plan (the "Pacific
EVP").
(4) Represents the number of shares of Common Stock available for issuance
under the Mortgage Market Equity Value Plan (the "Mortgage Market EVP"
and, together with the ESPP, the Omnibus Plan and the Pacific EVP, the
"Plans").
(5) The aggregate number of shares of Common Stock shown in the table above
consists of the maximum number of shares of Common Stock which were
granted pursuant to the Pacific Equity Value Plan or the Mortgage
Market Equity Value Plan or which may be sold upon the exercise of
options or pursuant to purchase rights which have been or hereafter may
be granted under the Plans, as of the date hereof. Such maximum number
of shares is subject to adjustment in certain events pursuant to the
Plans. Accordingly, pursuant to Rule 416 under the Securities Act of
1933, as amended (the "Securities Act"), this Registration Statement
covers, in addition to the number of shares of Common Stock shown in
the table above, an indeterminate number of shares of Common Stock
which may be subject to grant or otherwise issuable after the operation
of the provisions of the Plans governing such adjustments.
(6) This calculation is made solely for the purpose of determining the
registration fee pursuant to the provision of Rule 457(h) under the
Securities Act as follows: (a) in the case of shares of Common Stock
which may be purchased upon the exercise of outstanding options which
have heretofore been granted, the fee is calculated on the basis of the
price at which the options may be exercised; and (b) in the case of
shares of Common Stock for which options have not yet been granted and
purchase rights which are not yet available and the price of which is
therefore unknown, or, in the case of additional securities which have
previously been issued and are offered for resale, the fee is
calculated on the basis of the average of the high and low sale prices
per share of the Common Stock on the National Market System of the
National Association of Securities Dealers Automated Quotation System
(NASDAQ) as of a date (June 25, 1999) within 5 business days prior to
filing this Registration Statement.
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EXPLANATORY NOTE
Prism Financial Corporation has prepared this Registration Statement
in accordance with the requirements of Form S-8 under the Securities Act,
to register shares of Common Stock, issuable pursuant to the Plans.
Under cover of this Form S-8 is a Reoffer Prospectus of Prism
Financial prepared in accordance with Part I of Form S-3 under the
Securities Act. This Reoffer Prospectus has been prepared pursuant to
Instruction C of Form S-8, in accordance with the requirements of Part I of
Form S-3, and may be used for reofferings and resales on a continuous or
delayed basis in the future of up to an aggregate 180,953 "restricted
securities" which have been issued prior to the filings of this
Registration Statement.
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
Prism Financial will send or give the documents containing the
information specified in Part I of Form S-8 to employees as specified by
the Securities and Exchange Commission Rule 428(b)(1) under the Securities
Act. Prism Financial does not need to file these documents with the
Commission either as part of this Registration Statement or as prospectuses
or prospectus supplements under Rule 424 of the Securities Act.
REOFFER PROSPECTUS
180,953 SHARES OF COMMON STOCK
OF PRISM FINANCIAL CORPORATION
The shares of common stock, $.01 par value per share, of Prism
Financial Corporation ("Prism Financial," "our company," "us," "we," "our"
or "ours") offered hereby (the "Common Stock") will be sold from time to
time by the person listed on the table on page 21 under the caption
"Selling Stockholders" (the "Selling Stockholders"). The Selling
Stockholders are current employees of our company or independent
contractors providing services to our company who acquired the shares of
Common Stock pursuant to the Pacific Guarantee Mortgage Equity Value Plan
(the "Pacific EVP") or the Mortgage Market Equity Value Plan (the "Mortgage
Market EVP").
The sales may occur in transactions in the over-the-counter market
(quoted on the Nasdaq National Market) at prevailing market prices or in
negotiated transactions. We will not receive proceeds from any of these
sales. We are paying the expenses incurred in registering the Shares, but
all selling and other expenses incurred by each of the Selling Stockholders
will be borne by that Selling Stockholder.
Among the shares of Common Stock, there are shares which are
"restricted securities" under the Securities Act of 1933, as amended (the
"Securities Act"), before their sale under this Reoffer Prospectus. This
Reoffer Prospectus has been prepared for the purpose of registering the
Shares under the Securities Act to allow for future sales by the Selling
Stockholders, on a continuous or delayed basis, to the public without
restriction. Each Selling Stockholder may be deemed to be an "underwriter"
within the meaning of the Securities Act. Any commissions received by a
broker or dealer in connection with resales of the Shares may be deemed to
be underwriting commissions or discounts under the Securities Act.
Our common stock is traded in the over-the-counter market and quoted
on the Nasdaq National Market under the symbol "PRFN." On June 28, 1999,
the closing price of the common stock, as reported on the Nasdaq National
Market, was $19 15/16 per share.
-----------------
Investing in the Common Stock includes risks. For more information,
please see "Risk Factors" beginning on page 9.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED WHETHER THIS REOFFER PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
June 29, 1999
-----------------
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION........................................................5
INCORPORATED DOCUMENTS.......................................................6
THE COMPANY..................................................................7
RISK FACTORS.................................................................9
SPECIAL NOTE REGARDING FORWARD -LOOKING STATEMENTS..........................20
USE OF PROCEEDS.............................................................21
SELLING STOCKHOLDERS........................................................21
PLAN OF DISTRIBUTION........................................................22
LEGAL MATTERS...............................................................22
EXPERTS.....................................................................23
AVAILABLE INFORMATION
Prism Financial is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Room of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, IL 60661-2511 and 7 World Trade Center, 13th Floor, New York, NY
10048, at prescribed rates. The Commission maintains a website that
contains reports, proxy and information statements and other information
regarding registrants, including Prism Financial, that file electronically
with the Commission. The address of such website is "http://www.sec.gov."
In addition, you may obtain information from the Public Reference Room by
calling the Commission at 1-800-SEC-0330. In addition, our Common Stock is
quoted on the Nasdaq National Market System. Reports, proxy statements,
informational statements and other information concerning Prism Financial
can be inspected at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
Prism Financial intends to furnish its stockholders with annual
reports containing additional financial statements and a report thereon by
independent certified public accountants.
A copy of any document incorporated by reference in the Registration
Statement (not including exhibits to the information that is incorporated
by reference unless such exhibits are specifically incorporated by
reference into the information that the Registration Statement
incorporates) of which this Reoffer Prospectus forms a part but which is
not delivered with this Reoffer Prospectus will be provided by us without
charge to any person (including any beneficial owner) to whom this Reoffer
Prospectus has been delivered upon the oral or written request of such
person. Such requests should be directed to Prism Financial Corporation,
440 N. Orleans, Chicago, IL 60610. Our telephone number at that location is
(312) 494-0020.
You should only rely on the information incorporated by reference or
provided in this Reoffer Prospectus or any supplement. We have not
authorized anyone else to provide you with different information. The
common stock is not being offered in any state where the offer is not
permitted. You should not assume that the information in this Reoffer
Prospectus or any supplement is accurate as of any date other than the date
on the front of this Reoffer Prospectus.
INCORPORATED DOCUMENTS
The Commission allows Prism Financial to "incorporate by reference"
information into this Reoffer Prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference
is deemed to be part of this Reoffer Prospectus, except for any information
superseded by information in this Reoffer Prospectus.
Prism Financial's prospectus dated May 25, 1999, filed pursuant to
Rule 424(b) of the Securities Act, and Prism Financial's Registration
Statement on Form 8-A, as filed with the Commission on May 19, 1999 under
Section 12 of the Exchange Act, are incorporated herein by reference. In
addition, all documents we file or subsequently file under Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, before the termination of this
offering, are incorporated by reference.
THE COMPANY
Prism Financial is a leading retail mortgage banking company engaged
in the business of originating, selling and brokering residential mortgage
loans. We originated $8.3 billion in loans in 1998, making us the third
largest non-depository retail originator in the United States and the
eleventh largest overall, after giving effect to our 1998 acquisitions for
the entire year. Through our network of over 1,000 commission-only loan
originators operating out of over 150 retail branches in 22 states as of
May 31, 1999, and our relationships with operators of leading Internet
mortgage web sites, we offer a broad array of residential mortgage products
targeted primarily to high-credit-quality borrowers. We operate as both (1)
a mortgage banker, underwriting, closing and funding loans, and (2) a
mortgage broker, selling the loan products of over 100 different lenders.
We believe that our large loan origination volume and this hybrid
banker/broker structure enable us to consistently offer our customers
favorable rates on a wide range of mortgage products and provide
convenient, high-quality customer service.
Since being founded in 1992, we have focused on growing our
origination volume by building a retail origination network through
internal growth, selective acquisitions and, recently, relationships with
operators of Internet mortgage web sites.
o Internal growth. Excluding acquisitions, our annual origination
volume has grown from $15.7 million in 1992 to $3.2 billion in
1998. Since 1992 through May 31, 1999, we have opened 59
branches in 14 states, including 43 branches opened since the
beginning of January 1998.
o Growth through selective acquisitions. Since 1996 through May
31, 1999, we have completed seven acquisitions, including our
most recent acquisition of First City Financial Corp. in April
1999. First City is a Denver-based mortgage banking company
with approximately $1.8 billion and $385 million of mortgage
originations in 1998 and the first three months of 1999,
respectively. As of their acquisition dates, these seven
acquisitions added over 650 loan originators operating out of
99 branches in 15 states to our existing network.
o Internet growth. Our objective is to become the leading
provider of mortgage products through the Internet. We have
established strategic relationships with operators of leading
Internet mortgage web sites, including Consumer Financial
Network, E-Loan, GetSmart, iOwn.com, Intuit's QuickenMortgage,
iQualify, Keystroke, LendingTree, Loanz.com and Microsoft's
HomeAdvisor. In 1998, we originated over $122 million of the
over $4.0 billion of loans generated over the Internet. We have
originated approximately $125 million of loans over the
Internet in the first three months of 1999.
To support our growth, we have five principal business strategy
elements. First, we focus primarily on the retail channel. This channel
allows us to control the loan origination process and provides us with
direct access to the consumer. Second, we leverage our banker/broker
structure in order to consistently offer consumers low rates on a broad
array of mortgage products. Third, we provide consumers a "one-stop" source
of mortgage-related products. These mortgage-related product sales allow us
to increase revenues without significant capital investment. Fourth, we
employ a commission and incentive system for our loan originators and an
incentive compensation system for our operations employees that is designed
to motivate them to maximize loan volume and profitability while
simultaneously creating a variable cost structure for us which is adaptable
to changes in origination volume. Last, we recruit highly-skilled employees
with mortgage industry experience and seek technologies and process
improvements that streamline the origination process to ensure the
continuous delivery of superior customer service.
In 1998, mortgage origination volume in the U.S. reached a record
high of $1.5 trillion, compared to $834 billion for 1997. Demand for
mortgage products in recent years has been favorably affected by low
interest rates, low unemployment rates, increasing wages, high consumer
confidence and strong housing starts and home sales. The retail origination
market of the mortgage banking industry is highly fragmented. According to
the National Association of Mortgage Brokers, approximately 20,000 mortgage
brokers were operating in the U.S. in 1998, although we believe only a
limited number originated mortgages nationwide.
During the past 18 months, the Internet has been emerging as a major
source of mortgage originations. Industry analysts predict that Internet
mortgage originations will grow from over $4.0 billion in 1998 to nearly
$100.0 billion by 2003 as borrowers recognize the convenience and benefits
of shopping for a mortgage from the comfort of their home or office.
Capturing market share on the Internet will be dependent upon access to
consumers and the ability to consistently provide broad product offerings
at competitive rates.
Our executive offices are located at 440 North Orleans, Chicago, IL
60610; our telephone number is (312) 494-0020 and our facsimile number is
(312) 494-0273.
RISK FACTORS
Investing in the Common Stock includes risks. For more
information, please see "Risk Factors" beginning on page 9.
RISK FACTORS
You should carefully consider the following risks before deciding
whether to buy our common stock. The risks described below are not the only
ones that we face. Additional risks that are not yet known to us or that we
currently think are immaterial could also impair our business, operating
results or financial condition. The trading price of our common stock could
decline due to any of these risks, and you could lose all or part of your
investment.
IF WE DO NOT MANAGE OUR GROWTH EFFECTIVELY, OUR FINANCIAL PERFORMANCE COULD
BE ADVERSELY AFFECTED; OUR HISTORICAL GROWTH RATES ARE NOT LIKELY TO
REFLECT OUR FUTURE GROWTH
We have experienced rapid growth since our formation in 1992. Our
revenues have grown from approximately $200,000 in 1992 to $90.8 million in
1998. Our workforce has grown from five employees to 1,462 employees during
the same period. We intend to continue to grow by adding new loan
originators, opening new branches, making strategic acquisitions and
building our Internet origination capabilities. Future growth will impose
significant added responsibilities on members of management, including the
need to identify, recruit, maintain and integrate additional employees,
including management. There can be no assurance that our systems,
procedures and controls will be adequate to support our operations as they
expand. Our failure to manage growth effectively, or our inability to
recruit, maintain and integrate additional qualified employees, could have
a material adverse effect on our business and results of operations. In
addition, due to our rapid growth and recent acquisitions, our historical
growth rates are not likely to accurately reflect our future growth rates
or our growth potential. We cannot assure you that our future revenues will
increase or that we will continue to be profitable.
POOR ECONOMIC CONDITIONS AFFECTING THE MORTGAGE INDUSTRY COULD REDUCE THE
DEMAND FOR MORTGAGES
Demand for mortgages will be adversely affected by periods of
economic slowdown or recession which may be accompanied by rising interest
rates, decreasing demand for consumer credit, declining home sales,
declining real estate values and declining ability of borrowers to make
loan payments. Changes in the level of consumer confidence, real estate
values, prevailing interest rates and investment returns expected by the
financial community could make mortgage loans of the types originated by us
less attractive to borrowers or investors because, among other things, the
actual rates of delinquencies and foreclosures on those loans could be
higher under adverse economic conditions than those currently experienced
in the mortgage lending industry in general. A material decline in the
volume of sales of residential real estate could also have a material
adverse effect on our business and results of operations. While demand for
mortgages in the U.S. increased approximately 80% from 1997 to 1998,
industry analysts have reported their expectation that demand for mortgages
in 1999 will decrease from 1998 levels.
Rising interest rates, which typically accompany an economic
slowdown, may also adversely affect demand for refinancings. Since January
1995, significant declines in interest rates have produced significant
levels of refinance activity, in general, and for us in particular. If
interest rates stabilize or rise even moderately, our refinance loan
origination volume is likely to be adversely affected. We estimate that
during the year ended December 31, 1998, approximately 54% of our of
mortgage loan origination volume were refinancings of first mortgage loans.
THE LOSS OF KEY PURCHASERS OF OUR LOANS OR SERVICING RIGHTS OR A REDUCTION
IN PRICES PAID COULD ADVERSELY AFFECT OUR ABILITY TO PROFITABLY SELL OUR
LOANS AND SERVICING RIGHTS
We currently sell substantially all of the loans we fund to
independent whole loan or bulk loan buyers and sell the accompanying
servicing rights to approved servicers. The premium income generated from
these sales represents a primary source of our revenues and earnings.
Further, we are dependent on the cash generated from sales of mortgages and
servicing rights to fund our future loan closings and repay borrowings
under our credit facilities. In 1998, we sold over 60% of the loans funded
by our mortgage bank to two large, national companies, one of which
directly competes with us for retail originations. In addition, in 1998, we
sold over 65% of our servicing rights to the same company that is a
competitor of ours and buys a substantial portion of our loans. In the
event that any purchasers of a significant amount of loans and/or servicing
rights (1) ceases to buy our loans and/or servicing rights and equivalent
purchasers could not be identified on a timely basis, (2) lowers the price
it pays to us or (3) adversely changes the material terms by which it
currently makes purchases, our business and results of operations would be
materially adversely affected.
The prices for which we are able to sell our loans vary from time to
time and may be materially adversely affected by several factors,
including, without limitation, the following:
o any reduction in the number of potential buyers of our loans;
o any increase in the amount of similar loans available for sale;
o increased prepayments of, or defaults under, loans in general;
o the types and volume of loans being sold by us;
o the level and volatility of interest rates; and
o the quality of loans previously sold by us.
The prices for which we are able to sell our mortgage servicing
rights vary from time to time and may be materially adversely affected by a
number of factors, including the general supply of and demand for mortgage
servicing rights and changes in interest rates. Servicing rights for a
particular loan category originated with higher interest rates tend to have
a lower value than those originated with comparatively lower interest rates.
A reduction in the size of the secondary market for the types of
loans funded by us may adversely affect our ability to sell loans and
servicing rights in the secondary market, and accordingly adversely impact
our profitability and ability to fund future loan closings. Any decrease in
the prices paid to us upon the sale of our loans or servicing rights could
materially adversely affect our business and results of operations.
IF WE ARE UNABLE TO MAINTAIN ADEQUATE CREDIT FACILITIES OR ACCESS TO FUNDS,
OUR ABILITY TO MAKE LOANS WILL BE LIMITED
We fund substantially all of our loans through borrowings under our
credit facilities and through repurchase agreements and, to a lesser
extent, through internally generated funds. We repay borrowings under our
credit facilities with the proceeds received from sales of loans and
servicing rights. If we are unable to renew or replace our credit
facilities or repurchase agreements on adequate terms, are unable to comply
with the terms of our credit facilities or repurchase agreements, including
the financial and other covenants, or are unable to increase our credit
facilities or expand our repurchase agreements if required for future
growth, our business and results of operations could be materially
adversely affected. If we cannot successfully maintain our existing credit
facilities or replace them with comparable financing sources, we may be
required to curtail our loan origination activities, which would have a
material adverse effect on our business and results of operations. Our
principal credit facility provides us with a current aggregate borrowing
amount of $250.0 million, which amount may be increased to $400.0 million,
is renewable annually and expires on March 29, 2000.
THE PROFITABILITY OF OUR LOANS HELD FOR SALE COULD BE NEGATIVELY AFFECTED BY
AN INCREASE IN INTEREST RATES
The value of our loans is based, in part, on market interest rates,
and we may experience losses on loan sales if interest rates change rapidly
or unexpectedly. If interest rates rise after we fix a price for a loan but
before we sell the loan in the secondary market, the value of that loan
will decrease. If the amount we receive from originating and selling the
loan is less than our cost of borrowing to finance the loan, we could incur
net losses and our business and operating results could be adversely
affected. Although we typically know approximately how long we will keep a
loan after funding, there may be unexpected delays which could increase our
interest rate exposure. While we use various hedging strategies to provide
some protection against interest rate risks, no hedging strategy can
completely protect us. The nature and timing of hedging transactions may
influence the effectiveness of hedging strategies and poorly designed
strategies or improperly executed transactions may increase rather than
decrease risk and losses. In addition, hedging strategies involve
transaction and other costs. We cannot assure you that our hedging strategy
and the hedges that we make will adequately offset the risks of interest
rate volatility or that our hedges will not result in losses.
IF WE DO NOT PROPERLY EXECUTE OUR ACQUISITION STRATEGY, INCLUDING SUCCESSFULLY
INTEGRATING OUR ACQUIRED COMPANIES, OUR BUSINESS MAY SUFFER
A key element of our growth strategy is to expand our operations
through selective acquisitions of independent mortgage brokers and bankers.
Substantial competition exists for acquisition opportunities in the
mortgage industry. This competition could result in an increase in the
price of, and a decrease in the number of, attractive acquisition targets.
As a result we may not be able to successfully acquire attractive targets
on terms that we deem acceptable. In addition, we cannot assure you that we
will be able to obtain the additional financing we may need for our
acquisition program on terms that we deem acceptable. Acquisitions may also
involve a number of special risks, including adverse short-term effects on
our results of operations, dilution resulting from issuances of our common
stock, diversion of management's time, strain on our financial and
administrative infrastructure, difficulties in integrating acquired
businesses and personnel, loss of personnel and unanticipated legal
liabilities. We cannot assure you that we will be able to overcome these
acquisition risks or that they will not adversely affect our business and
results of operations.
IF WE LOSE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO REPLACE THEM WITH HIGHLY
EXPERIENCED PERSONNEL
Our future success depends to a significant extent on the continued
services of our senior management, particularly Bruce C. Abrams, Mark A.
Filler, Terry A. Markus, William D. Osenton and Martin E. Francis, our
Chairman and Chief Executive Officer, President, President of Prism
Illinois, President of Pacific Guarantee and President of Mortgage Market,
respectively. The loss of the services of Mr. Abrams, Mr. Filler, Mr.
Markus, Mr. Osenton, Mr. Francis or other key employees, could have a
material adverse effect on our business and results of operations. We do
not maintain "key person" life insurance for any of our personnel.
IF WE CANNOT ATTRACT OR RETAIN QUALIFIED LOAN ORIGINATORS, OUR ABILITY TO
MAINTAIN AND INCREASE OUR ORIGINATION VOLUME WILL BE ADVERSELY AFFECTED
We depend on our loan originators to generate customers by, among
other things, developing relationships with consumers, real estate agents
and brokers, builders, corporations and others, leading to repeat and
referral business. Accordingly, we must be able to attract, motivate and
retain skilled loan originators. In addition, our growth strategy
contemplates hiring additional loan originators. The market for skilled
loan originators is highly competitive and historically has experienced a
high rate of turnover. Competition for qualified loan originators may lead
to increased costs for such loan originators. If we are unable to attract
or retain a sufficient number of skilled loan originators or even if we are
able to retain loan originators but our costs increase, our business and
results of operations could be adversely affected.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
We face competition in the business of originating and selling
mortgage loans. Low barriers to entry result in a steady stream of new
competitors entering the traditional mortgage market and the Internet
mortgage market. In addition, the nature of the mortgage industry is
changing as mortgage products are becoming more commodity-like in nature
due to, among other factors, price and visibility on the Internet. Mortgage
companies must be able to offer a broad range of attractively priced
products to remain competitive. We compete with a wide range of other
mortgage lenders, including:
o other mortgage banks;
o commercial banks, savings and loan associations;
o credit unions;
o insurance companies and other finance companies; and
o Internet mortgage web sites.
Many of these competitors or potential competitors are better
established, substantially larger and have more capital and other resources
than we do. If we expand into additional geographical markets, we will face
competition from consumer lenders with established positions in those
markets. In the future, we may also face competition from
government-sponsored entities, such as Fannie Mae and the Federal Home Loan
Mortgage Corporation. Competition may lower the rates we can charge
borrowers, thereby potentially lowering the amount of premium income on
future loan sales and sales of servicing rights. Increased competition may
also reduce the volume of our loan originations and loan sales. We cannot
assure you that we will be able to compete successfully in this evolving
market.
IF WE ARE UNABLE TO IMPLEMENT OUR INTERNET STRATEGY SUCCESSFULLY, OUR
ABILITY TO GROW OUR OVERALL ORIGINATION VOLUME MAY BE NEGATIVELY AFFECTED
A portion of our growth is dependent on our ability to originate
loans on the Internet. Our Internet success will depend, in part, on the
development and maintenance of the Internet's infrastructure and consumer
acceptance of it as a distribution channel for mortgages. There can be no
assurance that consumers will increase their use of the Internet for
obtaining mortgage loans. In order to grow our loan volume on the Internet,
we are dependent on relationships with operators of Internet mortgage web
sites to capture some of the on-line mortgage growth. However, our ability
to significantly increase the number of loans we originate over the
Internet and to continue to originate loans profitably through the Internet
remains uncertain. In addition, many of our agreements with Internet
mortgage web sites can be terminated with notice by either party. Our
business and results of operations may be materially, adversely affected by
the termination of these agreements.
CHANGES IN EXISTING GOVERNMENT SPONSORED AND FEDERAL MORTGAGE PROGRAMS
COULD MAKE SELLING OUR LOANS IN THE SECONDARY MARKET MORE DIFFICULT
Our ability to generate revenue through the sale of mortgages is
largely dependent upon the continuation of programs administered by Fannie
Mae, the Federal Home Loan Mortgage Corporation and others which facilitate
the issuance of mortgage-backed securities. A portion of our business is
also dependent upon the continuation of various programs administered by
the Federal Housing Administration and the Veterans Administration. Any
discontinuation of, or significant reduction in, the operation of those
programs could have a material adverse effect on our business and results
of operations.
OUR NON-PRIME MORTGAGE BUSINESS SUBJECTS US TO GREATER RISKS THAN OUR PRIME
BUSINESS
Lenders in the non-prime mortgage banking industry make loans to
borrowers who have impaired or limited credit histories or higher
debt-to-income ratios than traditional mortgage lenders allow. For the year
ended December 31, 1998, only approximately 3% of the dollar amount and 5%
of the total number of our loans originated were categorized as non-prime.
However, our dependence on this class of borrowers, and exposure to the
greater risks inherent to non-prime mortgage loans, may increase if we
determine to increase our focus on these loan programs. The non-prime
mortgage banking industry is a riskier business than the conforming
mortgage business because product offerings for non-prime mortgages
frequently change which may make selling a non-prime loan in the secondary
market more difficult. If non-prime lending becomes a more significant part
of our business, our failure to adequately address these and other related
risks could have a material adverse effect on our business and results of
operations.
WE MAY BE REQUIRED TO RETURN PROCEEDS OBTAINED FROM THE SALE OF LOANS
When we sell a loan to an investor, we are required to make
unqualified representations and warranties regarding the loan, the borrower
and the property. These representations are made based in part on our due
diligence and information provided to us by borrowers and others. If any of
these representations or warranties are later determined not to be true, we
may be required to repurchase the loan from the investor or indemnify the
investor for any damages caused by the breach of such representation or
warranty. In connection with some non-prime loan sales, we may be required
to return a portion of the premium paid by the investor for the loan if the
loan is prepaid within the first year after its sale. If, to any
significant extent, we are required to repurchase loans, indemnify
investors or return loan premiums, it could have a material adverse effect
on our business and results of operations.
BECAUSE OUR ORIGINATION VOLUME IS GEOGRAPHICALLY CONCENTRATED, OUR BUSINESS
MAY BE ADVERSELY AFFECTED BY DEVELOPMENTS IN INDIVIDUAL MARKETS
In 1998, approximately 39%, 28% and 21% of our mortgage loan
originations, as measured by principal balances, were secured by property
located in California, Illinois and the Pacific Northwest, respectively,
after giving effect to our 1998 acquisitions for the entire year. Should
these states or their surrounding regions experience adverse economic,
political or business developments or suffer natural disasters, our ability
to originate loans would be reduced, and the rates of delinquency and
foreclosure on loans we originate would be higher, than if we had greater
geographic diversification. Moreover, if any of these states' or if the
region's real estate markets should experience an overall decline in
property values, the rates of delinquency, foreclosures, bankruptcies and
losses on the loans we originate may be expected to increase substantially,
which could negatively affect our ability to originate loans or to sell our
loans and servicing rights. Unless and until we achieve greater geographic
diversification, any disproportionate economic downturn in these areas
could have a material adverse effect on our business and results of
operations.
WE MAY NOT ATTAIN ANALYSTS' AND INVESTORS' EXPECTATIONS DUE TO ADVERSE FACTORS
Our quarterly revenues and net earnings have fluctuated in the past
and are expected to fluctuate in the future as a result of a number of
factors, including the following:
o size and timing of sales of loans and servicing rights, as a
delay in a loan sale from one quarter to the subsequent quarter
may lower revenues in the quarter from which the sale was
delayed;
o size and timing of acquisitions and internal expansion, as the
timing will impact the future amount of revenues, goodwill and
other expenses recorded by us;
o the volatility of interest rates, as volatile interest rates
could impact our ability to profitably originate and sell
loans, particularly if our hedging strategy is ineffective;
o the level of interest rates, as origination volume, particularly
with respect to refinancings, is interest rate sensitive;
o the relative volume of mortgage loan originations, as a
decrease in the relative volume of originations from one
quarter compared to a subsequent quarter could negatively
affect the revenues in the quarter with the lower origination
volume;
o our ability to offer competitive rates, as our failure to offer
competitive rates may lower our origination volume for a
particular quarter; and
o changes in market rates for origination and processing fees, as
a decrease in these fees would lower our quarterly revenue from
these sources.
In addition, a delay in closing a sale of loans or servicing rights
would postpone recognition of premium income on these sales to a subsequent
quarter. Unanticipated delays in closing a sale of loans or servicing
rights could also increase our exposure to interest rate fluctuations by
lengthening the period during which our variable rate borrowings under our
credit facilities are outstanding. If we are unable to profitably sell a
sufficient number of loans or servicing rights in a particular reporting
period, our revenues for that period would decline. As a result, we could
report lower net earnings or a loss reported for that period. Our quarterly
earnings will also be affected by:
o the timing of acquisitions and the recognition of costs associated
with those acquisitions;
o the generally lower initial profitability of newly opened branches
compared to mature branches; and
o the success of our hedging strategy.
These factors, among others, make it possible that in some future
quarter our results of operations may be below the expectations of
securities analysts and investors, which could have a material adverse
effect on the price of our common stock.
OUR DEPENDENCE ON INFORMATION SYSTEMS MAY RESULT IN COMPUTER PROBLEMS CAUSED
BY THE YEAR 2000
Our business is highly dependent on communications and information
systems. Any failure or interruption of our systems or third party systems
on which we rely could cause underwriting or other delays. Such failures or
interruptions may result from the inability of computing systems to
recognize the year 2000. We cannot assure you that these year 2000 issues
have been or will be adequately addressed by us or the third parties on
which we rely, or that any such failures or interruptions will not occur.
The occurrence of any failures or interruptions could have a materially
adverse effect on our business and results of operations.
MORTGAGE BROKERAGE REGULATIONS OR OTHER GOVERNMENT REGULATIONS COULD
ADVERSELY AFFECT THE METHOD BY WHICH WE CONDUCT OUR BUSINESS OR REDUCE THE
NUMBER OF LOANS WE ORIGINATE
Most states have laws and regulations governing the registration or
licensing and conduct of persons providing mortgage brokerage services.
Such laws and regulations also typically require certain consumer
protection disclosures and compliance with loan solicitation procedures and
a variety of other practices, throughout the various stages of the mortgage
solicitation, application and approval process.
In addition to state law, mortgage brokerage services are heavily
regulated by federal law. For example, the Real Estate Settlement
Procedures Act, prohibits the payment and receipt of mortgage loan referral
fees. The act, however, does permit persons to be compensated for the fair
market value of non-referral services actually rendered.
Failure to comply with these requirements can lead to civil and/or
criminal liability, loss of approved status, demands for indemnification or
loan repurchases from buyers in the secondary market, rights of rescission
for mortgage loans, class action lawsuits and administrative and
enforcement actions.
In addition, members of Congress, government officials and political
candidates from time to time have suggested the elimination of or further
limitation on the mortgage interest deduction for federal income tax
purposes based on borrower income, type of loan or principal amount. Some
of our loans are made to borrowers for the purpose of consolidating
consumer debt or financing other consumer needs. The competitive advantages
of tax deductible interest, when compared with alternative sources of
financing, could be eliminated or seriously impaired by this government
action.
Although we believe that we are currently in compliance in all
material respects with applicable federal, state and local laws, rules and
regulations, we cannot assure you that we are, or will be, in full
compliance with current laws, rules and regulations; that more restrictive
laws, rules and regulations will not be adopted or promulgated; that
existing laws and regulations will not be interpreted in a more restrictive
manner, which could make compliance substantially more difficult or
expensive; or that new laws reducing or eliminating some of the benefits of
purchasing a mortgage will not be enacted. If we are unable to comply with
those laws or regulations or if new laws limit or eliminate some of the
benefits of purchasing a mortgage, our business and results of operations
may be materially adversely affected.
IF IN THE FUTURE WE DECIDE TO SECURITIZE AND/OR RETAIN THE SERVICING RIGHTS
OF OUR LOANS, WE WOULD BE SUBJECT TO ADDITIONAL RISKS THAT WE DO NOT
CURRENTLY FACE
We currently do not securitize the loans that we originate, but
rather sell them to the secondary market. However, in the future if the
prices offered in the secondary market for our loans are significantly
lower than what we could receive through securitization, we would consider
securitizing our loans. If we began securitizing our loans, we would be
subject to numerous additional risks, including:
o decreased operating cash flow;
o conditions in the general securities and securitization markets;
o the need to obtain satisfactory credit enhancements;
o the potential of having to write down the value of retained
residual interests as a result of inaccurate projections
regarding the fair value of the residual interest; and
o increased potential for earnings fluctuations.
Except during the short period of time before a loan is sold, we also do
not retain the servicing rights to the loans we originate. We sell the
servicing rights at the same time we sell the loan. However, we would
consider retaining the servicing rights to our loans if we believed that
their value was significantly greater than secondary market buyers were
then willing to pay. If we started retaining the servicing rights to our
loans, we would be subject to numerous additional risks, including:
o decreased operating cash flow; and
o the potential of having to write down the value of the
servicing rights through a charge to earnings, particularly as
a result of changing interest rates and alternative financing
options which lead to increased prepayments.
If we determined to securitize and/or retain the servicing rights to our
loans, and we did not adequately address the above mentioned and other
related risks, they could have a material adverse effect on our business
and results of operations.
PENDING INDUSTRY-WIDE LITIGATION COULD CHANGE THE MANNER IN WHICH WE DO
BUSINESS AND SUBJECT US TO POTENTIAL LIABILITY
Numerous lawsuits seeking class certification have been filed against
mortgage lenders alleging that a type of direct and indirect payments to
mortgage brokers by those lenders violate the Real Estate Settlement
Procedures Act. These lawsuits have generally been filed on behalf of a
purported nationwide class of borrowers and allege that various forms of
direct and indirect payments to mortgage brokers are referral fees or
unearned fees prohibited under RESPA, or that consumers were not informed
of the brokers' compensation, in violation of law. Several federal district
courts construing RESPA in these cases have reached conflicting results. In
the only appellate decision addressing the issue to date, the United States
Court of Appeals for the Eleventh Circuit in Culpepper v. Inland Mortgage
Corporation reversed the lower court's summary judgment in favor of the
lender defendant on the grounds that the lender had failed to establish
that the indirect payment in the form of a "yield spread premium" made to a
broker in a particular transaction was not a referral fee prohibited by
RESPA. The case was remanded to the district court for further proceedings.
The Department of Housing and Urban Development, acting upon Congress'
direction, issued a policy statement in January 1999 setting forth its
position that the legality of lender payments to mortgage brokers depends
on a case-by-case analysis that takes into consideration all direct and
indirect compensation received by the mortgage broker to determine whether
(1) goods or facilities have been actually furnished or services performed
for the compensation paid, and (2) the compensation is reasonably related
to the value of the goods or facilities actually furnished or services
actually performed.
We receive various forms of direct and indirect payments from lenders
for loans we broker. If the pending cases on lender payments to brokers are
ultimately resolved against the lenders, it may cause an industry-wide
change in the way independent mortgage brokers are compensated. In
addition, future legislation, regulatory interpretations or judicial
decisions may require us to change our broker compensation programs or
subject us to material monetary judgments or other penalties. Any changes
or penalties may have a material adverse effect on our business and results
of operations.
YOU MAY NOT BE ABLE TO TRADE OUR COMMON STOCK IF AN ACTIVE TRADING MARKET IS
NOT SUSTAINED
We cannot assure you that an active public market for our common
stock will be sustained now that we are a public company or that the market
price of our common stock will not decline.
THE VALUE OF YOUR INVESTMENT MAY BE SUBJECT TO SUDDEN DECREASES DUE TO THE
POTENTIAL VOLATILITY OF THE PRICE FOR OUR COMMON STOCK
The market price of our common stock may be highly volatile and
subject to wide fluctuations in response to numerous factors, including the
following:
o actual or anticipated fluctuations in our operating results;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts
and investors;
o the operating and stock performance of our competitors;
o announcements by us or our competitors of new products or
services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o changes in interest rates;
o additions or departures of key personnel; and
o future sales of our common stock.
In addition, the stock markets from time to time experience extreme
price and volume fluctuations that may be unrelated or disproportionate to
the operating performance of companies. These broad fluctuations may
adversely affect the trading price of our common stock, regardless of our
actual operating performance.
In the past, stockholders have often brought securities class action
litigation against a company following periods of volatility in the market
price of their securities. We may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and
divert management's attention and resources.
OUR OFFICERS ELECT ALL OF OUR DIRECTORS AND CONTROL STOCKHOLDER VOTES; YOUR
INTERESTS MAY NOT BE THE SAME AS THOSE OF OUR OFFICERS
Our officers and directors beneficially own approximately 67% of our
outstanding common stock. These persons will own approximately 65% if the
underwriters' over-allotment option, which is exercisable until June 23,
1999, is exercised in full. As a result, if acting together, these
stockholders will have the ability to control the outcome to all matters
requiring stockholder approval including:
o the election and removal of directors;
o amendments to our charter; and
o any merger, sale of all or substantially all of our assets or
other major corporate transactions.
Such control could discourage others from initiating potential
merger, takeover or other change of control transactions. As a result, the
market price of our common stock could be adversely affected.
POSSIBLE FUTURE SALES OF OUR COMMON STOCK BY OUR OFFICERS AND OTHERS COULD
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECREASE AND MAKE EQUITY
CAPITAL RAISING MORE DIFFICULT
Sales of significant amounts of our common stock or the perception
that such sales will occur could adversely affect the market price of our
common stock or our future ability to raise capital through an offering of
equity securities. We currently have outstanding 14,625,171 shares of
Common Stock of which the 2,500,000 shares of Common Stock sold in our
initial public offering are freely tradable without restriction or further
registration under the federal securities laws unless they were purchased
by our "affiliates" within the meaning of Rule 144 under the Securities
Act. The 12,125,171 remaining shares of outstanding Common Stock,
representing approximately 83% of the outstanding Common Stock upon
completion of our initial public offering, are "restricted securities"
under the Securities Act, subject to restrictions on the timing, manner and
volume of sales of those shares.
Our directors, officers and all of our current stockholders
immediately prior to our initial public offering have agreed for a period
ending on November 21, 1999, that they will not, without the prior written
consent of William Blair & Company, L.L.C., directly or indirectly, offer
to sell, sell or otherwise dispose of any shares of our Common Stock, other
than shares acquired in our initial public offering. Subject to the
preceding lock-up agreements, holders of up to 11,944,218 shares of Common
Stock will have the right to request the registration of their shares under
the Securities Act. Upon the effectiveness of that registration, all shares
covered by that registration statement will be freely transferable. The
registration statement on Form S-8 under the Securities Act of which this
Reoffer Prospectus forms a part, covers approximately 2.4 million shares of
Common Stock reserved for issuance under the Plans. Accordingly, subject to
applicable vesting requirements and exercise with respect to options,
shares registered under this registration statement will be available for
sale in the open market immediately after the lock-up agreements expire on
November 21, 1999.
OUR ABILITY TO MEET OUR PAYMENT OBLIGATIONS IS DEPENDENT UPON DISTRIBUTIONS
FROM OUR SUBSIDIARIES, BUT OUR SUBSIDIARIES' ABILITY TO MAKE DISTRIBUTIONS
IS LIMITED BY LAW AND SEVERAL CONTRACTUAL AGREEMENTS
Prism Financial is a holding company, the principal assets of which
is the shares of the capital stock of Prism Mortgage. As a holding company
without independent means of generating operating revenue, Prism Financial
will depend on dividends and other payments from Prism Mortgage to fund its
obligations and meet its cash needs. Prism Financial's expenses may include
salaries of its executive officers, insurance, professional fees and
service of indebtedness that may be outstanding from time to time.
Financial covenants under existing or future loan agreements of Prism
Mortgage or its subsidiaries, or provisions of the laws of the states where
Prism Mortgage or its subsidiaries are organized, may limit Prism
Mortgage's ability to make sufficient dividend or other payments to permit
Prism Financial to fund its obligations or meet its cash needs, in whole or
in part. By virtue of Prism Financial's holding company status, its common
stock will be structurally junior in right of payment to all existing and
future liabilities of Prism Mortgage and its subsidiaries.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OUR STOCKHOLDERS FROM
OBTAINING A CHANGE OF CONTROL PREMIUM FOR THEIR SHARES OF OUR COMMON STOCK
Our amended and restated certificate of incorporation and amended and
restated bylaws and Delaware law contain anti-takeover provisions that
could have the effect of delaying or preventing changes in control that a
stockholder may consider favorable. The provisions in our charter documents
include the following:
o a classified board of directors pursuant to which our directors
are divided into three classes, with three-year staggered terms;
o the ability of our board of directors to issue shares of
preferred stock and to determine the price and other terms,
including preferences and voting rights, of those shares
without stockholder approval;
o stockholder action to be taken only at a special or regular
meeting; and
o advance notice procedures for nominating candidates to our board
of directors.
The foregoing provisions could have the effect of delaying, deferring
or preventing a change in control of Prism Financial; discourage bids for
our common stock at a premium over the market price; or adversely affect
the market price of, and the voting and other rights of the holders of, our
common stock. We are subject to certain Delaware laws that could have
similar effects. One of these laws prohibits us from engaging in a business
combination with any interested stockholder for a period of three years
from the date the person became an interested stockholder unless certain
conditions are met.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements deal with our current plans,
intentions, beliefs and expectations and statements of future economic
performance. Statements containing terms like "believes," "does not
believe," "plans," "expects," "intends," "estimates," "anticipates," and
other phrases of similar meaning are considered to imply uncertainty and
are forward- looking statements.
Forward-looking statements involve known and unknown risks and
uncertainties which may cause our actual results in future periods to
differ materially from what is currently anticipated. We make cautionary
statements throughout this prospectus, including under "Risk Factors." You
should read these cautionary statements as being applicable to all related
forward-looking statements wherever they appear in:
o this prospectus;
o the materials referred to in this prospectus;
o the materials incorporated by reference into this prospectus; and
o our press releases.
We cannot guarantee our future results, levels of activity,
performance or achievements. Neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the
date of this prospectus.
USE OF PROCEEDS
Prism Financial will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
SELLING STOCKHOLDERS
The shares of Common Stock of Prism Financial to which this Reoffer
Prospectus relates are being registered for reoffers and resales by the
Selling Stockholders, who acquired or will acquire the shares of Common
Stock pursuant to the Plans as employees of Prism Financial. The Selling
Stockholders may resell all, a portion or none of such shares of Common
Stock from time to time. The table below sets forth with respect to each
Selling Stockholder, based upon information available to us as of May 31,
1999, the number of shares of Common Stock owned, the number of Shares
registered by this Reoffer Prospectus and the number and percent of
outstanding shares of Common Stock that will be owned after the sale of the
registered shares of Common Stock assuming the sale of all of the
registered shares of Common Stock. The persons listed in the table are
employees of Prism Financial or independent contractors who provide
services to Prism Financial.
Number of Shares Owned
Shares Shares After the Offering
Selling Stockholders Owned (1) Registered (1) Number Percent
- -------------------- --------- -------------- ------ -------
Robert Siefert 62,530 17,638 44,892 *
Carol Asnault 12,999 12,999 0 *
Carole Lombard 14,769 14,769 0 *
Susan Moore 6,404 6,404 0 *
Michael Hillman 11,494 11,494 0 *
Aaron Mann 18,374 18,374 0 *
Flora Merigian 4,240 4,240 0 *
Jim Boyer 10,573 10,573 0 *
John Hoffman 4,880 4,880 0 *
Diane Meridith 2,573 2,573 0 *
Bahar Erler 6,198 6,198 0 *
Genevie Krieger 4,856 4,856 0 *
Kelley Hogan 3,038 3,038 0 *
Ken Williamson 4,547 4,547 0 *
Tom Roberts 2,392 2,392 0 *
Jim Lowenstein 2,436 2,436 0 *
Blake Rice 8,923 8,923 0 *
Anette Holterhoff 8,923 8,923 0 *
Timm Ready 8,923 8,923 0 *
Laurie Hansen 8,923 8,923 0 *
Tom Hestmark 8,923 8,923 0 *
Marie Bentley 8,923 8,923 0 *
* = less than one percent.
(1)Includes shares of our Common Stock issuable to the Selling Stockholders
under the Plans, whether or not exercisable as of, or within sixty days
of, the date of this Reoffer Prospectus.
The information provided in the table above with respect to the
Selling Stockholders has been obtained from such Selling Stockholders.
Except as otherwise disclosed above or in documents incorporated herein by
reference, the Selling Stockholders have not within the past three years
had any position, office or other material relationship with our company.
Because the Selling Stockholders may sell all or some portion of the shares
of Common Stock beneficially owned by them, only an estimate (assuming the
Selling Stockholder sells all of the shares offered hereby) can be given as
to the number of shares of Common Stock that will be beneficially owned by
the Selling Stockholders after this offering. In addition, the Selling
Stockholders may have sold, transferred or otherwise disposed of, or may
sell, transfer or otherwise dispose of, at any time or from time to time
since the dates on which they provided the information regarding the shares
of Common Stock beneficially owned by them, all or a portion of the shares
of Common Stock beneficially owned by them in transactions exempt from the
registration requirements of the Securities Act.
PLAN OF DISTRIBUTION
Each Selling Stockholder may sell his or her shares of Common Stock
for value from time to time under this Reoffer Prospectus in one or more
transactions on Nasdaq, in negotiated transactions or in a combination of
such methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at prices otherwise
negotiated. The Selling Stockholders may effect such transactions by
selling the shares of Common Stock to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or
the purchasers of the shares of Common Stock for whom such broker-dealers
may act as agent (which compensation may be less than or in excess of
customary commissions).
Each Selling Stockholder and any broker-dealers that participate in
the distribution of the shares of Common Stock may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act,
and any commissions received by them and any profit on the resale of the
Shares sold by them may be deemed to be underwriting discounts and
commissions under the Securities Act. All selling and other expenses
incurred by the Selling Stockholders will be borne by the Selling
Stockholders.
In addition to any shares of Common Stock sold hereunder, the Selling
Stockholders may, at the same time, sell any shares of Common Stock,
including the shares of Common Stock owned by them in compliance with all
of the requirements of Rule 144, regardless of whether such shares are
covered by this Reoffer Prospectus.
There is no assurance that the Selling Stockholders will sell all or
any portion of the shares of Common Stock offered.
We will pay all expenses in connection with this offering and will
not receive any proceeds from sales of any shares of Common Stock by the
Selling Stockholders.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for Prism Financial by Skadden, Arps, Slate, Meagher & Flom
(Illinois).
EXPERTS
The consolidated financial statements of Prism Financial and its
subsidiaries as of December 31, 1998 and for the year then ended
incorporated by reference in this prospectus from Prism Financial's
Registration Statement No. 333-74883 on Form S-1 have been so incorporated
by reference in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, which such report is incorporated by reference,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Prism Financial and its
subsidiaries as of December 31, 1997 and each of the years in the two-year
period ended December 31, 1997 incorporated by reference in this prospectus
from Prism Financial's Registration Statement No. 333-74883 on Form S-1
have been audited by McGladrey & Pullen, LLP, independent auditors, as
stated in their report incorporated by reference into this prospectus and
have been so incorporated by reference in reliance upon the report of that
firm given upon their authority as experts in accounting and auditing.
The financial statements of Mortgage Market as of December 31, 1997
and for the year then ended incorporated by reference in this prospectus
from Prism Financial's Registration Statement No. 333-74883 on Form S-1
have been audited by Stefani & Matthews, L.L.P., independent auditors, as
stated in their report incorporated by reference into this prospectus and
have been so incorporated by reference in reliance upon the report of that
firm given upon their authority as experts in accounting and auditing.
The financial statements of Pacific Guarantee as of December 31, 1997
and for the year then ended incorporated by reference in this prospectus
from Prism Financial's Registration Statement No. 333-74883 on Form S-1
have been audited by Clay L. Miller, certified public accountant,
independent auditor, as stated in his report incorporated by reference into
this prospectus and have been so incorporated by reference in reliance upon
his report given upon his authority as an expert in accounting and
auditing.
The financial statements of Pacific Guarantee as of December 31, 1996
and for the year then ended incorporated by reference in this prospectus
from Prism Financial's Registration Statement No. 333-74883 on Form S-1
have been audited by William M. Stoll, certified public accountant,
independent auditor, as stated in his report incorporated by reference into
this prospectus and have been so incorporated by reference in reliance upon
his report given upon his authority as an expert in accounting and
auditing.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
The following documents filed with the Securities and Exchange
Commission (the "Commission") by the registrant, Prism Financial
Corporation, a Delaware corporation ("Prism Financial"), pursuant to the
Exchange Act, are incorporated by reference in this registration statement:
(1) Prism Financial's prospectus filed with the Commission under Rule
424(b) under the Securities Act, in connection with Registration Statement
No. 333-74883 filed with the Commission on March 23, 1999, as amended by
filings on April 1, 1999, April 29, 1999, May 14, 1999, May 19, 1999, and
May 21,1999.
(2) The description of Prism Financial's outstanding Common Stock
contained in Prism Financial's Registration Statement on Form 8-A filed
with the Commission on May 19, 1999, under Section 12 of the Exchange Act,
including any amendment or report filed to
update the description.
All documents subsequently filed by Prism Financial pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the
filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes
of this registration statement to the extent that a statement contained
herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this registration statement.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of Delaware Law authorizes a court to award or a
corporation's board of directors to grant indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
some circumstances for liabilities arising under the Securities Act and to
provide for the reimbursement of expenses incurred.
As permitted by the Delaware Law, Article VIII of our Amended Bylaws
provides that (1) we are required to indemnify our directors and officers
to the fullest extent permitted by the Delaware Law, subject to very
limited exceptions; (2) we are permitted to indemnify our other employees
to the extent that we indemnify our officers and directors, unless
otherwise required by law, our Amended Certificate, our Amended Bylaws or
agreements; (3) we are required to advance expenses, as incurred, to our
directors and officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware Law, subject to very limited exceptions;
and (4) the rights conferred in the Amended Bylaws are not exclusive. As
permitted by the Delaware Law, our Amended Certificate includes a provision
that eliminates the personal liability of our directors for monetary
damages for breach of fiduciary duty as a director, except for liability
(1) for any breach of the director's duty of loyalty to us or our
stockholders; (2) for acts of omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) under Section 174
of the Delaware Law (regarding payments of dividends; stock purchases or
redemptions which are unlawful) or (4) for any transaction from which the
director derived an improper personal benefit. This provision in the
Amended Certificate does not eliminate the directors' fiduciary duty, and
in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware Law. In
addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to us for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director and for
payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware Law. The provision also does not affect a
director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
Under Article VIII, Section 8, of our Amended Bylaws, we are
authorized to, and have purchased, insurance covering our directors and
officers against liability asserted against them in their capacity as
officers or directors. In addition, we have entered into indemnification
agreements with our directors, pursuant to which, under certain
circumstances, we are required to indemnify and advance expenses to such
director.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
The securities that are to be reoffered or resold pursuant to this
registration statement were issued to employees of Prism Financial pursuant
to employee benefit plans maintained by Prism Financial in transactions
that were exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereto and/or Rule 701 thereunder.
ITEM 8. EXHIBITS.
A list of exhibits is set forth on the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
ITEM 9. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(2) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(3) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1) and (a)(2) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by Prism Financial pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the registration
statement.
(b) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be
deemed to be the initial bona fide
offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(d) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) Request for Acceleration of Effective Date or Filing of
Registration Statement on Form S-8. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in
the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-8 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on this 28th day of June, 1999.
PRISM FINANCIAL CORPORATION
(Registrant)
By: /s/ David A. Fisher
-------------------------------
David A. Fisher
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bruce C. Abrams, Mark A. Filler and
David A. Fisher, and each of them, his true and lawful attorney-in-fact and
agents with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney
may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on this 28th day of June 1999.
NAME TITLE DATE
/s/ Bruce C. Abrams Chairman and Chief June 28, 1999
------------------- Executive Officer
Bruce C. Abrams (Principal Executive
Officer)
/s/ David A. Fisher Chief Financial Officer June 28, 1999
---------------------- and Senior Vice President
David A. Fisher (Principal Financial Officer)
/s/ James P. Hayes Controller (Principal June 28, 1999
---------------------- Accounting Officer)
James P. Hayes
/s/ Mark A. Filler Director June 28, 1999
----------------------
Mark A. Filler
/s/ Terry A. Markus Director June 28, 1999
----------------------
Terry A. Markus
/s/ Andrew S. Hochberg Director June 28, 1999
----------------------
Andrew S. Hochberg
/s/ Michael P. Krasny Director June 28, 1999
----------------------
Michael P. Krasny
/s/ Penny S. Pritzker Director June 28, 1999
----------------------
Penny S. Pritzker
/s/ Richard L. Wellek Director June 28, 1999
-----------------------
Richard L. Wellek
EXHIBIT INDEX
Exhibit No. Description of Exhibit
4.1 Form of certificate representing shares of Common Stock
(incorporated by reference to the Company's
Registration Statement on Form S-1 (Registration No.
333-74883)).
5 Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois).
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).
24 Power of Attorney (included on the signature page
hereto).
99.1 Form of 1999 Omnibus Stock Incentive Plan (incorporated
by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333- 74883)).
99.2 Prism Equity Value Plan, effective as of August 31,
1998, by Prism Mortgage Company and by personnel of
Pacific Guarantee Mortgage Corporation (incorporated by
reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-74883)).
99.3 Prism Financial Corporation Amended and Restated 1999
Employee Stock Purchase Plan.
June 29, 1999
Prism Financial Corporation
440 N. Orleans
Chicago, IL 60610
Re: Registration Statement on Form S-8
of Prism Financial Corporation
Ladies and Gentlemen:
We have acted as special counsel to Prism Financial Corporation,
a Delaware corporation (the "Company"), in connection with the preparation
of a Registration Statement on Form S-8, which is being filed by the
Company with the Securities and Exchange Commission (the "Commission") on
the date hereof (the "Registration Statement") under the Securities Act of
1933, as amended (the "Act"), relating to the registration of 2,430,953
shares (the "Shares") of common stock of the Company, par value $.01 per
share (the "Common Stock"). The Shares include (i) 180,953 shares of
Common Stock (the "Issued Shares") which have been issued pursuant to the
Pacific Guarantee Mortgage Equity Value Plan and the Mortgage Market Equity
Value Plan (collectively, the "Equity Value Plans") and (ii) 2,250,000
shares of Common Stock which are issuable upon the exercise of options or
rights to purchase Common Stock (the "Options") which have been or may be
granted under the Prism Financial Corporation 1999 Employee Stock Purchase
Plan and the Prism Financial Corporation 1999 Omnibus Stock Incentive Plan
(the "Option Plans" and, together with the Equity Value Plans, the
"Plans"). This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Act.
In our examination we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies.
As to any facts material to the opinion which we did not independently
establish or verify, we have relied upon statements and representations of
officers and other representatives of the Company and others. We assume
that the Company will have at the time of the issuance of any Shares under
the Option Plans at least that number of authorized but unissued shares of
Common Stock equal to the number of Shares to be issued pursuant to the
Option Plans.
In rendering the opinions set forth herein, we have examined and
relied on originals or copies of the following:
(a) the Registration Statement;
(b) the Plans;
(c) the Amended and Restated Certificate of Incorporation and the
Amended and Restated By-Laws of the Company, as presently in effect;
(d) a specimen certificate representing the Shares; and
(e) copies of certain resolutions of the Board of Directors of the
Company relating to the Plans, the Shares and related matters.
We express no opinion as to the laws of any jurisdiction other than
the General Corporation Law of the State of Delaware.
Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, it is our
opinion that (i) upon the issuance and sale of Shares upon the exercise of
the Options granted pursuant to the Option Plans and receipt by the Company
of the exercise price of such Options and, subject to the Company
completing all procedures required on its part to be taken prior to the
issuance of the Shares upon the exercise of the Options pursuant to the
terms of the Option Plans, the Shares to be issued upon the exercise of the
Options will be validly issued, fully paid and nonassessable; and (ii) the
Issued Shares are validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission
as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the heading "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are
included in the category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom (Illinois)
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated March 10, 1999, relating to the
financial statements of Prism Financial Corporation, included in Prism
Financial Corporation's Registration Statement on Form S-1 (No. 333-74883)
filed with the Commission on March 23, 1999, as amended from time to time.
We also consent to the reference to us under the heading "Experts".
/s/ PricewaterhouseCoopers LLP
------------------------------------
Chicago, IL
June 24, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8, pertaining to the Prism Financial Corporation 1999
Employee Stock Purchase Plan, Prism Financial Corporation 1999 Omnibus
Stock Incentive Plan, Pacific Guarantee Mortgage Equity Value Plan, and
Mortgage Market Equity Value Plan, of our report dated March 27,1998,
relating to the consolidated balance sheet of Prism Financial Corporation
and subsidiaries as of December 31, 1997, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for
each of the two years in the period then ended, included in Prism Financial
Corporation's Registration Statement on Form S-1 (No. 333-74883) filed with
the Commission on March 23, 1999, as amended from time to time, and to all
references to us included in this Registration Statement.
/s/ McGladrey & Pullen, LLP
------------------------------------
Schaumburg, Illinois
June 24, 1999
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
I hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of my report dated February 21, 1997 relating to the
financial statements of Pacific Guarantee Mortgage Corporation as of
December 31, 1996 and for the year then ended, included in Prism Financial
Corporation's Registration Statement on Form S-1 (no. 333-74883) filed with
the Commission on March 23, 1999, as amended from time to time, and to all
references to me included in this Registration Statement.
/s/ William M. Stoll
------------------------------------
William M. Stoll
Certified Public Accountant
Santa Rosa, California
June 24, 1999
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated April 3, 1998 relating to the
financial statements of Mortgage Market, Inc., included in Prism Financial
Corporation's Registration Statement on Form S-1 (no. 333-74883) filed with
the Commission on March 23, 1999, as amended from time to time, and to all
references to us included in this Registration Statement.
/s/ Stefani & Matthews, L.L.P.
------------------------------------
Stefani & Matthews, L.L.P.
Portland, Oregon
June 24, 1999
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANT
I hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of my report dated March 6, 1998 relating to the
financial statements of Pacific Guarantee Mortgage Corporation as of
December 31, 1997 and for the year then ended, included in Prism Financial
Corporation's Registration Statement on Form S-1 (no. 333-74883) filed with
the Commission on March 23, 1999, as amended from time to time, and to all
references to me included in this Registration Statement.
/s/ Clay L. Miller
------------------------------------
Clay L. Miller
Certified Public Accountant
Healdsburg, California
June 24, 1999
PRISM FINANCIAL CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
(As amended and restated effective June 29, 1999)
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Prism Financial Corporation 1999
Employee Stock Purchase 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
March 23, 1999. The purpose of the Plan is to provide Employees (defined
below) of the Company (defined below), its Parent (defined below) and any
Designated Subsidiary (defined below) with the opportunity to purchase
Common Stock (defined below) through accumulated payroll deductions. It is
the intention of the Company that the Plan qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code (defined
below), and that the provisions of the Plan be construed in a manner
consistent with the requirements of such Section of the Code.
For purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Administrator" means the Board, or if and to the
extent the Board does not administer the Plan, the Committee in accordance
with Section 12 below.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Change in Capitalization" shall mean any increase,
reduction, change or exchange of Shares for a different number of shares
and/or kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
issuance of warrants or rights, stock dividend, stock split or reverse
stock split, combination or exchange of Shares, repurchase of Shares,
change in corporate structure or otherwise.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor thereto.
(e) "Committee" shall mean a committee appointed by the
Board to administer the Plan and to perform the functions set forth herein.
(f) "Common Stock" shall mean the common stock, $0.01 par
value, of the Company.
(g) "Company" shall mean Prism Financial Corporation, a
Delaware corporation.
(h) "Compensation" shall mean the fixed salary or wage paid
by the Company to an Employee as reported by the Company to the United
States government for Federal income tax purposes, including an Employee's
portion of salary deferral contributions pursuant to Section 401(k) of the
Code and any amount excludable pursuant to Section 125 of the Code, but
excluding any payments for overtime, shift premium, incentive compensation,
bonuses, commissions (other than for full time loan originators), severance
pay, expense reimbursements or any credit or benefit under any employee
plan maintained by the Company.
(i) "Continuous Status as an Employee" shall mean the
absence of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted in the
case of a leave of absence agreed to in writing by the Company, its Parent
or a Designated Subsidiary, as appropriate, provided that (x) such leave is
for a period of not more than 90 days or (y) reemployment with the Company,
its Parent or a Designated Subsidiary, as appropriate, is guaranteed by
contract or statute upon expiration of such leave.
(j) "Designated Subsidiary" shall mean a Subsidiary that
has been designated by the Administrator from time to time in its sole
discretion as eligible to participate in the Plan.
(k) "Employee" shall mean any person who is customarily
employed for at least twenty (20) hours per week and more than five (5)
months in a calendar year by the Company, its Parent or a Designated
Subsidiary.
(l) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(m) "Fair Market Value" as of a particular date shall mean
the fair market value of the Shares as determined by the Administrator in
its sole discretion; provided, however, that (i) if the Shares are admitted
to trading on a national securities exchange, fair market value of the
Shares on any date shall be the average of the high and low sale prices
reported for the Shares on such exchange on such date or, if no sale was
reported on such date, on the last date preceding such date on which a sale
was reported, (ii) if the Shares are admitted to quotation on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") System or
other comparable quotation system and have been designated as a National
Market System ("NMS") security, fair market value of the Shares on any date
shall be the average of the high and low sale prices reported for the
Shares on such system on such date or, if no sale was reported on such
date, on the last date preceding such date on which a sale was reported, or
(iii) if the Shares are admitted to quotation on the Nasdaq System have not
been designated as an NMS security, fair market value of the Shares on any
date shall be the average of the highest bid and lowest asked prices of the
Shares on such system on such date or, if no bid and ask prices were
reported on such date, on the last date preceding such date on which both
bid and ask prices were reported.
(n) "Hardship" shall mean any of the following that the
Administrator determines is sufficient reason to approve a hardship
withdrawal or sale of Shares pursuant to Section 8(c) hereof: (i) expenses
directly relating to the purchase of a Participant's principal residence
(excluding mortgage payments); (ii) prevention of eviction or foreclosure
on a Participant's principal residence; (iii) tuition and related
educational expenses for the next twelve months for post-secondary
education for a Participant or a Participant's spouse or dependents; or
(iv) expenses incurred (prior to a Participant's requesting approval for
the relevant hardship withdrawal or sale of Shares) by the Participant, the
Participant's spouse or the Participant's dependents for medical care for
the Participant, the Participant's spouse or the Participant's dependents.
(o) "Investment Account" shall mean a Plan account at a
brokerage firm, selected by the Company, that is established for each
Participant and in which all Shares purchased by the Participant pursuant
to the Plan are held until withdrawn, sold or delivered pursuant to Section
7 hereof.
(p) "Offering Period" shall mean a period as described in
Section 3 hereof.
(q) "Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if,
at the time of the granting of an option, each of the corporations other
than the Company owns Shares possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain, whether or not such corporation now exists or
hereafter acquires the Company.
(r) "Participant" shall mean an Employee who elects to
participate in the Plan pursuant to Section 4 hereof.
(s) "Purchase Date" shall mean the last Trading Day of each
Offering Period.
(t) "Purchase Price" shall mean an amount equal to the
lesser of (i) 90% of the Fair Market Value of a Share on the Enrollment
Date or (ii) 90% of the Fair Market Value of Share on the Purchase Date.
(u) "Restricted Period" shall have the meaning given in
Section 8 hereof.
(v) "Share" shall mean a share of Common Stock.
(w) "Subsidiary" shall mean any corporation (other than the
Company) in an unbroken chain of corporations, beginning with the Company,
if, at the time of the granting of an option, 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 such chain, whether or not such
corporation now exists or is hereafter organized or acquired by the Company
or a Subsidiary.
(x) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
SECTION 2. ELIGIBILITY.
(a) Subject to the limitations set forth in Section 2(b)
hereof, any person who is an Employee as of an Enrollment Date shall be
eligible to participate in the Plan in accordance with Section 4 hereof and
shall be granted an option for the Offering Period commencing on such
Enrollment Date.
(b) Notwithstanding any provision of the Plan to the contrary,
no Employee shall be granted an option under the Plan (i) if such Employee
(or any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company, its Parent or of any Subsidiary, or (ii) if such grant would
permit such Employee's right to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company, its
Parent and of any Subsidiary to accrue at a rate that exceeds twenty-five
thousand dollars ($25,000) of Fair Market Value of such stock (determined
at the time such option is granted) for any calendar year in which such
option would be outstanding. Any amounts received from an Employee that
cannot be used to purchase Shares as a result of this limitation shall be
returned as soon as reasonably practicable to the Employee without
interest.
SECTION 3. OFFERING PERIODS.
The Plan shall be implemented by a series of consecutive six-
month Offering Periods, with a new Offering Period commencing on the first
Trading Day on or after February 1 and August 1 of each year, or at such
other time or times as may be determined by the Administrator, and ending
on the last Trading Day on or before January 31 and July 31, respectively,
or at such other time or times as may be determined by the Administrator.
The Plan shall continue until terminated in accordance with Section 18
hereof. Subject to Section 18 hereof, the Administrator shall have the
power to change the duration and/or the frequency of Offering Periods with
respect to future offerings and shall use its best efforts to notify
Employees of any such change at least fifteen (15) days prior to the
scheduled beginning of the first Offering Period to be affected. In no
event shall any option granted hereunder be exercisable more than twenty-
seven (27) months from its date of grant.
SECTION 4. ENROLLMENT; PARTICIPATION.
(a) On each Enrollment Date, the Company shall commence an
offering by granting each eligible Employee who has elected to participate
in such Offering Period pursuant to Section 4(b) hereof an option to
purchase on the Purchase Date of such Offering Period up to a number of
Shares determined by dividing each Employee's payroll deductions
accumulated prior to such Purchase Date and retained in the Participant's
account as of such Purchase Date by the applicable Purchase Price; provided
that in no event shall a Participant be permitted to purchase during each
Offering Period more than 2,500(1) Shares (subject to any adjustment pursuant
to Section 17 hereof), provided, further, that such purchase shall be
subject to the limitations set forth in Sections 2(b) and 11 hereof.
Exercise of the option shall occur as provided in Section 6 hereof, unless
the Participant has withdrawn pursuant to Section 9 hereof. The option
with respect to an Offering Period shall expire on the Purchase Date with
respect to such Offering Period or the withdrawal date if earlier.
Additionally, the Participant may participate to a greater extent by
directing the Company in writing, or by such other means as may from time
to time be prescribed by the Administrator, that any cash dividends
received on the Shares held in the Participant's Investment Account be
reinvested in additional Shares.
- --------------------
(1) Reflects post-exchange shares
(b) Subject to the limitations set forth in Section 2(b)
hereof, an Employee may elect to become a Participant in the Plan by
completing and filing a subscription agreement authorizing the Company to
make payroll deductions (as set forth in Section 5 hereof) at least ten
(10) business days prior to the applicable Enrollment Date unless a later
time for filing the subscription agreement is set by the Administrator for
all Employees. Unless a Participant, by giving written notice (or such
other notice as may from time to time be prescribed by the Administrator),
elects not to participate with respect to any subsequent Offering Period,
the Participant shall be deemed to have accepted each new offer and to have
authorized payroll deductions in respect thereof during each subsequent
Offering Period.
SECTION 5. PAYROLL DEDUCTIONS.
(a) An Employee may, in accordance with rules and
procedures adopted by the Administrator and subject to the limitation set
forth in Section 2(b) hereof, authorize payroll deductions in amounts which
are not less than one percent (1%) and not more than ten percent (10%) of
such Employee's Compensation on each payday during the Offering Period.
Payroll deductions shall commence on the first payroll paid following the
Enrollment Date, and shall end on the last payroll paid prior to the
Purchase Date of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the Participant's withdrawal from
the Plan or termination of the Participant's Continuous Status as an
Employee as provided in Section 9 hereof. A Participant may increase or
decrease his or her rate of payroll deductions at any time during an
Offering Period, but not more frequently than once during each Offering
Period, or as may be determined by the Administrator prior to the
commencement of an Offering Period, by giving written notice (or such other
notice as may from time to time be prescribed by the Administrator). The
change in rate shall be effective the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in rate of
payroll deductions more quickly.
(b) All payroll deductions made by a Participant shall be
credited to such Participant's account under the Plan and shall be withheld
in whole percentages only. A Participant may not make any additional
payments into such account but, at the Participant's direction, given in
accordance with Section 5(a) hereof, any cash dividends on Shares held in a
Participant's Investment Account may be reinvested in Shares.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 2(b) hereof, a
Participant's rate of payroll deductions may be decreased by the Company to
zero percent (0%) at any time during an Offering Period. Payroll
deductions shall recommence at the rate provided for in such Participant's
subscription agreement at the beginning of the first Offering Period which
is scheduled to end the following calendar year, unless a Participant
increases or decreases the rate of his or her payroll deductions as
provided in Section 5(a) hereof, or terminates his or her participation in
the Plan as provided in Section 9 hereof.
SECTION 6. PURCHASE OF SHARES.
Unless a Participant withdraws from the Plan as provided in
Section 9 hereof, such Participant's election to purchase Shares shall be
exercised automatically on each Purchase Date, and the maximum number of
whole Shares subject to option shall be purchased for each Participant at
the applicable Purchase Price with the accumulated payroll deductions in
each Participant's account as of the Purchase Date. No fractional Shares
may be purchased hereunder. Any payroll deductions accumulated in a
Participant's account following the purchase of Shares on any Purchase Date
that are not sufficient to purchase a full Share shall be retained in the
Participant's account for the subsequent Offering Period, subject to
earlier withdrawal by the Participant as provided in Section 9 hereof. Any
additional amounts remaining in a Participant's account following the
purchase of Shares on any Purchase Date that are equal to, or in excess of,
the amount required under this Section 6 to purchase at least one full
Share shall be returned to the Participant as soon as reasonably
practicable following the Purchase Date. During a Participant's lifetime,
a Participant's option to purchase Shares hereunder is exercisable only by
the Participant.
SECTION 7. DELIVERY OF SHARES; WITHDRAWAL OR SALE OF SHARES.
(a) As promptly as reasonably practicable after each Purchase
Date, the Company, in its sole discretion, shall arrange the delivery of
the whole Shares purchased on such date by each Participant to each
Participant's Investment Account or to a general account at a brokerage
firm to be held in the Company's name. If the Company delivers such Shares
to a general account at a brokerage firm, the brokerage firm shall cause
such Shares to be delivered to Participant's Investment Account as of the
first day following the termination of the Restricted Period with respect
to such Shares.
(b) At any time after the Restricted Period with respect to any
or all of a Participant's Shares held in his or her Investment Account has
ended, the Participant (or, in the event of the Participant's death, the
designated beneficiary, if any, or other appropriate person as set forth in
accordance with Section 13 hereof) may submit a written request to the
Company for withdrawal of such Shares from the Investment Account, or, in
the alternative (with the consent of the brokerage firm at which the
Participant's Investment Account is located), the Participant (or another
person in accordance with Section 13 hereof) may direct the sale of such
Shares by such brokerage firm. As promptly as practicable after receipt by
the Company of such written request, the Company shall arrange the delivery
to the Participant of a share certificate representing such Shares.
SECTION 8. RESTRICTIONS ON SALE OF STOCK.
(a) Shares purchased pursuant to a Participant's exercise of an
option under the Plan may not be sold by the Participant or withdrawn from
the Participant's Investment Account during the Restricted Period with
respect to such Shares. Subject to Sections 8(b) and 8(c) hereof, the
Restricted Period with respect to any option Shares so purchased shall be
the six (6) month period immediately following the Purchase Date on which
such Shares were purchased. For purposes of determining their Restricted
Period, Shares received in Share dividends or Share splits on such option
Shares (and Shares purchased in the Participant's Investment Account with
cash dividends paid on such option Shares) shall be deemed to have been
purchased on the same Purchase Date as such option Shares.
(b) Notwithstanding the above, the Restricted Period with
respect to all Shares held in a Participant's Investment Account shall end
upon the termination of the Participant's Continuous Status as an Employee.
(c) If the Administrator approves a written request by a
Participant for a Hardship withdrawal or sale of Shares, the Restricted
Period shall end upon a date determined by the Administrator with respect
to such number of Shares held in a Participant's Investment Account as the
Administrator shall determine. Any such determination or approval shall be
made by and in the sole discretion of the Administrator. A Participant may
request approval for a Hardship withdrawal or sale of Shares by filing a
form with the Company which certifies that (i) the Hardship is of a type
recognized by the Plan, and (ii) that the Hardship sale of such Shares will
not generate proceeds in excess of the amount of the Participant's
immediate and heavy financial need. Upon approval of a Hardship withdrawal
or sale of Shares, the Participant must also withdraw from the Plan for the
current Offering Period. A Participant who is then an Employee may rejoin
the Plan for any subsequent Offering Period by complying with the
enrollment procedures set forth in Section 4 hereof.
SECTION 9. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all, but not less than all,
of the payroll deductions credited to such Participant's account (that have
not been used to purchase Shares) under the Plan by giving written notice
to the Company. Withdrawal of payroll deductions shall be deemed to be a
withdrawal from the Plan. All of the payroll deductions credited to such
Participant's account (that have not been used to purchase Shares) shall be
paid to such Participant promptly after receipt of such Participant's
notice of withdrawal, and such Participant's eligibility to participate in
the Plan for the Offering Period in which the withdrawal occurs shall be
automatically terminated. No further payroll deductions for the purchase of
Shares shall be made for such Participant during such Offering Period. If
a Participant withdraws from an Offering Period, payroll deductions for
such Participant shall not resume at the beginning of the succeeding
Offering Period unless the Participant timely delivers to the Company a new
subscription agreement in accordance with the provisions of Section 4
hereof. A Participant's withdrawal from an Offering Period shall not have
any effect upon a Participant's eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after termination of the Offering Period
from which the Participant withdraws.
(b) Upon termination of a Participant's Continuous Status
as an Employee during the Offering Period for any reason, including
Participant's voluntary termination, retirement or death, all the payroll
deductions credited to such Participant's account (that have not been used
to purchase Shares) shall be returned to such Participant or, in the case
of such Participant's death, to the person or persons entitled thereto
under Section 13 hereof, and such Participant's option shall be
automatically terminated. Such termination shall be deemed a withdrawal
from the Plan.
SECTION 10. DIVIDENDS; SHARE SPLITS; INTEREST.
Cash dividends paid on Shares held in a Participant's Investment
Account shall be paid to the Participant as soon as practicable, unless re-
invested in Shares pursuant to the Participant's directions in accordances
with Section 5(a) hereof. Share splits of, or dividends paid in Shares on,
the Shares held in the Participant's Investment Account shall be held in
the Participant's Investment Account until withdrawn or sold in accordance
with Section 9 hereof. Dividends paid in property other than cash or
Shares shall be distributed to the Participant as soon as practicable. No
interest shall accrue on or be payable by the Company with respect to the
payroll deductions of a Participant in the Plan.
SECTION 11. STOCK SUBJECT TO PLAN.
(a) Subject to adjustment upon Changes in Capitalization of the
Company as provided in Section 17 hereof, the maximum aggregate number of
Shares which shall be reserved for sale under the Plan shall be 750,000(2)
Shares. Such Shares shall be available as of the first day of the first
Offering Period that commences in each such fiscal year, plus annual
increases to be added on the first day of the Company's fiscal year
(beginning in year 2000) equal to the lesser of (i) 500,000 Shares, (ii)
three percent (3%) of the outstanding Shares on such date or (iii) a lesser
amount determined by the Board. The Shares may consist, in whole or in
part, of authorized and unissued Shares or treasury Shares. If the total
number of Shares which would otherwise be subject to options granted
pursuant to Section 2(a) hereof on an Enrollment Date exceeds the number of
Shares then available under the Plan (after deduction of all Shares for
which options have been exercised or are then outstanding), the
Administrator shall make a pro rata allocation of the Shares remaining
available for option grant in as uniform a manner as shall be practicable
and as it shall determine to be equitable. In such event, the
Administrator shall give written notice to each Participant of such
reduction of the number of option Shares affected thereby and shall
similarly reduce the rate of payroll deductions, if necessary.
(b) No Participant shall have rights as a stockholder with
respect to any option granted hereunder until the date on which such Shares
shall be deemed to have been purchased by the Participant in accordance
with Section 6 hereof.
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(2) Reflects post-exchange shares
(c) Shares purchased on behalf of a Participant under the Plan
shall be registered in the name of the Participant or, if requested in
writing by the Participant, in the names of the Participant and the
Participant's spouse.
SECTION 12. ADMINISTRATION.
The Plan shall be administered by the Board or a Committee. The
Board or the Committee shall have full power and authority, subject to the
provisions of the Plan, to promulgate such rules and regulations as it
deems necessary for the proper administration of the Plan, to interpret the
provisions and supervise the administration of the Plan, and to take all
action in connection therewith or in relation thereto as it deems necessary
or advisable. Any decision reduced to writing and signed by a majority of
the members of the Committee shall be fully effective as if it had been
made at a meeting duly held. The Company shall pay all expenses incurred in
the administration of the Plan. No member of the Board or Committee shall
be personally liable for any action, determination, or interpretation made
in good faith with respect to the Plan, and all members of the Board or
Committee shall be fully indemnified by the Company with respect to any
such action, determination or interpretation.
All decisions, determinations and interpretations of the Board or
Committee shall be final and binding on all persons, including the Company,
its Parent, any Subsidiary, the Employee (or any person claiming any rights
under the Plan through any Employee) and any stockholder of the Company,
its Parent or any Subsidiary.
SECTION 13. DESIGNATION OF BENEFICIARY.
(a) A Participant may file, on forms supplied by and
delivered to the Company, a written designation of a beneficiary who is to
receive Shares and/or cash, if any, remaining in such Participant's account
under the Plan in the event of the Participant's death.
(b) Such designation of beneficiary may be changed by the
Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under
the Plan who is living at the time of such Participant's death, the Company
shall deliver the balance of the Shares and/or cash credited to
Participant's account to the executor or administrator of the estate of the
Participant or, if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such Shares and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company may
designate.
SECTION 14. TRANSFERABILITY.
Neither payroll deductions credited to a Participant's account
nor any rights with regard to the exercise of an option or any rights to
receive Shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by the laws of descent and
distribution or as provided in Section 13 hereof) by the Participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election
to withdraw funds in accordance with Section 9 hereof.
SECTION 15. USE OF FUNDS.
All payroll deductions received or held by the Company under the
Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
SECTION 16. REPORTS.
Individual accounts shall be maintained by the Company for each
Participant in the Plan [which account shall be separate from Participants
Investment Account]. Statements of account shall be given to each
Participant at least annually which statements shall set forth the amounts
of payroll deductions, the Purchase Price, the number of Shares purchased
and the remaining cash balance, if any.
SECTION 17. EFFECT OF CERTAIN CHANGES.
In the event of a Change in Capitalization or the distribution of
an extraordinary dividend, the Administrator shall conclusively determine
the appropriate equitable adjustments, if any, to be made under the Plan,
including without limitation adjustments to the number of Shares which have
been authorized for issuance under the Plan, but have not yet been placed
under option, as well as the Purchase Price of each option under the Plan
which has not yet been exercised. In the event of a Change in Control of
the Company, the Offering Period shall terminate unless otherwise provided
by the Administrator.
SECTION 18. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. Except as
provided in Section 17 hereof, no such termination may adversely affect
options previously granted and no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
Participant. To the extent necessary to comply with Section 423 of the
Code (or any successor rule or provision or any other applicable law,
regulation or stock exchange rule), the Company shall obtain stockholder
approval in such a manner and to such a degree as required.
SECTION 19. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been
duly given when they are received in a timely manner in the form specified
by the Company at the location, or by the person, designated by the Company
for the receipt thereof.
SECTION 20. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State
of Illinois without giving effect to the choice of law principles thereof,
except to the extent that such law is preempted by Federal law.
(b) The obligation of the Company to sell or deliver Shares with
respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal
and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Administrator.
SECTION 21. WITHHOLDING OF TAXES.
If the Participant makes a disposition, within the meaning of
Section 424(c) of the Code of any Share or Shares issued to Participant
pursuant to Participant's exercise of an option, and such disposition
occurs within the two-year period commencing on the day after the
Enrollment Date or within the one-year period commencing on the day after
the Purchase Date, Participant shall, within ten (10) days of such
disposition, notify the Company thereof and thereafter immediately deliver
to the Company any amount of Federal, state or local income taxes and other
amounts which the Company informs the Participant the Company may be
required to withhold.
SECTION 22. EFFECTIVE DATE.
The Plan shall be effective as of the date determined by the
Board subject to the approval of the Plan by the stockholders of the
Company within twelve (12) months before or after the date the Plan is
adopted.
SECTION 23. TERM OF PLAN.
No option shall be granted pursuant to the Plan and no Offering
Period shall commence on or after the tenth anniversary of the Effective
Date, but options theretofore granted may extend beyond that date.
