<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE TO
Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of
the Securities Exchange Act of 1934
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PRISM FINANCIAL CORPORATION
(Name of Subject Company (issuer))
PRISM ACQUISITION SUBSIDIARY, INC.
ROYAL BANK OF CANADA
(Name of Filing Persons (offerors))
COMMON STOCK, PAR VALUE $.01 PER SHARE
(including associated Rights)
(Title of Class of Securities)
74264Q 10 8
(CUSIP Number of Class of Securities)
ROBERT K. HORTON
SENIOR VICE PRESIDENT
ROYAL BANK OF CANADA
200 BAY STREET
TORONTO, ONTARIO
CANADA M5J 2J5
(416) 974-5151
(Name, Address and Telephone Number of Person Authorized to
Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
COPY TO:
STEPHANIE TSACOUMIS, ESQ.
GIBSON, DUNN & CRUTCHER LLP
1050 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
(202) 955-8277
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CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
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$ 113,004,010 $ 22,600.80
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* Estimated for purposes of calculating the amount of the filing fee only.
This calculation assumes the purchase of all of the issued and outstanding
shares of common stock, par value $.01 per share of Prism Financial
Corporation (the "Common Stock"), a Delaware corporation (the "Company"),
together with any associated rights to purchase preferred stock (the
"Rights" and together with the Common Stock, the "Shares"), at a price per
Share of $7.50 in cash. As of January 31, 2000, based on the Company's
representation of its capitalization in the Merger Agreement (as defined
herein), there were (i) 14,670,560 shares of Common Stock outstanding and
(ii) approximately 721,166 options to purchase shares of Common Stock that
are expected to vest prior to the Effective Time of the Merger (as defined
herein), the exercise price of which is less than $7.50. The amount of the
filing fee, calculated in accordance with Rule 0-11 of the Securities
Exchange Act of 1934, equals 1/50th of one percent of the transaction
valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: Not applicable. Filing Party: Not applicable.
Form or Registration No.: Not applicable. Date Filed: Not applicable.
[ ] Check box if the filing relates solely to preliminary communications made
before the commencement of a tender offer.
Check the appropriate boxes to designate any transactions to which this
statement relates:
[X] third party tender [ ] going-private transaction
offer subject to Rule 14d-1 subject to Rule 13e-3
[ ] issuer tender offer [ ] amendment to Schedule 13D
subject to Rule 13e-4 under Rule 13d-2
Check the following box if the filing is a final amendment reporting the
results of the tender offer. [ ]
<PAGE> 2
This Tender Offer Statement on Schedule TO is filed by Royal Bank of
Canada, a Canadian commercial bank ("Parent"), and Prism Acquisition
Subsidiary, Inc. (formerly, Rainbow Acquisition Subsidiary, Inc.), a Delaware
corporation and a wholly owned, indirect subsidiary of Parent ("Purchaser").
This statement relates to the third party tender offer (the "Offer") by
Purchaser to purchase all of the issued and outstanding shares of common stock,
par value $.01 per share (the "Common Stock") of Prism Financial Corporation, a
Delaware corporation (the "Company"), together with the associated rights to
purchase preferred stock issued pursuant to the Rights Agreement dated as of
January 27, 2000 between the Company and LaSalle Bank National Association (the
"Rights" and, together with the Common Stock, the "Shares"), at a price of
$7.50 per Share (such amount, or any higher price that may be paid per Share in
the Offer, the "Per Share Amount"), net to the seller in cash, less any
required withholding of taxes and without the payment of any interest, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 22, 2000 (the "Offer to Purchase") and in the related Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively (which, together with any amendments or supplements thereto,
constitute the "Offer").
ITEM 1. SUMMARY TERM SHEET.
The information set forth in the Offer to Purchase under the heading
"Summary Term Sheet" is incorporated herein by reference.
ITEM 2. SUBJECT COMPANY INFORMATION.
(a) The name of the subject Company is Prism Financial Corporation. The
address of its principal executive office is 440 North Orleans, Chicago,
Illinois 60610. The telephone number of the Company is (312) 494-0020.
(b) The class of securities to which this statement relates is the common
stock, par value $.01 per share, of the Company including associated Rights. As
of January 31, 2000, there were 14,670,560 Shares issued and outstanding, based
upon the representation made by the Company to Parent and Purchaser in the
Merger Agreement, dated as of March 10, 2000 among Parent, the Company and
Purchaser.
(c) The information set forth in Section 6 of the Offer to Purchase,
entitled "Price Range of Shares; Dividends," is incorporated herein by
reference.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON.
(a) Parent and Purchaser are the filing persons. The information set forth
in Schedule I to the Offer to Purchase is incorporated herein by reference.
(b) The Information set forth in Section 9 of the Offer to Purchase,
entitled "Certain Information Concerning Parent and Purchaser," is incorporated
herein by reference.
(c) The information set forth in Section 9 of the Offer to Purchase,
entitled "Certain Information Concerning Parent and Purchaser," and in Schedule
I to the Offer to Purchase is incorporated herein by reference.
2
<PAGE> 3
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the entire Offer to Purchase is
incorporated herein by reference.
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
(a) The information set forth in Sections 11 and 12, entitled "Background
of the Offer; Past Contacts or Negotiations with the Company" and "The Merger
Agreement; Other Arrangements," respectively, is incorporated herein by
reference.
(b) The information set forth in Sections 11 and 12, entitled "Background
of the Offer; Past Contacts or Negotiations with the Company" and "The Merger
Agreement; Other Arrangements," respectively, is incorporated herein by
reference.
ITEM 6. PURPOSES OF THE TRANSACTIONS AND PLANS OR PROPOSALS.
(a) The information set forth in Section 13 of the Offer to Purchase,
entitled "Purpose of the Offer; Plans for the Company," is incorporated herein
by reference.
(c) The information set forth in Sections 11, 13 and 14 of the Offer to
Purchase, entitled "Background of the Offer; Past Contacts or Negotiations with
the Company," "The Merger Agreement; Other Arrangements," "Purpose of the Offer;
Plans for the Company" and "Certain Effects of the Offer," respectively, is
incorporated herein by reference.
(c)(2)-(c)(3) Not applicable.
ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in Section 10 of the Offer to Purchase,
entitled "Source and Amount of Funds," is incorporated herein by reference.
(b) There are no material conditions and no alternative financing
arrangements.
(d) Not applicable.
ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in Sections 9, 11 and 12 of the Offer
to Purchase, entitled "Certain Information Concerning Parent and Purchaser,"
Background of the Offer; Past Contacts or Negotiations with the Company," and
"The Merger Agreement; Other Arrangements," respectively, is incorporated herein
by reference. As a result of Purchaser's conditional option to purchase the
Shares owned by certain stockholders who are party to the Stockholders'
Agreement referred to in Section 12, "The Merger Agreement; Other Arrangements,"
the Purchaser and the Parent may be deemed to own beneficially an aggregate of
9,143,566 Shares, which represent approximately 62.3% of the Shares issued and
outstanding, based on the representation made by the Company to Parent and
Purchaser in the Merger Agreement, dated as of March 10, 2000 among Parent, the
Company and Purchaser. Both Purchaser and the Parent, however, have disclaimed
beneficial ownership of such Shares, and this statement shall not be construed
as an admission that either the Company or Purchaser is the beneficial owner of
the securities covered by this statement.
ITEM 9. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
(a) The information set forth in Section 19 of the Offer to Purchase,
entitled "Fees and Expenses" is incorporated herein by reference.
3
<PAGE> 4
ITEM 10. FINANCIAL STATEMENTS.
(a) Not applicable.
ITEM 11. ADDITIONAL INFORMATION.
(a) The information set forth in Section 9 of the Offer to Purchase,
entitled "Certain Information Concerning Parent and Purchaser;" in the
discussion of employment agreements in Section 12 of the Offer to Purchase,
entitled "The Merger Agreement; Other Arrangements;" in Section 14 of the Offer
to Purchase, entitled "Certain Effects of the Offer;" and in Section 17 of the
Offer to Purchase, entitled "Certain Legal Matters; Regulatory Approvals," is
incorporated herein by reference.
(b) The information set forth in the entire Offer to Purchase is
incorporated herein by reference.
ITEM 12. EXHIBITS.
(a)(1) Offer to Purchase, dated March 22, 2000.
(a)(2) Letter of Transmittal, dated March 22, 2000.
(a)(3) Notice of Guaranteed Delivery, dated March 22, 2000.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated March 22, 2000.
(a)(5) Letter to Clients, dated March 22, 2000.
(a)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Press releases issued by Parent and the Company on March 10 and
March 14, 2000 (incorporated by reference to the Schedule TO
filed with the Securities and Exchange Commission by Parent and
Purchaser on March 14, 2000).
(a)(8) Summary advertisement dated March 22, 2000.
(b) None.
(d)(1) Merger Agreement, dated as of March 10, 2000, among Parent,
the Company and Purchaser.
(d)(2) Letter Agreement between Parent and the Company, dated as of
January 31, 2000.
(d)(3) Stockholders' Agreement, dated as of March 10, 2000, by and
among Parent, Purchaser and the stockholders of the Company
listed on Schedule I thereto.
(d)(4) Employment Agreement, dated as of March 10, 2000, by and among
the Company, Mark A. Filler and Parent.
(d)(5) Employment Agreement, dated as of March 10, 2000, by and among
the Company, David A. Fisher and Parent.
(d)(6) Employment Agreement, dated as of March 10, 2000, by and among
the Company, Eric A. Gurry and Parent.
(g) None.
(h) None.
ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3.
Not applicable.
4
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
PRISM ACQUISITION SUBSIDIARY, INC.
By:/s/ ROBERT K. HORTON
------------------------------------------
Name: Robert K. Horton
Title: Senior Vice President
ROYAL BANK OF CANADA
By:/s/ ROBERT K. HORTON
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Name: Robert K. Horton
Title: Senior Vice President
By:/s/ JAMES T. RAGER
------------------------------------------
Name: James T. Rager
Title: Vice Chairman, Personal and
Commercial Banking
Dated: March 22, 2000
5
<PAGE> 6
EXHIBIT INDEX
(a)(1) Offer to Purchase, dated March 22, 2000.
(a)(2) Letter of Transmittal, dated March 22, 2000.
(a)(3) Notice of Guaranteed Delivery, dated March 22, 2000.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees, dated March 22, 2000.
(a)(5) Letter to Clients, dated March 22, 2000.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Press releases issued by Parent and the Company on March 10 and
March 14, 2000 (incorporated by reference to the Schedule TO filed with
the Securities and Exchange Commission by Parent and Purchaser on March
14, 2000).
(a)(8) Summary advertisement dated March 20, 2000.
(b) None.
(d)(1) Merger Agreement, dated as of March 10, 2000, among Parent, the Company
and Purchaser.
(d)(2) Letter Agreement between Parent and the Company, dated as of January
31, 2000.
(d)(3) Stockholders' Agreement, dated as of March 10, 2000, by and among
Parent, Purchaser and the stockholders of the Company listed on
Schedule I thereto.
(d)(4) Employment Agreement, dated as of March 10, 2000, by and among the
Company, Mark A. Filler and Parent.
(d)(5) Employment Agreement, dated as of March 10, 2000, by and among the
Company, David A. Fisher and Parent.
(d)(6) Employment Agreement, dated as of March 10, 2000, by and among the
Company, Eric A. Gurry and Parent.
(g) None.
(h) None.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(TOGETHER WITH ANY ASSOCIATED RIGHTS)
OF
PRISM FINANCIAL CORPORATION
AT $7.50 NET PER SHARE
BY
PRISM ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED, INDIRECT SUBSIDIARY OF
ROYAL BANK OF CANADA
THE OFFER (AS HEREINAFTER DEFINED) AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON APRIL 19, 2000 UNLESS THE OFFER IS
EXTENDED.
PRISM ACQUISITION SUBSIDIARY, INC. IS OFFERING TO PURCHASE ALL OF THE ISSUED
AND OUTSTANDING SHARES OF COMMON STOCK OF PRISM FINANCIAL CORPORATION ("COMMON
STOCK"), TOGETHER WITH ASSOCIATED RIGHTS (THE "RIGHTS") TO PURCHASE PREFERRED
STOCK (THE COMMON STOCK AND RIGHTS, COLLECTIVELY, THE "SHARES"). THIS OFFER IS
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE (THE
"OFFER TO PURCHASE") AND IN THE RELATED LETTER OF TRANSMITTAL (THE "LETTER OF
TRANSMITTAL"). WE REFER TO THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL,
TOGETHER WITH ANY AMENDMENTS OR SUPPLEMENTS THERETO, AS THE "OFFER DOCUMENTS."
THE OFFER IS CONDITIONED UPON SATISFACTION OF THE TERMS AND CONDITIONS DESCRIBED
IN "THE TENDER OFFER--TERMS OF THE OFFER."
THE BOARD OF DIRECTORS OF PRISM FINANCIAL CORPORATION (I) HAS DETERMINED
THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW) IS ADVISABLE AND IS
FAIR TO THE STOCKHOLDERS OF THE COMPANY AND IN THE BEST INTERESTS OF SUCH
STOCKHOLDERS AND (II) HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AMONG PRISM
FINANCIAL CORPORATION, ROYAL BANK OF CANADA AND PRISM ACQUISITION SUBSIDIARY,
INC, AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDED ACCEPTANCE OF THE
OFFER AND APPROVAL AND ADOPTION BY THE STOCKHOLDERS OF THE COMPANY, IF
NECESSARY, OF THE MERGER AGREEMENT.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
IMPORTANT
Any stockholder wishing to tender Shares in the Offer must (i) complete and
sign the Letter of Transmittal (or a facsimile thereof) in accordance with the
instructions in the Letter of Transmittal and mail or deliver the Letter of
Transmittal and all other required documents to the Depositary (as defined
herein), together with certificates representing the Shares tendered or follow
the procedure for book-entry transfer set forth in Section 3--"Procedures for
Accepting the Offer and Tendering Shares;" or (ii) request such stockholder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for the stockholder. A stockholder having Shares registered in the
name of a broker, dealer, commercial bank, trust company, or other nominee must
contact such person if such stockholder wishes to tender such Shares.
The Rights are presently evidenced by the certificates for the Common Stock
and a tender by a stockholder of such stockholder's Common Stock will also
constitute a tender of the associated Rights. Any stockholder who wishes to
tender Shares and cannot deliver certificates representing such Shares and all
other required documents to the Depositary on or prior to the date on which the
Offer expires or who cannot comply with the procedures for book-entry transfer
on a timely basis may tender such shares pursuant to the guaranteed delivery
procedure set forth in Section 3--"Procedures for Accepting the Offer and
Tendering Shares." Questions and requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective addresses and
telephone numbers set forth below. Additional copies of this Offer to Purchase,
the Letter of Transmittal, the Notice of Guaranteed Delivery and other related
materials may be obtained from the Information Agent or the Dealer Manager.
Stockholders may also contact their broker, dealer, commercial bank and trust
company or other nominee.
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The Dealer Manager for the Offer is: The Information Agent for the Offer is:
RBC Dominion Securities Corporation MacKenzie Partners, Inc.
1 Liberty Plaza 156 Fifth Avenue
New York, New York 10006 New York, NY 10010
(212) 858-7139 (212) 929-5500 (call collect)
or
CALL TOLL FREE (800) 322-2885
</TABLE>
The date of this Offer to Purchase is March 22, 2000.
A Summary Term Sheet describing the principal terms of the Offer appears on
pages 1 through 4. You should read this entire document carefully before
deciding whether to tender your Shares.
<PAGE> 2
TABLE OF CONTENTS
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SUMMARY TERM SHEET.......................................... 1
INTRODUCTION................................................ 5
THE TENDER OFFER............................................ 7
1. Terms of the Offer.................................... 7
2 Acceptance for Payment and Payment for Shares......... 9
3. Procedures for Accepting the Offer and Tendering
Shares................................................. 10
4. Withdrawal Rights..................................... 13
5. Material U.S. Federal Income Tax Considerations....... 13
6. Price Range of Shares; Dividends...................... 14
7. Certain Information Concerning the Company............ 14
8. Selected Financial Information........................ 15
9. Certain Information Concerning Parent and Purchaser... 15
10. Source and Amount of Funds............................ 16
11. Background of the Offer; Past Contacts or Negotiations
with the Company....................................... 16
12. The Merger Agreement; Other Arrangements.............. 19
13. Purpose of the Offer; Plans for the Company........... 30
14. Certain Effects of the Offer.......................... 31
15. Dividends and Distributions........................... 32
16. Certain Conditions of the Offer....................... 32
17. Certain Legal Matters; Regulatory Approvals........... 33
18. Appraisal Rights...................................... 35
19. Fees and Expenses..................................... 36
20. Miscellaneous......................................... 36
SCHEDULE I Directors and Executive Officers of Parent and
Purchaser................................................. S-1
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<PAGE> 3
SUMMARY TERM SHEET
Prism Acquisition Subsidiary, Inc. is offering to purchase all of the
issued and outstanding shares of common stock of Prism Financial Corporation for
$7.50 per share in cash. The following are some of the questions you may have,
as a stockholder of Prism Financial Corporation, followed by answers to those
questions. We urge you to read carefully the remainder of this Offer to Purchase
and the accompanying Letter of Transmittal because the information in this
Summary Term Sheet is not complete. Additional important information is
contained in the remainder of this Offer to Purchase and the Letter of
transmittal.
- - WHO IS OFFERING TO BUY MY SECURITIES?
Our name is Prism Acquisition Subsidiary, Inc. We are a Delaware
corporation formed for the purpose of making a tender offer for all of the
issued and outstanding shares of common stock of Prism Financial Corporation. We
are a wholly owned, indirect subsidiary of Royal Bank of Canada, a Canadian
commercial bank. See the "Introduction" to this Offer to Purchase.
- - WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are seeking to purchase all of the issued and outstanding shares of
common stock of Prism Financial Corporation. The shares of common stock include
associated rights to purchase preferred stock. Tendering shares of common stock
will also serve to tender those associated rights. See the "Introduction" to
this Offer to Purchase.
- - HOW MUCH ARE YOU OFFERING TO PAY, WHAT IS THE FORM OF PAYMENT AND WILL I
HAVE TO PAY ANY FEES OR COMMISSIONS?
We are offering to pay $7.50 per share, net to you, in cash, less any
required withholding of taxes and without the payment of interest. If you are
the record owner of your shares and you tender your shares to us in the offer,
you will not have to pay brokerage fees or similar expenses. If you own your
shares through a broker or other nominee, and your broker tenders your shares on
your behalf, your broker or nominee may charge you a fee for doing so. You
should consult your broker or nominee to determine whether any charges will
apply. We will not be obligated to pay for or reimburse you for such broker or
nominee charges. See the "Introduction" to this Offer to Purchase. In addition,
if you do not complete and sign the Substitute Form W-9 included in the Letter
of Transmittal, you may be subject to required backup federal income tax
withholding. See Instruction 9 to the Letter of Transmittal.
- - DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Prism Acquisition Subsidiary, Inc. will be provided with approximately $115
million by its parent company, Royal Bank of Canada. Those funds will be used to
purchase all shares validly tendered and not withdrawn in the offer and to
provide funding for the merger which is expected to follow the successful
completion of the offer in accordance with the terms and conditions of the
merger agreement. We anticipate that all of these funds will be obtained from
the existing resources and internally generated funds of Royal Bank of Canada.
See Section 10--"Source and Amount of Funds" of this Offer to Purchase. Royal
Bank of Canada is an international diversified financial services organization
that serves nearly 10 million individual and business customers worldwide. As of
October 31, 1999, its fiscal year-end, Royal Bank of Canada had total
consolidated assets of CAN$ 273 billion and net income of CAN$ 1.7 billion. See
Section 9--"Certain Information Concerning Parent and Purchaser" of this Offer
to Purchase.
- - IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
The form of payment consists solely of cash. We have arranged for all of
our funding to come from the existing resources and internally generated funds
of Royal Bank of Canada. Therefore, we do not think our financial condition is
relevant to your decision whether to tender in the offer. See Section
10--"Source and Amount of Funds" of this Offer to Purchase.
1
<PAGE> 4
- - HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have at least until 12:00 midnight, New York City time, on April
19, 2000, to decide whether to tender your shares in the offer. If you cannot
deliver everything that is required in order to make a valid tender by that
time, you may be able to use a guaranteed delivery procedure, which is described
later in this offer to purchase. See Section 1--"Terms of the Offer" and Section
3--"Procedures for Accepting the Offer and Tendering Shares" of this Offer to
Purchase.
- - CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
Subject to the terms of the merger agreement, we can extend the offer.
Under the merger agreement, we can extend the offer, without the approval of
Prism Financial Corporation, if on April 19, 2000, and for so long as, any of
the conditions to the offer have not been satisfied or waived (other than the
condition that at least a majority of the issued and outstanding shares of Prism
Financial Corporation be validly tendered). In addition, if on April 19, 2000,
any of the conditions to the offer (other than the condition that at least a
majority of the issued and outstanding shares be validly tendered) have not been
satisfied or waived, we have agreed to extend the offer upon the request of
Prism Financial Corporation until September 30, 2000. We also have reserved the
right to provide for a subsequent offering period. A subsequent offering period,
if one is included, will be an additional opportunity for stockholders to tender
their shares and receive the offer consideration following the expiration of the
offer. We may elect to include a subsequent offering period if, once all of the
conditions to the offer are satisfied or waived, the number of shares validly
tendered and not withdrawn is less than 90% of the number of shares outstanding
on a fully diluted basis. The subsequent offering period would extend the offer
for a period of not longer than 20 business days. See Section 1--"Terms of the
Offer" of this Offer to Purchase.
- - HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the offer, we will inform LaSalle Bank National Association
(which is the depositary for the offer) of that fact and will make a public
announcement of the extension, not later than 9:00 a.m., New York City time, on
the next business day after the day on which the offer was scheduled to expire.
See Section 1--"Terms of the Offer" of this Offer to Purchase.
- - WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
The offer is subject to a minimum condition that at least a majority of the
issued and outstanding shares be validly tendered. We are not obligated to
purchase any shares which are validly tendered unless at least a majority of the
issued and outstanding shares of Prism Financial Corporation are validly
tendered and not withdrawn. We have entered into a stockholders' agreement with
three stockholders of Prism Financial Corporation, which hold in the aggregate
approximately 62% of the outstanding shares. Pursuant to the agreement, these
stockholders have agreed to tender their shares. As a result, we expect the
minimum condition to be satisfied. We are not obligated to purchase shares which
are validly tendered if, among other things:
- the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 has not expired or been terminated,
- any approvals under the Canadian Bank Act or the Bank Holding Company Act
of 1956 have not been obtained; or
- any approvals from state governmental entities responsible for regulating
in the aggregate, 90% of the average mortgage origination volume of Prism
Financial Corporation and its subsidiaries for 1998 and 1999, have not
been obtained.
See Section 1--"Terms of the Offer" and Section 16--"Certain Conditions of
the Offer" of this Offer to Purchase.
2
<PAGE> 5
- - HOW DO I TENDER MY SHARES?
To tender shares, you must deliver the certificates representing your
shares, together with a completed letter of transmittal, to LaSalle Bank
National Association, the depositary for the offer, not later than the time the
tender offer expires. If your shares are held in street name, the shares can be
tendered by your nominee through the depositary. If you cannot get any document
or instrument that is required to be delivered to the depositary by the
expiration of the tender offer, you may get a little extra time to do so by
having a broker, a bank or other fiduciary which is a member of the Securities
Transfer Agents Medallion Program or other eligible institution guarantee that
the missing items will be received by the depositary within three Nasdaq
National Market trading days. For the tender to be valid, however, the
depositary must receive the missing items within that three trading day period.
See Section 3--"Procedures for Accepting the Offer and Tendering Shares" of this
Offer to Purchase.
- - UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
You can withdraw shares at any time until the offer has expired and, if we
have not agreed to accept your shares for payment by May 22, 2000, you can
withdraw them at any time after such time until we accept shares for payment.
This right to withdraw will not apply to any subsequent offering period
discussed in Section 1, if one is included. See Section 4--"Withdrawal Rights"
of this Offer to Purchase.
- - HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares, you must deliver a written notice of withdrawal, or a
facsimile of one, with the required information to the depositary while you
still have the right to withdraw the shares. See Section 4--"Withdrawal Rights"
of this Offer to Purchase.
- - WHAT DOES THE BOARD OF DIRECTORS OF PRISM FINANCIAL CORPORATION THINK OF THE
OFFER?
We are making the offer pursuant to a merger agreement among Prism
Financial Corporation, Royal Bank of Canada and us. The Board of Directors of
Prism Financial Corporation has:
- determined that each of the offer and the merger is advisable and is fair
to the stockholders of Prism Financial Corporation and in the best
interests of such stockholders; and
- approved and adopted the merger agreement and the transactions
contemplated thereby and recommended acceptance of the offer and approval
and adoption by the stockholders of Prism Financial Corporation, if
necessary, of the merger agreement.
See the "Introduction" to this Offer to Purchase.
- - HAVE ANY STOCKHOLDERS AGREED TO TENDER THEIR SHARES?
Yes. Stockholders who own shares representing approximately 62% of the
issued and outstanding shares of common stock of Prism Financial Corporation
have agreed to tender their shares in the offer. See Section 12--"The Merger
Agreement; Other Arrangements" of this Offer to Purchase.
- - IF A MAJORITY OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL
PRISM FINANCIAL CORPORATION CONTINUE AS A PUBLIC COMPANY?
No. If we purchase all of the tendered shares and the merger takes place,
Prism Financial Corporation no longer will be publicly owned. Even if the merger
does not take place, if we purchase all the tendered shares:
- there may be so few remaining stockholders and publicly held shares that
the common stock of Prism Financial Corporation no longer will be
eligible to be traded through the Nasdaq National Market or on a
securities exchange,
- there may not be a public trading market for Prism Financial Corporation
stock, and
- Prism Financial Corporation may cease making filings with the SEC or
otherwise cease being required to comply with the SEC rules relating to
publicly held companies.
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See Section 14--"Certain Effects of the Offer" of this Offer to Purchase.
For information regarding appraisal rights associated with the merger, see
Section 18--"Appraisal Rights" of this Offer to Purchase.
- - WILL THE TENDER OFFER BE FOLLOWED BY A MERGER IF ALL THE SHARES OF PRISM
FINANCIAL CORPORATION ARE NOT TENDERED IN THE OFFER?
If we accept for payment and pay for at least a majority of the issued and
outstanding shares of Prism Financial Corporation and all other applicable
conditions are met, Prism Acquisition Subsidiary, Inc. will be merged with and
into Prism Financial Corporation. If that merger takes place, Royal Bank of
Canada indirectly will own all of the shares of Prism Financial Corporation and
all remaining stockholders of Prism Financial Corporation (other than Royal Bank
of Canada) will receive $7.50 per share in cash. There are no appraisal rights
available in connection with the offer. However, if the merger takes place,
stockholders who have not sold their shares in the offer will have appraisal
rights under Delaware law. Stockholders owning approximately 62% of the
outstanding shares of common stock of Prism Financial Corporation have agreed to
tender their shares in the offer. See the "Introduction" to and Section
18--"Appraisal Rights" of this Offer to Purchase.
- - IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If we accept for payment and pay for at least a majority of the issued and
outstanding shares of Prism Financial Corporation, we will own sufficient shares
to approve the merger under applicable state law. Stockholders not tendering in
the offer will receive the same amount of cash per share in the merger that they
would have received had they tendered their shares in the offer. Therefore, if
the merger takes place, the only difference to you between tendering your shares
and not tendering your shares is that you will be paid earlier if you tender
your shares. If the merger does not take place, the number of stockholders and
shares of Prism Financial Corporation that are still in the hands of the public
may be so small that there no longer will be an active public trading market
(or, possibly, there may not be any public trading market) for the common stock
of Prism Financial Corporation. Also, as described above, Prism Financial
Corporation may cease making filings with the SEC or otherwise being required to
comply with the SEC rules relating to publicly held companies. See the
"Introduction" to and Section 14--"Certain Effects of the Offer" of this Offer
to Purchase.
- - WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On March 9, 2000, the last trading day before we announced the tender offer
and the possible subsequent merger, the last sale price of Prism Financial
Corporation common stock reported on the Nasdaq National Market was $7.00 per
share. Between January 1, 2000 and March 9, 2000, the price of a share of Prism
Financial Corporation common stock ranged between $3.125 and $7.4375. We advise
you to obtain a recent quotation for shares of Prism Financial Corporation
common stock in deciding whether to tender your shares. See Section 6--"Price
Range of Shares; Dividends" of this Offer to Purchase.
- - WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You can call MacKenzie Partners, Inc. at (800) 322-2885 (toll free) or RBC
Dominion Securities Corporation at (212) 858-7139. MacKenzie Partners is acting
as the information agent and RBC Dominion Securities Corporation is acting as
the dealer manager for our tender offer. See the back cover of this Offer to
Purchase.
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To the Holders of Shares of Common Stock of Prism Financial Corporation:
INTRODUCTION
Prism Acquisition Subsidiary, Inc. ("Purchaser"), a Delaware corporation
and a wholly owned, indirect subsidiary of Royal Bank of Canada, a Canadian
commercial bank ("Parent"), hereby offers (the "Offer") to purchase all of the
issued and outstanding shares of common stock, par value $.01 per share (the
"Common Stock"), of Prism Financial Corporation, a Delaware corporation (the
"Company"), together with the associated rights to purchase preferred stock (the
"Rights" and, together with the Common Stock, the "Shares") issued pursuant to
the Rights Agreement dated as of January 27, 2000, between the Company and
LaSalle Bank National Association (the "Rights Agreement"), at a price of $7.50
per Share (the "Per Share Amount") net to the seller in cash, less any required
withholding of taxes, upon the terms and subject to the conditions of the Offer,
as set forth in this Offer to Purchase and in the related Letter of Transmittal.
The Offer is being made pursuant to the Merger Agreement, dated as of March
10, 2000 among Parent, Company and Purchaser (the "Merger Agreement"). The
Merger Agreement provides that Purchaser will be merged with and into the
Company (the "Merger") as soon as practicable following the purchase by
Purchaser of 90% or more of the issued and outstanding Shares in the Offer or
any required stockholder meeting. Following the Merger, the Company will
continue as the surviving corporation (the "Surviving Corporation") and a wholly
owned, indirect subsidiary of Parent, and the separate corporate existence of
Purchaser shall cease. Pursuant to the Merger Agreement, each Share, together
with any associated Rights, issued and outstanding immediately prior to the
effective time of the Merger (the "Effective Time") (other than Shares held by
any of the Company's subsidiaries and Shares held by Parent, Purchaser or any
other subsidiary of Parent or by stockholders, if any, who are entitled to and
properly exercise appraisal rights under applicable law), shall be converted
into and shall become the right to receive the Per Share Amount in cash, without
interest (the "Cash Merger Consideration"). The Merger Agreement is more fully
described in Section 12--"The Merger Agreement; Other Arrangements," which also
contains a discussion of the treatment of stock options.
Tendering stockholders who are record owners of their Shares and tender
directly to the Depositary (as defined below) will not be obligated to pay
brokerage fees or commissions or, except as otherwise provided in Instruction 6
of the Letter of Transmittal, stock transfer taxes with respect to the purchase
of Shares by Purchaser pursuant to the Offer. Stockholders who hold their Shares
through a broker or bank should consult such institution as to whether it
charges any service fees. Parent or Purchaser will pay all charges and expenses
of RBC Dominion Securities Corporation, as dealer manager (the "Dealer
Manager"), LaSalle Bank National Association, as depositary (the "Depositary"),
and MacKenzie Partners, Inc., as information agent (the "Information Agent"),
incurred in connection with the Offer. See Section 19--"Fees and Expenses."
The Board of Directors of the Company (the "Company Board") has (i)
determined that each of the Offer and the Merger is advisable and is fair to the
stockholders of the Company and in the best interests of such stockholders and
(ii) approved and adopted the Merger Agreement and the transactions contemplated
thereby and recommended acceptance of the Offer and approval and adoption by the
stockholders of the Company, if necessary, of the Merger Agreement.
Friedman Billings & Ramsey & Co., Inc., financial advisor to the Company
("FBR"), has delivered to the Company Board a written opinion dated March 10,
2000, to the effect that, as of such date and based on and subject to the
matters stated in such opinion, the $7.50 Per Share Amount to be received in the
Offer and the Merger by the holders of Shares was fair from a financial point of
view to such holders. The full text of FBR's written opinion, which describes
the assumptions made, procedures followed, matters considered and limitations on
the review undertaken, is included as an annex to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
under the Securities Exchange Act of 1934 (the "Exchange Act"), which is being
mailed to stockholders concurrently herewith. Stockholders are urged to read the
full text of such opinion carefully in its entirety.
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<PAGE> 8
The Offer is subject to certain conditions, including (i) there being
validly tendered at least a majority of the issued and outstanding Shares (the
"Minimum Condition"), (ii) the expiration or termination of any applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), (iii) any approvals under the Canadian Bank Act and the Bank
Holding Company Act of 1956, having been obtained, and (iv) approvals having
been obtained from state governmental entities responsible for regulating in the
aggregate, 90% of the average mortgage origination volume of the Company and its
subsidiaries for 1998 and 1999. See Section 16--"Certain Conditions of the
Offer."
Pursuant to the Merger Agreement, the Company has represented that, as of
January 31, 2000, 14,670,560 Shares were issued and outstanding. Except as a
result of the Stockholders' Agreement described below, neither Parent, Purchaser
nor any person listed on Schedule I hereto beneficially owns any Shares.
Certain Stockholders of the Company (consisting of the estate of the
Company's deceased former chief executive officer and current executive officers
of the Company) (the "Stockholders") have entered into a Stockholders'
Agreement, dated as of March 10, 2000, with the Parent and Purchaser (the
"Stockholders' Agreement") relating to an aggregate of 9,143,566 Shares
(approximately 62.3% of the Shares and approximately 59.4% on a fully diluted
basis) over which the Stockholders have represented to Parent that they have
voting and dispositive power. Pursuant to the Stockholders' Agreement, among
other things, the Stockholders have agreed to tender all such Shares pursuant to
the Offer and not to withdraw such Shares as long as the Stockholders' Agreement
remains in effect and have granted to Parent an option to purchase their Shares
which is exercisable in certain limited circumstances. See Section 12--"The
Merger Agreement; Other Arrangements." As a result of the Stockholders'
Agreement, Parent and Purchaser anticipate that the Minimum Condition will be
satisfied.
The Merger Agreement provides that promptly after the purchase by Purchaser
of Shares following the expiration of the Offer (the "Tender Offer Purchase
Time"), and from time to time thereafter, Purchaser shall be entitled to
designate that number (but no more than that number) of directors of the Company
constituting a majority of the Company Board, and the Company shall use its best
efforts to, upon request by Purchaser, promptly, at the Company's election,
either increase the size of the Company Board (subject to the provisions of the
Company's Certificate of Incorporation) or secure the resignation of such number
of directors as is necessary to enable Purchaser's designees to be elected to
the Company Board and to cause Purchaser's designees to be so elected and to
constitute at all times after the Tender Offer Purchase Time a majority of the
Company Board. At such times, the Company will use its best efforts to cause
persons designated by Purchaser to constitute the same percentage as is on the
Company Board of (i) each committee of the Company Board (other than any
committee of the Company Board established to take action under this Agreement),
(ii) each board of directors of each subsidiary of the Company and (iii) each
committee of each such board. Notwithstanding the foregoing, until the Effective
Time, the Company shall retain at least three directors who are directors of the
Company on the date of the Merger Agreement (the "Continuing Directors"). See
Section 12--"The Merger Agreement; Other Arrangements."
The Merger is subject to the satisfaction or waiver of certain conditions,
including, if required, the approval and adoption of the Merger Agreement by a
majority of the stockholders of the Company. Pursuant to the Stockholders'
Agreement, officers of the Purchaser hold an irrevocable proxy to vote Shares
owned of record by the Stockholders, comprising approximately 62.3% of the
issued and outstanding Shares. Additionally, if the Minimum Condition is
satisfied, Purchaser would have sufficient voting power to approve the Merger
without the affirmative vote of any other stockholder of the Company. The
Company has agreed, if required, to duly call, give notice of, convene and hold
a meeting of its stockholders, to be held as soon as practicable after the
Tender Offer Purchase Time for the purpose of considering and taking action upon
the Merger Agreement. See Section 12--"The Merger Agreement; Other
Arrangements."
This Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is made
with respect to the Offer.
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<PAGE> 9
THE TENDER OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), Purchaser will accept for payment and pay the Per Share Amount for
all Shares validly tendered prior to 12:00 midnight, New York City time, on
April 19, 2000 (the "Expiration Date") and not properly withdrawn as permitted
under Section 4--"Withdrawal Rights." The term "Initial Expiration Date" means
the foregoing Expiration Date without extension. If Purchaser, in accordance
with the Merger Agreement, extends the deadline for tendering Shares, the term
"Expiration Date" means the latest time and date on which the Offer, as so
extended, expires.
The Offer is subject to the Minimum Condition. Consummation of the Offer is
also conditioned upon (i) expiration or termination of any applicable waiting
period under the HSR Act, (ii) any approvals under the Canadian Bank Act and the
Bank Holding Company Act of 1956 having been either filed or obtained, (iii) any
approvals from state governmental entities responsible for regulating in the
aggregate, 90% of the average mortgage origination volume of the Company and its
subsidiaries for 1998 and 1999, having been obtained; and (iv) the other
conditions described in Section 16--"Certain Conditions of the Offer."
Extension of the Offer. Parent expressly reserves the right, in its sole
discretion (but subject to the terms and conditions of the Merger Agreement and
the applicable rules and regulations of the SEC), at any time and from time to
time, to cause Purchaser to extend the period of time during which the Offer is
open by giving oral or written notice of such extension to the Depositary.
During any such extension, all Shares previously tendered and not withdrawn will
remain subject to the Offer, subject to the rights of a tendering stockholder to
withdraw such stockholder's Shares. See Section 4--"Withdrawal Rights."
Without the consent of the Company Board, Parent may cause Purchaser to (i)
from time to time extend the Offer, if at the Initial Expiration Date of the
Offer any of the conditions to the Offer have not been satisfied or waived
(other than the Minimum Condition, to which this clause does not apply), until
such time as such conditions are satisfied or waived, (ii) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC applicable to the Offer, or (iii) if all of the conditions to the Offer are
satisfied or waived but the number of Shares validly tendered and not withdrawn
is less than ninety percent (90%) of the then outstanding number of Shares on a
fully diluted basis, Purchaser may include a Subsequent Offering Period that
would extend the Offer for an aggregate period not to exceed 20 business days.
In the event that Purchaser includes a Subsequent Offering Period, Purchaser
must accept and promptly pay for all securities tendered prior to the date of
such extension and must otherwise meet the requirements of Rule 14d-11 under the
Exchange Act in connection with each such extension. In addition, Parent and
Purchaser have also agreed pursuant to the Merger Agreement that Purchaser shall
from time to time extend the Offer upon the request of the Company, if at the
Initial Expiration Date (or any extended expiration date of the Offer, if
applicable), any of the conditions to the Offer other than (or in addition to)
the Minimum Condition have been waived or satisfied, until (taking into account
all such extensions) September 30, 2000.
Purchaser expressly reserves the right, in its sole discretion, at any time
and from time to time, to waive, in whole or in part, any conditions of the
Offer (other than the Minimum Condition), to increase the price per Share
payable in the Offer or to make any other changes in the terms and conditions of
the Offer, provided that, unless previously approved by the Company in writing,
no change may be made which (i) decreases the Per Share Amount, (ii) reduces the
number of Shares to be purchased in the Offer, (iii) changes the form of
consideration to be paid in the Offer, (iv) imposes additional conditions on the
Offer, or (iv) amends or changes any term or condition of the Offer in a manner
adverse to the holders of Shares.
The rights reserved in the foregoing paragraphs are in addition to the
rights set forth in Section 16--"Certain Conditions of the Offer." Any
extension, delay, termination, waiver or amendment will be
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<PAGE> 10
followed as promptly as practicable by public announcement. An announcement, in
the case of an extension, will be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date,
in accordance with the public announcement requirements of Rule 14e-1(d).
Subject to applicable law (including Rules 14d-4(d), and 14d-6(c) under the
Exchange Act, which require that material changes be promptly disseminated to
stockholders in a manner reasonably designed to inform them of such changes) and
without limiting the manner in which Purchaser may choose to make any public
announcement, Purchaser shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a press
release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
Purchaser will disseminate additional tender offer materials (including by
public announcement as set forth below) and extend the Offer to the extent
required by Rules 14d-4(d) and 14e-1 under the Exchange Act. These rules
generally provide that the minimum period during which a tender offer must
remain open following material changes in the terms of the offer or information
concerning the offer, other than a change in price or a change in the percentage
of securities sought, will depend upon the facts and circumstances then
existing, including the relative materiality of the changed terms or
information. In the SEC's view, an offer should remain open for a minimum of
five business days from the date the material change is first published, sent or
given to stockholders, and, if material changes are made with respect to
information that approaches the significance of price and the percentage of
securities sought, a minimum of ten business days may be required to allow for
adequate dissemination and investor response. With respect to a change in price,
a minimum ten business day period from the date of the change is generally
required to allow for adequate dissemination to stockholders. Accordingly, if,
prior to the Expiration Date, Purchaser increases or decreases the consideration
offered pursuant to the Offer, and if the Offer is scheduled to expire at any
time earlier than the tenth business day from the date that notice of the
increase or decrease is first published, sent or given to holders of Shares,
Purchaser will extend the Offer at least until the expiration of such tenth
business day. For purposes of the Offer, a "business day" means any day other
than a Saturday, Sunday or a federal holiday and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time.
In the Merger Agreement, Purchaser has agreed that, upon the terms and
subject to the conditions to the Offer, Purchaser shall accept for payment,
purchase and pay for all Shares that have been validly tendered and not
withdrawn pursuant to the Offer at the earliest time following expiration of the
Offer that all conditions to the Offer have been satisfied or waived by
Purchaser.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
Subsequent Offering Period. Pursuant to Rule 14d-11 under the Exchange
Act, Purchaser may, subject to certain conditions, include a Subsequent Offering
Period following the expiration of the Offer on the Expiration Date. Rule 14d-11
provides that Purchaser may include a Subsequent Offering Period so long as,
among other things, (i) the Offer remains open for a minimum of 20 business days
and has expired, (ii) the Offer is for all outstanding Shares, (iii) Purchaser
accepts and promptly pays for all Shares tendered during the Offer, (iv)
Purchaser announces the results of the Offer, including the approximate number
and percentage of Shares deposited no later than 9:00 a.m. New York City time on
the next business day after the Expiration Date and immediately begins the
Subsequent Offering Period, (v) Purchaser immediately accepts and promptly pays
for Shares as they are tendered during the Subsequent Offering Period, and (vi)
Purchaser pays the Offer Price for all Shares tendered in the Subsequent
Offering Period. Purchaser will be able to include a Subsequent Offering Period
if it satisfies
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<PAGE> 11
the conditions above. In the event Purchaser elects to include a Subsequent
Offering Period, it will notify stockholders of the Company consistent with the
requirements of the SEC.
A Subsequent Offering Period, if one is included, is not an extension of
the Offer. A Subsequent Offering Period would be an additional period of time,
following the expiration of the Offer, in which stockholders may tender Shares
not tendered into the Offer. The Merger Agreement provides that, if all of the
conditions to the Offer are satisfied or waived but the number of Shares validly
tendered and not withdrawn is less than 90% of the then outstanding number of
Shares on a fully diluted basis, Purchaser may include a Subsequent Offering
Period for an aggregate period of time from three (3) business days to twenty
(20) business days in length, beginning after Purchaser purchases Shares
tendered in the Offer. In the event that Purchaser includes a Subsequent
Offering Period, Purchaser must accept and promptly pay for all securities
tendered prior to the date of such extension and must otherwise meet the
requirements of Rule 14d-11 under the Exchange Act in connection with each such
extension.
Purchaser intends to include a Subsequent Offering Period in the event that
all of the conditions to the Offer have been satisfied or waived but less than
90% of the outstanding Shares have been validly tendered and not properly
withdrawn as of the Expiration Date. Pursuant to Rule 14d-7 under the Exchange
Act, no withdrawal rights will apply to Shares tendered into a Subsequent
Offering Period and no withdrawal rights apply during the Subsequent Offering
Period with respect to Shares tendered in the Offer and accepted for payment.
The same consideration, the Offer Price, will be paid to stockholders tendering
Shares in the Offer or in a Subsequent Offering Period, if one is included.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment, purchase and pay for all
Shares which have been validly tendered and not withdrawn pursuant to the Offer
at the earliest time following expiration of the Offer that all conditions to
the Offer described in Section 16--"Certain Conditions of the Offer" have been
satisfied or waived by Purchaser. Subject to the Merger Agreement and any
applicable rules and regulations of the SEC including Rule 14e-1(c) under the
Exchange Act (relating to Purchaser's obligation to pay for or return tendered
Shares promptly after termination or withdrawal of the Offer), Purchaser
expressly reserves the right to delay the acceptance for payment of or the
payment for any tendered Shares in order to comply in whole or in part with any
applicable laws, including, without limitation, the HSR Act, the Canadian Bank
Act and the Bank Holding Company Act. See Section 17--"Certain Legal Matters;
Regulatory Approvals."
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price for the Shares with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from Purchaser and
transmitting payments to tendering stockholders whose Shares have been accepted
for payment.
Under no circumstances will Purchaser pay interest on the purchase price
for the Shares.
In all cases, Purchaser will pay for Shares purchased in the Offer only
after timely receipt by the Depositary of (i) the certificates representing the
Shares (the "Share Certificates") or confirmation (a "Book-Entry Confirmation")
of a book-entry transfer of such Shares into the Depositary's account at The
Depositary Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in Section 3--"Procedures for Accepting the Offer and
Tendering Shares"; (ii) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees or,
in the case of a book-entry transfer, an Agent's Message (as defined below) in
lieu of the Letter of Transmittal; and (iii) any other documents required under
the Letter of Transmittal. The procedures for
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<PAGE> 12
tendering Shares and guaranteed delivery set forth in Section 3 will apply
during any Subsequent Offering Period.
"Agent's Message" means a message transmitted by a Book-Entry Transfer
Facility to, and received by, the Depositary and forming a part of a Book-Entry
Confirmation, which message states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares which are the subject of the Book-Entry
Confirmation that the participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce that agreement
against the participant.
If Purchaser does not purchase any tendered Shares pursuant to the Offer
for any reason, or if a holder of Shares submits Share Certificates representing
more Shares than are tendered, Share Certificates representing unpurchased or
untendered Shares will be returned, without expense to the tendering stockholder
(or, in the case of Shares tendered by book-entry transfer into the Depositary's
account at the Book-Entry Transfer Facility pursuant to the procedure set forth
in Section 3--"Procedures for Accepting the Offer and Tendering Shares," such
Shares will be credited to an account maintained at the Book-Entry Transfer
Facility), as promptly as practicable following the expiration or termination of
the Offer.
If, prior to the Expiration Date, Purchaser increases the Per Share Amount,
Purchaser will pay the Per Share Amount, as increased, to all holders of Shares
that are purchased in the Offer, whether or not the Shares were tendered before
the increase in the Per Share Amount.
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such
transaction or assignment will not relieve Purchaser of its obligations under
the Offer and will in no way prejudice the rights of tendering stockholders to
receive payment for Shares validly tendered and accepted for payment pursuant to
the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
Valid Tenders. In order for a stockholder validly to tender Shares
pursuant to the Offer, either (i)(A) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal) and any other documents required
by the Letter of Transmittal must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and (B) either
the Share Certificates evidencing tendered Shares must be received by the
Depositary at such address or such Shares must be tendered pursuant to the
procedure for book-entry transfer described below and a Book-Entry Confirmation
must be received by the Depositary, in each case on or prior to the Expiration
Date, or the expiration of the Subsequent Offering Period, as the case may be;
or (ii) the tendering stockholder must comply with the guaranteed delivery
procedures described below. No alternative, conditional or contingent tenders
will be accepted.
Book-Entry Transfer. The Depositary will establish accounts with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
either the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase on or prior to
the Expiration Date, or the expiration of the Subsequent Offering Period, as the
case may be, or the tendering stockholder must comply with the guaranteed
delivery procedure described below.
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<PAGE> 13
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE
BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING
STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER A BOOK-ENTRY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal where Shares are tendered (i) by a registered holder of Shares who
has not completed either the box labeled "Special Delivery Instructions" or the
box labeled "Special Payment Instructions" on the Letter of Transmittal or (ii)
for the account of a bank, broker, dealer, credit union, savings association or
other entity which is a member in good standing of a recognized Medallion
Program approved by the Securities Transfer Association Inc., including the
Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange
Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature
Program (MSP) or any other "eligible guarantor institution" as defined in Rule
17Ad-15 under the Exchange Act (each of the foregoing, an "Eligible
Institution"). In all other cases, all signatures on a Letter of Transmittal
must be guaranteed by an Eligible Institution. See Instruction 1 of the Letter
of Transmittal.
If a Share Certificate is registered in the name of a person or persons
other than the signer of the Letter of Transmittal, or if payment is to be made
or delivered to, or a Share Certificate for unpurchased Shares is to be issued
or returned to, a person other than the registered holder, then the Share
Certificate must be endorsed or accompanied by an appropriate duly executed
stock power, in either case signed exactly as the name of the registered holder
appears on the Share Certificate, with the signature on such Share Certificate
or stock power guaranteed by an Eligible Institution as provided in the Letter
of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such stockholder's Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, the stockholder's Shares may
nevertheless be tendered; provided that all of the following conditions are
satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) the Depositary receives, as described below, a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form
made available by Purchaser, on or prior to the Expiration Date; and
(iii) the Depositary receives the Share Certificates (or a Book-Entry
Confirmation) evidencing all tendered Shares, in proper form for
transfer, in each case together with the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any
required signature guarantees (or, in the case of a book-entry transfer,
an Agent's Message), and any other documents required by the Letter of
Transmittal, within three Nasdaq National Market trading days after the
date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by Purchaser. Guaranteed
delivery procedures are not available in the Subsequent Offering Period.
Notwithstanding any other provision of the Offer, Purchaser will pay for
Shares only after timely receipt by the Depositary of Share Certificates
representing, or Book-Entry Confirmation with respect to, the Shares; a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof),
11
<PAGE> 14
together with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message); and any other documents required by the Letter of
Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination will be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Subject to the terms of the Merger Agreement, Purchaser
also reserves the absolute right to waive any condition of the Offer or any
defect or irregularity in the tender of any Shares of any particular stockholder
of the Company, whether or not similar defects or irregularities are waived in
the case of other stockholders of the Company.
Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. No tender of Shares will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of Parent,
Purchaser or any of their respective affiliates or assigns, the Dealer Manager,
the Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of Purchaser as such stockholder's
agents, attorneys-in-fact and proxies, with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder and
accepted for payment by Purchaser and with respect to any and all other Shares
or other securities or rights issued or issuable in respect of those Shares on
or after the date of this Offer to Purchase. All such powers of attorney and
proxies will be considered irrevocable and coupled with an interest in the
tendered Shares. This appointment will be effective when, and only to the extent
that, Purchaser accepts such Shares for payment. Upon such acceptance for
payment, all other powers of attorney and proxies given by such stockholder with
respect to such Shares and such other securities or rights prior to such payment
will be revoked without further action, and no subsequent powers of attorney or
proxies may be given, nor may any subsequent written consent be executed by such
stockholder, (and, if given or executed, will not be deemed to be effective)
with respect thereto. The designees of Purchaser will, with respect to the
Shares and such other securities and rights for which the appointment is
effective, be empowered to exercise all voting and other rights of such
stockholder as they, in their sole discretion, may deem proper at any annual or
special meeting of the Company's stockholders or any adjournment or postponement
thereof, or by written consent in lieu of any such meeting or otherwise. In
order for Shares to be deemed validly tendered, immediately upon the acceptance
for payment of such Shares, Purchaser or its designee must be able to exercise
full voting rights with respect to such Shares and other securities, including
voting at any meeting of the Company's stockholders.
Backup U.S. Federal Income Tax Withholding. Under U.S. federal income tax
law, the amount of any payments made by the Depositary to stockholders of the
Company (other than certain exempt stockholders, including, among others, all
corporations and certain foreign individuals), pursuant to the Offer or the
Merger may be subject to backup withholding tax at a rate of 31%. To avoid
backup withholding tax with respect to payments made pursuant to the Offer or
the Merger, each stockholder must provide the Depositary with such stockholder's
correct taxpayer identification number or social security number and certify
under penalties of perjury that such stockholder is not subject to backup
federal income tax withholding by completing the Substitute Form W-9 in the
Letter of Transmittal. If backup withholding applies with respect to a
stockholder or if a stockholder fails to deliver a completed Substitute Form W-9
to the Depositary or otherwise establish an exemption, the Depositary is
required to withhold 31% of any payments made to such stockholder. See
Instruction 8 of the Letter of Transmittal.
Tender Constitutes Agreement. Purchaser's acceptance for payment of Shares
tendered pursuant to any of the procedures described above will constitute a
binding agreement between Purchaser and the tendering stockholder upon the terms
and subject to the conditions of the Offer.
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<PAGE> 15
4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable, except that
such Shares may be withdrawn (i) at any time prior to the Expiration Date and
(ii) unless theretofore accepted for payment by Purchaser pursuant to the Offer,
at any time after May 22, 2000 (or such later date as may apply if the Offer is
extended). Shares may not be withdrawn during any Subsequent Offering Period.
See Section 1--"Terms of the Offer."
If Purchaser amends the Offer by extending the deadline for tendering
Shares, is delayed in its acceptance for payment of or the payment for any
tendered Shares, or is unable to accept Shares for payment pursuant to the Offer
for any reason, then, without prejudice to Purchaser's rights under the Offer,
the Depositary may, nevertheless, on behalf of Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent that tendering
stockholders are entitled to and duly exercise withdrawal rights as described in
this Section 4. Any such delay will be by an extension of the Offer to the
extent required by law.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover page of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and (if Share Certificates
have been tendered) the name of the registered holder of such Shares, if
different from that of the person who tendered such Shares. If Share
Certificates representing Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such Share Certificates, the serial numbers shown on such Share Certificates
must be submitted to the Depositary and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Shares tendered for the account of an Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer as set forth in
Section 3--"Procedures for Accepting the Offer and Tendering Shares," the notice
of withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares, in which case a
notice of withdrawal will be effective if delivered to the Depositary by any
method of delivery described in the first sentence of this paragraph.
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will be considered not validly tendered for purposes of the Offer. However,
withdrawn Shares may be tendered again at any time prior to the Expiration Date
by following one of the procedures described in Section 3--"Procedures for
Accepting the Offer and Tendering Shares."
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Purchaser, in its sole
discretion, which determination will be final and binding. None of Parent,
Purchaser, or their respective affiliates or assigns, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification.
5. MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The receipt of cash pursuant to the Offer or the Merger will constitute a
taxable transaction for U.S. federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), and may also constitute a taxable
transaction under applicable state, local, foreign and other tax laws. For U.S.
federal income tax purposes, a tendering stockholder would generally recognize
gain or loss in an amount equal to the difference between the amount of cash
received by the stockholder pursuant to the Offer or the Merger and the
stockholder's tax basis for the Shares tendered and purchased pursuant to the
Offer or the Merger. If tendered Shares are held by a tendering stockholder as
capital assets, that gain or loss will be capital gain or loss. Any such capital
gain or loss will be long term if, as of the date of the disposition of its
Shares, the tendering stockholder held such Shares for more than one year or
will be short term if, as of such date, the stockholder held such Shares for one
year or less.
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<PAGE> 16
The foregoing discussion may not be applicable to certain types of
stockholders of the Company, including stockholders who acquired Shares through
the exercise of employee stock options or otherwise as compensation, individuals
who are not citizens or residents of the United States, foreign corporations, or
entities that are otherwise subject to special tax treatment under the Code
(such as insurance companies, tax-exempt entities and regulated investment
companies).
The summary of material U.S. federal income tax considerations set forth
above is included for general information only and is based on the law as
currently in effect. All stockholders should consult their own tax advisors to
determine the particular tax consequences to them (including the application and
effect of any state, local or foreign income and other tax laws) of the Offer
and the Merger.
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares began trading on the Nasdaq National Market under the symbol
"PRFN" on May 25, 1999. The following table sets forth, for the periods
indicated, the high and low sale prices per Share. Share prices are as reported
on the Nasdaq National Market based on published financial sources.
PRISM FINANCIAL CORPORATION
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1999
Second Quarter............................... 23.3750 15.2500
Third Quarter................................ 29.5000 9.8750
Fourth Quarter............................... 14.3125 3.0000
Fiscal 2000
First Quarter (through March 9).............. 7.4375 3.1250
</TABLE>
Pursuant to the Merger Agreement, the Company has represented to each of
Parent and Purchaser that, as of January 31, 2000, 14,670,560 Shares were issued
and outstanding. The Rights trade together with the common stock. On March 9,
2000, the last full day of trading before the public announcement of the
execution of the Merger Agreement, the closing price of the Shares on the Nasdaq
National Market was $7.00 per Share. On March 21, 2000, the last full day of
trading before the commencement of the Offer, the closing price of the Shares on
the Nasdaq National Market was $7.25 per Share.
Stockholders are urged to obtain a current market quotation for the Shares.
According to information provided by the Company, in connection with the
termination of the Company's S corporation status for federal and certain state
income tax purposes in conjunction with the Company's initial public offering,
the Company issued promissory notes (the "S Corporation Distribution Notes") to
all of the Company's stockholders prior to the initial public offering,
including Bruce C. Abrams, an affiliate of Mr. Abrams, Mr. Mark A. Filler, Mr.
Terry A. Markus, affiliates of Ms. Penny S. Pritzker and Mr. William D. Osenton,
in the amount of their respective undistributed accumulated S corporation
earnings for the period ending on the termination date of the Company's S
corporation status. In accordance with the Company's S corporation status, all
earnings of the Company were taxed directly to these stockholders rather than to
the Company. The amounts owed under the S Corporation Distribution Notes total
approximately $20.8 million, including $10.7 million, $3.6 million, $3.6
million, $942,842, $944,309 and $564,551 to Messrs. Abrams, Markus and Filler,
an affiliate of Mr. Abrams, affiliates of Ms. Pritzker and Mr. Osenton,
respectively. As of December 31, 1999, the respective amounts outstanding under
the S Corporation Distribution Notes were $675,574, $245,663, $245,663, $61,415,
$68,708 and $36,771, plus accrued but unpaid interest. The Company has paid no
dividends on its Shares, and the Merger Agreement prohibits the Company from
declaring or paying any dividends before the Tender Offer Purchase Time (as
defined below) without Parent's approval.
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<PAGE> 17
7. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal offices located at
440 North Orleans, Chicago, Illinois 60610. The telephone number of the Company
is (312) 494-0020.
The following description of the Company and its business has been taken
from the Company's Form 10-Q for the quarterly period ended September 30, 1999
and is qualified in its entirety by reference to the Company's Form 10-Q for the
quarterly period ended September 30, 1999:
The Company is a leading financial services company engaged primarily in
the business of originating, selling and brokering mortgage loans. The
Company originated $8.3 billion in residential mortgage loans in 1998,
after giving effect to the Company's 1998 acquisitions for the entire year,
and $6.1 billion of loans in the first nine months of 1999, making it the
third largest non-depository retail originator in the United States and the
11th largest overall. Through its network of approximately 1,200
commission-only loan originators operating out of 159 retail branches in 25
states, as of September 30, 1999, its affinity partners utilizing the
Company's private label on-line mortgage center and its relationships with
operators of leading Internet mortgage web sites, the Company offers a
broad array of residential mortgage products targeted primarily to
high-credit-quality borrowers. The Company operates 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.
Since commencing operations in 1992, the Company has focused on growing its
origination volume by building a retail origination network through
internal growth and selective acquisitions. In addition, the Company has
leveraged its state-of-the-art private label mortgage center to target
affinity partners on the Internet and has established relationships with
operators of Internet mortgage web sites to take advantage of growth
opportunities provided by this origination channel. The Company has
diversified its business through the expansion of its bundled and ancillary
services business and the acquisition of Apollo Housing Capital, L.L.C.
("Apollo"). Through its 80% interest in Apollo, the Company has expanded
its business to include affordable housing and historic rehabilitation tax
credit syndication.
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the SEC relating to its business,
financial condition and other matters. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the SEC's regional offices located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Information regarding the public
reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330.
The Company's filings are also available to the public on the SEC's Internet
site (http://www.sec.gov). Copies of such materials may also be obtained by mail
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material should also be
available for inspection at the offices of Nasdaq National Market Operations,
1735 K Street, N.W., Washington D.C. 20006.
8. SELECTED FINANCIAL INFORMATION
The Shares are registered under the Exchange Act. The Company is subject to
the information and reporting requirements of the Exchange Act and is required
to file periodic reports, proxy statements and other information with the SEC
relating to its business, financial and other matters. You may read and copy any
reports, statements, or other information filed at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's public
reference rooms in New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0030 for further information on the public reference rooms. The
Company's filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the SEC
at http://www.sec.gov.
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<PAGE> 18
9. CERTAIN INFORMATION CONCERNING PARENT AND PURCHASER
Parent is a Canadian corporation with its principal offices located at 200
Bay Street, Toronto, Ontario, Canada M5J 2J5. The telephone number of Parent is
(416) 974-5151. Parent is a global financial services group and a leading
provider of personal and commercial banking, insurance products, wealth
management, and corporate and investment banking both in Canada and
internationally.
Purchaser is a Delaware corporation with its principal offices located at
Wilmington Trust Center, 1100 North Market Street, Suite 780, Wilmington,
Delaware 19801. Purchaser is a wholly owned, indirect subsidiary of Parent.
Purchaser was organized on March 9, 2000 and has not carried on any activities
other than in connection with the Offer and Merger.
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of Parent and Purchaser and certain other information are set forth in
Schedule I to this Offer to Purchase.
Except as described elsewhere in this Offer to Purchase or in Schedule I
hereto, (i) none of Parent, Purchaser nor, to the best knowledge of Parent and
Purchaser, any of the persons listed in Schedule I to this Offer to Purchase or
any associate or majority-owned subsidiary of Parent or Purchaser or any of the
persons so listed beneficially owns or has any right to acquire, directly or
indirectly, any Shares; and (ii) none of Parent, Purchaser nor, to the best
knowledge of Parent and Purchaser, any of the persons or entities referred to
above nor any director, executive officer or subsidiary of any of the foregoing
has effected any transaction in the Shares during the past 60 days.
Except as provided in the Merger Agreement, the Stockholders' Agreement or
as otherwise described in this Offer to Purchase, none of Parent, Purchaser nor,
to the best knowledge of Parent and Purchaser, any of the persons listed in
Schedule I to this Offer to Purchase, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, finder's fees, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss, guarantees of
profits, division of profits or loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, (i) none of Parent,
Purchaser nor, to the best knowledge of Parent and Purchaser, any of the persons
listed on Schedule I hereto, has had any business relationship or transaction
with the Company or any of its executive officers, directors or affiliates that
is required to be reported under the rules and regulations of the SEC applicable
to the Offer; and (ii) there have been no contracts, negotiations or
transactions between Parent or any of its subsidiaries or, to the best knowledge
of Parent, any of the persons listed in Schedule I to this Offer to Purchase, on
the one hand, and the Company or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets.
None of the persons listed in Schedule I has, during the past five years,
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors). None of the persons listed in Schedule I has, during the past
five years, been a party to any judicial or administrative proceeding (except
for matters that were dismissed without sanction of settlement) that resulted in
a judgment, decree or final order enjoining the person from future violations
of, or prohibiting activities subject to federal or state securities, laws, or a
finding of any violation of federal or state securities laws.
10. SOURCE AND AMOUNT OF FUNDS
Purchaser estimates that the total amount of funds required to purchase all
of the Shares pursuant to the Offer and the Merger and to pay all related fees
and expenses will be approximately $115 million. In the Merger Agreement, Parent
has represented that it has and will have sufficient funds available to purchase
all of the Shares and to pay all related fees and expenses. Parent will make
such funds available to Purchaser when required to close the Offer and the
Merger.
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<PAGE> 19
11. BACKGROUND OF THE OFFER; PAST CONTACTS OR NEGOTIATIONS WITH THE COMPANY
During the second half of 1999, increasing interest rates resulted in an
industry wide reduction in origination volume, particularly refinancing volume.
Reduced volume led to increased competition and accelerated consolidation in the
industry. The Mortgage Bankers Association was predicting an additional 28%
reduction in origination volume for 2000. Commencing in September 1999 and
continuing through February 2000, management of the Company and the Company
Board conducted a thorough examination of the Company's operations and business
plan in light of current and expected industry conditions. The examination
indicated that while the Company was making significant progress in reducing its
costs and increasing efficiency and capturing market share, the Company's
long-term competitiveness was subject to uncertainty. As a result, the
management of the Company and the Company Board determined in October 1999 that
Company management should begin to explore and analyze the Company's strategic
and business alternatives in consultation with the Company Board. Among other
things, the Company's management explored and analyzed the following: (i)
raising additional capital to finance and grow the Company's operations in a
lower origination volume environment; (ii) spinning off or seeking equity
investors for the Company's Internet business; (iii) operating in accordance
with management's existing business plan or making modifications to account for
expected industry conditions; (iv) finding a strategic investor for the Company;
and (v) a possible sale of all or part of the Company.
In connection with this review, the Company engaged Friedman, Billings,
Ramsey & Co., Inc. ("FBR"), to assist management in exploring a possible sale of
all or part of the Company. In November, the Company's management and FBR
identified and reviewed a list of over 40 candidates that might be expected to
have an interest in acquiring or making a strategic investment in the Company.
Over the next three months, members of management and FBR had meetings or
informal discussions with many of these parties regarding potential strategic
transactions with the Company. Ultimately, ten companies, including Parent,
signed confidentiality agreements and received information regarding the
Company. Six companies met with management and conducted varying levels of due
diligence.
In October 1999, the Company engaged Keefe, Bruyette & Woods, Inc. ("KBW")
and William Blair & Company, L.L.C. ("Blair") to assist the Company in finding
sources of long-term capital. During November and December, KBW and Blair
contacted approximately 20 potential investors.
On February 2, 2000, Company management met for the first time with
representatives of Parent to discuss the Company's business. Management and
Parent representatives conducted a follow-up telephone call on February 3 to
continue the discussions of the previous day.
On February 9, various members of Parent met with the senior management of
the Company at the Company's headquarters in Chicago to discuss their businesses
and various strategic business arrangements that might benefit both the Company
and Parent.
During the week of February 14, at the request of the Company Board,
representatives of FBR indicated to each party that continued to have an
interest in a strategic transaction involving the Company that although no
decision had been made to sell the Company interested parties should submit a
proposal by February 18.
On February 16 and 17, senior members of Parent met with management of the
Company at the Company's headquarters in Chicago to further discuss how the
operations of their respective businesses could be combined through an
acquisition of the Company by Parent.
On February 18, Parent submitted a written proposal to acquire the Company
for $100 million in cash, subject to satisfactory completion of their due
diligence and a number of other conditions. At a meeting of the Company Board on
February 18, the Company Board reviewed Parent's proposal and the proposals
received from two other interested parties ("Other Parties") with its financial
and legal advisors. No decision was reached by the Company Board at the meeting,
but it was the consensus of the directors that the Company's management and
legal and financial advisors should continue to negotiate with Parent and the
Other Parties to determine whether or not they would improve their proposals.
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<PAGE> 20
From February 18 to February 25, FBR and the Company's management held
numerous conversations with Parent and the Other Parties to review the terms of
their proposals in order to get them to increase their offers. Various members
of Parent management and Parent's legal counsel and financial advisors conducted
preliminary due diligence at the Company's headquarters in Chicago during this
period. On February 25, Parent submitted a revised proposal to acquire the
Company for $115 million in cash, subject to completion of due diligence and a
number of other conditions. On February 26, the Company Board met to review the
revised Parent proposal and to receive an update from management and FBR on the
progress being made with the Other Parties. FBR indicated that although neither
of the Other Parties had raised their offers, both parties had expressed an
interest in exploring ways to increase their valuation of the Company to justify
a higher offer price. At the meeting, FBR made a detailed presentation to the
Company Board regarding its preliminary views as to the value of the Company and
the offers presented. Following the meeting, the Company Board instructed
management and FBR to continue negotiating with Parent and to work with the
Other Parties to see if their offers could be increased.
Beginning the week of February 28 and continuing through March 9, members
of Parent, their legal counsel and financial advisors, met at the Company's
headquarters to conduct a full due diligence review of the Company's operations.
During this time, FBR and the Company's legal counsel continued to negotiate the
terms of Parent's proposal with the senior management of Parent and its legal
counsel. Additionally, FBR continued its discussions with the Other Parties.
On Tuesday, February 29, Messrs. Filler and Fisher and other members of
senior management met with senior management of Parent at their offices in
Toronto, Canada. During the meeting, the Company and Parent representatives
discussed the Company's product offerings, distribution network, warehouse
credit lines, technology and potential cross-selling opportunities.
On or about March 1, the Company received a draft of a definitive Merger
Agreement from Parent. The Company's legal counsel and FBR discussed the terms
of the agreement and submitted comments to the definitive Merger Agreement to
Parent and its legal counsel on March 4. From March 5 to March 9, senior
management of the Company, the Company's legal counsel and FBR continued to
negotiate the terms of the definitive Merger Agreement and the Stockholders'
Agreement with Parent and its legal counsel.
At a March 5 meeting, the Company's legal advisors provided the Company
Board with a detailed summary of the proposed terms of the Merger Agreement,
Stockholders' Agreement and related agreements and reviewed with the Company
Board the Company's proposed negotiating position. At the meeting, FBR also
reviewed the status of the discussions with the Other Parties.
On March 9, 2000, a meeting of the Company Board was held at the Company's
headquarters. The proposed transactions and the Merger Agreement and
Stockholders' Agreement, including the issues remaining in dispute, were
presented to and reviewed by the Company Board. At the meeting, FBR indicated
that despite their efforts and the efforts of management, the Other Parties
indicated that they were not prepared to increase their offers to a level
comparable to that of Parent's offer. FBR made a presentation to the Company
Board and delivered its opinion as to the fairness of the $7.50 per Share cash
consideration to be received in the Offer and the Merger by the holders of the
outstanding Shares. The Company Board analyzed and discussed the Offer, the
Merger and the related Merger Agreement and Stockholders' Agreement and reviewed
proposed resolutions in connection therewith. After discussion and analysis, the
Company Board authorized the Company's management and legal advisors to complete
negotiations with Parent and report back to the Company Board at a meeting of
the Company Board to be held the next morning.
Early March 10, the Company Board met and was presented with the proposed
resolution of the remaining disputed items. Following further discussion, the
Company Board unanimously recommended that the holders of Shares accept the
Offer and tender their Shares pursuant to the Offer. With respect to the Merger,
the Company Board unanimously recommended that if a stockholder vote is required
by applicable law, the stockholders of the Company vote in favor of approval and
adoption of the Merger Agreement and the Merger. On March 10, Parent, the
Company and Purchaser executed and delivered
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the Merger Agreement and Parent, Purchaser and the Stockholders executed and
delivered the Stockholders' Agreement. In addition, Messrs. Filler, Fisher and
Gurry executed and delivered employment agreements, which were modified and
re-executed on March 21, 2000, relating to their employment following the
closing. The last reported trade of the Company's stock on March 9, 2000 was at
$7.00.
12. THE MERGER AGREEMENT; OTHER ARRANGEMENTS
The Merger Agreement
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is filed as an exhibit to the Tender Offer Statement
on Schedule TO filed by Parent and Purchaser with the SEC in connection with the
Offer (the "Schedule TO"). The summary is qualified in its entirety by reference
to the Merger Agreement, which is deemed to be incorporated by reference herein.
The following summary may not contain all of the information important to you.
The Merger Agreement may be examined and copies may be obtained from the SEC in
the same manner as set forth in Section 8. Capitalized terms used in the
following summary and not otherwise defined in this Offer to Purchase shall have
the meanings set forth in the Merger Agreement.
The Offer. The Merger Agreement provides for the making of the Offer. The
Merger Agreement provides that Purchaser will commence the Offer and that, upon
the terms and subject to prior satisfaction or waiver of the Minimum Condition
and the other conditions of the Offer, as set forth in Section 16--"Certain
Conditions of the Offer," Purchaser will purchase all Shares validly tendered
and not withdrawn pursuant to the Offer. The Merger Agreement provides that,
unless previously approved by the Company in writing, Purchaser will not make
any change in the terms and conditions of the Offer that (i) decreases the Per
Share Amount, (ii) reduces the number of Shares to be purchased in the Offer,
(iii) changes the form of consideration to be paid in the Offer, (iv) imposes
additional conditions on the Offer, or (iv) amends or changes any term or
condition of the Offer in a manner adverse to the holders of Shares.
Without the consent of the Company Board, Parent may cause Purchaser to (i)
from time to time extend the Offer, if at the Initial Expiration Date of the
Offer any of the conditions to the Offer have not been satisfied or waived
(other than the Minimum Condition, to which this clause does not apply), until
such time as such conditions are satisfied or waived, (ii) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC applicable to the Offer, or (iii) if all of the conditions to the Offer are
satisfied or waived but the number of Shares validly tendered and not withdrawn
is less than ninety percent (90%) of the then outstanding number of Shares on a
fully diluted basis, Purchaser may include a Subsequent Offering Period that
would extend the Offer for an aggregate period not to exceed 20 business days
(for all such extensions). In the event that Purchaser includes a Subsequent
Offering Period, Purchaser must accept and promptly pay for all securities
tendered prior to the date of such extension and must otherwise meet the
requirements of Rule 14d-11 under the Exchange Act in connection with each such
extension. In addition, Parent and Purchaser have also agreed pursuant to the
Merger Agreement that Purchaser shall from time to time extend the Offer upon
the request of the Company, if at the Initial Expiration Date (or any extended
expiration date of the Offer, if applicable), any of the conditions to the Offer
other than (or in addition to) the Minimum Condition have been waived or
satisfied, until (taking into account all such extensions) September 30, 2000.
Directors. The Merger Agreement provides that promptly after the Tender
Offer Purchase Time, and from time to time thereafter, Purchaser shall be
entitled to designate that number (but no more than that number) of directors of
the Company constituting a majority of the Company Board, and the Company shall
use its best efforts to, upon request by Purchaser, promptly, at the Company's
election, either increase the size of the Company Board (subject to the
provisions of Article Fifth of the Company's Certificate of Incorporation) or
secure the resignation of such number of directors as is necessary to enable
Purchaser's designees to be elected to the Company Board and to cause
Purchaser's designees to be so elected and to constitute at all times after the
Tender Offer Purchase Time a majority of the Company Board. At such times, the
Company will use its best efforts to cause persons designated by Purchaser to
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constitute the same percentage as is on the Company Board of (i) each committee
of the Company Board (other than any committee of the Company Board established
to take action under this Agreement), (ii) each board of directors of each
subsidiary of the Company and (iii) each committee of each such board.
Notwithstanding the foregoing, until the Effective Time, (x) the Company shall
retain at least three directors who are directors of the Company on the date of
the Merger Agreement (the "Continuing Directors") and (y) Parent and Purchaser
shall not, and shall cause their affiliates not to, (A) initiate, propose, vote
for or solicit others to vote for, any change in the number of directors of
Prism Mortgage Company as of the date of the Merger Agreement or (B) take any
action that would be reasonably likely to result in any change described in the
foregoing clause (A). The Company's obligation to appoint designees to the Board
is subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder. From and after the time that Parent's designees constitute a
majority of the Company Board until the Effective Time, any amendment,
modification or waiver of any term or condition of the Merger Agreement, any
amendment or modification to the Certificate of Incorporation or By-Laws of the
Company, any termination of the Merger Agreement by the Company, any extension
of time of performance of any of the obligations of Parent or Purchaser under
the Merger Agreement, any waiver of any condition or any of the Company's rights
under the Merger Agreement or other action by the Company in connection with the
rights of the Company under the Merger Agreement may be effected only with the
concurrence of a majority of the Continuing Directors.
The Merger. The Merger Agreement provides that Purchaser will be merged
with and into the Company as soon as practicable following the satisfaction or
waiver of each of the conditions to the Merger set forth in the Merger
Agreement. Following the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and a wholly owned, indirect
subsidiary of Parent, and the separate corporate existence of Purchaser will
cease.
The Company has agreed pursuant to the Merger Agreement that, if required
for the Merger under the Delaware General Corporation Law ("DGCL"), the Company,
acting through the Company Board, will (i) duly call, give notice of, convene
and hold a meeting of its stockholders, to be held as soon as practicable after
the Tender Offer Purchase Time, for the purpose of considering and taking action
upon the Merger Agreement, using a record date, to the extent possible, that is
a day on which the Shares are listed on the Nasdaq National Market; (ii) except
as otherwise permitted by the Merger Agreement, include in the proxy statement
or information statement relating to any meeting of the Company's stockholders
to be held in connection the Merger (the "Proxy Statement") (A) the
recommendation of the Company Board that stockholders of the Company vote in
favor of the approval and adoption of the Merger Agreement, the Merger and the
other transactions contemplated thereby, and (B) a statement that the Company
Board believes that the consideration to be received by the stockholders of the
Company pursuant to the Merger is fair to the stockholders; and (iii) except as
otherwise permitted by the Merger Agreement, use reasonable efforts (A) to
obtain and furnish the information required to be included by it in the Proxy
Statement, if any, and, after consultation with Parent and Acquisition, cause
the Proxy Statement to be mailed to its stockholders at the earliest practicable
time following the Tender Offer Purchase Time, and (B) to obtain the necessary
approvals by its stockholders of the Merger Agreement and the transactions
contemplated thereby. At such meeting, Parent and Purchaser will, and will cause
their affiliates to, vote all Shares owned by them in favor of approval and
adoption of the Merger Agreement, the Merger and the transactions contemplated
thereby.
The Merger Agreement further provides that, notwithstanding the foregoing,
if Parent, Purchaser and any other subsidiary of Parent collectively acquire at
least 90% of the issued and outstanding Shares, the parties to the Merger
Agreement will take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after the purchase of the Shares
pursuant to the Offer without a meeting of the stockholders of the Company in
accordance with Section 253 of the DGCL.
Charter, Bylaws, Directors and Officers. The Certificate of Incorporation
of Purchaser in effect at the Effective Time will be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
applicable law. The Bylaws of Purchaser in effect at the Effective Time will be
the Bylaws of the Surviving Corporation until amended in accordance with
applicable law. The directors of
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Purchaser at the Effective Time will be the initial directors of the Surviving
Corporation and will hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation until the next annual
meeting of stockholders and until their respective successors are duly elected
or appointed and qualified. The officers of the Company at the Effective Time
will be the initial officers of the Surviving Corporation and will hold office
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
Conversion of Shares. At the Effective Time, each Share issued and
outstanding immediately prior to the Effective Time (excluding (i) Shares held
by any of the Company's subsidiaries, (ii) Shares held by Parent, Purchaser or
any other subsidiary of Parent, and (iii) Shares held by stockholders who
perfect their appraisal rights under the DGCL) will, by virtue of the Merger and
without any action on the part of Purchaser, the Company or the holder thereof,
be converted into and become the right to receive the Per Share Amount in cash,
without interest (the "Cash Merger Consideration"). Notwithstanding the
foregoing, if between the date of the Merger Agreement and the Effective Time,
the Shares are changed into a different number of shares or a different class by
reason of any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, then the Cash Merger Consideration
contemplated by the Merger will be correspondingly adjusted to reflect any such
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares. At the Effective Time, each Share held by
Parent, Purchaser or any subsidiary of Parent, Purchaser or the Company
immediately prior to the Effective Time will, by virtue of the Merger and
without any action on the part of Purchaser, the Company or the holder thereof,
be canceled and retired and will cease to exist and no payment shall be made
with respect thereto. At the Effective Time, each share of common stock of
Purchaser issued and outstanding immediately prior to the Effective Time will be
converted into and become one validly issued, fully paid and nonassessable share
of common stock of the Surviving Corporation.
Company Stock Options. At the Effective Time, each outstanding option to
purchase Shares (a "Company Stock Option" or collectively "Company Stock
Options") issued pursuant to the Company's 1999 Omnibus Stock Incentive Plan
(the "1999 Option Plan"), whether vested or unvested, the exercise price of
which is greater than the Cash Merger Consideration, will be canceled and
extinguished without consideration and the 1999 Option Plan will terminate as of
the Effective Date.
At the Effective Time, each outstanding Company Stock Option issued
pursuant to the 1999 Option Plan or the Company's 2000 Option Plan (the "2000
Option Plan" and, together with the 1999 Option Plan, the "Company Option
Plans") that is vested as of the Effective Time will be canceled and
extinguished and will become the right to receive an amount, without interest,
in cash equal to the excess, if any, of the Cash Merger Consideration over the
exercise price per Share of such Company Stock Option, less the amount of taxes
required to be withheld under federal, state or local laws and regulations,
multiplied by the number of Shares subject to such Company Stock Option.
At the Effective Time, each outstanding Company Stock Option issued
pursuant to the Company Option Plans or any other stock option plan, program or
agreement to which the Company or any of its subsidiaries is a party that is not
vested as of the Effective Time, the exercise price of which is less than the
Cash Merger Consideration will be canceled and extinguished in consideration for
certain compensatory payments to be paid to the holder of such Company Stock
Option at the time the Company Stock Option would otherwise have vested
(provided that the holder is employed with the Company at such time and has not
breached any of its obligations under any applicable employment agreement with
the Company or any subsidiary) equal to an amount, without interest, in cash
equal to the excess, if any, of the Cash Merger Consideration over the exercise
price per Share of such Company Stock Options that would otherwise have vested
at such time.
Pursuant to the Merger Agreement, the Company has agreed, if and to the
extent required by the terms of the Company Option Plan, or any other stock
option plan, program or arrangement to which the Company or any of its
subsidiaries is a party or the terms of any Company Stock Option granted
thereunder, to cooperate with Parent and Purchaser in obtaining the consent of
each holder of outstanding
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Company Stock Options to the foregoing treatment of such Company Stock Options
and to take any other action necessary to effectuate the foregoing provisions.
Representations and Warranties. The Merger Agreement contains certain
customary representations and warranties of the parties. These include
representations and warranties of the Company with respect to, among other
matters, its organization, capitalization, authority, SEC filings, financial
statements, accounting procedures, licenses and permits, employee benefit plans,
employment and labor matters, and the absence of certain changes or effects that
would have a Material Adverse Effect on the Company. When used in the Merger
Agreement in connection with the Company or its subsidiaries, the term "Material
Adverse Effect" means any change or effect (i) that is materially adverse to the
business, properties, financial condition, or results of operations of the
Company and its subsidiaries, taken as whole, or (ii) that would materially
impair the ability of the Company to perform its obligations under the Merger
Agreement. Notwithstanding the foregoing, none of the following shall be deemed,
either alone or in combination, to constitute a Material Adverse Effect: (i)
changes or effects resulting from general changes in economic, market,
regulatory or political conditions or changes in conditions or business
practices generally applicable to the industries in which the Company and its
subsidiaries operate, including, but not limited to, changes and effects
resulting from a change in interest rates or an industry-wide decrease in
mortgage volume; (ii) changes in the market price or trading volume of the
Shares on the Nasdaq National Market; or (iii) changes or effects resulting from
the announcement or approval of the Offer and the Merger Agreement or relating
to the identity of or facts pertaining to Parent or Purchaser. Parent and
Purchaser also have made certain representations and warranties with respect to
corporate existence and power, corporate authorization relative to the Merger
Agreement, documents relating to the Offer, the availability of funds to finance
the Offer and other matters.
Conduct of Company Business Pending the Merger. The Company has agreed
that, prior to the Tender Offer Purchase Time, unless Parent shall otherwise
agree in writing or as otherwise contemplated in the Merger Agreement, each of
the Company and its subsidiaries will (i) conduct their businesses and
operations only in the ordinary course of business consistent with past
practice; (ii) use reasonable efforts to preserve intact their business,
organization, goodwill, rights, licenses, permits and franchises of the Company
and its subsidiaries and maintain their existing relationships with customers,
suppliers and other persons having business dealings with them; (iii) use
reasonable efforts to keep in full force and effect adequate insurance coverage
and maintain and keep material assets in good repair, working order and
condition; (iv) not amend or modify its organizational documents; (v) except
pursuant to certain stock purchase rights and except for up to 20,000 options
that may be issued under the 2000 Stock Option Plan, not authorize for issuance
issue, sell, grant, deliver, pledge or encumber any shares of any class or
series of capital stock of the Company or any subsidiaries or any other equity
or voting security or equity or voting interest in the Company or any of its
subsidiaries, any securities convertible into or exercisable or exchangeable for
any such shares, securities or interests, or any options, warrants, calls,
commitments, subscriptions or rights to purchase or acquire any such shares,
securities or interests (other than issuances of Shares upon exercise of stock
options granted prior to the date of the Merger Agreement); (vi) not (A) split,
combine or reclassify any shares of its stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of, or in
substitution for its shares of stock, (B) in the case of the Company, declare,
set aside or pay any dividends on, or make other distributions in respect of any
of the Company's stock, or (C) repurchase, redeem or otherwise acquire, or agree
or commit to repurchase, redeem or otherwise acquire, any shares of stock or
other equity or debt securities or equity interests of the Company or any of its
subsidiaries; (vii) except as otherwise contemplated by the Merger Agreement,
not amend or otherwise modify the terms of Company Stock Options or Company
Option Plans; (viii) other than normal salary increases in the ordinary course
of business consistent with past practice, not (A) materially increase
compensation payable or to become payable to any directors, officers or
employees of the Company or any subsidiary except arrangements in connection
with employee transfers and agreements with new employees having a salary of
greater than $75,000, (B) grant any severance or termination pay to, or enter
into any employment or severance agreement with any director or officer or
employee (other than in the ordinary course of business) of the Company or any
of its subsidiaries, or (C) establish, adopt, enter into or amend in any
material respect or take action to accelerate any material
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rights or benefits under any collective bargaining, bonus, profit sharing,
thrift compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
officer or employee, other than in the ordinary course of business, of the
Company or any subsidiary; (ix) not acquire or agree to acquire any corporation,
partnership, joint venture, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets outside the
ordinary course of business consistent with past practice or any interest in any
real properties (other than in the ordinary course of business); (x) not incur,
assume or guarantee any indebtedness for borrowed money, (including draw-downs
on letters or lines of credit) or issue any notes, bonds, debentures, debt
instruments, evidences of indebtedness or other debt securities of the Company
or any of its subsidiaries or any options, warrants or rights to purchase or
acquire any of the same, except for (A) renewals of existing bonds and letters
of credit in the ordinary course of business not to excess $1 million in the
aggregate, (B) indebtedness for borrowed money in the ordinary course of
business consistent with past practice in an aggregate amount not to exceed
$100,000, and (C) advances in the ordinary course pursuant to working capital
lines of credit in an amount not to exceed $15 million and certain warehouse
lines of credit; (xi) not sell, lease, license, encumber or otherwise dispose of
any material properties or assets of the Company other than in the ordinary
course of business; (xii) not authorize or make any capital expenditures in
excess of $500,000 in the aggregate for the Company and all of its subsidiaries
other than in the ordinary course of business; (xiii) not make any material
change in any of its accounting or financial reporting except as may be required
by a change in law or in GAAP; (xiv) not make any material tax election or
settle or compromise any material tax liability; (xv) except in the ordinary
course of business, not amend, modify or terminate any material contract; (xvi)
other than in the ordinary course of business, not enter into contracts that
reasonably would involve financial obligations by the Company exceeding
$100,000; (xvii) not adopt a plan of liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization; (xviii)
fail to report any facts that have resulted in insurance claims that would have
a material adverse effect; and (xix) except as to clauses (i), (ii) and (iii) of
this paragraph, not agree or commit in writing or otherwise to do any of the
foregoing.
Other Potential Acquirers. The Merger Agreement provides that the Company
and its subsidiaries will and will direct and use their reasonable best efforts
to cause, the Company's affiliates and the respective officers, directors,
employees, representatives and agents of each to immediately cease any
discussions or negotiations with any parties with respect to (i) the acquisition
of the Company by merger or otherwise by anyone other than Parent, Acquisition
or any affiliate thereof (a "Third Party") or by an officer or director of the
Company; (ii) the acquisition by a Third Party of more than 20% of the total
assets of the Company and its subsidiaries taken as a whole; (iii) the
acquisition by a Third Party of Shares which, together with all other Shares
owned by such Third Party and its affiliates, equal 20% or more of the issued
and outstanding Shares; (iv) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend; (v) the
repurchase by the Company or any of its subsidiaries of more than 20% of the
issued and outstanding Shares; or (vi) the acquisition by the Company or any
subsidiary by merger, purchase of stock or assets, joint venture or otherwise of
a direct or indirect ownership interest or investment in any business whose
annual revenues, net income or assets attributable to such ownership interest or
investment is equal or greater than 20% of the annual revenues, net income or
assets of the Company (each of the foregoing, a "Third Party Acquisition").
The Merger Agreement further provides that the Company and its subsidiaries
will, and will direct and use their reasonable best efforts to cause their
respective officers, directors, employees, representatives or agents to, refrain
from directly or indirectly, encouraging, soliciting, participating in or
initiating discussions or negotiations with or providing any non-public
information to anyone (other than Parent, Purchaser or any designees of either)
concerning any Third Party Acquisition. However, following written notice to
Parent and Purchaser, the Company may provide non-public information to,
consider a proposal from, and negotiate a proposal with, anyone who, prior to
the Tender Offer Purchase Time, submits to the Company (i) a potential Superior
Proposal or (ii) an unsolicited proposal, offer or indication that the Company
in good faith believes may lead to a Superior Proposal. Prior to furnishing such
non-public information, the Company must enter into a non-disclosure agreement
having terms regarding the
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protection of confidential information that are at least as restrictive as the
confidentiality provisions of the Letter Agreement between Parent and the
Company dated as of January 31, 2000, a copy of which is attached hereto as
Exhibit (d)(2). A "Superior Proposal" is defined in the Merger Agreement to mean
any bona fide proposal to acquire directly or indirectly for consideration
consisting of cash and/or securities all of the Shares then issued and
outstanding or all or substantially all the assets of the Company and otherwise
on terms which the Company Board by a majority vote determines in its good faith
judgment (consistent with the advice of a financial adviser of nationally
recognized reputation) to be more favorable to the Company's stockholders than
the Merger and the Offer.
The Merger Agreement also requires the Company to notify Parent promptly,
and in any event before furnishing non-public information, in the event the
Company receives any proposal or inquiry concerning a Third Party Acquisition,
including the material terms and conditions thereof and the identity of the
party submitting such proposal.
The Company Board may not withdraw its recommendation of the transactions
contemplated by the Merger Agreement, or approve or recommend, or cause the
Company to enter into, any agreement with respect to any Third Party
Acquisition, unless, prior to the Tender Offer Purchase Time, the Company Board
by a majority vote determines in its good faith judgment, after consultation
with its legal counsel, failure to do so would be inconsistent with their
fiduciary duties under applicable law. The Company may not enter into any
agreement with respect to a Superior Proposal unless and until the Merger
Agreement is terminated by its terms. At and after the Tender Offer Purchase
Time, the Company Board may not under any circumstances withdraw its
recommendation of the transactions contemplated by the Merger Agreement or
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Third Party Acquisition.
Access to Information. The Merger Agreement provides that until the
Closing Time, upon reasonable prior notice, the Company will (and will cause
each of its subsidiaries to) give Parent and its representatives full access,
during normal business hours and at other reasonable times without disruption to
the Company's normal business affairs, to the books, records, contracts,
commitments, properties, offices and other facilities of the Company and its
subsidiaries; arrange for Parent and its representatives to have reasonable
access, during normal business hours, to the officers, employees, and agents of
the Company and its subsidiaries; and furnish promptly to Parent and its
representatives such financial and operating data and other information
concerning the business, operations, properties, contracts, records and
personnel of the Company and its subsidiaries as Parent may from time to time
reasonably request. All information obtained by the Parent and its
representatives will be kept confidential in accordance with the confidentiality
provisions of the Letter Agreement between Parent and the Company dated as of
January 31, 2000.
Further Actions. Pursuant to the Merger Agreement, each of Parent,
Purchaser and the Company has agreed to use commercially reasonable efforts to
take all actions and to do all things necessary, proper or advisable under
applicable laws and regulations, and to consult and fully cooperate with and
provide reasonable assistance to each other in order to consummate and make
effective the transactions contemplated by the Merger Agreement, including (i)
using commercially reasonable efforts to make all filings, applications,
notifications, reports, submissions and registrations, and to obtain all
consents, approvals, authorizations or permits necessary for the consummation of
the Merger and the other transactions contemplated thereby, and (ii) taking
those actions that any other party to the Merger Agreement may reasonably
request in order to cause any of the conditions to such party's obligation to
consummate the Merger to be fully satisfied.
Subject to the terms and conditions of the Merger Agreement, each of Parent
and the Company has also agreed to cooperate and use reasonable efforts to
vigorously contest and resist any action, suit, proceeding or claim, and to have
vacated, lifted, reversed or overturned any injunction, order, judgment or
decree, (whether temporary, preliminary or permanent) that delays, prevents or
otherwise restricts the consummation of the Merger or any other transaction
contemplated by the Merger Agreement, and to take any and all actions (but not
including the disposition of material assets, divestiture of businesses, or the
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withdrawal from doing business in particular jurisdictions, if material) as may
be required as a condition to the granting of any approvals or as may be
required to avoid, vacate, lift, reverse or overturn any injunction, order,
judgment, decree or regulatory action.
The Merger Agreement further provides that the Company will take all
necessary action (i) prior to the Effective Time, to cause the dilution
provisions of the Rights Agreement to be inapplicable to the transactions
contemplated by the Merger Agreement, without any payment to holders of Rights;
and (ii) promptly after the date of the Merger Agreement, to cause the Company's
Employee Stock Purchase Plan to be amended so that no action thereunder can be
taken by the President or any other officer of the Company without the approval
of the Company Board.
Public Announcements. The Merger Agreement provides that Parent, Purchaser
and the Company, as the case may be, will consult with one another and mutually
agree upon the content and timing of any press releases or public statements
with respect to the transactions contemplated by the Merger Agreement,
including, without limitation, the Offer and the Merger, and will not issue any
such press release or make any such public statement prior to such consultation
and agreement except to the extent that such disclosure may be required by
applicable law or by obligations pursuant to any listing agreement with the
Toronto Stock Exchange, the New York Stock Exchange or the Nasdaq National
Market as determined by Parent, Purchaser or the Company, as the case may be.
Employee Benefit Matters. With respect to employee benefit matters, the
Merger Agreement provides that as of the Effective Time and for a period of one
year thereafter, Parent will provide, or cause Purchaser and its subsidiaries
and successors to provide, to those persons who were employees of the Company
and its subsidiaries prior to the Effective Time and who continue as employees
thereafter, with benefits and compensation no less favorable in the aggregate to
the benefits and compensation provided to such employees as of the date of the
Merger Agreement.
The Merger Agreement also provides that, except with respect to accruals
under any defined benefit pension plan, Parent will, or will cause Purchaser and
its subsidiaries to, give such employees full credit for purposes of eligibility
and vesting under any employee benefit plans or arrangements maintained by
Parent, Purchaser or any subsidiary of either for such employees' service with
the Company or any subsidiary of the Company to the same extent recognized by
the Company immediately prior to the Effective Time. Parent will, or will cause
Purchaser and its subsidiaries to waive limitations as to preexisting conditions
(except to the extent that such limitations were not waived under the Company's
then-existing welfare plans), exclusions and waiting periods with respect to
participation and coverage requirements applicable under any welfare plan that
such employees may be eligible to participate in after the Effective Time, and
provide credit for co-payments and deductibles paid prior to the Effective Time
in satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such employees are eligible to participate in after the
Effective Time.
Expenses. Except as described in the following sentence, each party will
bear its own expenses in connection with the Offer and the Merger. Upon
termination of the Merger Agreement under certain circumstances, the Company has
agreed to pay Purchaser a break-up fee as described below under the heading
"Termination."
Notification of Certain Matters. Each of the Company, Parent and Purchaser
has agreed to give prompt notice to the others of (i) the occurrence or
nonoccurrence of any event that would be likely to cause any covenant, condition
or agreement contained in this Agreement not to be complied with or satisfied in
all material respects and (ii) any material failure of the Company, Parent or
Purchaser, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it under the Merger Agreement.
Guarantee of Performance. Parent has guaranteed the performance by
Purchaser and, after the Effective Time, the Surviving Corporation of its
obligations under the Merger Agreement.
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
provides that the Surviving Corporation shall cause its Certificate of
Incorporation and Bylaws to contain the indemnifica-
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tion provisions set forth in the Certificate of Incorporation and Bylaws of the
Company on the date of the Merger Agreement. These provisions may not be
amended, repealed or otherwise modified after the Effective Time in any manner
that would adversely affect the rights of individuals who at any time prior to
the Effective Time were directors or officers of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement).
Parent shall cause the Surviving Corporation to comply with the terms of and
maintain in existence the indemnification agreements in effect on the date of
the Merger Agreement. In the event the Surviving Corporation or any of its
successors or assigns consolidates with or merges into another person or
transfers all or substantially all of its properties and assets to another
person, proper provision will be made so that the successors and assigns of the
Surviving Corporation assume these obligations.
In addition, the Merger Agreement requires the Surviving Corporation to
obtain and maintain in effect for not less than five years after the Effective
Time, the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by the Company and the Company's
subsidiaries with respect to matters occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement). Parent may, with no lapse in coverage, substitute policies of
substantially the same coverage containing terms and conditions which are no
less advantageous, in any material respect, to the Company's present or former
directors, officers, employees, agents or other individuals otherwise covered by
such insurance policies prior to the Effective Time.
Conditions to Consummation of the Merger. The respective obligations of
each of Parent, Purchaser and the Company to effect the Merger are subject to
the satisfaction or waiver at or prior to the Closing Time of the following
conditions: (i) that the Merger Agreement, the Merger, and the other
transactions contemplated thereby shall have been approved by all necessary
corporate action of the Company, including if necessary, by vote of the
stockholders of the Company, provided that in voting, Parent and Purchaser shall
have complied with their obligations under the Merger Agreement to vote and
cause their affiliates to vote, all Shares owned by them, in favor of the Merger
Agreement, the Merger, and the other transactions contemplated thereby; (ii)
that no governmental entity or court shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order that makes payment of the Cash Merger Consideration
illegal or otherwise prohibits the Merger; (iii) Purchaser shall have purchased
Shares pursuant to the Offer in accordance with the terms of this Merger
Agreement and the Offer, provided that neither Parent nor Purchaser may invoke
this condition if Purchaser shall have failed to purchase, in violation of the
terms of the Merger Agreement or the Offer, Shares validly tendered and not
withdrawn pursuant to the Offer.
Termination. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Closing Time, whether before or after
approval and adoption of the Merger Agreement by the Company's stockholders:
(i) by mutual written consent of Parent, Purchaser and the Company;
(ii) by Parent or the Company if (A) any governmental entity or court
shall have enacted, issued, promulgated, enforced or entered, any
statute, rule, regulation, executive order, decree, injunction or other
order that is in effect and makes payment of the Per Share Amount or the
Cash Merger Consideration illegal or otherwise prohibits the Offer or
the Merger, or (B) Purchaser shall not have purchased Shares pursuant to
the Offer or the Merger shall not have occurred on or prior to September
30, 2000, provided that the right to terminate the Merger Agreement
pursuant to this clause (ii) will not be available to any party whose
failure to fulfill its obligations under the Merger Agreement results in
Purchaser's failure to purchase;
(iii) by Parent and Purchaser before the Tender Offer Purchase Time, if
there shall have been a breach of any covenant or agreement on the part
of the Company resulting in a Material Adverse Effect or a Parent
Material Adverse Effect and the breach has not been cured prior to the
earlier of ten days following notice of the breach or two business days
prior to the date on which the Offer expires (as such date may be
extended);
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(iv) by the Company prior to the Tender Offer Purchase Time if (A) the
Company shall have received a Superior Proposal, shall have furnished
Parent a reasonable written notice of receipt of the Superior Proposal,
specifying the material terms and conditions of the Superior Proposal
and identifying the person making the proposal, and Parent shall not,
within three business days of Parent's receipt of the notice from
Company, have made an offer which the Company Board, by a majority vote,
determines in its good faith judgment (consistent with the advice of a
financial advisor of nationally recognized reputation) to be as
favorable to the Company's stockholders as the Superior Proposal;
provided that termination of the Merger Agreement under this clause (A)
will not be effective until Company pays to Purchaser the Breakup Fee
discussed below; (B) there shall have been a breach of any
representation or warranty on the part of Parent or Purchaser that
materially adversely affects (or materially delays) the consummation of
the Offer; or (C) there shall have been a material breach of any
covenant or agreement on the part of Parent or Purchaser and which
materially adversely affects (or materially delays) the consummation of
the Offer, if the breach has not been cured prior to the earlier of ten
days following notice of the breach or two business days prior to the
date on which the Offer expires.
When used in the Merger Agreement, the term "Parent Material Adverse Effect"
means any change or effect that would materially impair the ability of Parent
and/or Purchaser to consummate the transactions contemplated by the Merger
Agreement.
If the Merger Agreement is terminated and (i) the Company Board shall have
withdrawn or modified in a manner adverse to Parent its approval or
recommendation of the Offer, shall have recommended a Third Party Acquisition or
shall have adopted any resolution to effect the foregoing, and (ii) within one
year after such termination (A) the Company enters into an agreement involving
the acquisition of 50% or more of the issued and outstanding Shares by another
person or entity (other than a merger pursuant to which the stockholders of the
Company will acquire more than 60% of the voting securities of such surviving
corporation) or (B) another person or entity acquires more than 50% of the
issued and outstanding Shares, the Company shall pay to Acquisition a Breakup
Fee of $3.5 million. A Breakup Fee also shall be payable if the Company shall
have terminated the Merger Agreement before the Tender Offer Purchase Time if
the Company has received a Superior Proposal and Parent does not, in the good
faith judgment of the Company Board (consistent with the advice of a financial
advisor of nationally recognized reputation), make an offer as favorable to the
Company's stockholders as such Superior Proposal. Purchaser may, in its
discretion, waive payment of the Breakup Fee in order to exercise the Option
described below under the heading "Stockholder Agreements." Other than the
circumstances listed above in which the Breakup Fee is payable, the Merger
Agreement makes no provision for payments in the event of termination.
Amendment. The Merger Agreement may be amended by action taken by the
Company Board, subject to certain restrictions set forth therein, and by the
parties to the Merger Agreement at any time before or after approval, if
necessary, of the Merger by the stockholders of the Company but, after any such
approval, no amendment that requires the approval of the stockholders under
applicable law may be made without such approval.
Extension; Waiver. At any time prior to the Closing Time, each party to
the Merger Agreement may (i) extend the time for the performance of any of the
obligations or other acts of any other party, (ii) waive any inaccuracies in the
representations and warranties of any other party contained therein or in any
document, certificate or writing delivered pursuant thereto, or (iii) waive
compliance by any other party with any of the agreements or conditions contained
therein.
Stockholders' Agreement
Concurrently with the execution of the Merger Agreement, Parent, Purchaser
and the Stockholders have entered into the Stockholders' Agreement (the
"Stockholders' Agreement"). The following is a summary of the material
provisions of the Stockholders' Agreement, the form of which is filed as an
exhibit to the Schedule TO. The summary is qualified in its entirety by
reference to the form of Stockholders' Agreement, which is deemed incorporated
herein by reference.
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Tender of Shares. Pursuant to the Stockholders' Agreement, each
Stockholder has agreed to tender the Shares owned by such Stockholder or cause
such Shares to be tendered, into the Offer promptly after Parent causes
Purchaser to commence the Offer, but in no event later than five business days
after the date on which the Stockholder receives the Offer Documents for
tendering such Shares. With respect to the Shares tendered by the Stockholders
pursuant to the Stockholders' Agreement, the Stockholders will receive the same
price per Share with respect to the Offer (but in any event no less than $7.50
per Share) received by the other stockholders of the Company pursuant to the
Offer. Each Stockholder has further agreed not to withdraw any Shares so
tendered unless and until after the Termination Date, which is the first to
occur of the date that Purchaser terminates the Offer, the Offer expires, or the
Merger Agreement is terminated, in each case in accordance with the terms of the
Merger Agreement and without such Shares being purchased by Purchaser pursuant
to the Offer.
Voting of Shares. Each Stockholder has further agreed that, during the
period commencing on the date of the Stockholders' Agreement and continuing
until the first to occur of the Effective Time or the Termination Date, the
Stockholder will vote (or cause to be voted) its Shares (i) in favor of approval
of the Merger Agreement, all transactions contemplated thereby, and any actions
required in furtherance thereof; (ii) against any action or agreement that is
intended to or could impede, interfere with, or prevent the Offer or the Merger
or result in a breach in any respect of any covenant, representation or warranty
or any other obligation or agreement of the Company or any of its subsidiaries
under the Merger Agreement or the Stockholders' Agreement; and (iii) except as
specifically requested in writing in advance by Parent, against certain actions
specified in the Stockholders' Agreement, including extraordinary corporate
transactions, dispositions of assets outside the ordinary course of business,
any reorganization, recapitalization, dissolution or liquidation of the Company
or any of its subsidiaries or affiliates, and any amendment of the Company's
Certificate of Incorporation or Bylaws.
Irrevocable Proxy. In order to secure their respective obligations under
the Stockholders' Agreement, each Stockholder has granted to each of James T.
Rager and Robert K. Horton in their respective capacities as officers of Parent,
and any individual who shall hereafter succeed to any such office of Parent, and
any other designee of Parent, an irrevocable proxy to vote the Stockholder's
Shares, or grant a consent or approval in respect of the Stockholder's Shares,
with respect to the matters described above on which the Shares are entitled to
vote from the date that all waiting periods under the HSR Act applicable to the
acquisition of the Shares have been terminated or have expired and any and all
applicable approvals and notices under the Bank Act and the Bank Holding Company
Act and any other required approvals, notices, authorizations or consents have
been filed or obtained, and until the Tender Offer Purchase Time.
Grant of Options. Each Stockholder has also granted to Purchaser or its
designee, effective on the date of the Stockholders' Agreement, an irrevocable
option (each, an "Option") to purchase all Shares owned by the Stockholder at a
purchase price per Share equal to the Per Share Amount. Purchaser may exercise
the Options at any time and from time to time, following the occurrence of a
Purchase Event (as defined below); provided that the Options will expire and be
of no further force and effect upon the earliest to occur of (i) the Tender
Offer Purchase Time or (ii) at the close of business on the third business day
after the receipt by Parent of a Superior Proposal Notice or (iii) the 90th day
after the exercise of the Options, if the purchase of the Shares pursuant to the
Options has not occurred. In the event of termination of the Merger Agreement,
Purchaser, at its option, may elect either to exercise the Options or to accept
payment of the Breakup Fee, but will not be entitled to exercise the Options and
retain the Breakup Fee. A "Purchase Event" means the receipt by Parent of a
Superior Offer Notice. The purchase of Shares pursuant to the Options is subject
to the satisfaction of the following conditions: (i) to the extent necessary,
all waiting periods under the HSR Act applicable to the acquisition of the
Shares shall have been terminated or have expired, and all applicable approvals
and notices under the Bank Act and the Bank Holding Company Act and any other
required approvals, notices, authorizations or consents have been filed or
obtained and (ii) no preliminary or permanent injunction prohibiting the
exercise of the Options or delivery of the Shares shall be in effect.
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Representations and Warranties. Each Stockholder has made in the
Stockholders' Agreement certain customary representations and warranties,
including, without limitation, representations and warranties as to ownership of
Shares, power and authority and consents and approvals.
Other Potential Acquirors. Each Stockholder is prohibited from
encouraging, soliciting, participating in or initiating discussions or
negotiations with or providing non-public information to any party concerning
any Third Party Acquisition.
Restriction on Transfer, Proxies and Non-Interference. Each Stockholder
has agreed not to (a) tender its Shares in any tender offer or exchange offer
for the Shares other than the Offer; (b) sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract for the
sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of its Shares; (c) except as contemplated by the Stockholders'
Agreement, grant any proxies or powers of attorney, deposit any of its Shares
into a voting trust or enter into a voting agreement with respect to any Shares,
or (d) take any action that would make any representation or warranty of the
Stockholder untrue or incorrect or have the effect of preventing or impairing
such Stockholder from performing its obligations under the Stockholders'
Agreement.
Indemnification. Each Stockholder has agreed, subject to certain
limitations, to indemnify Parent and its affiliates for all damages, losses,
costs, expenses, liabilities, judgments, penalties, claims, charges and amounts
paid in settlement as a result of (i) any inaccuracy or misrepresentation in, or
breach of, any representation, warranty or covenant of such Stockholder in the
Stockholders' Agreement; (ii) any inaccuracy or misrepresentation in, or breach
of, any representation, warranty or covenant of the Company in the Merger
Agreement; (iii) violations of law or regulation by the Company before the
Effective Time, and (iv) certain additional scheduled matters. Any
indemnification of Parent and its affiliates is to be effected solely by
disbursement from the escrow account, described below. Additionally, neither
Parent nor its affiliates generally shall be entitled to make any
indemnification claim unless the aggregate amount of all damages incurred
exceeds $500,000, and the Stockholders would be liable only for such damages
that exceed $500,000. For purposes of indemnification under the Stockholders'
Agreement, the Stockholders' and the Company's representations and warranties
survive for one year after the Tender Offer Purchase Time.
Escrow Account. At the Tender Offer Purchase Time, Purchaser will deposit,
proportionately out of funds otherwise owing to each Stockholder in respect of
the Per Share Amount, an aggregate amount of $7.5 million, to be held in escrow.
With respect to damages incurred due to an inaccuracy or misrepresentation in,
or breach of, a representation, warranty or covenant of any Stockholder, Parent
will be entitled to make a claim only against the amount deposited in the escrow
account (and earnings thereon) on behalf of the Stockholder responsible for the
breach. With respect to damages incurred due to any other circumstance described
above in the section entitled "Indemnification," Parent will be entitled to make
a claim against all funds held in the escrow account, and the damages will be
allocated among the Stockholders based on an agreed upon formula.
Employment Agreements
Concurrently with the execution of the Merger Agreement, Parent and the
Company have entered into employment agreements with Messrs. Filler, Fisher and
Gurry (each, an "Executive") in order to provide the Company, as the Surviving
Corporation, with continuity of management. The following is a summary of the
material provisions of each of the employment agreements (each, an "Employment
Agreement"), each of which is filed as an exhibit to the Schedule TO. The
summary is qualified in its entirety by reference to the Employment Agreements,
each of which is deemed incorporated herein by reference.
Each Employment Agreement provides that the Company will continue to employ
the Executive, and the Executive will continue in the employ of the Company,
subject to the terms and conditions of the Employment Agreement, for the period
commencing as of the Effective Time and ending on December 31, 2003 (the
"Employment Period"). Pursuant to the Employment Agreement, each of
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Messrs. Filler, Fisher and Gurry is entitled to receive (i) an annual base
salary equal to $250,000, $150,000 and $150,000, respectively, (ii) unless his
employment with the Company has been terminated for Cause (as defined in the
Employment Agreement) or due to voluntary termination by the Executive (other
than due to Constructive Termination (as defined below), death or disability)
prior to the respective dates of payment, a discretionary annual bonus, paid
from a management bonus pool, as described below, and (iii) benefits comparable
to those provided to other employees in positions of comparable rank with Parent
and its wholly owned subsidiaries. In addition, each of Messrs. Filler, Fisher
and Gurry will be eligible for grants of stock options to purchase common stock
of Parent under Parent's 1999 Stock Option Plan (the "Plan"). Stock option
grants under the Plan will be subject to approval of the Board of Directors of
Parent and all stock options will be subject to all of the terms and conditions
of the Plan, including applicable provisions regarding vesting, and expiration
of options upon termination of employment. It is anticipated that each of
Messrs. Filler, Fisher and Gurry will be recommended for stock option grants
under the Plan.
In addition to the foregoing, Mr. Filler will be entitled to receive,
unless his employment has been terminated, for each fiscal year of the Company
commencing after December 31, 2000, a profit sharing bonus equal to 2.5% of the
pre-tax net income of the Company.
Certain executive officers of the Company, including Messrs. Filler, Fisher
and Gurry, will be eligible to participate in an annual bonus pool. Distribution
of 50% of the bonus pool will be at the discretion of Mr. Filler, and the
remainder will be distributed at the discretion of the Company Board. All
amounts in the bonus pools will be paid out to participants, in each case in the
proportions determined by Mr. Filler with respect to 50% of such amounts and the
Company Board with respect to the remainder. For the period ended December 31,
2000, a bonus pool of $105,000 will be established, and for the period ended on
the first anniversary of the Effective Time, a bonus pool of $1,825,000 will be
established. Messrs. Filler, Fisher and Gurry will be eligible to receive
bonuses from such pools. Distribution of bonuses from the bonus pools will be
subject only to the condition that the recipient's employment with the Company
not have been terminated for Cause or due to voluntary termination by the
Executive (other than due to Constructive Termination, death or disability)
prior to the respective dates of payment.
The Executive's employment with the Company may be terminated, among other
things, (i) by the Company for Cause or without Cause; (ii) by the Company if
the Company determines in good faith that the Executive has become disabled; or
(iii) by the Executive if, without the Executive's express written consent, (A)
duties or responsibilities materially inconsistent with the Executive's position
and duties as contemplated by the Executive's Employment Agreement, are assigned
to the Executive or the Company takes any other action resulting in a material
diminution in the Executive's position and duties, (B) the Executive's annual
base salary or the annual bonus pool amount is reduced; (C) the Executive is
relocated to a location more than ten miles from the location where the
Executive performed duties immediately prior to the Effective Time, except for
required travel on the Company's business or (D) if the Company or Parent
breaches the Employment Agreement (each, a "Constructive Termination").
The Employment Agreements also provide that during the term thereof and for
a period of 6 months after (i) the date the Executive's employment with the
Company terminates for any reason, the Executive may not (i) own, manage,
operate, join, control, be employed by or perform services for or be connected
in any manner with certain competing businesses of the Company described in the
Employment Agreements, without the prior written consent of the Company, (ii)
solicit clients to transact business with competing businesses or reduce or
refrain from doing business with the Company, (iii) interfere with or damage any
relationship between the Company and its clients, and (iv) hire or solicit any
person who is an employee of the Company or any of its subsidiaries to resign
from the Company or any of its subsidiaries or to apply for or accept employment
with any competing business of the Company.
Each Executive has further agreed (i) not to divulge, reveal or communicate
any confidential information to any person, firm, corporation or entity
whatsoever, or use any confidential information for
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his own benefit or for the benefit of others during the term of the Employment
Agreement and thereafter; and (ii) to assign to the Company all of Executive's
right, title and interest in and to, intellectual property made, invented,
conceived, reduced to practice, developed or created (A) during the Employment
Term, or (B) using the equipment, supplies, facilities and/or confidential or
proprietary information of the Company.
13. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY
Purpose of the Offer. The purpose of the Offer is to acquire control of,
and the entire equity interest in, the Company. The purpose of the Merger is to
acquire all outstanding Shares not tendered and purchased pursuant to the Offer.
If the Offer is successful, Purchaser intends to consummate the Merger as soon
as practicable following the satisfaction or waiver of each of the conditions to
the Merger set forth in the Merger Agreement.
Plans for the Company. Except as otherwise set forth in this Offer to
Purchase, it is expected that, initially following the Merger, the business
operations of the Company will be continued by the Surviving Corporation
substantially as they are currently being conducted. The directors of Purchaser
will be the initial directors of the Surviving Corporation, and the officers of
the Company will be the initial officers of the Surviving Corporation. Upon
completion of the Offer and the Merger, Parent intends to conduct a detailed
review of the Company and its assets, corporate structure, capitalization,
operations, policies, management and personnel. After such review, Parent will
determine what actions or changes, if any, would be desirable in light of the
circumstances which then exist.
Except as described in this Offer to Purchase, neither Parent nor Purchaser
has any present plans or proposals that would relate to or result in (i) any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the Company or any of its subsidiaries, (ii) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (iii) any change in the Company Board or management, (iv) any
material change in the Company's capitalization or dividend policy, (v) any
other material change in the Company's corporate structure or business, (vi) a
class of securities being delisted from a national securities exchange or
ceasing to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association or (vii) a class of equity securities
of the Company becoming eligible for termination of registration pursuant to
Section 12(g) of the Exchange Act.
14. CERTAIN EFFECTS OF THE OFFER
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by stockholders other than Purchaser.
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for, or marketability of, the Shares or whether such reduction
would cause future market prices to be greater or less than the Per Share
Amount.
Stock Quotation. It is Parent's current intention to cause the Company to
terminate the inclusion of the Shares on the Nasdaq National Market following
the Tender Offer Purchase Time and the Record Date. Inclusion of the Shares on
the Nasdaq National Market is voluntary, so the Company may terminate that
inclusion at any time. In addition, depending upon the number of Shares
purchased pursuant to the Offer, the Shares may no longer meet the standards for
continued inclusion in the Nasdaq National Market. If, as a result of the
purchase of Shares pursuant to the Offer, the Shares no longer meet the criteria
for continuing inclusion in the Nasdaq National Market, the market for the
Shares could be adversely affected. According to the Nasdaq's National Market's
published guidelines, the Shares would not be eligible for continued listing if,
among other things, the number of Shares publicly held falls below 750,000, the
number of beneficial holders of Shares falls below 400 (round lot holders) or
the aggregate market value of such publicly-held Shares does not exceed $5
million. If the Shares were no longer
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eligible for inclusion in the Nasdaq National Market, they might nevertheless
continue to be included in the Nasdaq SmallCap Market unless, among other
things, the public float is less than 500,000 Shares, or there are fewer than
300 stockholders (round lot holders) in total, or the market value of public
float is less than $1 million.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. The purchase of the Shares pursuant to the Offer may result in the
Shares becoming eligible for deregistration under the Exchange Act. Pursuant to
the Merger Agreement, the Company has agreed, at the earliest practicable time
following the Tender Offer Purchase Time (but in no event prior to the Record
Date), if the number of holders of record of the Shares at such time is smaller
than 300, to take all steps necessary or appropriate to terminate registration
of the Shares under the Exchange Act, including without limitation the filing of
Exchange Act Form 15 with the SEC and of a notice to the Nasdaq National Market
to delist the Shares. Registration of the Shares may be terminated upon
application of the Company to the SEC if the Shares are not listed on a national
securities exchange and there are fewer than 300 holders of record of the
Shares. Termination of registration of the Shares under the Exchange Act would
substantially reduce the information required to be furnished by the Company to
its stockholders and to the SEC and would make certain provisions of the
Exchange Act no longer applicable to the Company, such as the short-swing profit
recovery provisions of Section 16(b) of the Exchange Act, the requirement of
furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in
connection with stockholders' meetings and the related requirement of furnishing
an annual report to stockholders, and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions. Furthermore, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933 may be impaired or eliminated. If
registration of the Shares under the Exchange Act were terminated, the Shares
would no longer be "margin securities" or be eligible for inclusion on the
Nasdaq National Market.
Margin Regulations. The Shares are currently "margin securities" under the
Regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. Depending upon factors
similar to those described above regarding the market for the Shares and stock
quotations, it is possible that, following the Offer, the Shares would no longer
constitute "margin securities" for the purposes of the margin regulations of the
Federal Reserve Board and therefore could no longer be used as collateral for
loans made by brokers.
15. DIVIDENDS AND DISTRIBUTIONS
The Merger Agreement provides that from the date of the Merger Agreement
until the Closing Time, unless the Parent has consented in writing, the Company
may not declare, set aside or pay any dividends on, or make other distributions
in respect of, any of the Company's stock, repurchase, redeem or otherwise
acquire, or agree or commit to repurchase, redeem or otherwise acquire, any
shares of stock or other equity or debt securities or equity interests of the
Company or any of its subsidiaries.
16. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the Offer, Purchaser will not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC including Rule 14e-l(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restrictions set forth in the Merger
Agreement, the payment for, any tendered Shares, if (w) any waiting periods
applicable to the Offer under the HSR Act have not been terminated or have not
expired, or any approvals or notices under the Bank Act, the Bank Holding
Company Act of 1956 and required approvals from governmental entities
responsible for regulating, in the aggregate, 90% of the Company's and its
subsidiary's average mortgage origination volume for the period 1998 and 1999
have not been obtained and, in the case of any approval, is not in full force
and effect and all conditions applicable thereto have not been satisfied, (x)
any of the consents or approvals of anyone other than a governmental
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entity, in connection with the execution, delivery and performance of the Merger
Agreement, have not been obtained or made, except where the failure to have
obtained or made any such consent or approval would not have a Material Adverse
Effect, (y) the Minimum Condition shall not have been satisfied, or (z) at any
time on or after the date of the Merger Agreement and before the time of
acceptance of tendered Shares pursuant to the Offer, any of the following events
shall occur which, in the reasonable judgment of Parent and Acquisition makes it
inadvisable to proceed with the Offer or acceptance for payment:
(i) from the date of the Merger Agreement until the Tender Offer Purchase
Time, any governmental entity or court shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order that remains in
effect at the Tender Offer Purchase Time and which (A) makes the
acceptance for payment of, or the payment for, some or all of the Shares
illegal or otherwise prohibits consummation of the Offer, the Merger or
any of the other transactions contemplated by the Merger Agreement, (B)
prohibits Purchaser from operating or deriving benefits from the
majority of the value of the operations of the Company and its
subsidiaries taken as a whole to operate the Company; provided, however,
that the parties must use reasonable efforts to cause any such decree,
judgment or other order to be vacated or lifted prior to September 30,
2000;
(ii) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and correct on the date of the Merger
Agreement or the Company shall have breached or failed in any respect to
perform or comply with any material obligation, agreement or covenant
required by the Merger Agreement to be performed or complied with at or
prior to such time, except where the failure of representations and
warranties to be true and correct, or the performance of or compliance
with such obligations, agreements or covenants, would not, individually
or in the aggregate, have a Material Adverse Effect;
(iii) the Merger Agreement shall have been terminated in accordance with
its terms;
(iv) there shall have occurred an acceptance by the Company of a Superior
Proposal;
(v) the Company Board shall have withdrawn or modified in a manner adverse
to Parent its approval or recommendation of the Offer, recommended to
the Company's stockholders a Third Party Acquisition or adopted any
resolution to effect any of the foregoing; or
(vi) from the date of the Merger Agreement until the Tender Offer Purchase
Time, there has occurred the commencement of a war having a Material
Adverse Effect.
The conditions set forth above (other than the Minimum Condition) are for
the sole benefit of Purchaser and may be asserted by Purchaser regardless of any
circumstances giving rise to any condition and may be waived (other than the
Minimum Condition) by Purchaser, in whole or in part, at any time and from time
to time, in the sole discretion of Purchaser. The failure by Parent or Purchaser
(or any affiliate of Purchaser) at any time to exercise any of the foregoing
rights will not be deemed a waiver of any right and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
17. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
General. Purchaser is not aware of any material pending legal proceeding
relating to the Offer. Based on its examination of publicly available
information filed by the Company with the SEC and other publicly available
information concerning the Company, Purchaser is not aware of any governmental
license or regulatory permit that appears to be material to the Company's
business that might be adversely affected by Purchaser's purchase of the Shares
as contemplated herein or, except as set forth below, of any approval or other
action by any government or governmental administrative or regulatory authority
or agency, domestic or foreign, that would be required for the Purchase or
ownership of Shares by Purchaser
33
<PAGE> 36
or Parent as contemplated herein. Should any such approval or other action be
required, Purchaser currently contemplates that, except as described below under
"State Takeover Statutes", such approval or other action will be sought. There
can be no assurance that any such approval or other action, if needed, would be
obtained or would be obtained without substantial conditions or that if such
approval were not obtained or such other action were not taken, adverse
consequences might not result to the Company's business, or certain parts of the
Company's business might not have to be disposed of, any of which could cause
Purchaser to elect to terminate the Offer without the purchase of Shares
thereunder under certain conditions. See Section 16--"Certain Conditions of the
Offer."
State Takeover Statutes. A number of states (including Delaware, where the
Company is incorporated), have adopted laws which purport, to varying degrees,
to apply to attempts to acquire corporations that are incorporated in, or which
have substantial assets, stockholders, principal executive offices or principal
places of business or whose business operations otherwise have substantial
economic effects in, such states. Except as described herein, Purchaser does not
know whether any of these laws will, by their terms, apply to the Offer or the
Merger or any other business combination between Purchaser or any of its
affiliates and the Company. To the extent that certain provisions of these laws
purport to apply to the Offer or the Merger or other business combination,
Purchaser believes that there are reasonable bases for contesting such laws. In
1982, in Edgar v. MITE Corp., the Supreme Court of the United States invalidated
on constitutional grounds the Illinois Business Takeover Statute which, as a
matter of state securities law, made takeovers of corporations meeting certain
requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of
America, the Supreme Court held that the State of Indiana could, as a matter of
corporate law, constitutionally disqualify a potential acquiror from voting
shares of a target corporation without the prior approval of the remaining
stockholders where, among other things, the corporation is incorporated in, and
has a substantial number of stockholders in, the state. Subsequently, in TLX
Purchaser Corp. v. Telex Corp., a Federal District Court in Oklahoma ruled that
the Oklahoma statutes were unconstitutional insofar as they apply to
corporations incorporated outside Oklahoma in that they would subject such
corporations to inconsistent Regulations. Similarly, in Tyson Foods, Inc. v.
McReynolds, a Federal District Court in Tennessee ruled that four Tennessee
takeover statutes were unconstitutional as applied to corporations incorporated
outside Tennessee. This decision was affirmed by the United States Court of
Appeals for the Sixth Circuit.
Section 203 of the DGCL ("Section 203"), in general, prevents an
"interested stockholder" (including a person who owns or has the right to
acquire 15% or more of the corporation's outstanding voting stock) from engaging
in a "business combination" (defined to include mergers and certain other
actions) with a Delaware corporation for a period of three years following the
date such person became an interested stockholder. The Company Board has taken
all appropriate action so that neither Parent nor Purchaser is or will be
considered an "interested stockholder" pursuant to Section 203.
Neither Parent nor Purchaser has determined whether any other state
takeover laws or regulations will by their terms apply to the Offer or the
Merger, and except as set forth above, neither Purchaser nor Parent have
attempted to comply with any state takeover statutes in connection with the
Offer or the Merger. Purchaser and Parent reserve the right to challenge the
validity of applicability of any state law allegedly applicable to the Offer or
the Merger, and nothing in this Offer to Purchase nor any action taken by Parent
or Purchaser in connection with the Offer is intended as a waiver of that right.
In the event it is asserted that one or more state takeover statutes is
applicable to the Offer or the Merger and an appropriate court does not
determine that it is inapplicable or invalid as applied to the Offer or the
Merger, Purchaser might be required to file certain information with, or to
receive approvals from, the relevant state authorities or holders of Shares, and
Purchaser might be unable to accept for payment or pay for Shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer or
the Merger. In such case, Purchaser may not be obligated to accept for payment
or pay for any tendered Shares. See Section 16--"Certain Conditions of the
Offer."
Antitrust in the United States. Under the HSR Act and the rules that have
been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be
34
<PAGE> 37
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the FTC and
certain waiting period requirements have been satisfied. The purchase of Shares
pursuant to the Offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, Purchaser expects to file a
Notification and Report Form with respect to the Offer and Merger with the
Antitrust Division and the FTC on or about March 27, 2000. The waiting period
applicable to the purchase of Shares pursuant to the Offer is scheduled to
expire at 11:59 p.m., New York City time, 15 days after such filing. However,
prior to such time, the Antitrust Division or the FTC may extend the waiting
period by requesting additional information or documentary material relevant to
the Offer from Purchaser. If such a request is made, the waiting period will be
extended until 11:59 p.m., New York City time, on the tenth day after
substantial compliance by Purchaser with such request. Thereafter, such waiting
period can be extended only by court order.
A request is being made pursuant to the HSR Act for early termination of
the waiting period applicable to the Offer. There can be no assurance, however,
that the applicable 15-day HSR Act waiting period will be terminated early.
Shares will not be accepted for payment or paid for pursuant to the Offer until
the expiration or early termination of the applicable waiting period under the
HSR Act. See Section 16--"Certain Conditions of the Offer." Any extension of the
waiting period will not give rise to any withdrawal rights not otherwise
provided for by applicable law. See Section 4--"Withdrawal Rights." If
Purchaser's purchase of Shares is delayed pursuant to a request by the Antitrust
Division or the FTC for additional information or documentary material pursuant
to the HSR Act, the Offer will be extended in certain circumstances. See Section
16--"Certain Conditions of the Offer." The Antitrust Division and the FTC
scrutinize the legality under the antitrust laws of transactions such as the
purchase of Shares by Purchaser pursuant to the Offer. At any time before or
after the consummation of any such transactions, the Antitrust Division or the
FTC could take such action under the antitrust laws of the United States as it
deems necessary or desirable in the public interest, including seeking to enjoin
the purchase of Shares pursuant to the Offer or seeking divestiture of the
Shares so acquired or divestiture of substantial assets of Parent or the
Company. Private parties (including individual states) may also bring legal
actions under the antitrust laws of the United States. Purchaser does not
believe that the consummation of the Offer will result in a violation of any
applicable antitrust laws. However, there can be no assurance that a challenge
to the Offer on antitrust Grounds will not be made, or if such a challenge is
made, what the result will be. See Section 16--"Certain Conditions of the
Offer", including conditions with respect to litigation and certain governmental
actions and Section 12--"The Merger Agreement; Other Arrangements" for certain
termination rights.
Regulatory Approvals and Notifications. In connection with the Offer and
the Merger, the following regulatory approvals or notices will be required to be
obtained or filed by Royal Bank. Royal Bank is required to obtain the prior
approval of the Canadian Minister of Finance under the Canadian Bank Act. Also,
after consummation of the transaction, it is required to file a
post-commencement notice with the Federal Reserve Bank of New York under the
Bank Holding Company Act of 1956.
Additionally, as a result of the Merger, there will be an indirect change
of control in Prism Mortgage Company, an Illinois corporation, the subsidiary
through which the Company conducts its mortgage banking and brokerage business.
Several of the states that license Prism Mortgage Company and its affiliates in
connection with their residential mortgage lending activities require
notifications and/or approvals, including in certain instances prior
notifications and/or approvals, in connection with such an indirect change of
control. Similar notifications and/or approvals are required by other entities
that have previously approved Prism Mortgage Company and its affiliates,
including the Federal Housing Administration, the United States Department of
Veterans Affairs, Fannie Mae and Freddie Mac. Notifications and requests for
approvals may require the submission of detailed information about the indirect
change of control and the nature, identity, qualifications and background of
persons and entities involved therewith. The parties intend to provide such
notifications and seek such approvals promptly.
35
<PAGE> 38
18. APPRAISAL RIGHTS
The Company Board has approved the Merger and adopted the Merger Agreement.
Depending upon the number of Shares purchased by Purchaser pursuant to the
Offer, the Company Board may be required to submit the Merger Agreement to the
Company's stockholders for approval at a stockholder's meeting convened for that
purpose in accordance with Delaware Law. If stockholder approval is required,
the Merger Agreement must be approved by a majority of all votes entitled to be
cast at such meeting. If the Minimum Condition is satisfied, Purchaser will have
sufficient voting power to approve the Merger Agreement at the stockholders'
meeting without the affirmative vote of any other stockholder. If Purchaser
acquires at least 90% of the Shares pursuant to the Offer, the Merger may be
consummated without a stockholders' meeting and without the approval of the
Company's stockholders.
If the Merger is consummated, holders of shares at the Effective Time will
have certain rights under Section 262 of the DGCL to dissent and demand
appraisal of, and payment in cash of the fair value of, their Shares (the
"Dissenting Shares"). Such rights, if the statutory procedures are complied
with, could lead to a judicial determination of the fair value (excluding any
element of value arising from the accomplishment or expectation of the Merger)
required to be paid in cash to such dissenting holders for their Dissenting
Shares. Any such judicial determination of the fair value of Dissenting Shares
could be based upon considerations other than, or in addition to, the price paid
in the Offer and the market value of the Dissenting Shares, including asset
values and the investment value of the Dissenting Shares. The value so
determined could be more or less than the purchase price per Share pursuant to
the Offer or the Cash Merger Consideration.
The foregoing summary of the rights of objecting stockholders does not
purport to be a complete statement of the procedures to be followed by
stockholders of the Company desiring to exercise any available dissenters'
rights. The foregoing summary is qualified in its entirety by reference to
Section 262 of the DGCL. The preservation and exercise of dissenters' rights
require strict adherence to the applicable provisions of the DGCL.
19. FEES AND EXPENSES
RBC Dominion Securities Corporation is acting as the Dealer Manager in
connection with the Offer in connection with the Offer and Merger. The Dealer
Manager will receive reasonable and customary compensation for its services
relating to the Offer and will be reimbursed for certain out-of-pocket expenses.
Parent and Purchaser have agreed to indemnify the Dealer Manager and certain
related persons against certain liabilities and expenses in connection with its
engagement, including certain liabilities under the federal securities laws.
Parent and Purchaser have retained MacKenzie Partners, Inc. to be the
Information Agent and LaSalle Bank National Association to be the Depositary in
connection with the Offer. The Information Agent may contact holders of Shares
by mail, telephone, telecopy, telegraph and personal interview and may request
banks, brokers, dealers and other nominees to forward materials relating to the
Offer to beneficial owners of Shares. The Information Agent and the Depositary
each will receive reasonable and customary compensation for their respective
services in connection with the Offer, will be reimbursed for reasonable
out-of-pocket expenses, and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under federal
securities laws. Neither Parent nor Purchaser will pay any fees or commissions
to any broker or dealer or to any other person (other than to the Dealer
Manager, the Depositary and the Information Agent) in connection with the
solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by the
Purchaser for customary mailing and handling expenses incurred by them in
forwarding offering materials to their customers.
36
<PAGE> 39
20. MISCELLANEOUS
Neither Purchaser nor Parent is aware of any jurisdiction where the making
of the Offer is prohibited by any administrative or judicial action pursuant to
any valid state statute. If either Purchaser or Parent becomes aware of any
valid state statute prohibiting the making of the Offer or the acceptance of the
Shares, Parent and Purchaser will make a good faith effort to comply with that
state statute. If, after a good faith effort, Purchaser and Parent cannot comply
with the state statute, the Offer will not be made to, nor will tenders be
accepted from or on behalf of, the holders of Shares in that state.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED HEREIN IN THE
OFFER DOCUMENTS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Purchaser has filed with the SEC a Tender Offer Statement on Schedule TO
pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange
Act, together with exhibits furnishing certain additional information with
respect to the Offer, and may file amendments thereto. In addition, the Company
has filed with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9, together with exhibits, pursuant to Rule 14d-9 under the Exchange Act,
setting forth the recommendations of the Company Board with respect to the Offer
and the reasons for such recommendations and furnishing certain additional
related information. A copy of such documents, and any amendments thereto, may
be examined at, and copies may be obtained from, the SEC (but not the regional
offices of the SEC) in the manner set forth under Section 7--"Certain
Information Concerning the Company" above.
PRISM ACQUISITION SUBSIDIARY, INC.
March 22, 2000
37
<PAGE> 40
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
The following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years of each director and executive officer of Parent. Unless
otherwise indicated below, each occupation set forth opposite each person refers
to employment with Parent. Unless otherwise indicated, the business address of
each such person is c/o Parent at 200 Bay Street, Toronto, Ontario, Canada, M5J
2J5 and each such person is a citizen of Canada.
<TABLE>
<CAPTION>
DIRECTORS PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
- --------- -------------------------------------------------------------
<S> <C>
John E. Cleghhorn Chairman and Chief Executive Officer, Royal Bank of Canada
George A. Cohon Founder and Senior Chairman, McDonald's Restaurants of Canada
McDonald's Place Limited
Toronto, Ontario
M3C 3L4 Canada
G.N. (Mel) Cooper Chairman and Chief Executive Officer, Seacoast Communications
825 Broughton Street Group Inc.
Victoria, British Columbia
V8W 1E5 Canada
John T. Ferguson Chairman of the Board, Princeton Developments Ltd.
Suite 1400 Chairman and Chief Executive Officer, Princeton Developments
9915-108 Street Ltd. (prior to September 1998)
Edmonton, Alberta President and Chief Executive Officer, Princeton Developments
T5K 2G8 Canada Ltd.
(prior to April 1996)
L. Yves Fortier Chairman, Ogilvy Renault
1981 McGill College Avenue
Montreal, Quebec
H3A 3C1 Canada
The Hon. Marie Gilberte Paule Senior Partner, Desjardins Ducharme Stein Monast
Gauthier
Bureau 300
1150 de Claire-Fontaine
Quebec, Quebec
G1R 5G4 Canada
J.M. Edward Newall Chairman of the Board, NOVA Chemicals Corporation
Newall and Associates Vice President and Chief Executive Officer, NOVA Corporation
#2015 Bankers Hall (now NOVA Chemicals Corporation) (prior to July 1998)
855 2nd Street S.W.
Calgary, Alberta
T2P 4J7 Canada
</TABLE>
S-1
<PAGE> 41
<TABLE>
<CAPTION>
DIRECTORS PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
- --------- -------------------------------------------------------------
<S> <C>
David P. O'Brien Chairman, President and Chief Executive Officer, Canadian
1800 Bankers Hall East, Pacific Limited
855-2nd St. S.W. President and Chief Operating Officer, Canadian Pacific
Calgary, Alberta Limited
T2P 4Z5 Canada (prior to May 1996)
Robert B. Peterson Chairman, President and Chief Executive Officer, Imperial Oil
111 St. Clair Avenue West Limited
Toronto, Ontario
M4V 1N5 Canada
Kenneth C. Rowe Chairman and Chief Executive Officer, I.M.P. Group
Suite 400 International Inc.
2651 Dutch Village Road President, I.M.P. Group International Inc. (prior to July
Halifax, Nova Scotia 1997)
B3L 4T1 Canada
Joseph Guy Saint-Pierre Chairman of the Board, SNC-Lavalin Group Inc.
455 Rene-Levesque Blvd. West President and Chief Executive Officer, SNC-Lavalin Group Inc.
Montreal, Quebec (prior to May 1996)
H2Z 1Z3 Canada
Robert T. Stewart R.T. Stewart & Associates
24th Floor
1111 West Georgia Street
Vancouver, British Columbia
V6E 4M4 Canada
Allan R. Taylor Retired Chairman and Chief Executive Officer, Royal Bank of
Suite 1835-North Tower Canada
Royal Bank Plaza
Toronto, Ontario
M5J 2J5 Canada
Margaret Sheelagh D. Whittaker Chair, President and Chief Executive Officer, EDS Systemhouse
6th Floor Inc. President and Chief Executive Officer, EDS Canada (now
33 Yonge Street EDS System-house Inc.) (prior to April 1998)
Toronto, Ontario
M5E 1G4 Canada
Victor L. Young Chairman and Chief Executive Officer, Fishery Products
70 O'Leary Avenue International Limited
St. John's, Newfoundland
A1C 5L1 Canada
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
------------------ -------------------------------------------------------------
<S> <C>
John E. Cleghorn Chairman and Chief Executive Officer
Gordon J. Feeney Deputy Chairman
Anthony S. Fell Deputy Chairman
Chairman, RBC Dominion Securities, Inc.
Peter W. Currie Vice-Chairman and Chief Financial Officer
Senior Vice-President & Chief Financial Officer, Northern
Telecom Limited, Brampton (prior to April 1997)
</TABLE>
S-2
<PAGE> 42
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS PRESENT PRINCIPAL OCCUPATION AND FIVE-YEAR EMPLOYMENT HISTORY
------------------ -------------------------------------------------------------
<S> <C>
Suzanne B. Labarge Vice-Chairman and Chief Risk Officer
Deputy Superintendent, Deposit-Taking Institutions Sector,
Office of the Superintendent of Financial Institutions,
Ottawa (prior to April 1995)
Martin J. Lippert Vice-Chairman and Chief Information Officer
Executive Vice President, Information Management & Research
Development, Mellon Bank Corporation, Pittsburgh,
Pennsylvania (prior to August 1997)
W. Reay Mackay Vice-Chairman, Wealth Management
Chairman and Chief Executive Officer, Royal Trust
James T. Rager Vice-Chairman, Personal & Commercial Banking
Citizenship:
United States
Gordon M. Nixon Deputy Chairman and Chief Executive Officer, RBC Dominion
Securities, Inc.
W. James Westlake President and Chief Executive Officer, RBC Insurance Holdings
Inc.
</TABLE>
2. DIRECTOR AND EXECUTIVE OFFICERS OF PURCHASER
The following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years of each director and executive officer of Purchaser. Unless
otherwise indicated below, each occupation set forth opposite each person refers
to employment with Parent. Unless otherwise indicated, the business address of
each such person is c/o Parent at 200 Bay Street, Toronto, Ontario, Canada, M5J
2J5 and each such person is a citizen of Canada.
<TABLE>
<CAPTION>
DIRECTOR AND
EXECUTIVE
OFFICERS PRESENT PRINCIPAL AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------ --------------------------------------------------
<S> <C>
Robert K. Horton Director, Chief Executive Officer, Senior Vice President and
Secretary/Treasurer, Prism Acquisition Subsidiary, Inc.
Senior Vice President, Strategic Initiatives, Royal
Bank of Canada
Timothy A. Prior President, Prism Acquisition Subsidiary, Inc.
Citizenship: Senior Manager, Strategic Initiatives, Royal Bank Financial
United Kingdom Group
</TABLE>
S-3
<PAGE> 43
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PART LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL -- FREE (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
RBC DOMINION SECURITIES CORPORATION
5th Floor
One Liberty Plaza
New York, NY 10006-1404
(212) 858-7139 (Call Collect)
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(TOGETHER WITH ANY ASSOCIATED RIGHTS)
OF
PRISM FINANCIAL CORPORATION
AT $7.50 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE DATED MARCH 22, 2000
OF
PRISM ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED, INDIRECT SUBSIDIARY OF
ROYAL BANK OF CANADA
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON APRIL 19, 2000, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
LASALLE BANK NATIONAL ASSOCIATION
By mail, hand or overnight courier:
LaSalle Bank National Association
135 South LaSalle Street
Suite 1811
Corporate Trust Operations
Chicago, IL 60603
<TABLE>
<S> <C>
By facsimile transmission: Confirmation Receipt of Facsimile by Telephone
(For Eligible Institutions Only) Only:
(312) 904-2236 (312) 904-2458
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set
forth above, or transmissions of instructions via a facsimile number other than
as set forth above, will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed. You must sign this Letter of Transmittal in
the appropriate space provided therefor, with signature guarantee if required,
and complete the substitute form W-9 set forth below. See Instruction 9.
This Letter of Transmittal is to be completed by stockholders, either if
Share Certificates (as defined below) are to be forwarded herewith or, unless an
Agent's Message (as defined in the Offer to Purchase, as referred to below) is
utilized, if tenders of Shares (as defined below) are to be made by book-entry
transfer into the account of LaSalle Bank National Association, as Depositary
(the "Depositary"), at The Depositary Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in Section 3 of the Offer to
Purchase. Stockholders who tender Shares by book-entry transfer are referred to
herein as "Book-Entry Stockholders." Stockholders whose Share Certificates are
not immediately available or who cannot deliver their Share Certificates and all
other required documents to the Depositary on or prior to the Expiration Date
(as defined in the Offer to Purchase), or who cannot complete the procedure for
book-entry transfer on a timely basis, must tender their Shares according to the
guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase.
See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE> 2
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------------
NAME(S) & ADDRESS(ES) OF REGISTERED HOLDERS(S) SHARE CERTIFICATE(S) AND SHARE(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS TENDERED (ATTACH ADDITIONAL
NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S)) LIST IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
SHARE OF SHARES NUMBER
CERTIFICATE REPRESENTED BY OF SHARE(S)
NUMBER(S)* CERTIFICATE(S) TENDERED**
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Total Shares
- ----------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, all Shares represented by Share Certificates delivered to the Depositary will be
deemed to have been tendered. See Instruction 4.
- ------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER
FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution that Guaranteed Delivery:
Account Number:
Transaction Code Number:
2
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED ON PAGE 6.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Prism Acquisition Subsidiary, Inc., a
Delaware corporation (the "Purchaser"), which is a wholly owned, indirect
subsidiary of Royal Bank of Canada, the above described shares of common stock,
par value $.01 per share (the "Common Stock") of Prism Financial Corporation, a
Delaware corporation (the "Company"), together with associated rights to
purchase preferred stock issued pursuant to the Rights Agreement dated as of
January 27, 2000 between the Company and LaSalle Bank National Association (the
"Rights" and, together with the Common Stock, the "Shares"), at a price of $7.50
per Share, net to the seller in cash, less any required withholding of taxes and
without the payment of interest, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated March 22, 2000 (the "Offer to
Purchase"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which, together with any amendments or supplements thereto,
constitute the "Offer").
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all of the Shares that are being tendered
hereby and any and all dividends, distributions, rights, other Shares or other
securities issued, paid or distributed or issuable, payable or distributable in
respect of such Shares on or after March 22, 2000 and prior to the transfer to
the name of Purchaser (or a nominee or transferee of Purchaser) on the Company's
stock transfer records of the Shares tendered herewith (collectively, a
"Distribution"), and irrevocably appoints the Depositary the true and lawful
agent, attorney-in-fact and proxy of the undersigned with respect to such Shares
(and any Distribution), with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest) to (a) deliver
such Share Certificates (and any Distribution) or transfer ownership of such
Shares (and any Distribution) on the account books maintained by the Book-Entry
Transfer Facility, together, in either case, with appropriate evidences of
transfer, to the Depositary for the account of Purchaser, (b) present such
Shares (and any Distribution) for transfer on the books of the Company and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares (and any Distribution), all in accordance with the terms and
subject to the conditions of the Offer.
The undersigned irrevocably appoints designees of Purchaser as such
undersigned's agents, attorneys-in-fact and proxies, with full power of
substitution, to the full extent of such stockholder's rights with respect to
the Shares (and any Distribution) tendered by such stockholder and accepted for
payment by Purchaser. All such powers of attorney and proxies shall be
considered irrevocable and coupled with an interest. Such appointment will be
effective when, and only to the extent that, Purchaser accepts such Shares for
payment. Upon such acceptance for payment, all prior powers of attorney, proxies
and consents given by such stockholder with respect to such Shares (and any
Distribution) will be revoked without further action, and no subsequent powers
of attorney and proxies may be given nor any subsequent written consents
executed (and, if given or executed, will not be deemed effective). The
designees of Purchaser will, with respect to the Shares (and Distributions) for
which such appointment is effective, be empowered to exercise all voting and
other rights of such stockholder as they in their sole discretion may deem
proper at any annual or special meeting of Company stockholders or any
adjournment or postponement thereof, by written consent in lieu of any such
meeting or otherwise. Purchaser reserves the right to require that, in order for
the Shares to be deemed validly tendered, immediately upon Purchaser's
acceptance of such Shares, Purchaser must be able to exercise full voting rights
with respect to such Shares and all Distributions, including, without
limitation, voting at any meeting of stockholders.
The undersigned hereby represents and warrants that (a) the undersigned has
full power and authority to tender, sell, assign and transfer the undersigned's
Shares (and any Distribution) tendered hereby, and (b) when the Shares are
accepted for payment by Purchaser, Purchaser will acquire good, marketable and
unencumbered title to the Shares (and any Distribution), free and clear of all
liens, restrictions, charges
3
<PAGE> 4
and encumbrances, and the same will not be subject to any adverse claim and will
not have been transferred to Purchaser in violation of any contractual or other
restriction on the transfer thereof. The undersigned, upon request, will execute
and deliver any additional documents deemed by the Depositary or Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby (and any Distribution). In addition, the undersigned
shall promptly remit and transfer to the Depositary for the account of Purchaser
any and all Distributions in respect of the Shares tendered hereby, accompanied
by appropriate documentation of transfer, and, pending such remittance or
appropriate assurance thereof, Purchaser will be, subject to applicable law,
entitled to all rights and privileges as owner of any such Distribution and may
withhold the entire purchase price or deduct from the purchase price the amount
or value thereof, as determined by Purchaser, in its sole discretion.
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date, and, unless theretofore accepted for payment by the Purchaser
pursuant to the Offer, may also be withdrawn at any time after May 22, 2000. See
Section 4 of the Offer to Purchase.
The undersigned understands that tenders of Shares pursuant to any of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and Purchaser upon the terms and subject to the conditions set forth in the
Offer, including the undersigned's representation that the undersigned owns the
Shares being tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or issue or return any
certificate(s) for Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," please mail the check for the purchase price and/or any Share
Certificate(s) not tendered or not accepted for payment (and accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing under "Description of Shares Tendered." In the event that both the
"Special Delivery Instructions" and the "Special Payment Instructions" are
completed, please issue the check for the purchase price and/or any Share
Certificate(s) not tendered or accepted for payment in the name of, and deliver
such check and/or such Share Certificates to, the person or persons so
indicated. Unless otherwise indicated herein under "Special Payment
Instructions," please credit any Shares tendered herewith by book-entry transfer
that are not accepted for payment by crediting the account at the Book-Entry
Transfer Facility designated above. The undersigned recognizes that the
Purchaser has no obligation, pursuant to the Special Payment Instructions, to
transfer any Shares from the name(s) of the registered holder(s) thereof if the
Purchaser does not accept for payment any of the Shares so tendered.
[ ] CHECK HERE IF ANY SHARE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE
BEEN LOST, STOLEN OR DESTROYED AND SEE INSTRUCTION 11.
Number of Shares represented by lost, stolen or destroyed Share Certificates:
- ---------------
4
<PAGE> 5
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Share Certificate(s) not tendered or not accepted for
payment and/or the check for the purchase price of Shares accepted for payment
are to be issued in the name of someone other than the undersigned or if Shares
tendered by book-entry transfer that are not accepted for payment are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than that designated above.
Issue [ ] Check [ ] Share Certificate(s) to:
Name:
(PLEASE PRINT)
Address:
(INCLUDE ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
[ ] Credit Shares tendered by book-entry transfer that are not accepted for
payment to Depositary to the account set forth below:
(DEPOSITARY ACCOUNT NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Share Certificate(s) not tendered or not accepted for
payment and/or the check for the purchase price of Shares accepted for payment
are to be sent to someone other than the undersigned or to the undersigned at an
address other than that shown above.
Issue [ ] Check [ ] Share Certificate(s) to:
Name:
(PLEASE PRINT)
Address:
(INCLUDE ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
5
<PAGE> 6
SIGN HERE
AND COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF HOLDER(S)
(SEE GUARANTEE REQUIREMENT BELOW)
Dated:
- --------------- , 2000
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s). If signed by person(s) to whom the Shares represented hereby
have been assigned or transferred as evidenced by endorsement or stock powers
transmitted herewith, the signatures must be guaranteed. If signature is by an
officer on behalf of a corporation or by an executor, administrator, trustee,
guardian, attorney, agent or any other person acting in a fiduciary or
representative capacity, please provide the following information. See
Instructions 2 and 3.)
Name(s)
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ZIP CODE)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 2)
Authorized Signature
Name
(PLEASE PRINT)
Name of Firm
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ZIP CODE)
Area Code and Telephone Number
Dated:
- --------------- , 2000
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) of Shares (which term, for purposes of this document, shall
include any participant in the Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of Shares) tendered herewith, unless
such holder(s) has completed either the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions," or (b) if
such Shares are tendered for the account of a firm which is a bank, broker,
dealer, credit union, savings association or other entity which is a member in
good standing of a recognized Medallion Program approved by the Securities
Transfer Association Inc., including the Securities Transfer Agents Medallion
Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York
Stock Exchange Medallion Signature Program (MSP) or any other "eligible
guarantor institution" (as defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934) (each of the foregoing, an "Eligible Institution"). In all other
cases, all signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution. See Instruction 5 of this Letter of Transmittal.
2. Requirements of Tender. This Letter of Transmittal is to be completed
by stockholders either if Share Certificates are to be forwarded herewith or,
unless an Agent's Message is utilized, if tenders are to be made pursuant to the
procedure for tender by book-entry transfer set forth in Section 3 of the Offer
to Purchase. Share Certificates evidencing tendered Shares, or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of Shares
into the Depositary's account at the Book-Entry Transfer Facility, as well as
this Letter of Transmittal (or a facsimile hereof), properly completed and duly
executed, with any required signature guarantees, or an Agent's Message in
connection with a book-entry transfer, and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein on or prior to the Expiration Date. Stockholders
whose Share Certificates are not immediately available or who cannot deliver
their Share Certificates and all other required documents to the Depositary on
or prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedure set forth in Section 3 of the Offer to
Purchase. Pursuant to such procedure: (a) such tender must be made by or through
an Eligible Institution; (b) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by Purchaser, must
be received by the Depositary on or prior to the Expiration Date; and (c) the
Share Certificates (or a Book-Entry Confirmation) representing all tendered
Shares in proper form for transfer, in each case, together with this Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed, with
any required signature guarantees (or, in the case of a book-entry delivery, an
Agent's Message) and any other documents required by this Letter of Transmittal,
must be received by the Depositary within three Nasdaq National Market trading
days after the date of execution of such Notice of Guaranteed Delivery. If Share
Certificates are forwarded separately in multiple deliveries to the Depositary,
a properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) must accompany each such delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL
BE ACCEPTED AND NO FRACTIONAL SHARES WILL BE PURCHASED. ALL TENDERING
STOCKHOLDERS, BY EXECUTION OF THIS LETTER OF TRANSMITTAL (OR A FACSIMILE
HEREOF), WAIVE ANY RIGHT TO RECEIVE ANY NOTICE OF THE ACCEPTANCE OF THEIR SHARES
FOR PAYMENT.
7
<PAGE> 8
3. Inadequate Space. If the space provided herein is inadequate, the Share
Certificate numbers and/ or the number of Shares and any other required
information should be listed on a separate signed schedule attached hereto.
4. Partial Tenders (Not Applicable to Book-Entry Stockholders). If fewer
than all the Shares evidenced by any Share Certificate submitted are to be
tendered, fill in the number of Shares which are to be tendered in the box
entitled "Number of Shares Tendered" in the "Description of Shares Tendered." In
such cases, new Share Certificates for the Shares that were evidenced by your
old Share Certificates, but were not tendered by you, will be sent to you,
unless otherwise provided in the appropriate box on this Letter of Transmittal,
as soon as practicable after the Expiration Date. All Shares represented by
Share Certificates delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificate(s) without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal. If any of
the tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Share
Certificates.
If this Letter of Transmittal or any Share Certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Share Certificates or
separate stock powers are required unless payment is to be made to, or Share
Certificates for Shares not tendered or not purchased are to be issued in the
name of, a person other than the registered holder(s). In such latter case,
signatures on such Share Certificates or stock powers must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Share Certificate(s) listed, the Share
Certificate(s) must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear on
the Share Certificate(s). Signatures on such certificates or stock powers must
be guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction
6, Purchaser will pay any stock transfer taxes with respect to the transfer and
sale of Shares to it or its order pursuant to the Offer. If, however, payment of
the purchase price is to be made to, or if Share Certificates for Shares not
tendered or accepted for payment are to be registered in the name of, any person
other than the registered holder(s), or if tendered Share Certificates are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such person) payable on account of the transfer
to such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or an exemption therefrom, is submitted.
Except as otherwise provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Share Certificate(s) listed in this
Letter of Transmittal.
7. Special Payment and Delivery Instructions. If a check is to be issued
in the name of, and/or Share Certificates for Shares not tendered or not
accepted for payment are to be issued or returned to, a person other than the
signer of this Letter of Transmittal or if a check and/or such Share
Certificates are to be returned to a person other than the person(s) signing
this Letter of Transmittal or to an address other than that shown in this Letter
of Transmittal, the appropriate boxes on this Letter of Transmittal must be
completed. A Book-Entry Stockholder may request that Shares not accepted for
payment be
8
<PAGE> 9
credited to such account maintained at the Book-Entry Transfer Facility as such
Book-Entry Stockholder may designate under "Special Payment Instructions." If no
such instructions are given, such Shares not accepted for payment will be
returned by crediting the account at the Book-Entry Transfer Facility designated
above.
8. Waiver of Conditions. Subject to the terms and conditions of the Merger
Agreement (as defined in the Offer to Purchase), the conditions of the Offer may
be waived by the Purchaser in whole or in part at any time and from time to time
in its sole discretion.
9. 31% Backup Withholding; Substitute Form W-9. Under U.S. federal income
tax law, a stockholder who tenders Shares pursuant to the Offer is required to
provide the Depositary with such stockholder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 and to certify that the TIN provided on
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN). If
such stockholder is an individual, the TIN is his or her social security number.
If the Depositary is not provided with the correct TIN, such stockholder may be
subject to a $50 penalty imposed by the Internal Revenue Service and payments
that are made to such stockholder with respect to Shares pursuant to the Offer
may be subject to backup withholding (see below).
A stockholder who does not have a TIN may check the box in Part 3 of the
Substitute Form W-9 if such stockholder has applied for a number or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder must also complete the "Certificate of Awaiting Taxpayer
Identification Number" below in order to avoid backup withholding. If the box is
checked, payments made will be subject to backup withholding unless the
stockholder has furnished the Depositary with his or her TIN within 60 days. A
stockholder who checks the box in Part 3 in lieu of furnishing such
stockholder's TIN should furnish the Depositary with such stockholder's TIN as
soon as it is received.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding requirements.
In order for a foreign individual to qualify as an exempt recipient, that
stockholder must submit a statement, signed under penalty of perjury, attesting
to that individual's exempt status (Form W-8). Forms for such statements can be
obtained from the Depositary. Stockholders are urged to consult their own tax
advisors to determine whether they are exempt from these backup withholding and
reporting requirements.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments to be made to the stockholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained by filing a tax
return with the Internal Revenue Service. The Depositary cannot refund amounts
withheld by reason of backup withholding.
10. Requests for Assistance or Additional Copies. Questions or requests
for assistance may be directed to the Dealer Manager or the Information Agent at
their respective addresses and telephone numbers set forth below. Additional
copies of the Offer to Purchase, this Letter of Transmittal and the Notice of
Guaranteed Delivery also may be obtained from the Information Agent or from
brokers, dealers, commercial banks or trust companies.
11. Lost, Destroyed or Stolen Certificates. If any Share Certificate has
been lost, destroyed or stolen, the stockholder should promptly notify the
Depositary. The stockholder then will be instructed as to the steps that must be
taken in order to replace the Share Certificate. This Letter of Transmittal and
related documents cannot be processed until the procedures for replacing lost or
destroyed Share Certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF
GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE.
9
<PAGE> 10
<TABLE>
<C> <S> <C>
- -----------------------------
PAYOR'S NAME:
- -------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number OR
THE RIGHT AND CERTIFY BY SIGNING AND DATING Employer Identification Number
FORM W-9 BELOW.
----------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
DEPARTMENT OF THE TREASURY PART 2 -- CERTIFICATION -- PART 3 --
INTERNAL REVENUE SERVICE Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct Taxpayer Awaiting TIN [ ]
Identification Internal Number (or I am waiting for a
number to be issued to me); and
(2) I am not subject to backup withholding because (a) I
am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified
IDENTIFICATION NUMBER by the IRS that you are subject to backup withholding because of under-reporting interest
("TIN") or dividends on your tax return. However, if after being notified by the IRS that you were
subject to backup withholding you received another notification from the IRS stating that
you are no longer subject to backup withholding, do not cross out such item (2).
Signature: ------------------------------------- Date:-------------------------------
Name:
(Please Print)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE
FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me will be withheld.
<TABLE>
<S> <C>
Signature: Date: , 2000
</TABLE>
10
<PAGE> 11
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PART LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL -- FREE (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
RBC DOMINION SECURITIES CORPORATION
5th Floor
One Liberty Plaza
New York, NY 10006-1404
(212) 858-7139 (Call Collect)
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
(TOGETHER WITH ANY ASSOCIATED RIGHTS)
OF
PRISM FINANCIAL CORPORATION
TO
PRISM ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED, INDIRECT SUBSIDIARY OF
ROYAL BANK OF CANADA
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON APRIL 19, 2000, UNLESS THE OFFER IS EXTENDED.
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below) if certificates representing
shares of common stock, par value $.01 of Prism Financial Corporation (the
"Shares" and the certificates representing such Shares, the "Share
Certificates"), are not immediately available or time will not permit the Share
Certificates and all required documents to reach the Depositary (as defined in
the Offer to Purchase) on or prior to the Expiration Date (as defined in the
Offer to Purchase) or if the procedures for delivery by book-entry transfer, as
set forth in the Offer to Purchase, cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mailed to the Depositary. See Section 3 of the Offer
to Purchase.
The Depositary for the Offer is:
LASALLE BANK NATIONAL ASSOCIATION
<TABLE>
<S> <C>
By mail, hand or overnight courier:
LaSalle Bank National Association
135 South LaSalle Street
Suite 1811
Corporate Trust Operations
Chicago, IL 60603
Confirmation Receipt of Facsimile by
By facsimile transmission: Telephone Only:
(For Eligible Institutions Only) (312) 904-2458
(312) 904-2236
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX IN THE LETTER OF TRANSMITTAL.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Prism Acquisition Subsidiary, Inc., a
Delaware corporation and a wholly owned, indirect subsidiary of Royal Bank of
Canada, a Canadian commercial bank, in accordance with the terms and subject to
the conditions set forth in Purchaser's Offer to Purchase, dated March 22, 2000
(the "Offer to Purchase") and in the related Letter of Transmittal (which,
together with any amendments or supplements thereto, constitute the "Offer"),
receipt of which is hereby acknowledged, the number of Shares indicated below
pursuant to the procedures for guaranteed delivery set forth in Section 3 of the
Offer to Purchase.
Certificate Nos. (If Available)
Number of Shares
(Check if Shares will be tendered by book-entry transfer) [ ]
Account Number
Dated , 2000
Name(s) of Record Holder(s)
(PLEASE TYPE OR PRINT)
Address(es)
Zip Code
Area Code and Tel. No(s)
Signature(s)
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity which is a member in good standing of a recognized Medallion
Program approved by the Securities Transfer Association Inc., including the
Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange
Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature
Program (MSP) or any other "eligible guarantor institution" as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934 ("Exchange Act") (a)
represents that the above named person(s) "own(s)" the Shares tendered hereby
within the meaning of Rule 14e-4 promulgated under Exchange Act, (b) represents
that such tender of Shares complies with Rule 14e-4 under the Exchange Act, and
(c) guarantees to deliver to the Depositary either the Share Certificates
evidencing all tendered Shares, in proper form for transfer, or a Book-Entry
Confirmation (as defined in the Offer to Purchase) with respect to such Shares,
in either case, together with the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees or an Agent's Message (as defined in the Offer to Purchase) in the
case of a book-entry delivery, and any other required documents, all within
three Nasdaq National Market trading days after the date hereof. The eligible
guarantor institution that completes this form must communicate the guarantee to
the Depositary and must deliver the Letter of Transmittal and Share Certificates
to the Depositary within the time period indicated herein. Failure to do so may
result in financial loss to such eligible guarantor institution.
Name of Firm
Authorized Signature
Name
(PLEASE PRINT OR TYPE)
Title
Address
Zip Code
Area Code and Tel. No.
Dated ____________________ , 2000
NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD
BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
RBC DOMINION SECURITIES CORPORATION
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(TOGETHER WITH ANY ASSOCIATED RIGHTS)
OF
PRISM FINANCIAL CORPORATION
AT
$7.50 NET PER SHARE
BY
PRISM ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED, INDIRECT SUBSIDIARY OF
ROYAL BANK OF CANADA
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON APRIL 19, 2000, UNLESS THE OFFER IS EXTENDED.
March 22, 2000
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been engaged to act as Dealer Manager in connection with the third
party tender offer by Prism Acquisition Subsidiary, Inc., a Delaware corporation
(the "Purchaser") and a wholly owned, indirect subsidiary of Royal Bank of
Canada, a Canadian commercial bank, to purchase all of the issued and
outstanding shares of common stock, par value $.01 per share (the "Common
Stock") of Prism Financial Corporation, a Delaware corporation (the "Company"),
together with the associated rights to purchase preferred stock issued pursuant
to the Rights Agreement dated as of January 27, 2000, between the Company and
LaSalle Bank National Association (the "Rights" and, together with the Common
Stock, the "Shares"), at a price of $7.50 per Share, net to the seller in cash,
less any required withholding of taxes and without payment of any interest, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated March 22, 2000 (the "Offer to Purchase") and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
constitute the "Offer").
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OR
WAIVER OF CERTAIN CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND THE COMPANY TO
CONSUMMATE THE OFFER, INCLUDING (1) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A MAJORITY OF THE ISSUED
AND OUTSTANDING SHARES, AND (2) RECEIPT BY PURCHASER AND THE COMPANY OF CERTAIN
GOVERNMENTAL AND REGULATORY APPROVALS.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee or who hold Shares
registered in their own names, we enclose the following documents:
1. Offer to Purchase, dated March 22, 2000.
2. Letter of Transmittal to tender Shares for your use and for the
information of your clients. Facsimile copies of the Letter of
Transmittal may be used to tender Shares.
3. Letter to Clients, which may be sent to your clients for whose account
you hold Shares registered in your name or in the name of your nominee,
with space provided for obtaining such clients' instructions with regard
to the Offer.
4. Notice of Guaranteed Delivery to be used to accept the Offer if Share
Certificates (as defined in the Offer to Purchase) are not immediately
available or time will not permit the Share Certificates and all
<PAGE> 2
required documents to reach the Depositary on or prior to the Expiration
Date (as defined in the Offer to Purchase) or if the procedures for
delivery by book-entry transfer, as set forth in the Offer to Purchase,
cannot be completed on a timely basis.
5. Letter to stockholders of the Company from Mark A. Filler, the President
and Chief Executive Officer of the Company, accompanied by the Company's
Solicitation/Recommendation Statement on Schedule 14D-9.
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
7. Return envelope addressed to LaSalle Bank National Association, as
Depositary.
In accordance with the terms and subject to the satisfaction or waiver
(where applicable) of the conditions to the Offer, Purchaser will accept for
payment, purchase and pay for, all Shares which have been validly tendered and
not withdrawn pursuant to the Offer at the earliest time following expiration of
the Offer that all such conditions shall have been satisfied or waived (where
applicable). For purposes of the Offer, Purchaser will be deemed to have
accepted for payment (and thereby purchased), Shares validly tendered and not
withdrawn if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of (1) the Share Certificates or a Book-Entry
Confirmation (as defined in the Offer to Purchase) of a book-entry transfer of
such Shares into the Depositary's account at the Book-Entry Transfer Facility
(as defined in the Offer to Purchase) pursuant to the procedures set forth in
Section 3 of the Offer to Purchase; (2) the Letter of Transmittal (or a
facsimile thereof) properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message (as defined in the Offer to Purchase) in lieu of the Letter of
Transmittal; and (3) any other documents required under the Letter of
Transmittal.
Purchaser will not pay any commissions or fees to any broker, dealer or
other person (other than the Dealer Manager, the Depositary and the Information
Agent (as described in the Offer to Purchase)) in connection with the
solicitation of tenders of Shares pursuant to the Offer. Purchaser will,
however, upon request, reimburse you for customary clerical and mailing expenses
incurred by you in forwarding any of the enclosed materials to your clients.
Purchaser will pay any stock transfer taxes with respect to the transfer
and sale of Shares to it or to its order pursuant to the Offer, except as
otherwise provided in Instruction 6 of the enclosed Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, APRIL 19, 2000, UNLESS THE OFFER IS
EXTENDED.
In order for a stockholder of the Company to take advantage of the Offer,
the Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal)
and any other documents required by the Letter of Transmittal should be sent to
the Depositary and Share Certificates should be delivered, or Shares should be
tendered pursuant to the procedure for book-entry transfer, all in accordance
with the instructions set forth in the Letter of Transmittal and the Offer to
Purchase.
Holders of Shares whose Share Certificates are not immediately available or
who cannot deliver their Share Certificates and all other required documents to
the Depositary on or prior the Expiration Date of the Offer, or who cannot
complete the procedure for delivery by book-entry transfer on a timely basis,
must tender their Shares according to the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase.
<PAGE> 3
Inquiries you may have with respect to the Offer should be addressed to the
Information Agent or the Dealer Manager as set forth below. Requests for copies
of the Offer to Purchase, the Letter of Transmittal and all other tender offer
materials may be directed to the Information Agent.
Very truly yours,
RBC DOMINION SECURITIES CORPORATION
Enclosures
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF PURCHASER, THE DEALER MANAGER (AS DEFINED IN
THE OFFER TO PURCHASE), THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY
AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE
OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PART LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL -- FREE (800) 322-2885
THE DEALER MANAGER FOR THE OFFER IS:
RBC DOMINION SECURITIES CORPORATION
5th Floor
One Liberty Plaza
New York, NY 10006-1404
(212) 858-7139 (Call Collect)
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(TOGETHER WITH ANY ASSOCIATED RIGHTS)
OF
PRISM FINANCIAL CORPORATION
AT
$7.50 NET PER SHARE
BY
PRISM ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED, INDIRECT SUBSIDIARY OF
ROYAL BANK OF CANADA
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON APRIL 19, 2000, UNLESS THE OFFER IS EXTENDED.
March 22, 2000
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated March 22,
2000 (the "Offer to Purchase") and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, constitute the "Offer")
relating to the third party tender offer by Prism Acquisition Subsidiary, Inc.,
a Delaware corporation (the "Purchaser") and a wholly owned, indirect subsidiary
of Royal Bank of Canada, a Canadian commercial bank, to purchase all of the
issued and outstanding shares of common stock, par value $.01 per share (the
"Common Stock") of Prism Financial Corporation, a Delaware corporation (the
"Company"), together with associated rights to purchase preferred stock issued
pursuant to the Rights Agreement dated as of January 27, 2000, between the
Company and LaSalle Bank National Association (the "Rights" and, together with
the Common Stock, the "Shares," at a price of $7.50 per Share, net to the seller
in cash, less any required withholding of taxes and without the payment of any
interest, upon the terms and subject to the conditions set forth in the Offer.
WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. THE
LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT
BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH
SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all of the Shares held by us for your account, in
accordance with the terms and subject to the conditions set forth in the Offer.
Your attention is directed to the following:
1. The Offer price is $7.50 per Share, net to the seller in cash, less any
required withholding of taxes.
2. The Offer is being made for all of the issued and outstanding Shares.
3. The Offer is being made pursuant to the terms of a Merger Agreement,
dated as of March 10, 2000, among Royal Bank of Canada, Company and
Purchaser (the "Merger Agreement"). The Merger Agreement provides, among
other things, for the making of the Offer by Purchaser. The Merger
Agreement further provides that Purchaser will be merged with and into
the Company (the "Merger") promptly after satisfaction or waiver of
certain conditions. The Company will continue as the surviving
corporation after the Merger and will be a wholly owned, indirect
subsidiary of Royal Bank of Canada.
<PAGE> 2
4. The Board of Directors of the Company has (i) determined that each of
the Offer and the Merger is advisable and is fair to the stockholders of
the Company and in the best interests of such stockholders and (ii)
approved and adopted the Merger Agreement and the transactions
contemplated thereby and resolved to recommend acceptance of the Offer
and approval and adoption by the stockholders of the Company, if
necessary, of the Merger Agreement.
5. The Offer and withdrawal rights will expire at 12:00 midnight, New York
City time, on April 19, 2000, unless the Offer is extended.
6. Tendering stockholders will not be obligated to pay any commissions or
fees to any broker, dealer or other person or, except as set forth in
Instruction 6 of the Letter of Transmittal, stock transfer taxes with
respect to the transfer and sale of Shares to Purchaser or to its order
pursuant to the Offer.
7. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OR
WAIVER OF CERTAIN CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND THE
COMPANY TO CONSUMMATE THE OFFER, INCLUDING (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES, AND (II) RECEIPT BY
PURCHASER AND THE COMPANY OF CERTAIN GOVERNMENTAL AND REGULATORY
APPROVALS.
If you wish to have us tender any or all of the Shares held by us for your
account, please instruct us by completing, executing and returning to us the
instruction form contained in this letter. If you authorize a tender of your
Shares, all such Shares will be tendered unless otherwise specified in such
instruction form. Your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf on or prior to the expiration of the
Offer.
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE
ALL OF THE OUTSTANDING SHARES OF
COMMON STOCK
(TOGETHER WITH ANY ASSOCIATED RIGHTS)
OF
PRISM FINANCIAL CORPORATION
AT
$7.50 NET PER SHARE
BY
PRISM ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED, INDIRECT SUBSIDIARY OF
ROYAL BANK OF CANADA
The undersigned acknowledge(s) receipt of your letter enclosing the Offer
to Purchase dated March 22, 2000 of Prism Acquisition Subsidiary, Inc., a
Delaware corporation and a wholly owned, indirect subsidiary of Royal Bank of
Canada ("Purchaser"), and the related Letter of Transmittal, relating to the
shares of common stock, par value $.01, of Prism Financial Corporation, a
Delaware corporation (the "Shares").
This will instruct you to tender to Purchaser the number of Shares
indicated below (or, if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal furnished to the undersigned.
Number of Shares
to be Tendered: Shares*
SIGN HERE
--------------------------------------
Signature(s)
--------------------------------------
Please print name(s)
--------------------------------------
--------------------------------------
Address
--------------------------------------
Account Number
--------------------------------------
Area Code & Telephone Number
--------------------------------------
Taxpayer Identification Number(s) or
Social Security Number(s)
Dated , 2000
- ---------------
* Unless otherwise indicated, it will be assumed that all of your Shares held by
us for your account are to be tendered.
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYOR.-- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payor.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on
the account(1)
3. Husband and wife The actual owner of
(joint account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable savings The grantor-
trust account (grantor is trustee(1)
also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or valid
trust under State law
8. Sole proprietorship account The owner(4)
- -----------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
<CAPTION>
- -----------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------
<C> <S> <C>
9. A valid trust, estate, or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
- -----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), an individual
retirement plan or a custodial account under Section 403(b)(7).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
PAYMENTS NOT GENERALLY SUBJECT TO BACKUP WITHHOLDING
Payment of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount renewed is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payor's trade or business and you have not provided
your correct taxpayer identification number to the payor.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE SUBSTITUTE FORM W-9 TO AVOID
POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FURNISH YOUR TAXPAYER IDENTIFICATION
NUMBER, CERTIFY THAT YOU ARE EXEMPT FROM BACKUP WITHHOLDING, SIGN AND DATE THE
FORM, AND RETURN IT TO THE PAYOR.
Certain payments, other than interest, dividends and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 604lA(a),
6045 and 6050A.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payors
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payors must be given the numbers whether or not
recipients are required to file tax returns. Payors must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payor. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payor, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDER. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is being made solely by the Offer to Purchase,
dated March 22, 2000, and the related Letter of Transmittal and is
not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in
which the making of the Offer or the acceptance
thereof would not be in compliance with the
laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(TOGETHER WITH ANY ASSOCIATED RIGHTS)
OF
PRISM FINANCIAL CORPORATION
AT
$7.50 NET PER SHARE
BY
PRISM ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED, INDIRECT SUBSIDIARY OF
ROYAL BANK OF CANADA
Prism Acquisition Subsidiary, Inc., a Delaware corporation ("Purchaser")
and a wholly owned, indirect subsidiary of Royal Bank of Canada, a Canadian
commercial bank ("Parent"), is offering to purchase all of the issued and
outstanding shares of common stock, par value $.01 per share (the "Common
Stock"), of Prism Financial Corporation, a Delaware corporation (the "Company"),
together with the associated rights to purchase preferred stock issued pursuant
to the Rights Agreement dated as of January 27, 2000, between the Company and
LaSalle Bank National Association (the "Rights" and, together with the Common
Stock, the "Shares"), at a price of $7.50 per Share (such amount, or any higher
price that may be paid per Share in the Offer, the "Per Share Amount"), net to
the seller in cash, less any required withholding of taxes and without the
payment of any interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated March 22, 2000 (the "Offer to Purchase") and in
the related Letter of Transmittal (which as amended from time to time, together
constitute the "Offer").
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON APRIL 19, 2000, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OR
WAIVER OF CERTAIN CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND THE COMPANY TO
CONSUMMATE THE OFFER, INCLUDING (i) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A MAJORITY OF THE ISSUED
AND OUTSTANDING SHARES (THE "MINIMUM CONDITION"), AND (ii) RECEIPT BY PURCHASER
AND THE COMPANY OF CERTAIN GOVERNMENTAL AND REGULATORY APPROVALS.
Certain stockholders of the Company who, in the aggregate, own
approximately 62% of the Shares outstanding have entered into a stockholders
agreement with Parent and Purchaser pursuant to which they have agreed, among
other things, to tender pursuant to the Offer, and not to withdraw, their
Shares.
The Offer is being made pursuant to the terms of a Merger Agreement,
dated as of March 10, 2000, among Parent, Company and Purchaser (the "Merger
Agreement"), pursuant to which, following the consummation of the Offer,
Purchaser will be merged with and into the Company (the "Merger"). On the
effective date of the Merger (the "Effective Time"), each outstanding Share,
immediately prior to the Effective Time (other than (i) Shares held by any of
the Company's subsidiaries and (ii) Shares held by Parent, Purchaser or any
other subsidiary of Parent) will, by virtue of the Merger and without any action
on the part of Purchaser, the Company or the holder thereof, be converted into
and become the right to receive the Per Share Amount in cash, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY HAS (i) DETERMINED THAT EACH OF THE
OFFER AND THE MERGER IS ADVISABLE AND IS FAIR TO THE STOCKHOLDERS OF THE COMPANY
AND IN THE BEST INTERESTS OF SUCH STOCKHOLDERS, AND (ii) APPROVED AND ADOPTED
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RESOLVED TO
RECOMMEND ACCEPTANCE OF THE OFFER AND APPROVAL AND ADOPTION BY THE STOCKHOLDERS
OF COMPANY, IF NECESSARY, OF THE MERGER AGREEMENT.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased), Shares validly tendered and not withdrawn as,
if and when Purchaser gives oral or written notice to the Depositary (as defined
in the Offer to Purchase) of Purchaser's acceptance for payment of such Shares
pursuant to the Offer. Upon the terms and subject to the conditions of the
Offer, payment for Shares accepted for payment pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) the Share Certificates
or a Book-Entry Confirmation (each as defined in the Offer to Purchase) with
respect to such Shares pursuant to the procedures set forth in Section 3 of the
Offer to Purchase; (ii) the Letter of Transmittal (or a facsimile thereof)
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message (as defined in the
Offer to Purchase) in lieu of the Letter of Transmittal; and (iii) any other
documents required under the Letter of Transmittal. Under no circumstances will
Purchaser pay interest on the purchase price for the Shares.
The term "Initial Expiration Date" means 12:00 midnight, New York City
time, on April 19, 2000. If Purchaser, in accordance with the Merger Agreement,
extends the deadline for tendering Shares, the term "Expiration Date" means the
latest time and date on which the Offer, as so extended, expires. Without the
consent of the Company Board, Parent may cause Purchaser to (i) from time to
time extend the Offer, if at the Initial Expiration Date of the Offer any of the
conditions to the Offer have not been satisfied or waived (other than the
Minimum Condition), until such time as such conditions are satisfied or waived,
or (ii) extend the Offer for any period required by any rule, regulation,
interpretation or position of the SEC applicable to the Offer. In addition,
Parent and Purchaser have also agreed pursuant to the Merger Agreement that
Purchaser shall from time to time extend the Offer upon the request of the
Company, if at the Initial Expiration Date (or any extended expiration date of
the Offer, if applicable), any of the conditions to the Offer other than (or in
addition to) the Minimum Condition have been waived or satisfied, until (taking
into account all such extensions) September 30, 2000. Any extension, delay,
termination, waiver or amendment will be followed as promptly as practicable by
public announcement. An announcement, in the case of an extension, will be made
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. During any such extension, all Shares
previously tendered and not properly withdrawn will remain subject to the Offer
and will remain tendered, subject to the right of a tendering stockholder to
withdraw such stockholder's Shares.
If all of the conditions to the Offer are satisfied or waived but the
number of Shares validly tendered and not withdrawn is less than 90% of the then
outstanding number of Shares on a fully diluted basis, Purchaser may also elect
to provide a subsequent offering period for an aggregate period not to exceed 20
business days (a "Subsequent Offering Period"), pursuant to Rule 14d-11 under
the Securities Exchange Act of 1934 (the "Exchange Act"). If Purchaser elects to
provide a Subsequent Offering Period, Purchaser will accept and promptly pay for
all Shares as they are tendered during such Subsequent Offering Period and
otherwise meet the requirements of Rule 14d-11.
Except as otherwise provided below, tenders of Shares made pursuant to
the Offer are irrevocable. Shares tendered pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless previously
accepted for payment by Purchaser pursuant to the Offer, Shares may also be
withdrawn at any time after May 22, 2000, or such later date as may apply if the
Offer is extended. Shares may not be withdrawn during any Subsequent Offering
Period.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover page of the Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and (if Share Certificates
have been tendered) the name of the registered holder of such Shares, if
different from that of the person who tendered such Shares. If Share
Certificates representing Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such Share Certificates, the serial numbers shown on such Share Certificates
must be submitted to the Depositary and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution (as defined in the
Offer to Purchase), except in the case of Shares tendered for the account of an
Eligible Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in Section 3 of the Offer to Purchase, the
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which
case a notice of withdrawal will be effective if delivered to the Depositary by
any method of delivery described in the first sentence of this paragraph. Any
Shares properly withdrawn will be considered not validly tendered for purposes
of the Offer. However, withdrawn Shares may be tendered again at any time prior
to the Expiration Date. All questions as to the form and validity (including
time of receipt) of any notice of withdrawal will be determined by Purchaser, in
its sole discretion, which determination will be final and binding. No person is
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
The receipt of cash pursuant to the Offer or the Merger will constitute a
taxable transaction for U.S. federal income tax purposes and may also constitute
a taxable transaction under applicable state, local, foreign and other tax laws.
For U.S. federal income tax purposes, a stockholder who tenders Shares would
generally recognize gain or loss in an amount equal to the difference between
the amount of cash received by the stockholder pursuant to the Offer or the
Merger and the stockholder's tax basis for the Shares tendered and purchased
pursuant to the Offer or the Merger. If tendered Shares are held by a tendering
stockholder as capital assets, that gain or loss will be capital gain or loss.
Any such capital gain or loss will be long term if, as of the date of the
disposition of its Shares, the tendering stockholder held such Shares for more
than one year or will be short term if, as of such date, the stockholder held
such Shares for one year or less. These principles may not apply to certain
holders of Shares. All holders of Shares should consult their own tax advisors
to determine the particular tax consequences to them (including the application
and effect of any state, local or foreign income and other tax laws) of the
Offer and the Merger.
The information required to be disclosed by Rule 14d-6(d)(1) of the
Exchange Act is contained in the Offer to Purchase and is incorporated herein by
reference.
THE OFFER TO PURCHASE AND LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE
OFFER.
The Company has supplied to Purchaser the Company's stockholder lists and
security position listing for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase, the related Letter of Transmittal and other
relevant materials will be mailed to record holders of Shares, and will be
furnished to brokers, dealers, banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholders lists, or, if
applicable, who are listed as participants in a clearing agency's security
position listing by subsequent transmittal to beneficial owners of Shares.
Questions and requests for assistance may be directed to the Dealer
Manager or the Information Agent as set forth below. Requests for copies of the
Offer to Purchase, the Letter of Transmittal and all other tender offer
materials may be directed to the Information Agent as set forth below, and
copies will be furnished promptly at the Purchaser's expense.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
The Dealer Manager for the Offer is:
RBC DOMINION SECURITIES CORPORATION
5th Floor
One Liberty Plaza
New York, New York 10006-1404
(212) 858-7139 (Call Collect)
March 22, 2000
<PAGE> 1
EXHIBIT 12(d)(1)
- --------------------------------------------------------------------------------
MERGER
AGREEMENT
DATED AS OF MARCH 10, 2000
AMONG
ROYAL BANK OF CANADA,
PRISM FINANCIAL CORPORATION
AND
RAINBOW ACQUISITION SUBSIDIARY, INC.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 THE OFFER........................................................2
SECTION 1.1. THE OFFER........................................................2
SECTION 1.2. COMPANY ACTION...................................................3
SECTION 1.3. BOARDS OF DIRECTORS AND COMMITTEES; SECTION 14(F)................4
ARTICLE 2 THE MERGER.......................................................5
SECTION 2.1. THE MERGER.......................................................5
SECTION 2.2. CLOSING OF THE MERGER............................................6
SECTION 2.3. EFFECTIVE TIME...................................................6
SECTION 2.4. EFFECTS OF THE MERGER............................................6
SECTION 2.5. CERTIFICATE OF INCORPORATION AND BYLAWS..........................6
SECTION 2.6. DIRECTORS........................................................6
SECTION 2.7. OFFICERS.........................................................7
SECTION 2.8. CONVERSION OF SHARES.............................................7
SECTION 2.9. PAYMENT OF CASH MERGER CONSIDERATION.............................7
SECTION 2.10. STOCK OPTIONS....................................................9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................10
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES....................10
SECTION 3.2. CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES..............11
SECTION 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION............12
SECTION 3.4. SEC REPORTS; FINANCIAL STATEMENTS; ACCOUNTING PROCEDURES........12
SECTION 3.5. INFORMATION SUPPLIED............................................13
SECTION 3.6. CONSENTS AND APPROVALS; NO VIOLATIONS...........................14
SECTION 3.7. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES..................15
SECTION 3.8. LITIGATION......................................................15
SECTION 3.9 COMPLIANCE WITH LAWS............................................15
SECTION 3.10. FORMS; POLICIES AND PROCEDURES..................................16
SECTION 3.11. LICENSES AND PERMITS............................................16
SECTION 3.12. EMPLOYEE BENEFIT PLANS, LABOR MATTERS...........................17
SECTION 3.13. ENVIRONMENTAL LAWS AND REGULATIONS..............................19
SECTION 3.14. TAXES...........................................................20
SECTION 3.15. PROPERTIES .....................................................21
SECTION 3.16. MATERIAL CONTRACTS AND COMMITMENTS..............................22
SECTION 3.17. INTELLECTUAL PROPERTY...........................................24
SECTION 3.19. STOCK OPTIONS...................................................29
SECTION 3.20. INSURANCE ......................................................30
SECTION 3.21. POOL CERTIFICATIONS.............................................30
SECTION 3.22. BROKERS ........................................................30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION........30
SECTION 4.1. ORGANIZATION....................................................30
SECTION 4.2. AUTHORITY RELATIVE TO THIS AGREEMENT............................31
SECTION 4.3. INFORMATION SUPPLIED............................................31
SECTION 4.4. FINANCING; SHARE OWNERSHIP......................................31
SECTION 4.5. CONSENTS AND APPROVALS; NO VIOLATIONS...........................32
SECTION 4.6. BROKERS AND FINDERS.............................................32
SECTION 4.7. NATURE AND INTERIM OPERATIONS OF ACQUISITION....................32
ARTICLE 5 COVENANT........................................................33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5.1. INTERIM OPERATIONS..............................................33
SECTION 5.2. STOCKHOLDERS' MEETING; ACTION BY CONSENT........................35
SECTION 5.3. TERMINATION OF REGISTRATION OF SHARES...........................36
SECTION 5.4. OTHER POTENTIAL ACQUIRERS.......................................36
SECTION 5.5. ACCESS TO INFORMATION...........................................38
SECTION 5.6. FURTHER ACTIONS.................................................38
SECTION 5.7. PUBLIC ANNOUNCEMENTS............................................39
SECTION 5.8. EMPLOYEE BENEFIT MATTERS........................................39
SECTION 5.9. EXPENSES........................................................40
SECTION 5.10. NOTIFICATION OF CERTAIN MATTERS.................................40
SECTION 5.11. GUARANTEE OF PERFORMANCE........................................40
SECTION 5.12. EFFECT OF PARENTS KNOWLEDGE.....................................41
SECTION 5.13. INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE.............41
ARTICLE 6 CONDITIONS TO THE OFFER.........................................42
SECTION 6.1. CONDITIONS TO THE OFFER.........................................42
ARTICLE 7 CONDITIONS TO CONSUMMATION OF THE MERGER........................44
SECTION 7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.....44
ARTICLE 8 TERMINATION; AMENDMENT; WAIVER..................................44
SECTION 8.1. TERMINATION.....................................................44
SECTION 8.2. EFFECT OF TERMINATION...........................................45
SECTION 8.3. FEES AND EXPENSES...............................................45
SECTION 8.4. AMENDMENT.......................................................46
SECTION 8.5. EXTENSION; WAIVER...............................................47
ARTICLE 9 MISCELLANEOUS...................................................47
SECTION 9.1. ENTIRE AGREEMENT; ASSIGNMENT....................................47
SECTION 9.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................47
SECTION 9.3. VALIDITY........................................................47
SECTION 9.4. NOTICES.........................................................47
SECTION 9.5. GOVERNING LAW...................................................48
SECTION 9.6. DESCRIPTIVE HEADINGS............................................49
SECTION 9.7. PARTIES IN INTEREST.............................................49
SECTION 9.8. CERTAIN DEFINITIONS.............................................49
SECTION 9.9. PERSONAL LIABILITY..............................................49
SECTION 9.10. SPECIFIC PERFORMANCE............................................50
SECTION 9.11. WAIVER OF CONDITIONS............................................50
SECTION 9.12. COUNTERPARTS....................................................50
EXHIBIT A .................................................................52
EXHIBIT B .................................................................53
EXHIBIT C .................................................................54
</TABLE>
ii
<PAGE> 4
TABLE OF DEFINED TERMS
<TABLE>
<S> <C> <C>
1999 Option Plan.............................Section 2.10(a)........................................9
2000 Option Plan.............................Section 2.10(b)........................................9
Acquisition..................................Preamble...............................................1
Affiliate....................................Section 9.8(a)........................................49
Agencies.....................................Section 3.9(a)........................................15
Agency and Investor Requirements.............Section 3.4(c)........................................13
Agency.......................................Section 3.9(a)........................................15
Agreement....................................Preamble...............................................1
Bank Act.....................................Section 4.5...........................................32
Bank Holding Company Act.....................Section 4.5...........................................32
Board........................................Recitals...............................................1
Breakup Fee..................................Section 8.3(a)........................................45
Business Day.................................Section 9.8(b)........................................49
Cash Merger Consideration....................Section 2.8(a).........................................7
Certificates.................................Section 2.9(b).........................................8
Closing Time.................................Section 2.2............................................6
Code.........................................Section 3.12(c).......................................17
Company Assets...............................Section 3.15..........................................22
Company Disclosure Schedule..................Article 3.............................................10
Company Employee Plan........................Section 3.12(a).......................................17
Company Marks................................Section 3.17(b).......................................25
Company Option Plans.........................Section 2.10(b)........................................9
Company Personnel............................Section 3.12(a).......................................17
Company SEC Reports..........................Section 3.4(a)........................................13
Company Securities...........................Section 3.2(a)........................................11
Company Stock Options........................Section 2.10(a)........................................9
Company......................................Preamble...............................................1
CompanyTrade Secrets.........................Section 3.17(e).......................................26
Confidentiality Agreement....................Section 5.5...........................................38
Consumer Credit Law..........................Section 3.9(a)........................................16
Continuing Directors.........................Section 1.3(a).........................................5
Continuing Employees.........................Section 5.8(a)........................................39
Contracts....................................Section 3.16(a).......................................22
DGCL.........................................Section 1.2(a).........................................3
Disclosure Statements........................Section 3.5...........................................13
Effective Time...............................Section 2.3............................................6
Environmental Claim..........................Section 3.13(b).......................................20
Environmental Laws...........................Section 3.12(a).......................................20
ERISA Affiliate..............................Section 3.12(a).......................................17
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C> <C>
ERISA........................................Section 3.12(a).......................................17
Exchange Act.................................Section 1.1(a).........................................2
Fannie Mae...................................Section 3.9(a)........................................15
Freddie Mac..................................Section 3.9(a)........................................15
GAAP.........................................Section 3.4(a)........................................13
GNMA.........................................Section 3.9(a)........................................15
Governmental Entity..........................Section 3.6...........................................14
HSR Act......................................Section 3.6...........................................14
HUD..........................................Section 3.9(a)........................................15
Indemnified Parties..........................Section 5.13..........................................41
Initial Expiration Date......................Section 1.1(b).........................................2
Intellectual Property Assets.................Section 3.17(a)(ii)...................................24
Intellectual Property Rights.................Section 3.17(a)(i)....................................24
Invention Disclosures........................Section 3.17(e).......................................26
Investor.....................................Section 3.8...........................................15
Knowledge....................................Section 3.8...........................................15
Licensed Intellectual Property...............Section 3.17(h)(vi)...................................29
Licensed Software Agreements.................Section 3.17(h).......................................28
Licensed Software............................Section 3.17(f).......................................27
Licensed Technology Agreements...............Section 3.17(h).......................................28
Lien.........................................Section 3.2(b)........................................12
Marks........................................Section 3.17(a)(i)(A).................................24
Material Adverse Effect......................Section 3.1(a)........................................10
Merger Certificate...........................Section 2.3............................................6
Merger Fund..................................Section 2.9(a).........................................8
Merger.......................................Section 2.1............................................5
Minimum Condition............................Section 1.1(a).........................................2
Mortgage Loan................................Section 3.9(b)........................................16
Offer Documents..............................Section 1.1(c).........................................3
Offer........................................Recitals...............................................1
Options......................................Section 8.3(c)........................................46
Other Licensed Technology Agreements.........Section 3.17(h).......................................28
Owned Copyrights.............................Section 3.17(d)(i)....................................26
Owned Software...............................Section 3.17(f).......................................27
Parent Material Adverse Effect...............Section 4.1(a)........................................30
Parent.......................................Preamble...............................................1
Patents......................................Section 3.17(a)(i)(B).................................24
Payment Agent................................Section 2.9(a).........................................7
</TABLE>
ii
<PAGE> 6
<TABLE>
<S> <C> <C>
Per Share Amount.............................Recitals...............................................1
Person.......................................Section 9.8(d)........................................49
Pools........................................Section 3.21..........................................30
Potential Proposal...........................Section 5.4(a)........................................36
Prism Mortgage...............................Section 1.3(a).........................................5
Proxy Statement..............................Section 3.5...........................................13
Remaining Shares.............................Section 8.3(d)........................................46
Rights Agreement.............................Recitals...............................................1
Rights.......................................Recitals...............................................1
Schedule 14D-9...............................Section 1.2(b).........................................4
SEC..........................................Section 1.1(b).........................................2
Securities Act...............................Section 3.4(a)........................................13
Shares.......................................Section 3.2(a)........................................11
Software.....................................Section 3.17(a)(iii)..................................24
Stock........................................Section 9.8(c)........................................49
Stockholders' Agreement......................Recitals...............................................1
Stockholders' Meeting........................Section 5.2(a)(i).....................................35
Subsidiaries.................................Section 9.8(e)........................................49
Subsidiary...................................Section 9.8(e)........................................49
Superior Proposal Notice.....................Section 8.3(d)........................................46
Superior Proposal............................Section 5.4(b)........................................37
Surviving Corporation........................Section 2.1............................................5
Tax Return...................................Section 3.14(a).......................................20
Tax..........................................Section 3.14(a).......................................20
Taxes........................................Section 3.14(a).......................................20
Tender Offer Purchase Time...................Section 1.3(a).........................................4
Third Party Acquisition......................Section 5.4(b)........................................37
Third Party..................................Section 5.4(b)........................................37
Trade Secrets................................Section 3.17(a)(i)(C).................................24
VA...........................................Section 3.9(a)........................................15
</TABLE>
iii
<PAGE> 7
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") dated as of March 10,
2000, is among PRISM FINANCIAL CORPORATION, a Delaware corporation ("Company"),
ROYAL BANK OF CANADA, a Canadian commercial bank("Parent"), and RAINBOW
ACQUISITION SUBSIDIARY, INC., a Delaware corporation and a wholly owned,
indirect subsidiary of Parent ("Acquisition").
WHEREAS, the Board of Directors of the Company (the "Board") has,
in light of and subject to the terms and conditions set forth herein,
(i)determined that each of the Offer and the Merger (each as defined below) is
advisable and is fair to the stockholders of the Company and in the best
interests of such stockholders and (ii) approved and adopted this Agreement and
the transactions contemplated hereby and resolved to recommend acceptance of the
Offer and approval and adoption by the stockholders of the Company, if
necessary, of this Agreement;
WHEREAS, in furtherance thereof, it is proposed that Acquisition
shall promptly commence a tender offer (the "Offer") to acquire all of the
issued and outstanding Shares (defined in Section 3.2(a)), at a price of $7.50
per Share together with any associated rights (the "Rights") issued pursuant to
the Rights Agreement dated as of January 27, 2000, between the Company and
LaSalle Bank National Association (the "Rights Agreement") (such amount being
hereinafter referred to as the "Per Share Amount"), net to the seller in cash,
less any required withholding of taxes, in accordance with the terms and subject
to the conditions provided herein; and
WHEREAS, as a condition of and inducement to Parent's and
Acquisition's entering into this Agreement and incurring the obligations set
forth herein, certain stockholders of the Company concurrently herewith are
entering into a stockholders' agreement (the "Stockholders' Agreement") dated as
of the date hereof, with Parent and Acquisition, substantially in the form of
Exhibit A to this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows,
ARTICLE 1
THE OFFER
SECTION 1.1. The Offer.
(a) Provided that this Agreement shall not have been terminated
in accordance with Section 8.1 and none of the events or conditions set forth in
Article 6 shall have occurred and be existing, as promptly as practicable after
the date hereof (but in no event later than the fifth business day after the
public announcement of the terms of this Agreement, Acquisition shall commence
(within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Offer. The Offer will be made pursuant to the
Offer Documents (as defined below) containing terms
1
<PAGE> 8
and conditions set forth in this Agreement. Acquisition shall accept for
payment, purchase and pay for all Shares which have been validly tendered and
not withdrawn pursuant to the Offer at the earliest time following expiration of
the Offer that all conditions to the Offer set forth in Article 6 shall have
been satisfied or waived by Acquisition. The obligation of Acquisition to accept
for payment, purchase and pay for Shares tendered pursuant to the Offer shall be
subject only to the condition that at least a majority of the issued and
outstanding Shares be validly tendered (the "Minimum Condition") and the other
conditions set forth in Article 6. Acquisition expressly reserves the right to
waive any such condition (other than the Minimum Condition) to increase the
price per Share payable in the Offer or to make any other changes in the terms
and conditions of the Offer (provided that, unless previously approved by the
Company in writing, no change may be made which decreases the Per Share Amount,
which reduces the number of Shares to be purchased in the Offer, which changes
the form of consideration to be paid in the Offer, which imposes conditions to
the Offer in addition to those set forth in Article 6 or which amends or changes
any term or condition of the Offer in a manner adverse to the holders of
Shares). The Per Share Amount shall be paid net to the seller in cash, less any
required withholding of taxes, upon the terms and subject to such conditions of
the Offer. The Company agrees that no Shares held by the Company or any of its
subsidiaries will be tendered in the Offer.
(b) Subject to the terms and conditions thereof, the Offer
shall expire at midnight, New York City time, on the date that is twenty (20)
business days after the date the Offer is commenced (the "Initial Expiration
Date"); provided, however, without the consent of the Board, Parent may cause
Acquisition to (i) from time to time extend the Offer, if at the Initial
Expiration Date of the Offer any of the conditions to the Offer necessary to
consummate the Offer have not been satisfied or waived (other than the Minimum
Condition, to which this clause does not apply), until such time as such
conditions are satisfied or waived; (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the
Offer; or (iii) if all of the conditions to the Offer are satisfied or waived
but the number of Shares validly tendered and not withdrawn is less than ninety
percent (90%) of the then outstanding number of Shares on a fully diluted basis,
for an aggregate period not to exceed twenty (20) business days (for all such
extensions), provided that Acquisition shall accept and promptly pay for all
securities tendered prior to the date of such extension and shall otherwise meet
the requirements of Rule 14d-11 under the Exchange Act in connection with each
such extension. In addition, Parent and Acquisition agree that Acquisition shall
from time to time extend the Offer, if requested by the Company, if at the
Initial Expiration Date (or any extended expiration date of the Offer, if
applicable), any of the conditions to the Offer other than (or in addition to)
the Minimum Condition shall not have been waived or satisfied, until (taking
into account all such extensions) September 30, 2000.
(c) As soon as practicable after the date of commencement of
the Offer, Acquisition shall file with the SEC a Tender Offer Statement on
Schedule TO with respect to the Offer, which shall include an offer to purchase
and form of transmittal letter (together with any amendments thereof or
supplements thereto, collectively the "Offer Documents"). The Offer Documents
will comply in all material respects with the provisions of applicable federal
securities laws. Parent, Acquisition and the Company
2
<PAGE> 9
each agrees promptly to correct any information provided by it for use in the
Offer Documents if and to the extent that such information shall have become
false or misleading in any material respect, and Acquisition further agrees to
take all steps necessary to cause the Offer Documents as so corrected to be
filed with the SEC and to be disseminated to holders of Shares, in each case as
and to the extent required by applicable federal securities laws. The Company
and its counsel shall be given a reasonable opportunity to review and comment on
the Offer Documents prior to their being filed with the SEC. Parent and
Acquisition agree to provide to the Company and its counsel any comments or
other communications which Parent, Acquisition or their counsel receives from
the staff of the SEC with respect to the Offer Documents promptly after receipt
thereof.
SECTION 1.2. Company Action.
(a) The Company hereby approves of and consents to the Offer
and the Merger and represents and warrants that the Board, including all of the
independent directors of the Company, at a meeting duly called and held, has,
subject to the terms and conditions set forth herein, adopted resolutions, which
are not conditional and have not been amended or repealed, pursuant to which the
Board (i) determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, are fair to, and in the best
interests of, the stockholders of the Company, (ii) declared that the Merger is
advisable and approved this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, in all respects and such approval
constitutes prior approval of the Offer, this Agreement and the Merger for
purposes of Section 203(a)(1) of the Delaware General Corporation Law (the
"DGCL") and similar provisions of any other similar state statutes that might be
deemed applicable to the transactions contemplated hereby, (iii) recommended
that the stockholders of the Company accept the Offer, tender their Shares
thereunder to Acquisition and, if required by law, approve and adopt this
Agreement and the Merger; and in addition that the Company consents, subject to
Section 5.4, to the inclusion of such recommendation and approval in the Offer
Documents, and (iv) takes all actions to amend the Company Option Plans and the
Rights Agreements contemplated by this Agreement.
(b) The Company hereby agrees to file with the SEC as soon as
practicable after the date hereof a Solicitation/Recommendation Statement on
Schedule 14D-9 pertaining to the Offer (together with any amendments thereof or
supplements thereto, the "Schedule 14D-9") containing the recommendation
described in Section 1.2(a) and to promptly mail the Schedule 14D-9 to the
stockholders of the Company. The Company, Parent and Acquisition each agrees
promptly to correct any information provided by it for use in the Schedule 14D-9
if and to the extent that such information shall have become false or misleading
in any material respect and the Company further agrees to take all steps
necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC
and disseminated to the holders of Shares, in each case as and to the extent
required by applicable federal securities laws. The Parent, Acquisition and
their counsel shall be given a reasonable opportunity to review and comment on
the Schedule 14D-9 prior to it being filed with the SEC. The Company agrees to
provide to Parent, Acquisition and their counsel any comments or other
communications which the Company or its counsel receives from the staff of the
SEC
3
<PAGE> 10
with respect to the Schedule 14D-9 promptly after receipt thereof.
Notwithstanding anything to the contrary in this Agreement, the Board may
withdraw, modify or amend its recommendation under the circumstances set forth
in Section 5.4.
(c) In connection with the Offer, the Company will promptly
furnish Parent and Acquisition with mailing labels, security position listings
and any available listing or computer files containing the names and addresses
of the record holders of the Shares as of a recent date and shall furnish
Acquisition with such additional information and assistance (including, without
limitation, updated lists of stockholders, mailing labels and lists of
securities positions) as Acquisition or its agents may reasonably request in
communicating the Offer to the record and beneficial holders of Shares. Subject
to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Merger, Parent, Acquisition and their affiliates, associates,
agents and advisors shall use the information contained in any such labels,
listings and files only in connection with the Offer and the Merger, and, if
this Agreement shall be terminated, will deliver to the Company all copies of
such information then in their possession.
SECTION 1.3. Boards of Directors and Committees; Section 14(f).
(a) Promptly after the purchase by Acquisition of Shares
pursuant to the Offer following the Initial Expiration Date or, if applicable,
the extended expiration date of the Offer (the "Tender Offer Purchase Time") and
from time to time thereafter, and subject to the last sentence of this Section
1.3(a), Acquisition shall be entitled to designate that number (but no more than
that number) of directors of the Company constituting a majority of the Board,
and the Company shall use its best efforts to, upon request by Acquisition,
promptly, at the Company's election, either increase the size of the Board
(subject to the provisions of Article Fifth of the Company's Certificate of
Incorporation) or secure the resignation of such number of directors as is
necessary to enable Acquisition's designees to be elected to the Board and to
cause Acquisition's designees to be so elected and to constitute at all times
after the Tender Offer Purchase Time a majority of the Board. At such times, and
subject to the last sentence of this Section 1.3(a), the Company will use its
best efforts to cause persons designated by Acquisition to constitute the same
percentage as is on the Board of (i) each committee of the Board (other than any
committee of the Board established to take action under this Agreement), (ii)
each board of directors of each subsidiary of the Company and (iii) each
committee of each such board. Notwithstanding the foregoing, until the Effective
Time (as defined in Section 2.3 hereof) (x) the Company shall retain at least
three directors who are directors of the Company on the date hereof (the
"Continuing Directors") and (y) Parent and Acquisition shall not, and shall
cause their affiliates not to, (A) initiate, propose, vote for, or solicit
others to vote for, any change in the number of directors of Prism Mortgage
Company, an Illinois corporation and a wholly-owned subsidiary of the Company
("Prism Mortgage"), as of the date hereof or (B) take any action that would be
reasonably likely to result in any change described in the foregoing clause (A).
(b) The Company's obligation to appoint designees to the Board
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder. The Company shall promptly take all action required pursuant to such
Section and Rule
4
<PAGE> 11
in order to fulfill its obligations under this Section 1.3 and shall include in
the Schedule 14D-9 such information with respect to the Company and its officers
and directors as is required under such Section and Rule in order to fulfill its
obligations under this Section 1.3. Acquisition will supply to the Company in
writing and be solely responsible for any information with respect to itself and
its nominees, officers, directors and affiliates required by such Section and
Rule.
(c) From and after the time, if any, that Acquisition's
designees constitute a majority of the Board until the Effective Time, any
amendment, modification or waiver of any term or condition of this Agreement,
any amendment or modification to the Certificate of Incorporation or By-Laws of
the Company, any termination of this Agreement by the Company, any extension of
time of performance of any of the obligations of Parent or Acquisition
hereunder, any waiver of any condition or any of the Company's rights hereunder
or other action by the Company in connection with the rights of the Company
hereunder may be effected only with the concurrence of a majority of the
Continuing Directors.
ARTICLE 2
THE MERGER
SECTION 2.1. The Merger. At the Effective Time (as defined below)
and upon the terms and subject to the conditions of this Agreement and in
accordance with the DGCL, Acquisition shall be merged with and into the Company
(the "Merger"). Following the Merger, the Company shall continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of Acquisition shall cease. Parent, as the sole stockholder of
Acquisition, hereby approves this Agreement, the Merger and the other
transactions contemplated hereby. Subject to the terms and conditions of this
Agreement, Parent and Acquisition agree to cause the Effective Time to occur as
soon as practicable after the Stockholders' Meeting (as defined in Section
5.2(a)) or the purchase by Acquisition of 90% or more of the issued and
outstanding Shares pursuant to the Offer.
SECTION 2.2. Closing of the Merger. The closing of the Merger will
take place at a time (the "Closing Time") and on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or waiver (in accordance with this Agreement) of the latest to occur of the
conditions set forth in Article 7 (other than those conditions that, by their
nature, are to be satisfied at the Closing Time, but subject to the satisfaction
or waiver of those conditions) at the offices of Gibson, Dunn & Crutcher LLP,
1050 Connecticut Avenue, N.W., Washington, D.C. 20036, unless another time, date
or place is agreed to in writing by the parties hereto.
SECTION 2.3. Effective Time. Subject to the terms and conditions
set forth in this Agreement, a Certificate of Merger or Certificate of Ownership
and Merger, (the "Merger Certificate") shall be duly executed and acknowledged
by Acquisition and the Company and thereafter delivered at the Closing Time to
the Secretary of State of the State of Delaware for filing pursuant to the DGCL.
The Merger shall become effective at such time as a properly executed and
certified copy of the Merger Certificate is duly
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accepted for record by the Secretary of State of the State of Delaware for
filing pursuant to the DGCL, or such later time as Acquisition and the Company
may agree upon and set forth in the Merger Certificate (not exceeding 30 days
after the Merger Certificate is accepted for record; the time the Merger becomes
effective being referred to herein as the "Effective Time").
SECTION 2.4. Effects of the Merger. The Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the foregoing
and subject thereto at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Acquisition shall vest in
the Surviving Corporation and all debts, liabilities and duties of the Company
and Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 2.5. Certificate of Incorporation and Bylaws. The
Certificate of Incorporation of Acquisition in effect at the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with applicable law. The Bylaws of Acquisition in effect
at the Effective Time shall be the Bylaws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 2.6. Directors. The directors of Acquisition at the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation until the next annual meeting of stockholders and
until each such director's successor is duly elected or appointed and qualified.
SECTION 2.7. Officers. The officers of the Company at the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
SECTION 2.8. Conversion of Shares.
(a) At the Effective Time, each Share, together with any
associated Rights, issued and outstanding immediately prior to the Effective
Time (excluding (i) Shares held by any of the Company's subsidiaries and (ii)
Shares held by Parent, Acquisition or any other subsidiary of Parent) shall, by
virtue of the Merger and without any action on the part of Acquisition, the
Company or the holder thereof, be converted into and shall become the right to
receive the Per Share Amount in cash, without interest (the "Cash Merger
Consideration"). Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time, the Shares shall have been changed into a
different number of shares or a different class by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares, then the Cash Merger Consideration contemplated by the Merger shall
be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(b) At the Effective Time, each Share held by Parent,
Acquisition or any subsidiary of Parent, Acquisition or the Company immediately
prior to the Effective
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Time shall, by virtue of the Merger and without any action on the part of
Acquisition, the Company or the holder thereof, be canceled and retired and will
cease to exist and no payment shall be made with respect thereto.
(c) At the Effective Time, each share of common stock of
Acquisition issued and outstanding immediately prior to the Effective Time shall
be converted into and shall become one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
SECTION 2.9. Payment of Cash Merger Consideration.
(a) As of the Effective Time, Acquisition shall deposit in
trust with such agent or agents as may be appointed by Parent and Acquisition
and reasonably acceptable to the Company (the "Payment Agent") for the benefit
of the holders of issued and outstanding Shares at the Effective Time (excluding
(i) Shares held by any of the Company's subsidiaries and (ii) Shares held by
Parent, Acquisition or any other subsidiary of Parent), an amount in cash equal
to the aggregate amount necessary to pay the Cash Merger Consideration (such
cash is hereinafter referred to as the "Merger Fund") payable pursuant to
Section 2.8 in exchange for such issued and outstanding Shares. The Payment
Agent shall, pursuant to irrevocable instructions, deliver the Cash Merger
Consideration out of the Merger Fund. The Merger Fund shall not be used for any
other purpose.
(b) As soon as reasonably practicable after the Effective Time,
Parent shall cause the Payment Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding Shares (the "Certificates") whose Shares were
converted into the right to receive the Cash Merger Consideration pursuant to
Section 2.8: (i) a letter of transmittal (which shall specify that delivery
shall be effected and risk of loss and title to the Certificates shall pass only
upon delivery of the Certificates to the Payment Agent and shall be in such form
and have such other provisions as Parent and the Company may reasonably specify)
and (ii) instructions on how to surrender the Certificates in exchange for the
Cash Merger Consideration. Upon surrender to the Payment Agent of a Certificate
for cancellation, together with such letter of transmittal duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor,
and Parent shall cause the Payment Agent to deliver, a check representing the
Cash Merger Consideration which such holder has the right to receive pursuant to
the provisions of this Article 2 and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares which
is not registered in the transfer records of the Company, payment of the Cash
Merger Consideration may be made to a transferee if the Certificate representing
such Shares is presented to the Payment Agent accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.9, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Cash Merger Consideration as contemplated by this Section 2.9.
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(c) In the event that any Certificate shall have been lost,
stolen or destroyed, Parent shall cause the Payment Agent to issue in exchange
therefor, upon the making of an affidavit of that fact by the holder thereof,
such Cash Merger Consideration as may be required pursuant to this Agreement;
provided, however, that Acquisition or the Payment Agent may, in its discretion,
require the delivery of a suitable bond or indemnity.
(d) All Cash Merger Consideration paid upon the surrender for
exchange of Shares in accordance with the terms hereof shall be deemed to have
been paid in full satisfaction of all rights pertaining to such Shares; subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which may
have been declared or made by the Company on such Shares in accordance with the
terms of this Agreement, or prior to the date hereof and which remain unpaid at
the Effective Time, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If after the Effective Time
Certificates are presented to the Surviving Corporation for any reason they
shall be canceled and exchanged as provided in this Article 2.
(e) Any portion of the Merger Fund which remains undistributed
to the stockholders of the Company for six months after the Effective Time shall
be delivered to Parent upon demand and any stockholders of the Company who have
not theretofore complied with this Article 2 shall thereafter look only to
Parent for payment of their claim for the Cash Merger Consideration.
(f) Neither Acquisition nor the Company shall be liable to any
holder of Shares for cash from the Merger Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
SECTION 2.10. Stock Options.
(a) At the Effective Time, each outstanding option to purchase
Shares (a "Company Stock Option" or collectively "Company Stock Options") issued
pursuant to the Company's 1999 Omnibus Stock Incentive Plan (the "1999 Option
Plan"), whether vested or unvested, the exercise price of which is greater than
the Cash Merger Consideration, shall be canceled and extinguished without
consideration and the 1999 Option Plan shall terminate as of the Effective Date.
(b) At the Effective Time, each outstanding Company Stock
Option issued pursuant to the 1999 Option Plan or the Company's 2000 Stock
Option Plan (the "2000 Option Plan" and, together with the 1999 Option Plan, the
"Company Option Plans") that is vested as of the Effective Time, the exercise
price of which is less than the Cash Merger Consideration shall be canceled and
extinguished and shall become the right to receive an amount, without interest,
in cash paid at the Effective Time equal to the excess, if any of the Cash
Merger Consideration over the exercise price per Share of such Company Stock
Option, less the amount of Taxes (as defined in Section 3.15(a)) required to be
withheld under applicable Federal, state or local laws and regulations
multiplied by the number of Shares subject to such Company Stock Option.
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(c) At the Effective Time, each outstanding Company Stock
Option issued pursuant to the Company Option Plans or any other stock option
plan, program, arrangement or agreement to which the Company or any of its
subsidiaries is a party that is not vested as of the Effective Time, the
exercise price of which is less than the Cash Merger Consideration shall be
canceled and extinguished in consideration for certain compensatory payments to
be paid to the holder of such Company Stock Option at the time the Company
Stock Option would otherwise have vested (provided that such holder is employed
with the Company at such time and has not breached any of such holder's
obligations under any applicable employment agreement with the Company or any
Subsidiary) equal to an amount, without interest, in cash equal to the excess,
if any of the Cash Merger Consideration over the exercise price per Share of
such Company Stock Options that would otherwise have vested at such time.
Notwithstanding the foregoing, the right to receive such payments shall vest in
accordance with the terms of the applicable option agreement.
(d) If and to the extent required by the terms of the Company
Option Plan, or any other stock option plan, program, arrangement or agreement
to which the Company or any of its subsidiaries is a party or the terms of any
Company Stock Option granted thereunder, the Company shall cooperate with Parent
and Acquisition in obtaining the consent of each holder of outstanding Company
Stock Options to the foregoing treatment of such Company Stock Options and to
take any other action necessary to effectuate the foregoing provisions.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule previously
delivered by the Company to Parent (the "Company Disclosure Schedule"), the
Company hereby represents and warrants to each of Parent and Acquisition as of
the date hereof as follows:
SECTION 3.1. Organization and Qualification; Subsidiaries.
(a) Each of the Company and each of its subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, except where the failure to
qualify or to be in good standing would not have a Material Adverse Effect (as
defined below) and has all requisite power and authority to own lease and
operate its properties and to carry on its businesses as now being conducted,
except where the failure to have such power and authority would not have a
Material Adverse Effect. The Company has heretofore made available to Parent
complete and correct copies of the Certificate of Incorporation and Bylaws (or
similar governing documents), as currently in effect, of the Company and its
subsidiaries. When used in connection with the Company or its subsidiaries, the
term "Material Adverse Effect" means any change or effect (i) that is materially
adverse to the business, properties, financial condition, or results of
operations of the Company and its subsidiaries, taken as whole, or (ii) that
would materially impair the ability of the Company to perform its obligations
hereunder. Notwithstanding the foregoing, none of
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the following shall be deemed, either alone or in combination, to constitute a
Material Adverse Effect: (i) changes or effects resulting from general changes
in economic, market, regulatory or political conditions or changes in conditions
or business practices generally applicable to the industries in which the
Company and its subsidiaries operate, including, but not limited to, changes and
effects resulting from a change in interest rates or an industry-wide decrease
in mortgage volume; (ii) changes in the market price or trading volume of the
Shares on the Nasdaq National Market; or (iii) changes or effects resulting from
the announcement or approval of the Offer and the Agreement or relating to the
identity of or facts pertaining to Parent or Acquisition.
(b) Each of the Company and its subsidiaries is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have a Material Adverse Effect on the Company.
SECTION 3.2. Capitalization of the Company and its Subsidiaries.
(a) The authorized stock of the Company consists of 100,000,000
shares of common stock, par value $.01 per share of the Company (the "Shares"),
of which, as of January 31, 2000, 14,670,560 Shares were issued and outstanding,
and 10,000,000 shares of preferred stock, par value $.01 per share, no shares of
which are outstanding. All of the outstanding Shares have been validly issued
and are fully paid and nonassessable, and free of preemptive rights granted by
the Company. As of January 31, 2000, approximately 2,040,652 Shares were
reserved for issuance upon the exercise of outstanding Company Stock Options
issued pursuant to the Company Option Plans and other stock option plans, or
agreements to which the Company or any of its subsidiaries is a party. Except as
set forth in Section 3.2(a) of the Company Disclosure Schedule, since January
31, 2000, no shares of the Company's stock have been issued other than pursuant
to Company Stock Options or other stock-based employee benefit plans of the
Company and no options to acquire Shares have been granted other than pursuant
to the Company Option Plans. Except as set forth above and in Sections 3.2(a) of
the Company Disclosure Schedule, and except for the Rights, the Prism Equity
Value Plan-I and the Prism Equity Value Plan-II, as of the date hereof, there
are issued, reserved for issuance, or outstanding (i) no shares of stock or
other voting securities of the Company, (ii) no securities of the Company or its
subsidiaries convertible into or exchangeable for shares of stock or voting
securities of the Company, (iii) no options or other rights to acquire from the
Company or its subsidiaries and, except as described in Section 3.2(a) of the
Company Disclosure Schedule, no obligations of the Company or its subsidiaries
to issue any stock, voting securities or securities convertible into or
exchangeable for stock or voting securities of the Company, (iv) no bonds,
debentures, notes or other indebtedness or obligations of the Company or any of
its subsidiaries entitling the holders thereof to have the right to vote (or
which are convertible into, or exercisable or exchangeable for, securities
entitling the holders thereof to have the right to vote) with the stockholders
of the Company or any of its subsidiaries on any matter, and (v) no equity
equivalent interests in the ownership or earnings of the Company or its
subsidiaries or other similar rights (collectively "Company Securities"). As of
the date
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hereof, there are no outstanding obligations of the Company or its subsidiaries
(absolute, contingent or otherwise) to repurchase, redeem or otherwise acquire
any Company Securities. There are no Shares outstanding subject to rights of
first refusal of the Company, nor are there any pre-emptive rights granted by
the Company with respect to any Shares. Other than this Agreement, there are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting or,
except as set forth in Section 3.2(a) of the Company Disclosure Schedule,
registration of any shares of stock of the Company.
(b) Except as set forth in Section 3.2(b) of the Company
Disclosure Schedule, all of the outstanding stock of the Company's subsidiaries
is owned by the Company, directly or indirectly, free and clear of any Lien (as
defined below). There are no securities of the Company or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire from
the Company or its subsidiaries and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the issuance
or sale, directly or indirectly, of any stock or other ownership interests in,
or any other securities, of any subsidiary of, the Company. Except as set forth
in Section 3.2(b) of the Company Disclosure Schedule, there are no outstanding
contractual obligations of the Company or its subsidiaries to repurchase, redeem
or otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of the Company. For purposes of this Agreement,
"Lien" means, with respect to any asset (including without limitation any
security), any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset (including any restrictions on the right to
vote or sell the same except as may be provided as a matter of law).
(c) The Shares constitute the only class of equity securities
of the Company or its subsidiaries registered or required to be registered under
the Exchange Act.
SECTION 3.3. Authority Relative to this Agreement; Recommendation.
The Company has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby except, if required by law, the approval and adoption of
this Agreement and the Merger by the holders of the outstanding Shares. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and
Acquisition, constitutes a valid, legal and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by any applicable conservator, receivership,
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and except as the
availability of equitable remedies may be limited by the application of general
principles of equity (regardless of whether such equitable principles are
applied in a proceeding at law or in equity).
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SECTION 3.4. SEC Reports; Financial Statements; Accounting
Procedures.
(a) The Company has filed all required forms, reports and
documents ("Company SEC Reports") with the SEC since January 1, 1999, each of
which has complied (as of its respective date) in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed. None of such Company SEC Reports,
including, without limitation, any financial statements or schedules included or
incorporated by reference therein, contained when filed any untrue statement of
a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements of the Company
included in the Company SEC Reports fairly present in all material respects in
conformity with generally accepted accounting principles in the United States as
in effect from time to time and applied on a consistent basis ("GAAP") (except
as may be indicated in the notes thereto or, in the case of unaudited
consolidated quarterly statements, as permitted by Form 10-Q of the SEC and
subject to normal year-end adjustments) the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended.
(b) The Company has heretofore made available or promptly will
make available to Acquisition or Parent a complete and correct copy of any
amendments or modifications which are required to be filed with the SEC but have
not yet been filed with the SEC to agreements, documents or other instruments
which previously had been filed by the Company with the SEC pursuant to the
Exchange Act.
(c) The Company and its subsidiaries maintain a system of
internal accounting controls, policies and procedures sufficient to ensure that
all transactions relating to their business are executed in conformity in all
material respects with the applicable rules, regulations, directives and
instructions of governmental and regulatory authorities, the Agencies (as
defined in Section 3.9) and Investors (as defined in Section 3.8) (the "Agency
and Investor Requirements"), and in a manner as to permit preparation of
financial statements in accordance the Agency and Investor Requirements and to
maintain accountability for the Company's assets.
SECTION 3.5. Information Supplied. None of the information
supplied by the Company in writing for inclusion or incorporation by reference
in the Offer Documents, Schedule 14D-9, any other tender offer materials,
Schedule 14A or 14C, or the proxy statement or information statement ("Proxy
Statement") relating to any meeting to be held in connection with the Merger
(all of the foregoing documents, collectively, the "Disclosure Statements")
will, at the date each and any of the Disclosure Statements is mailed to
stockholders of the Company and at the time of the meeting of stockholders of
the Company to be held, if necessary, in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances
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under which they are made, not misleading, except that no representation or
warranty is made by the Company with respect to information supplied in writing
by Parent or Acquisition for inclusion in the Proxy Statement or Schedule 14D-9.
The Proxy Statement, if any, and Schedule 14D-9 will comply as to form in all
material respects with all provisions of applicable law. None of the information
supplied by the Company in writing for inclusion in the Disclosure Statements or
provided by the Company in the Schedule 14D-9 will, at the respective times that
any Disclosure Statement and the Schedule 14D-9 or any amendments thereof or
supplements thereto are filed with the SEC and are first published or sent or
given to holders of Shares, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
SECTION 3.6. Consents and Approvals; No Violations. Except as set
forth in Section 3.6 of the Company Disclosure Schedule and except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, (a) the Exchange Act, (b) state securities
laws ("Blue Sky Laws") or take-over laws, (c) the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), or (d) state insurance or
mortgage brokerage laws or regulations and the filing and recordation and
acceptance for record of the Merger Certificate as required by the DGCL, no
filing with or notice to, and no permit, authorization, consent or approval of,
any court or tribunal, or administrative governmental or regulatory body, agency
or authority (a "Governmental Entity") is necessary for the execution and
delivery by the Company of this Agreement or the consummation by the Company of
the transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect. Neither the execution,
delivery and performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective Certificate of
Incorporation or Bylaws (or similar governing documents) of the Company or any
of its subsidiaries, (ii) except as set forth in Section 3.6 of the Company
Disclosure Schedule result in a violation or breach of or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its subsidiaries is a party or by which any of them or any
of their respective properties or assets may be bound or (iii) except as set
forth in Section 3.6 of the Company Disclosure Schedule or in this Section 3.6
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets except, in the case of (ii) or (iii), for violations,
breaches, defaults or rights of termination, amendment, cancellation or
acceleration or Liens which would not have a Material Adverse Effect.
SECTION 3.7. No Undisclosed Liabilities; Absence of Changes.
Except to the extent publicly disclosed in the Company's SEC Reports or as set
forth in Section 3.7 of the Company Disclosure Schedule, as of December 31,
1999, none of the Company or any of its subsidiaries had any liabilities or
obligations of any nature,
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whether or not accrued, contingent or otherwise, that would be required by GAAP
to be reflected on a consolidated balance sheet of the Company and its
subsidiaries (including the notes thereto) or which would have a Material
Adverse Effect and since such date, the Company has incurred no such liability
or obligation, which would have a Material Adverse Effect, other than in the
ordinary course of business consistent with past practice.
SECTION 3.8. Litigation. As of the date hereof, except as
disclosed in Section 3.8 of the Company Disclosure Schedule, there is no suit,
claim, action, proceeding or investigation pending or, to the Company's
Knowledge (as defined below), threatened against the Company or any of its
subsidiaries or any of their respective properties or assets before any
Governmental Entity that (a) involves any Agency or any owner, purchaser or
beneficiary (other than an Agency) of a Mortgage Loan or of any proceeds of, or
interest in or from, a Mortgage Loan ("Investor") or (b) individually or in the
aggregate, would have a Material Adverse Effect. Except as disclosed by the
Company in the Company SEC Reports, none of the Company or its subsidiaries nor
any property or asset of the Company or any of its subsidiaries is subject to
any outstanding order, writ, injunction or decree which would have a Material
Adverse Effect. For purposes of this Agreement, the term "Knowledge" with
respect to the Company means the actual knowledge of any of the officers and
other employees of the Company identified in Exhibit B hereto.
SECTION 3.9. Compliance with Laws.
(a) The Company and its subsidiaries have complied in all
material respects with all applicable material laws, rules, regulations,
ordinances and codes, whether federal, state, local or foreign and, including,
without limitation, (i) all laws and regulations relating to occupational health
and safety, equal employment opportunities, fair employment practices, and sex,
race, religious, age and other prohibited discrimination, all other labor laws,
including without limitation the Family and Medical Leave Act, and (ii) all
licensure, disclosure, usury and other consumer credit laws and regulations
governing residential mortgage lending and brokering, including, but not limited
to, all applicable rules, regulations, standards and guidelines promulgated by
the United States Department of Housing and Urban Development ("HUD"), Freddie
Mac ("Freddie Mac"), the Government National Mortgage Association ("GNMA"),
Fannie Mae ("Fannie Mae"), the Veterans Administration ("VA" and, together with
HUD, Freddie Mac, GNMA and Fannie Mae, each, an "Agency" and, collectively the
"Agencies") and the Board of Governors of the Federal Reserve System, the state
agencies and all applicable provisions of the Real Estate Settlement Procedures
Act of 1974, the Flood Insurance Protection Act, the Consumer Credit Protection
Act, the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair
Credit Reporting Act, each as amended from time to time, and all regulations
promulgated thereunder (the foregoing statutes and laws described in clause
(ii), collectively, "Consumer Credit Law") and, except as set forth on Section
3.9 of the Company Disclosure Schedule, no written notice or correspondence
(whether regarding litigation, regulatory action or otherwise) has been received
by the Company from or on behalf of consumers or from any regulatory agency in
which such consumer or regulatory agency has alleged
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noncompliance with any Consumer Credit Law or other applicable law, except as
would not individually or in the aggregate, have a Material Adverse Effect.
(b) Each loan as to which applications were accepted and
processed by the Company or any subsidiary or which otherwise was originated,
underwritten, closed, funded or brokered by the Company of any subsidiary (each,
a "Mortgage Loan") conforms in to the Agency and Investor Requirements and each
Mortgage Loan is eligible for sale to, insurance by, or pooling to collateralize
securities issued or guaranteed by, the applicable Investor or insurer except,
in the case of any of the foregoing, as would not, individually or in the
aggregate, have a Material Adverse Effect. The Company and its subsidiaries have
originated, underwritten, funded, serviced and sold (as applicable) each
Mortgage Loan in compliance with applicable federal, state and local legal and
regulatory requirements (including licensing statutes and regulations) and in
accordance with Agency and Investor Requirements and the related Mortgage Loan
documents except, in the case of any of the foregoing, as would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.10. Forms; Policies and Procedures. The Company has
provided Parent with a copy of the Company's internal practices and procedures
and the Company, its subsidiaries and their employees have complied and are in
compliance with such practices and procedures except, where the failure to be in
compliance would not have a Material Adverse Effect. All such practices and
procedures and all form disclosures, and notices, brokers agreements, notes,
mortgages, instruments and agreements used in the business of the Company and
its Subsidiaries comply in all material respects with (a) all applicable
Consumer Credit Law and (b) any standards imposed by the Agencies, to the extent
applicable, and (c) any other applicable law or regulation.
SECTION 3.11. Licenses and Permits. The Company or the applicable
subsidiary has obtained all material licenses, permits, qualifications,
franchises and other governmental authorizations and approvals, including,
without limitation, all state mortgage broker and mortgage banker licenses and,
as applicable, approvals by the Agencies required in order for it to conduct its
business as presently conducted. Each such license, permit, qualification,
franchise and other authorization is in full force and effect and, except as set
forth in Section 3.11 of the Company Disclosure Schedule, will remain in full
force and effect immediately after the Effective Time and shall not be violated,
affected or impaired by, or require any further action to remain effective as a
result of the Closing. No material violation exists in respect of any such
material license, permit, qualification, franchise, authorization or approval.
No proceeding is pending, or to the Company's Knowledge, threatened to revoke or
limit any such license, permit, qualification, franchise, authorization or
approval.
SECTION 3.12. Employee Benefit Plans; Labor Matters.
(a) Section 3.12(a) of the Company Disclosure Schedule sets
forth each plan that is subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and each other material agreement, arrangement or
commitment that is an employment or consulting agreement (other than
non-executive employment
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agreements or loan officer agreements), executive or incentive compensation
plan, bonus plan, deferred compensation agreement, employee pension, profit
sharing, savings or retirement plan, employee stock option or stock purchase
plan, group life, health, or accident insurance or other employee benefit plan,
agreement, arrangement or commitment, including, without limitation, severance,
vacation, holiday or other bonus plans, currently maintained by the Company or
any of its subsidiaries (or any entity that is or was at the relevant time
treated as a single employer with the Company or any of its subsidiaries under
Section 414(b), (c), (m), or (o) of the Code ("ERISA Affiliate")) for the
benefit of any present or former employees, officers or directors of the
Company, any of its subsidiaries or ERISA Affiliates ("Company Personnel") or
with respect to which the Company or any of its subsidiaries or ERISA Affiliates
has liability or makes or has an obligation to make contributions (each such
plan, agreement, arrangement or commitment set forth in Section 3.12(a) of the
Company Disclosure Schedule being hereinafter referred to as a "Company Employee
Plan").
(b) The Company has made available to the Parent (i) copies of
all Company Employee Plans or in the case of an unwritten plan, a written
description thereof, (ii) copies of the most recent annual, financial and, if
applicable, actuarial reports and Internal Revenue Service determination letters
relating to such Company Employee Plans and (iii) copies of the most recent
summary plan descriptions relating to such Company Employee Plans and
distributed to Company Personnel.
(c) Except as disclosed in Section 3.12(c) of the Company
Disclosure Schedule, there are no Company Personnel who are entitled to any
medical, dental or life insurance benefits to be paid under any Company Employee
Plans after termination of employment other than as required by Section 601 of
ERISA, Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), or applicable state law.
(d) Each Company Employee Plan that is an employee welfare
benefit plan under Section 3(1) of ERISA is either (i) funded through an
insurance company contract and is not a "welfare benefit fund" within the
meaning of Section 419 of the Code or (ii) unfunded.
(e) All contributions or payments due with respect to any
periods prior to the Closing Time under any Company Employee Plan have been or
will be timely made or appropriate charges have been made on the financial
statements. Except as disclosed in Section 3.12(e) of the Company Disclosure
Schedule, each Company Employee Plan by its terms and operation is in compliance
in all material respects with all applicable laws (including, but not limited
to, ERISA, the Code and the Age Discrimination in Employment Act of 1967, as
amended). The Company has obtained a favorable determination as to the
qualification under Section 401(a) (and 401(k) where applicable) of each Company
Employee Plan that is an employee pension benefit plan from the IRS. To the
Company's Knowledge, nothing has occurred since the date of each such
determination that would adversely affect such tax qualification.
(f) Except as set forth in Section 3.12(f) of the Company
Disclosure Schedule, there are no actions, suits or claims pending or, to the
Company's Knowledge, threatened (other than routine noncontested claims for
benefits), against any Company
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Employee Plan or, to the Company's Knowledge, any administrator or fiduciary of
any such Company Employee Plan. As to each Company Employee Plan for which an
annual report is required to be filed under ERISA or the Code, all such filings
(including Form 5500s and all schedules) have been made on a timely basis, in
accordance with all applicable requirements. No Company Employee Plan is a
defined benefit plan under Section 3(35) of ERISA.
(g) Except as disclosed in Section 3.12(g) of the Company
Disclosure Schedule neither the Company, any of its subsidiaries nor any ERISA
Affiliate maintains or has maintained, contributes to or has contributed to or
is or has been required to contribute to any plan under which more than one
employer makes contributions (within the meaning of Section 4064(a) of ERISA),
any plan that is a multiemployer plan within the meaning of Section 3(37) of
ERISA, or any plan subject to the minimum funding requirements of Section 412 of
the Code.
(h) Neither the Company nor any of its subsidiaries (nor, to
the Company's Knowledge, any other Person, including any fiduciary) has engaged
in any "prohibited transaction" (as defined in Section 4975 of the Code or
Section 406 of ERISA) or committed any breach of fiduciary duty, which would
subject any of the Company Employee Plans (or their trusts), the Company, any of
its subsidiaries or ERISA Affiliates, to any material tax or penalty or other
material liability imposed under the Code or ERISA.
(i) None of the assets of the Company Employee Plans is
invested in any property constituting employer real property or an employer
security within the meaning of Section 407(d) of ERISA.
(j) Except as disclosed in Section 3.12(k) of the Company
Disclosure Schedule or otherwise provided in this Agreement, the transactions
contemplated by this Agreement (either alone or together with any other
transaction(s) or event(s)) will not (i) entitle any Company Personnel to
severance pay under any Company Employee Plan, (ii) accelerate the time of
payment or vesting or materially increase the amount of benefits due under any
Company Employee Plan or compensation to any Company Personnel, (iii) result in
any payments (including parachute payments) under any Company Employee Plan
becoming due to any Company Personnel, or (iv) terminate or modify or give a
third party a right to terminate or modify the provisions or terms of any
Company Employee Plan. Section 3.12(j) of the Company Disclosure Schedule sets
forth, for each employee of the Company or any of its subsidiaries that will
receive any parachute payment within the meaning of Section 280G of the Code, a
preliminary calculation of the base amount for such employee and of the amount
of each such parachute payment, based upon information currently known by the
Company and assuming all circumstances that could give rise to such payment
occur.
(k) Except as set forth in Section 3.12(k) of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is a party
to any collective bargaining or other labor union contract applicable to any
Company Personnel. There is no pending or, to the Company's Knowledge,
threatened labor dispute, strike or work stoppage against the Company or any of
its subsidiaries. There is no labor union
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representing any of the Company's employees or, to the Company's Knowledge, any
organizational effort currently being made on behalf of any labor organization
to organize any such employees. Neither the Company nor any of its subsidiaries
nor their respective representatives or employees has committed any unfair labor
practices in connection with the operation of the respective businesses of the
Company or its subsidiaries, and there is no pending or, to the Company's
Knowledge, threatened charge or complaint against the Company or its
subsidiaries by the National Labor Relations Board or any comparable state
governmental agency. To the Company's Knowledge, the Company and its
subsidiaries are in compliance in all material respects with all applicable laws
and regulations respecting employment, employment practices, labor relations,
employment discrimination, safety and health, wages, hours and terms and
conditions of employment.
(l) All individuals who are performing or have performed
services for the Company or any affiliate thereof, whether as consultants,
contractors, agents or otherwise, and are or were classified by the Company or
any affiliate as "independent contractors" qualify for such classification under
Section 530 of the Revenue Act of 1978 or Section 1706 of the Tax Reform Act of
1986, as applicable. The Company has fully complied with and is not in default
or violation of any law, statute, rule, regulation or requirement applicable to
such individual. Except as set forth in Section 3.12(l) of the Company
Disclosure Schedule, there is no pending or, to the Company's Knowledge,
threatened claim against the Company by or on behalf of any such individual, or
investigation, audit or other proceeding relating to such an individual or
individuals, by any Governmental Entity. To the Company's Knowledge, there is no
labor union representing any such individuals or, to the Company's Knowledge,
any organizational effort currently being made on behalf of any labor
organization to organize any such individuals.
SECTION 3.13. Environmental Laws and Regulations.
(a) Except as publicly disclosed in the Company SEC Reports,
(i) the Company and its subsidiaries are in material compliance with all
applicable federal, state, local and foreign laws and regulations, orders,
decrees, judgments, permits and licenses relating to public and worker health
and safety and to the protection and clean-up of the natural environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) and activities or conditions relating thereto,
including, without limitation, those relating to the generation, handling,
disposal, transportation or release of hazardous materials (collectively
"Environmental Laws"), except for non-compliance that would not have a Material
Adverse Effect, which compliance includes but is not limited to, the possession
by the Company and its subsidiaries of all material permits and other
governmental authorizations required under applicable Environmental Laws and
compliance with the terms and conditions thereof and; (ii) none of the Company
or its subsidiaries has received written notice of or, to the Company's
Knowledge, is the subject of any Environmental Claim (defined below) that would
have a Material Adverse Effect or, to the Company's Knowledge, against any
Person whose liability for any Environmental Claim the Company or any of its
subsidiaries has or may have retained or assumed either contractually or by
operation of law.
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(b) Except as disclosed in the Company SEC Reports, there is no
action, cause of action, claim, investigation, demand or written notice by any
Person alleging liability under or non-compliance by the Company with any
Environmental Law (an "Environmental Claim") that is pending or, to the
Company's Knowledge, threatened against the Company or its subsidiaries which
would have a Material Adverse Effect.
SECTION 3.14. Taxes.
(a) For purposes of this Agreement: (i) "Tax" or "Taxes" means
any taxes, charges, fees, levies, or other assessments imposed by any U.S. or
foreign governmental entity, whether national, state, county, local or other
political subdivision, including, without limitation, all net income, gross
income, sales and use, rent and occupancy, value added, ad valorem, transfer,
gains, profits, excise, franchise, real and personal property, gross receipt,
capital stock, business and occupation, disability, employment, payroll,
license, estimated, or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties on or additions to any such
taxes (and includes taxes for which the Company and/or any of its subsidiaries,
as the case may be, may be liable in its own right, or as the transferee of the
assets of, or as successor to, any other corporation, association, partnership,
joint venture, or other entity, or under Treasury Regulation Section 1.1502-6 or
any similar provision of foreign, state or local law), provided, however, that
to the extent that the following representations relate to state and local sales
taxes or lodging taxes, such representations are limited to the Company's
Knowledge; and (ii) "Tax Return" means a report, return or other information
required to be supplied to a governmental entity with respect to Taxes
including, where permitted or required, group, combined or consolidated returns
for any group of entities that includes the Company or any of its subsidiaries.
(b) Except as set forth in Section 3.14(b) of the Company
Disclosure Schedule, the Company and each of its subsidiaries, and any
affiliated or combined group of which the Company or any of its subsidiaries is
or was a member for applicable Tax purposes, have (i) filed all federal income
and all other Tax Returns required to be filed by applicable law and all such
federal income and other Tax Returns (A) reflect the liability for Taxes of the
Company and each of its subsidiaries, and (B) were filed on a timely basis and
(ii) within the time and in the manner prescribed by law, paid (and until the
Closing Time will pay within the time and in the manner prescribed by law) all
Taxes that were or are due and payable as set forth in such Tax Returns.
(c) Each of the Company and, where applicable, the Company's
subsidiaries has established (and until the Closing Time will maintain) on its
books and records reserves adequate to pay all Taxes of the Company or such
respective subsidiary, as the case may be, in accordance with GAAP, which are
reflected in the most recent consolidated financial statements of the Company
and its subsidiaries contained in the Company SEC Documents, as applicable, to
the extent required by GAAP.
(d) Except as disclosed in Section 3.14(d) of the Company
Disclosure Schedule, neither the Company nor any subsidiary thereof has
requested any extension of time within which to file any income, franchise or
other Tax Return, which Tax Return has not been filed as of the date hereof.
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(e) Except as disclosed in Section 3.14(d) of the Company
Disclosure Schedule, neither the Company nor any subsidiary thereof has executed
any outstanding waivers or comparable consents that will be in effect after the
Effective Time regarding the application of the statute of limitations with
respect to any income, franchise or other Taxes or Tax Returns.
(f) Except as disclosed in Section 3.14(f) of the Company
Disclosure Schedule, no deficiency for any Tax which, alone or in the aggregate
with any other deficiency or deficiencies, would exceed $100,000, has been
proposed, asserted, or assessed in writing against the Company and/or any
subsidiary thereof that has not been resolved and paid in full or otherwise
settled, no audits or other administrative proceedings are presently in progress
or pending or threatened in writing with regard to any Taxes or Tax Returns of
the Company and/or any subsidiary thereof, and no written claim is currently
being made by any authority in a jurisdiction where any of the Company or any
subsidiary thereof, as the case may be, does not file Tax Returns that it is or
may be subject to Tax in that jurisdiction.
(g) Except as disclosed on Section 3.14(g) of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is a party
to any agreement relating to allocating or sharing of the payment of, or
liability for, Taxes.
(h) The Company does not constitute and for the past five years
has not constituted a "United States real property holding corporation" within
the meaning of Section 897(c)(2) of the Code.
SECTION 3.15. Properties. Neither the Company nor any of its
Subsidiaries owns any real property. Each of the Company and its subsidiaries
has valid title to all properties, assets and rights shown on its balance sheet
or its last Company SEC Report prior to the date hereof as being owned by it
and valid leasehold interests in all material properties and assets (whether
real, personal or mixed) leased by it (collectively, the "Company Assets").
With respect to any leased Company Assets, there are no security deposits or
portions thereof that have been applied in respect of a breach or default under
the applicable lease which has not been redeposited in full and neither the
Company nor any of its subsidiaries has mortgaged, deeded in trust or otherwise
transferred or encumbered such Lease or any interest therein except in the
ordinary course of business. There are no pending or, to the Company's
Knowledge, threatened condemnation proceedings against or affecting any
material Company Assets.
SECTION 3.16. Material Contracts and Commitments.
(a) Section 3.16 of the Company Disclosure Schedule contains a
true and complete list as of the date of this Agreement of all of the following
contracts, agreements and commitments, whether oral or written ("Contracts"), to
which the Company or any of its subsidiaries is a party or by which any of them
or any of their material Company Assets is bound, as each such contract or
commitment may have been amended, modified or supplemented:
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(i) any agreement (including all master commitments and
pool purchase contracts) between the Company or any of its subsidiaries
and any Agency or Investor pursuant to which the Company and its
subsidiaries sold more than $175 million in principal amount of Mortgage
Loans during fiscal year 1999, and all insurance or guaranty contracts
(including contracts with any private mortgage insurer or Pool (as
defined herein) insurance provider with respect to the Mortgage Loans;
(ii) any agreement (or group of related agreements) for
the lease of personal property to or from any Person providing for rent
in excess of $100,000 during any twelve-month period;
(iii) any agreement for the lease of real property
providing for the payment of rent in excess of $250,000 during any
twelve-month period;
(iv) any agreement (or group of related agreements) or
indemnity under which the Company or any of its subsidiaries has created,
incurred, assumed or guaranteed any debt including without limitation any
indebtedness for borrowed money, warehouse lines of credit, or any
capitalized lease or purchase money obligation (except for intercompany
obligations);
(v) any agreement under which the Company or any of its
subsidiaries has granted a lien, pledge, security interest or other
encumbrance upon any of its material assets;
(vi) any agreement under which the Company or any of its
subsidiaries has an obligation to indemnify a director, officer or
employee;
(vii) any agreement for the employment of any individual
on a full-time, part-time, consulting or other basis other than oral
retainers of professionals terminable at will except for employment
agreements of employees with a salary of less than $100,000 who have
signed the Company's or any of its subsidiaries' standard form employment
agreement (excluding commissioned employees);
(viii) any agreement concerning confidentiality or
noncompetition given by the Company other than those agreements (A) with
employees on the Company's standard form employment, (B) related to
Company Stock Options, (C) entered into with any Person in connection
with the proposed sale of the Company and (D) that do not materially
restrict the manner in which the Company or any of its subsidiaries
conduct its business;
(ix) any other plan, contract or arrangement, whether
formal or informal, which involves direct or indirect compensation
(including bonus, stock option, severance, golden parachute, deferred
compensation, special retirement, consulting and similar agreements and
all agreements and arrangements regarding the Company's net branches) for
the benefit of one or more of the current or former directors, officers
or employees of the Company (other than Company Employee Plans described
in Section 3.12(a));
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(x) any guaranty or suretyship, performance bond or
contribution agreement;
(xi) any marketing, sales representative or dealership
agreement with respect to which the fees paid or payable by the Company
are or will be in excess of $100,000; any material agreement relating to
e-commerce or agreements related to the Company's "net branches"; and
(xii) any other material contract or commitment.
(b) The Company has heretofore made available to the Parent
true and complete copies of all of the Contracts required to be set forth in
Section 3.16 of the Company Disclosure Schedule. Each such Contract is a valid
and binding agreement of the Company or one of its subsidiaries in accordance
with its terms, and is in full force and effect (except as set forth in Section
3.16 of the Company Disclosure Schedule), except where the failure to be valid
and binding and in full force and effect would not individually or in the
aggregate have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries is in default with respect to any such Contract, nor (to the
Company's Knowledge) does any condition exist that with notice or lapse of time
or both would constitute such a default thereunder or permit any other party
thereto to terminate such Contract, except as would not have a Material Adverse
Effect. To the Company's Knowledge, no other party to any such Contract is in
default in any respect with respect to any such Contract, which would have a
Material Adverse Effect. No party has given any written notice (i) of
termination or cancellation of any such Contract or (ii) that it intends to
assert a breach of any such Contract, whether as a result of the transactions
contemplated hereby or otherwise, which would have a Material Adverse Effect.
Each Contract identified in Section 3.16 of the Company Disclosure Schedule in
response to any item under this Section 3.16 shall be deemed incorporated by
reference to all other items in this Section 3.16.
SECTION 3.17. Intellectual Property.
(a) Certain Definitions. When used in this Section 3.17, the
following capitalized terms shall have the following meanings:
(i) the term "Intellectual Property Rights" means
intellectual property rights arising from or in respect of the following,
whether protected, created or arising under the laws ofthe United States
or any other jurisdiction:
(A) fictitious business names, trade names,
registered and unregistered trademarks and service marks and logos
(including any Internet domain names), and applications therefor
(collectively, "Marks");
(B) patents, patent rights and all applications
therefor, including any and all continuation, divisional,
continuation-in-part, or reissue patent applications or patents
issuing thereon (collectively, "Patents"); and
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(C) know-how, inventions, discoveries, concepts,
ideas, methods, processes, designs, formulae, technical data,
drawings, specifications, data bases and other proprietary and
confidential information, including customer lists, in each case
to the extent not included in the foregoing subparagraphs (A) or
(B) (collectively, "Trade Secrets");
(ii) the term "Intellectual Property Assets" means all
Intellectual Property Rights owned or licensed by the Company necessary
to the conduct of the Company's business, and all further uses of the
terms Marks, Patents, Copyrights, and Trade Secrets in this Section 3.17
shall mean Marks, Patents, Copyrights, and Trade Secrets that are
Intellectual Property Assets; and
(iii) the term "Software" means any and all (w) computer
programs, including any and all software implementations of algorithms,
models and methodologies, whether in source code or object code, (x)
databases and compilations, including any and all data and collections of
data, whether machine readable or otherwise, (y) descriptions,
flow-charts and other work product used to design, plan, organize and
develop any of the foregoing, and (z) all documentation, including user
manuals and training materials, relating to any of the foregoing, in each
case developed or licensed by the Company necessary for the conduct of
its business as currently conducted, specifically excluding those items
prepared for customers in the operation of the Company's business for
which the customer contractually has vested title.
(b) Marks. Section 3.17(b) of the Company Disclosure Schedule
sets forth an accurate and complete list of all registered, pending applications
for registration of any Marks and material unregistered Marks, in each case
owned by the Company and used by the Company in its business as presently
conducted ("Company Marks"). Except as may be set forth in Section 3.17(b) of
the Company Disclosure Schedule and would not have an Material Adverse Effect:
(i) the Company owns all right, title and interest in
each of the Company Marks, free and clear of any and all liens and
encumbrances (subject to written licenses granted in the ordinary course
of business), and the Company has not received any written notice or
claim challenging the Company's exclusive and complete ownership of such
Company Marks;
(ii) the Company Marks are valid and enforceable and the
Company has not received any written notice or claim challenging the
validity or enforceability of any such Company Marks;
(iii) to the Company's Knowledge, the Company has not
taken any action (or failed to take any action), that would result in the
forfeiture, relinquishment, or unenforceability of any of the Company
Marks or any of the Company's rights therein;
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(iv) the Company has taken reasonable steps to protect
the Company's rights in and to the Company Marks;
(v) except with respect to licensing arrangements,
business relationships, advertisements or publicity in each case made in
writing in the ordinary course of business, the Company has not granted
to any Person any right, license or permission to use any of the Company
Marks;
(vi) to the Company's Knowledge, there is no trademark or
service mark or application therefor of any other Person that conflicts
with any of the Company Marks;
(vii) none of the Company Marks used by the Company
infringes or to the Company's Knowledge is alleged to infringe any trade
name, trademark, service mark or trade dress right of any other Person,
and there have been no written claims made with respect thereto; and
(viii) to the Company's Knowledge, there has been no prior
use of any Company Marks by any third party which would confer upon such
third party superior rights in such Company Marks.
(c) Owned Patents. The Company does not own any right, title or
interest in any Patents.
(d) Owned Copyrights. Except as may be set forth on Section
3.17(d) of the Company Disclosure Schedule and would not have an Material
Adverse Effect:
(i) the Company is the owner of all right, title and
interest in and to each of the copyrights used by the Company in its
business as presently conducted other than those as to which the rights
being exercised by the Company have been licensed from another Person
(collectively, the "Owned Copyrights"), free and clear of any and all
liens and encumbrances (subject to written licenses granted in the
ordinary course of business), and the Company has not received any
written notice or claim challenging the Company's complete and exclusive
ownership of all Owned Copyrights;
(ii) the Company has not received any written notice or
claim challenging or questioning the validity or enforceability of any of
the Owned Copyrights or indicating an intention on the part of any Person
to bring a claim that any Owned Copyright is invalid, is unenforceable or
has been misused and, to the Company's Knowledge, no Owned Copyright
otherwise has been challenged or threatened in any way;
(iii) to the Company's Knowledge, the Company has not
taken any action (or failed to take any action), that would result in the
unenforceability of any of the Owned Copyrights;
(iv) the Company has taken all reasonable steps to
protect the Company's rights in and to the Owned Copyrights;
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(v) the Company has not granted to any Person any right,
license or permission to exercise any rights under any of the Owned
Copyrights other than non-exclusive licenses of Software granted in the
ordinary course of business of distributors or customers;
(vi) to the Company's Knowledge, no other Person has
infringed or is infringing in any of the Owned Copyrights; and
(vii) none of the subject matter of any Owned Copyrights
nor, to the Company's Knowledge, any other work of authorship fixed in a
tangible medium that is used, copied, modified, displayed or distributed
by the Company, infringes, violates or conflicts with, or is to the
Company's Knowledge, alleged to infringe, violate or conflict with, any
Intellectual Property Right of any other Person.
(e) Trade Secrets. Section 3.17(e) of the Company Disclosure
Schedule sets forth an accurate and complete list of all memoranda of invention
or invention disclosures owned and received by the Company (collectively,
"Invention Disclosures"). The Company has taken reasonable precautions to
protect the secrecy, confidentiality and value of all material Invention
Disclosures and all of the Company's other material Trade Secrets ("Company
Trade Secrets"). Except as may be set forth in Section 3.17(e) of the Company
Disclosure Schedule and as would not have an Material Adverse Effect:
(i) the Company has the absolute and unrestricted right
to use all of the Company Trade Secrets and none of the Company Trade
Secrets is subject to any liens or encumbrances (subject to written
licenses granted in the ordinary course of business), and the Company has
not received any written notice or claim challenging the Company's
absolute and unrestricted right to use all of the Company Trade Secrets;
(ii) none of the Company Trade Secrets has been, or is to
the Company's Knowledge, alleged to have been, misappropriated from, any
other Person and to the Company's Knowledge none of the Company Trade
Secrets infringes, violates or conflicts with, or is to the Company's
Knowledge, alleged to infringe, violate or conflict with, any
Intellectual Property Right of any third party; and
(iii) except under appropriate confidentiality obligations
that, to the Company's Knowledge, have been fully observed and performed,
to the Company's Knowledge, there has been no disclosure by the Company
of Company Trade Secrets.
(f) Software. Section 3.17(f) of the Company Disclosure
Schedule sets forth a complete and accurate list of all of the material Software
(excluding licensed software that is contained in standard desktop applications
and is available through commercial distributors or in consumer retail stores).
Section 3.17(f) of the Company Disclosure Schedule specifically identifies all
material Software that is owned
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exclusively by the Company (the "Owned Software") and all material Software that
is used by the Company in the conduct of their business as currently conducted
that is not exclusively owned by the Company (excluding licensed software that
is contained in standard desktop applications and is available through
commercial distributors or in consumer retail stores) (the "Licensed Software").
Except as may be set forth in Section 3.17(f) of the Company Disclosure Schedule
and as would not have an Material Adverse Effect:
(i) the Company is the owner of all right, title and
interest in and to all Owned Software and Intellectual Property Rights
relating thereto, free and clear of any and all liens and encumbrances
(subject to licenses granted in the ordinary course of business), and the
Company has not received any written notice or claim challenging the
Company's complete and exclusive ownership of all Owned Software and all
such Intellectual Property Rights relating thereto;
(ii) the Company has not assigned, licensed, transferred
or encumbered any of its rights in or to any Owned Software, to any
Person, excluding any non-exclusive licenses granted to distributors or
customers in the ordinary course of business;
(iii) no source code of any Owned Software has been
licensed or otherwise made available to any Person other than the Company
(other than pursuant to standard source code escrow agreements or
independent contractors subject to confidentiality obligations to the
Company), the Company has treated such source code as confidential and
proprietary business information, and has taken all reasonable steps to
protect the same as trade secrets of the Company;
(iv) none of the Owned Software contains any Software
that embody proprietary Intellectual Property Rights of any Person other
than the Company;
(v) the Company has lawfully acquired the right to use
the Licensed Software, as it is used in the conduct of their business as
presently conducted.
(g) [reserved]
(h) Agreements in Respect of Licensed Technology. Section
3.17(h) of the Company Disclosure Schedule contains a complete and accurate
specific list of all material agreements and arrangements pertaining to the
Licensed Software (excluding licensed software that is contained in standard
desktop applications and available through commercial distributors or in
consumer retail stores) (collectively, "Licensed Software Agreements") and a
complete and accurate specific list of all material agreements and arrangements
pertaining to any other technology used or practiced by the Company as to which
a Person other than the Company owns the applicable Intellectual Property Rights
(collectively, "Other Licensed Technology Agreements" and, together with
Licensed Software Agreements, the "Licensed Technology Agreements"). Section
3.17(h) of the Company Disclosure Schedule sets forth a complete and accurate
list of all royalty
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obligations of the Company under any Licensed Technology Agreements. Except as
may be set forth in Section 3.17(h) of the Company Disclosure Schedule and as
would not have a Material Adverse Effect:
(i) all Licensed Technology Agreements are in full force
and effect, and the Company is not in material breach thereof, nor to the
Company's Knowledge is there any claim or information to the contrary;
(ii) all Licensed Technology Agreements will be
maintained by the Company to the extent within the Company's control in
full force and effect through the Closing;
(iii) there are no pending and, to the Company's
Knowledge, no threatened disputes or disagreements with respect to any
Licensed Technology Agreement;
(iv) [reserved]
(v) [reserved]
(vi) to the Company's Knowledge, the Licensed Technology
Agreements together expressly confer on the Company valid and enforceable
rights under or in respect of all of the Intellectual Property Rights
that are not owned exclusively by Company and that are necessary in the
Company's business as currently conducted (collectively, the "Licensed
Intellectual Property"); and
(vii) neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will result in a breach of any of the material terms, conditions or
provisions of, or constitute a default under, or result in the material
impairment of any rights under, any Licensed Technology Agreement.
(i) Agreements Involving Distribution or Other Rights Granted
to Third Parties in Respect of Software. The Company does not have any
agreements and arrangements involving the grant by the Company to any Person of
any right to distribute, prepare derivative works based on, support or maintain
or otherwise commercially exploit any owned Software.
(j) Sufficiency of Owned and Licensed Intellectual Property.
Except as set forth in Section 3.17(j) of the Company Disclosure Schedule and as
would not have an Material Adverse Effect, the Company has all of the
Intellectual Property Rights necessary for the conduct of the Company's business
as presently conducted and all of the Intellectual Property Rights necessary to
operate such business after the Closing in substantially the same manner as such
business heretofore has been operated by the Company.
(k) [reserved]
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(l) Employee Confidentiality Agreements. Except as set forth in
Section 3.17(l) of the Company Disclosure Schedule, all current and former
employees, contractors and consultants of the Company have entered into
confidentiality, invention assignment and proprietary information agreements
with the Company where appropriate, except as would not have an Material Adverse
Effect. The carrying on of the Company's business as currently conducted by the
employees, contractors and consultants of the Company does not, to the Company's
Knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or to the Company's Knowledge, constitute a default under, any
contract, covenant or instrument under which any of such employees, contractors
or consultants or the Company is now obligated.
SECTION 3.18. [reserved]
SECTION 3.19 Stock Options. Section 3.19 of the Company Disclosure
Schedule sets forth the following information concerning each of the Company
Personnel that has been granted Company Stock Options, the date of each such
grant, the total number of Shares for which the Company Stock Options are
exercisable, the number of Shares for which unvested options are exercisable and
the exercise price of all vested and unvested Company Stock Options.
SECTION 3.20. Insurance. The Company and its subsidiaries have
obtained and maintained in full force and effect insurance with responsible and
reputable insurance companies or associations in such amounts, on such terms and
covering such risks, as is customarily carried by reasonably prudent persons
conducting business or owning or leasing assets similar to those conducted,
owned or leased by the Company and its subsidiaries, except where the failure to
obtain or maintain such insurance would not have a Material Adverse Effect.
SECTION 3.21. Pool Certifications. All pools consisting of
Mortgage Loans that have been aggregated pursuant to the requirements of the
applicable Investor and assigned to collateralize securities ("Pools") are
properly balanced reconciled, fully funded and certified by the applicable
Investor or Agency.
SECTION 3.22. Brokers. No broker, finder or investment banker
(other than Friedman, Billings, Ramsey & Co., Inc., the Company's financial
adviser, a true and correct copy of whose entire engagement agreement has been
provided to Acquisition or Parent) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company
as follows:
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SECTION 4.1. Organization.
(a) Each of Parent and Acquisition is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Parent Material Adverse Effect.
The term "Parent Material Adverse Effect" means any change or effect that would
materially impair the ability of Parent and/or Acquisition to consummate the
transactions contemplated hereby.
(b) Each of Parent and Acquisition is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have a Parent Material Adverse Effect.
SECTION 4.2. Authority Relative to this Agreement. Each of Parent
and Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and the Stockholders' Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Stockholders' Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the boards of directors of Parent and Acquisition and by Parent as
the sole stockholder of Acquisition and no other corporate proceedings on the
part of Parent or Acquisition are necessary to authorize this Agreement and the
Stockholders' Agreement or to consummate the transactions contemplated hereby
and thereby. This Agreement and the Stockholders' Agreement each have been duly
and validly executed and delivered by each of Parent and Acquisition and each
constitutes a valid, legal and binding agreement of each of Parent and
Acquisition enforceable against each of Parent and Acquisition in accordance
with its terms, except as such enforceability may be limited by any applicable
conservator, receivership, bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
except as the availability of equitable remedies may be limited by the
application of general principles of equity (regardless of whether such
equitable principle are applied in a proceeding at law or in equity).
SECTION 4.3. Information Supplied. None of the information
supplied by Parent or Acquisition in writing for inclusion in the Disclosure
Statements will, at the respective times that the Proxy Statement (if necessary)
and the Schedule 14D-9 and any amendments of or supplements to any of the
foregoing are filed with the SEC and are first published or sent or given to
holders of Shares, and in the case of any required Proxy Statement, at the time
that it or any amendment thereof or supplement thereto is mailed to the
Company's stockholders, at the time of the Stockholders' Meeting or the written
consent of the stockholders, if either is required, or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading except that no representation or warranty is
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made by Parent or Acquisition with respect to information supplied by the
Company for inclusion in the 14D-1. The Offer Documents shall comply in all
material respects as to form with applicable federal securities laws.
SECTION 4.4. Financing; Share Ownership. Parent has and will have
sufficient funds available to purchase all of the Shares that Parent agrees,
subject to the terms and conditions hereof, to purchase hereunder and to pay all
related fees and expenses, and will make such funds available to Acquisition
when required for the performance of its obligations hereunder. As of the date
hereof, Parent and Acquisition do not beneficially own any Shares.
SECTION 4.5. Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Bank Act,
as amended (the "Bank Act"), the Bank Holding Company Act of 1956, as amended
(the "Bank Holding Company Act"), state insurance and mortgage brokerage laws or
regulations, and the filing and acceptance for record or recordation of the
Merger Certificate as required by the DGCL, no filing with or notice to, and no
permit, authorization, consent or approval of, any Governmental Entity is
necessary for the execution and delivery by Parent or Acquisition of this
Agreement and the Stockholders' Agreement or the consummation by Parent or
Acquisition of the transactions contemplated hereby and thereby, except where
the failure to obtain such permits, authorizations, consents or approvals or to
make such filings or give such notice would not have a Parent Material Adverse
Effect. Neither the execution, delivery and performance of this Agreement and
the Stockholders' Agreement by Parent or Acquisition nor the consummation by
Parent or Acquisition of the transactions contemplated hereby and thereby will
(i) conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar charter or organizational
documents) of Parent or Acquisition, (ii) result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or Acquisition or any of Parent's other subsidiaries
is a party or by which any of them or any of their respective properties or
assets may be bound or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to Parent or Acquisition or any of
Parent's other subsidiaries or any of their respective properties or assets
except, in the case of (ii) or (iii), for violations, breaches or defaults which
would not have a Parent Material Adverse Effect.
SECTION 4.6. Brokers and Finders. Each of Parent and Acquisition
represents, as to itself and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
brokers' or finders' fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement.
SECTION 4.7. Nature and Interim Operations of Acquisition.
Acquisition is a wholly owned, indirect subsidiary of the Parent and was formed
on March 9, 2000 solely for the purpose of engaging in the transactions
contemplated
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hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
ARTICLE 5
COVENANTS
SECTION 5.1. Interim Operations. From the date of this Agreement
until the Tender Offer Purchase Time, except as set forth in Section 5.1 of the
Company Disclosure Schedule or as expressly contemplated by any other provision
of this Agreement, unless the Parent has consented in writing thereto, the
Company shall, and shall cause each of its subsidiaries to:
(a) conduct its business and operations only in the ordinary
course of business consistent with past practice;
(b) use reasonable efforts to preserve intact the business,
organization, goodwill, rights, licenses, permits and franchises of the Company
and its subsidiaries and maintain their existing relationships with customers,
suppliers and other Persons having business dealings with them;
(c) use reasonable efforts to keep in full force and effect
adequate insurance coverage and maintain and keep its material Company Assets in
good repair, working order and condition, normal wear and tear excepted;
(d) not amend or modify its respective Certificate of
Incorporation, Bylaws, partnership agreement or other charter or organizational
documents;
(e) other than pursuant to the stock purchase right identified
as Item 1 in Section 3.2(a) of the Disclosure Schedule and other than up to
20,000 Company Stock Options that may be issued under the 2000 Stock Option Plan
in connection with the Company's fair share plan, not authorize for issuance,
issue, sell, grant, deliver, pledge or encumber or agree or commit to issue,
sell, grant, deliver, pledge or encumber any shares of any class or series of
capital stock of the Company or any of its subsidiaries or any other equity or
voting security or equity or voting interest in the Company or any of its
subsidiaries, any securities convertible into or exercisable or exchangeable for
any such shares, securities or interests, or any options, warrants, calls,
commitments, subscriptions or rights to purchase or acquire any such shares,
securities or interests (other than issuances of Shares upon exercise of Company
Stock Options granted prior to the date of this Agreement to directors,
officers, employees and consultants of the Company in accordance with the
Company Stock Plan as currently in effect);
(f) not (i) split, combine or reclassify any shares of its
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of, or in substitution for, shares of its stock or (ii) in
solely the case of the Company, declare, set aside or pay any dividends on, or
make other distributions in respect of, any of the Company's stock, repurchase,
redeem or otherwise acquire, or agree or commit to repurchase, redeem or
otherwise acquire, any shares of stock or other equity or debt securities or
equity interests of the Company or any of its subsidiaries;
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(g) except as contemplated by Section 2.10, not amend or
otherwise modify the terms of any Company Stock Options or the Company Option
Plans, the effect of which shall be to make such terms more favorable to the
holders thereof or Persons eligible for participation therein;
(h) other than normal salary increases in the ordinary
course of business consistent with past practice, not (i) materially increase
the compensation payable or to become payable to any directors, officers or
employees of the Company or any of its subsidiaries except arrangements in
connection with employee transfers and agreements with new employees having a
salary of greater than $75,000, (ii) grant any severance or termination pay to,
or enter into any employment or severance agreement with any director or officer
or employee (other than in the ordinary course of business) of the Company or
any of its subsidiaries, or (iii) establish, adopt, enter into or amend in any
material respect or take action to accelerate any material rights or material
benefits under any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director or officer or
employee (other than in the ordinary course of business) of the Company or any
of its subsidiaries;
(i) not acquire or agree to acquire (including, without
limitation, by merger, consolidation, or acquisition of stock, equity securities
or interests, or assets) any corporation, partnership, joint venture,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets of any other Person outside the ordinary
course of business consistent with past practice or any interest in any real
properties (other than in the ordinary course of business);
(j) not incur, assume or guarantee any indebtedness for
borrowed money (including draw-downs on letters or lines of credit) or issue any
notes, bonds, debentures, debt instruments, evidences of indebtedness or other
debt securities of the Company or any of its subsidiaries or any options,
warrants or rights to purchase or acquire any of the same, except for (i)
renewals of existing bonds and letters of credit in the ordinary course of
business not to exceed $1,000,000 in the aggregate; (ii) incurring indebtedness
for borrowed money in the ordinary course of business consistent with past
practice in an aggregate amount not to exceed $100,000 or (iii) advances in the
ordinary course pursuant to (A) working capital lines of credit in an amount not
to exceed $15,000,000 in the aggregate and (B) warehouse lines of credit set
forth in Section 3.16(a)(v) of the Company Disclosure Schedule, or any renewal
or replacement thereof;
(k) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of, any material
properties or assets of the Company or any of its subsidiaries, other than in
the ordinary course of business;
(l) not authorize or make any capital expenditures (including
by lease) in excess of $500,000 in the aggregate other than the ordinary course
of business for the Company and all of its subsidiaries;
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(m) not make any material change in any of its accounting or
financial reporting (including tax accounting and reporting) methods, principles
or practices, including with respect to the method of accounting for loans held
for sale or premiums for risk management instruments, or recognizing loan
origination income, net premium income, or gains or losses on risk management
instruments, except as may be required by a change in law or in GAAP;
(n) not make any material tax election or settle or compromise
any material United States or foreign tax liability;
(o) except in the ordinary course of business consistent with
past practice, not amend, modify or terminate any material Contract or waive,
release or assign any material rights or claims thereunder;
(p) other than in the ordinary course of business, not enter
into contracts that reasonably would involve financial obligations by the
Company exceeding $100,000;
(q) not adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries;
(r) fail to report any facts, circumstance or events that has
resulted in any insurance claims that, individually or in the aggregate, would
have a Material Adverse Effect; and
(s) except as to subsections (a), (b) and (c) of Section 5.1,
not agree or commit in writing or otherwise to do any of the foregoing.
SECTION 5.2. Stockholders' Meeting; Action by Consent.
(a) The Company, acting through the Board, shall, if required
for the Merger under the DGCL:
(i) duly call, give notice of, convene and hold a
meeting of its stockholders (the "Stockholders' Meeting"), to be held as
soon as practicable after the Tender Offer Purchase Time for the purpose
of considering and taking action upon this Agreement using a record date,
to the extent possible, that is a day on which the Shares are listed on
the Nasdaq National Market;
(ii) except as otherwise permitted under Section 5.4,
include in the Proxy Statement (A) the recommendation of the Board that
stockholders of the Company vote in favor of the approval and adoption of
this Agreement, the Merger and the other transactions contemplated hereby
(including the Plan and Agreement of Merger attached hereto as Exhibit
C), and (B) a statement that the Board believes that the consideration to
be received by the stockholders of the Company pursuant to the Merger is
fair to such stockholders; and
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(iii) except as otherwise permitted under Section 5.4, use
reasonable efforts (A) to obtain and furnish the information required to
be included by it in the Proxy Statement, if any, and, after consultation
with Parent and Acquisition, cause the Proxy Statement to be mailed to
its stockholders at the earliest practicable time following the Tender
Offer Purchase Time, and (B) to obtain the necessary approvals by its
stockholders of this Agreement and the transactions contemplated hereby.
At such meeting, Parent and Acquisition will, and will cause their
affiliates to, vote all Shares owned by them in favor of approval and
adoption of this Agreement, the Merger and the transactions contemplated
hereby.
(b) Notwithstanding subsection (a), if Parent, Acquisition and
any other subsidiary of Parent collectively acquire at least 90% of the issued
and outstanding Shares, the parties shall take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after the
purchase of the Shares pursuant to the Offer without a Stockholders' Meeting in
accordance with Section 253 of the DGCL.
SECTION 5.3. Termination of Registration of Shares. The Company,
acting through its Board, at the earliest practicable time following the Tender
Offer Purchase Time (but in no event prior to the record date for the
Stockholders' Meeting, if necessary, called for the purpose of approving the
Merger), if the number of holders of record of the Shares at such time is
smaller than 300, take all steps necessary or appropriate to terminate
registration of the Shares under the Exchange Act, including without limitation
the filing of Exchange Act Form 15 with the SEC and of a notice to the Nasdaq
National Market to delist the Shares.
SECTION 5.4. Other Potential Acquirers.
(a) The Company and its subsidiaries shall and shall direct
and use their reasonable best efforts to cause, its affiliates and their
respective officers, directors, employees, representatives and agents to
immediately cease any discussions or negotiations with any parties with respect
to any Third Party Acquisition (as defined below). The Company and its
subsidiaries shall and shall direct and use their reasonable best efforts to
cause their respective officers, directors, employees, representatives or
agents not to, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with or provide any non-public information
to any Person or group (other than Parent and Acquisition or any designees of
Parent and Acquisition) concerning any Third Party Acquisition; provided,
however, that nothing herein shall prevent the Board from taking and disclosing
to the Company's stockholders a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer; and
provided further, that notwithstanding the foregoing, if, prior to the Tender
Offer Purchase Time, the Company receives a "Potential Proposal" (defined as an
unsolicited Superior Proposal (defined below) or an unsolicited proposal, offer
or indication that the Company in good faith believes may lead to a Superior
Proposal), then, following written notice to Parent and Acquisition, the
Company may, pursuant to a non-disclosure agreement with terms regarding the
protection of confidential information at least as restrictive as such terms in
the Confidentiality Agreement, provide the Person making the Potential Proposal
with the same non-public information that the Company supplied to
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Parent and consider and negotiate a Potential Proposal. The Company shall
promptly, and in any event before furnishing non-public information to any such
Person, notify the Parent in the event it receives any proposal or inquiry
concerning a Third Party Acquisition, including the material terms and
conditions thereof and the identity of the party submitting such proposal.
(b) Except as set forth in this Section 5.4(b), the Board shall
not withdraw its recommendation of the transactions contemplated hereby or
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Third Party Acquisition. Notwithstanding the foregoing, if prior
to the Tender Offer Purchase Time the Board by a majority vote determines in its
good faith judgment, after consultation with its legal counsel, that failure to
do so would be inconsistent with their fiduciary duties under applicable law,
the Board may withdraw its recommendation of the transactions contemplated
hereby or approve or recommend a Superior Proposal; provided, however, that the
Company shall not be entitled to enter into any agreement with respect to a
Superior Proposal unless and until this Agreement is terminated by its terms
pursuant to Section 8.1. For the purposes of this Agreement, "Third Party
Acquisition" means the occurrence of any of the following events: (i) the
acquisition of the Company by merger or otherwise by any Person (which includes
a "person" as such term is defined in Section 13(d)(3) of the Exchange Act)
other than Parent, Acquisition or any affiliate thereof (a "Third Party") or by
an officer or director of the Company; (ii) the acquisition by a Third Party of
more than 20% of the total assets of the Company and its subsidiaries taken as a
whole; (iii) the acquisition by a Third Party of Shares which, together with all
other Shares owned by such Third Party and its affiliates, equal 20% or more of
the issued and outstanding Shares; (iv) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend; (v) the
repurchase by the Company or any of its subsidiaries of more than 20% of the
issued and outstanding Shares; or (vi) the acquisition by the Company or any
subsidiary by merger, purchase of stock or assets, joint venture or otherwise of
a direct or indirect ownership interest or investment in any business whose
annual revenues, net income or assets attributable to such ownership interest or
investment is equal or greater than 20% of the annual revenues net income or
assets of the Company. For purposes of this Agreement a "Superior Proposal"
means any bona fide proposal to acquire directly or indirectly for consideration
consisting of cash and/or securities all of the Shares then issued and
outstanding or all or substantially all the assets of the Company and otherwise
on terms which the Company Board by a majority vote determines in its good faith
judgment (consistent with the advice of a financial adviser of nationally
recognized reputation) to be more favorable to the Company's stockholders than
the Merger and the Offer. At and after the Tender Offer Purchase Time, the
Company shall not under any circumstances withdraw its recommendation of the
transactions contemplated hereby or approve or recommend, or cause the Company
to enter into any agreement with respect to, any Third Party Acquisition.
SECTION 5.5 Access to Information. From the date of this Agreement
until the Closing Time, upon reasonable prior notice, the Company shall (and
shall cause each of its subsidiaries to) (a) give the Parent and its
representatives full access, during normal business hours and at other
reasonable times without disruption to the Company's normal business affairs, to
the books, records, contracts, commitments, properties, offices
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and other facilities of it and its subsidiaries, (b) arrange for Parent and its
representatives reasonable access, during normal business hours, to the
officers, employees and agents of it and its subsidiaries, and (c) furnish
promptly to the Parent and its representatives such financial and operating data
and other information concerning the business, operations, properties,
contracts, records and personnel of the Company and its subsidiaries as the
Parent may from time to time reasonably request. Parent agrees that it will not,
and will cause its representatives not to, use any information or access
obtained pursuant to this Section 5.5 for any purpose not reasonably related to
the consummation of the transactions contemplated by this Agreement. All
information obtained by the Parent pursuant to this Section 5.5 shall be kept
confidential in accordance with the confidentiality provisions of the Letter
Agreement between Parent and the Company dated as of January 31, 2000 (the
"Confidentiality Agreement").
SECTION 5.6. Further Actions.
(a) Each of the parties hereto shall use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations, and consult and fully cooperate with and provide
reasonable assistance to each other party hereto and their respective
representatives in order, to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable hereafter, including,
without limitation, (i) using commercially reasonable efforts to make all
filings, applications, notifications, reports, submissions and registrations
with, and to obtain all consents, approvals, authorizations or permits of,
Governmental Entities or other Persons as are necessary for the consummation of
the Merger and the other transactions contemplated hereby (including, without
limitation, pursuant to the HSR Act, the Bank Act, the Bank Holding Company Act,
state insurance or mortgage broker laws, the Home Owners' Loan Act, the
Securities Act, the Exchange Act, Blue Sky Laws, Delaware law and other
applicable laws and regulations in effect in the United States or any other
jurisdiction), and (ii) taking such actions and doing such things as any other
party hereto may reasonably request in order to cause any of the conditions to
such other party's obligation to consummate the Merger as specified in Article 7
of this Agreement to be fully satisfied. Prior to making any application to or
filing with any Governmental Entity or other Person in connection with this
Agreement, the Company, on the one hand, and the Parent, on the other hand,
shall provide the other with drafts thereof and afford the other a reasonable
opportunity to comment on such drafts.
(b) Without limiting the generality of the foregoing, each of
the Parent and the Company agrees to cooperate and use reasonable efforts to
vigorously contest and resist any action, suit, proceeding or claim, and to have
vacated, lifted, reversed or overturned any injunction, order, judgment or
decree (whether temporary, preliminary or permanent), that delays, prevents or
otherwise restricts the consummation of the Merger or any other transaction
contemplated by this Agreement, and to take any and all actions (but not
including the disposition of material assets, divestiture of businesses, or the
withdrawal from doing business in particular jurisdictions, if material) as may
be required by Governmental Entities as a condition to the granting of any such
necessary approvals or as may be required to avoid, vacate, lift, reverse or
overturn any injunction, order, judgment, decree or regulatory action (provided,
however, that in no event shall any party
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hereto take, or be required to take, any action that could reasonably be
expected to have a Material Adverse Effect or that, individually or in the
aggregate, could reasonably be expected to have a Parent Material Adverse
Effect).
(c) The Company shall take all necessary action prior to the
Effective Time to cause the dilution provisions of the Rights Agreement to be
inapplicable to the transactions contemplated by this Agreement, without any
payment to holders of Rights.
(d) The Board shall administer the Company's Employee Stock
Purchase Plan such that no action thereunder would be permitted to be taken by
the President or any other officer of the Company without the approval of the
Board.
SECTION 5.7. Public Announcements. Parent, Acquisition and the
Company, as the case may be, will consult with one another and mutually agree
upon the content and timing of any press releases or public statements with
respect to the transactions contemplated by this Agreement, including, without
limitation, the Offer and the Merger, and shall not issue any such press release
or make any such public statement prior to such consultation and agreement
except to the extent that such disclosure may be required by applicable law or
by obligations pursuant to any listing agreement with the Toronto Stock
Exchange, the New York Stock Exchange or the Nasdaq National Market as
determined by Parent, Acquisition or the Company, as the case may be.
SECTION 5.8. Employee Benefit Matters.
(a) Parent agrees that, effective as of the Effective Time and
for a one year period following the Effective Time, Parent shall provide, or
cause Acquisition and its subsidiaries and successors to provide, those persons
who, immediately prior to the Effective Time, were employees of the Company and
its subsidiaries and who continue in such employment ("Continuing Employees"),
with benefits and compensation no less favorable in the aggregate to benefits
and compensation that are provided to the Continuing Employees as of the date of
this Agreement.
(b) Except with respect to accruals under any defined benefit
pension plan, at such time as a Continuing Employee is provided benefits under
the benefit plans or arrangements of Parent or the Surviving Corporation, or any
subsidiary of Parent or the Surviving Corporation, Parent will, or will cause
the Surviving Corporation and its subsidiaries to, give such Continuing Employee
full credit for purposes of eligibility and vesting under such employee benefit
plans or arrangements maintained by Parent, Acquisition or any subsidiary of
Parent or Acquisition for such Continuing Employees' service with the Company or
any subsidiary of the Company to the same extent recognized by the Company at
such time. Parent will, or will cause the Surviving Corporation and its
subsidiaries to, (i) waive all limitations as to preexisting conditions (except
to the extent that such limitations were not waived under the Company's
then-existing welfare plans), exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Continuing Employees
under any welfare plan that such employees may be eligible to participate in
after the Effective Time, and (ii) provide each Continuing Employee with credit
for any co-payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket
37
<PAGE> 44
requirements under any welfare plans that such employees are eligible to
participate in after the Effective Time to the same extent as if those
deductibles or co-payments had been paid under the welfare plans for which such
employees are eligible after the Effective Time.
(c) Parent and Acquisition (i) to cause Acquisition after
consummation of the Merger contemplated by this Agreement to assume, honor, and
pay all amounts provided under, all Company Employee Plans in accordance with
their terms, and (ii) to honor and to cause Acquisition to honor, all rights,
privileges and modifications to or with respect to any such Company Employee
Plans that become effective as a result of any of the transactions contemplated
by this Agreement.
SECTION 5.9. Expenses. Whether or not the Merger is consummated,
subject to Section 8.3 hereof, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, fees and disbursements of representatives) shall be borne by the
party which incurs such cost or expense.
SECTION 5.10. Notification of Certain Matters. The Company shall
give prompt notice to Parent and Acquisition, and Parent and Acquisition shall
give prompt notice to the Company, of (a) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied in all material respects prior to the Tender Offer Purchase
Time and (b) any material failure of the Company, Parent or Acquisition, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.10 shall not cure such breach
or non-compliance or limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
SECTION 5.11. Guarantee of Performance. Parent hereby guarantees
the performance by Acquisition and, after the Effective Time, the Surviving
Corporation of its obligations under this Agreement, including but not limited
to the Surviving Corporation's obligations under Section 5.13.
SECTION 5.12. Effect of Parent's Knowledge. If Parent or any
director, officer, employee, counsel, accountant, advisor or other
representative has obtained, prior to the execution of this Agreement, actual
knowledge of any information relevant to accuracy of the representation and
warranties of the Company under this Agreement, then for purposes of determining
whether the condition set forth in Section 6.1(a)(iv) has been satisfied, such
information shall be deemed to have been disclosed by the Company in the Company
Disclosure Schedule.
SECTION 5.13. Indemnification; Directors' and Officers' Insurance.
Subject to the occurrence of the Effective Time, the Surviving Corporation
shall cause its Certificate of Incorporation and Bylaws to contain the
38
<PAGE> 45
indemnification provisions set forth in the Certificate of Incorporation and
Bylaws of the Company on the date of this Agreement, which provisions
thereafter shall not be amended, repealed or otherwise modified after the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors,
officers or employees of the Company in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement). Parent shall cause the Surviving
Corporation to comply with the terms of and maintain in existence the
indemnification agreements in effect on the date of this Agreement. In the
event the Surviving Corporation or any of its successors or assigns (a)
consolidates with or merges into any other Person and the Surviving Corporation
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (b) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall assume the obligations set forth in this Section 5.13. The
Surviving Corporation shall obtain and maintain in effect for not less than
five years after the Effective Time, the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
the Company and the Company's subsidiaries with respect to matters occurring at
or prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement), provided, that Parent may, with no lapse in
coverage, substitute therefore policies of substantially the same coverage
containing terms and conditions which are no less advantageous, in any material
respect, to the Company's present or former directors, officers, employees,
agents or other individuals otherwise covered by such insurance policies prior
to the Effective Time (the "Indemnified Parties"). This Section 5.13 is
intended to benefit the Indemnified Parties and shall be binding on all
successors and assigns of Parent, Acquisition, the Company and the Surviving
Corporation.
ARTICLE 6
CONDITIONS TO THE OFFER
SECTION 6.1. Conditions to the Offer.
(a) Notwithstanding any other provisions of the Offer,
Acquisition shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC including Rule 14e-l(c) under the
Exchange Act (relating to Acquisition's obligation to pay for or return
tendered Shares promptly after termination or withdrawal of the Offer), pay
for, and may delay the acceptance for payment of or, subject to the
restrictions referred to above, the payment for, any tendered Shares, if (w)
any waiting periods applicable to the Offer under the HSR Act shall not have
been terminated or shall not have expired and any required approvals or notices
under the Bank Act, the Bank Holding Company Act and required approvals from
state Governmental Entities responsible for regulating, in the aggregate,
ninety percent (90%) of the Company's and its subsidiary's average mortgage
origination volume for the period 1998 and 1999 shall not have been obtained,
and, in the case of any approval, authorization or consent, shall not be in full
force and effect and all conditions applicable thereto shall not have been
satisfied; (x) any of the consents or approvals of any Person other than a
Governmental Entity, in connection with the execution, delivery and performance
of this Agreement shall not have been obtained; except where the failure to
have obtained any such consent or approval would not have a Material Adverse
Effect; (y) the Minimum Condition shall not have been satisfied or (z) at any
time on or after the date of this Agreement and before the time of acceptance
of such Shares for payment pursuant to the Offer, any of the following events
shall occur:
(i) [reserved];
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(ii) from the date of this Agreement until the Tender
Offer Purchase Time, any Governmental Entity or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, executive order, decree, injunction or
other order which is in effect at the Tender Offer Purchase Time and
which (A) makes the acceptance for payment of, or the payment for, some
or all of the Shares illegal or otherwise prohibits consummation of the
Offer, the Merger or any of the other transactions contemplated hereby,
or (B) prohibits Acquisition from operating or deriving benefits from the
majority of the value of the operations of the Company and its
subsidiaries taken as a whole to operate the Company; provided, however,
that the parties shall use reasonable efforts (subject to the proviso in
Section 5.6(b)) to cause any such decree, judgment or other order to be
vacated or lifted prior to September 30, 2000;
(iii) [reserved];
(iv) the representations and warranties of the Company
set forth in this Agreement shall not be true and correct on the date of
this Agreement or the Company shall have breached or failed in any
respect to perform or comply with any material obligation, agreement or
covenant required by this Agreement to be performed or complied with by
it at or prior to such time except, where the failure of representations
and warranties (without regard to materiality qualifications therein
contained) to be true and correct, or the performance or compliance with
such obligations, agreements or covenants, would not, individually or in
the aggregate, have a Material Adverse Effect;
(v) this Agreement shall have been terminated in
accordance with its terms;
(vi) there shall have occurred an acceptance by the
Company of a Superior Proposal;
(vii) [reserved];
(viii) the Board shall have withdrawn or modified in a
manner adverse to Parent its approval or recommendation of the Offer,
shall have recommended to the Company's stockholders a Third Party
Acquisition or shall have adopted any resolution to effect any of the
foregoing;
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<PAGE> 47
(ix) [reserved];
(x) [reserved];
(xi) [reserved];
(xii) from the date of this Agreement until the Tender
Offer Purchase Time, there shall have occurred the commencement of a war
having a Material Adverse Effect on the Company;
which, in the reasonable judgment of Parent and Acquisition, in any such case,
and regardless of the circumstances giving rise to any such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
(b) The conditions set forth in Section 6.1(a) (other than the
Minimum Condition) are for the sole benefit of Acquisition and may be asserted
by Acquisition regardless of any circumstances giving rise to any condition and
may be waived (other than the Minimum Condition) by Acquisition, in whole or in
part, at any time and from time to time, in the sole discretion of Acquisition.
The failure by Parent or Acquisition (or any affiliate of Acquisition) at any
time to exercise any of the foregoing rights will not be deemed a waiver of any
right and each right will be deemed an ongoing right which may be asserted at
any time and from time to time.
ARTICLE 7
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Closing Time of the following
conditions:
(a) this Agreement, the Merger and the other transactions
contemplated hereby shall have been approved by all necessary corporate action
of the Company, including, if necessary, adoption by vote of the stockholders of
the Company provided that Parent and Acquisition shall have complied with their
obligations in respect of the voting of Shares set forth in Section 5.2(a)(iii);
(b) no Governmental Entity or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order which is in
effect and which makes the payment of the Cash Merger Consideration illegal or
otherwise prohibits the Merger; and
(c) [reserved]
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<PAGE> 48
(d) Acquisition shall have purchased Shares pursuant to the
Offer in accordance with the terms of this Agreement and the Offer; provided,
that neither Parent nor Acquisition may invoke this condition if Acquisition
shall have failed to purchase, in violation of the terms of this Agreement or
the Offer, Shares validly tendered and not withdrawn pursuant to the Offer.
ARTICLE 8
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Closing Time whether before or
after approval and adoption of this Agreement by the Company's stockholders:
(a) by mutual written consent of Parent, Acquisition and the
Company;
(b) by Parent or the Company if (i) any Governmental Entity or
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order which is in effect and which makes payment of the Per
Share Amount or the Cash Merger Consideration illegal or otherwise prohibits
the Offer or the Merger or (ii) Acquisition shall not have purchased Shares
pursuant to the Offer or the Merger shall not have occurred on or prior to
September 30, 2000, provided, that the right to terminate this Agreement
pursuant to this Section 8.1(b) shall not be available to any party whose
failure to fulfill any of its obligations under this Agreement results in such
failure to purchase;
(c) by Parent and Acquisition prior to the Tender Offer
Purchase Time if there shall have been a breach of any covenant or agreement on
the part of the Company resulting in a Material Adverse Effect or a Parent
Material Adverse Effect which shall not have been cured prior to the earlier of
(A) 10 days following notice of such breach and (B) two business days prior to
the date on which the Offer expires as such date may be extended;
(d) by the Company prior to the Tender Offer Purchase Time if
(i) the Company shall have received a Superior Proposal, shall have furnished
Parent a reasonable written notice advising Parent that the Board has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the Person making such Superior Proposal and Parent
shall not, within three business days of Parent's receipt of the Notice of
Superior Proposal, have made an offer which the Company Board, by a majority
vote, determines in its good faith judgment (consistent with the advice of a
financial advisor of nationally recognized reputation) to be as favorable to the
Company's stockholders as such Superior Proposal, provided, however, that such
termination under this clause (i) shall not be effective until payment of the
fee required by Section 8.3(b); (ii) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition which materially
adversely affects (or materially delays) the
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consummation of the Offer or (iii) there shall have been a material breach of
any covenant or agreement on the part of Parent or Acquisition and which
materially adversely affects (or materially delays) the consummation of the
Offer which shall not have been cured prior to the earlier of (A) 10 days
following notice of such breach and (B) two business days prior to the date on
which the Offer expires.
SECTION 8.2. Effect of Termination. In the event of the
termination and abandonment of this Agreement pursuant to Section 8.1, this
Agreement shall forthwith become void and have no effect without any liability
on the part of any party hereto or its affiliates, directors, officers or
stockholders other than the provisions of this Section 8.2 and the last sentence
of Sections 5.5 and Sections 8.3, and 9.1 through 9.12 hereof. Nothing contained
in this Section 8.2 shall relieve any party from liability for any willful
breach of this Agreement.
SECTION 8.3. Fees and Expenses.
(a) In the event this Agreement is terminated pursuant to
certain provisions, as set forth in Section 8.3(b) below, subject to the
provisions of Section 8.3(c), the Company shall pay to Acquisition the amount of
$3,500,000 (the "Breakup Fee") immediately upon such a termination.
(b) Subject to the provisions of Section 8.3(c), the Breakup
Fee shall be payable
(i) if the Offer is terminated pursuant to Section
6.1(a)(viii) and within one year after such termination either (x)the
Company enters into an agreement to merge with another company (other
than a merger pursuant to which the stockholders of the Company will
acquire more than fifty percent (50%) of the voting securities of such
surviving corporation) or enters into an agreement pursuant to which more
than 50% of the issued and outstanding Shares are acquired by another
person or pursuant to which new voting securities are issued to another
person or to the stockholders of another company which will aggregate
more than fifty percent (50%) of the outstanding voting securities of the
Company after such issuance or (y) another person acquires more than
fifty percent (50%) of the issued and outstanding Shares, in which case
the Company shall promptly, but in no event later than two days after the
date of any of the events in (x) or (y), pay Parent the Breakup Fee; or
(ii) the Company shall have terminated this Agreement
pursuant to Section 8.1(d)(i).
(c) Notwithstanding the provisions of subsections (a) and (b)
above, Acquisition may, at its sole option, but subject to Section 8.3(d), waive
payment of the Breakup Fee in order to exercise its options to purchase certain
Shares pursuant to Section 3 of the Stockholders' Agreement (the "Options"). In
the event of such exercise, the Breakup Fee shall no longer be payable.
(d) Notwithstanding anything to the contrary contained herein,
in the event that the Company gives Parent the notice specified in Section
8.1(d) (the "Superior Proposal Notice") and Acquisition or its designee
exercises its Options under Section 3 of the Stockholders' Agreement within the
applicable three-day period, then at Acquisition's or such designee's election
(made in writing within such three-day exercise period) (i) the Agreement shall
not be terminated
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and Parent shall purchase or cause to be purchased the Shares not subject to
the Option ("Remaining Shares") at a per Share price in cash equal to the per
Share value of the consideration payable pursuant to the applicable Superior
Proposal, or (ii) the Agreement shall be terminated and Parent shall sell or
cause Acquisition or its designee to sell the Shares acquired pursuant to the
exercise of the Option or shall assign its right to acquire such Shares
pursuant to the Stockholders' Agreement on the terms and conditions and to the
person specified in the Superior Proposal pursuant to the related agreement;
provided that neither Parent nor Acquisition shall have the right to make the
election specified above in the event that either Parent or Acquisition accepts
the Breakup Fee. The acquisition of the Remaining Shares shall be made pursuant
to a merger conducted in accordance with Article 2 and Section 5.2 as if the
exercise of the Option constituted the closing of the Offer after satisfaction
of the applicable conditions. The Parent and Acquisition shall take all actions
necessary to effect such acquisition, including without limitation, causing
their Shares to be voted in favor of such merger.
SECTION 8.4. Amendment. This Agreement may be amended by action
taken by the Board subject to Section 1.3(c), and by the parties hereto at any
time before or after approval, if necessary, of the Merger by the stockholders
of the Company but, after any such approval, no amendment shall be made which
requires the approval of such stockholders under applicable law without such
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of the parties hereto.
SECTION 8.5. Extension; Waiver. At any time prior to the Closing
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties of the other party contained herein or in any
document certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Entire Agreement; Assignment. This Agreement, the
Confidentiality Agreement and the Stockholders' Agreement together (a)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings both written and oral among the parties or any of them with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise.
SECTION 9.2. Survival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the earlier
of (i) termination of this Agreement or (ii) the Tender Offer Purchase Time, in
the case of the representations and warranties of Parent or Acquisition or the
purchase of Shares by Acquisition pursuant to the Offer, in the case of the
representations and warranties of the Company. This Section 9.2 shall not limit
any covenant or agreement of the parties
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<PAGE> 51
hereto which by its terms contemplates performance after the Tender Offer
Purchase Time.
SECTION 9.3. Validity. If any provision of this Agreement or the
application thereof to any Person or circumstance is held invalid or
unenforceable the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
SECTION 9.4. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested) to each other party as follows:
<TABLE>
<S> <C>
if to Parent or Acquisition: ROYAL BANK OF CANADA
200 Bay Street,
14th Floor, North Tower
Toronto, Ontario
M5J2J5 Canada
Telecopier: 416-974-9344
Attention: Robert K. Horton
Senior Vice President, Strategic Initiatives
with copies to: RBC Head Office Law Department
1 Place Ville Marie
4th Floor, East Wing
Montreal, Quebec
H3C3A0 Canada
Telecopier (514) 874-0241
Attention: Sarah J. Azzarello
Vice President and Associate General Counsel
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Telecopier: (212) 351-4035
Attention: Lawrence J. Hohlt, Esq.
if to the Company to: PRISM FINANCIAL CORPORATION
440 N. Orleans
Chicago, IL 60610
Telecopier (312) 494-0184
Attention: Mark A. Filler
President
</TABLE>
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<TABLE>
<S> <C>
with a copy to: Skadden, Arps, Slate, Meagher & Flom
(Illinois)
333 West Wacker Drive, Suite 2000
Chicago, IL 60606
Telecopier: (312) 407-0411
Attention: Rodd M. Schreiber, Esq.
</TABLE>
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 9.5. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to the principles of conflicts of law thereof.
SECTION 9.6. Descriptive Headings. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
SECTION 9.7. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and its successors and
permitted assigns and nothing in this Agreement express or implied is intended
to or shall confer upon any other Person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement; provided, however, that
the provisions of Section 5.12 shall inure to the benefit of and be enforceable
by the Indemnified Parties.
SECTION 9.8. Certain Definitions. For the purposes of this
Agreement the term:
(a) "affiliate" means a Person that, directly or indirectly,
through one or more intermediaries controls, is controlled by or is under common
control with the first-mentioned Person;
(b) "business day" means any day other than a day on which the
New York Stock Exchange is closed;
(c) "stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other legal entity; and
(e) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other Person means any corporation, partnership,
limited liability company, association, trust, unincorporated association or
other legal entity of which the Company, Parent, the Surviving Corporation or
any such other Person, as the case may be, (either alone or through or together
with any other subsidiary) (i) owns, directly or indirectly, 25% or more of the
capital stock the holders of which are generally
46
<PAGE> 53
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity, (ii) has the right to appoint a
majority of the board of directors or other governing body of such corporation
or other legal entity or (iii) otherwise controls.
SECTION 9.9. Personal Liability. This Agreement shall not create
or be deemed to create or permit any personal liability or obligation on the
part of any direct or indirect stockholder of the Company or Parent or any
officer, director, employee, agent or representative of any party hereto.
SECTION 9.10. Specific Performance. The parties hereby acknowledge
and agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that if Parent
receives the Breakup Fee pursuant to Section 8.3 it shall not also be entitled
to specific performance to compel the consummation of the Merger.
SECTION 9.11. Waiver of Conditions. The conditions to each of the
parties' obligations to consummate the Merger are for the benefit of such party
and may be waived by such party in whole or in part to the extent permitted by
applicable law.
SECTION 9.12. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
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<PAGE> 54
IN WITNESS WHEREOF, each of the parties has caused this Merger
Agreement to be duly executed on its behalf as of the day and year first above
written.
ROYAL BANK OF CANADA
By: /s/ ROBERT K. HORTON
------------------------------------------
Name: Robert K. Horton
----------------------------------------
Title: Senior Vice President
---------------------------------------
By: /s/ JAMES T. RAGER
------------------------------------------
Name: James T. Rager
----------------------------------------
Title: Vice Chairman
---------------------------------------
PRISM FINANCIAL CORPORATION
By: /s/ MARK A. FILLER
------------------------------------------
Name: Mark A. Filler
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
RAINBOW ACQUISITION SUBSIDIARY, INC.
By: /s/ ROBERT K. HORTON
------------------------------------------
Name: Robert K. Horton
----------------------------------------
Title: Senior Vice President, Strategic
---------------------------------------
Initiatives
48
<PAGE> 55
EXHIBIT A
FORM OF STOCKHOLDERS' AGREEMENT
(SEE EXHIBIT 12(d)(3))
49
<PAGE> 56
EXHIBIT B
KNOWLEDGE GROUP
MARK FILLER
DAVID FISHER
LARRY KATZ
ERIC GURRY
TERRY MARKUS
50
<PAGE> 57
EXHIBIT C
PLAN AND AGREEMENT OF MERGER
51
<PAGE> 58
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER, dated as of ______________ , 2000
("Agreement"), is entered into by and between Prism Financial Corporation
("Prism") and Prism Acquisition Subsidiary, Inc. ("Acquisition"), each a
Delaware corporation. Prism and Acquisition are hereinafter sometimes
collectively referred to as the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, each of Prism and Acquisition is a corporation duly organized
and existing under the laws of the State of Delaware;
WHEREAS, on the date of this Agreement, Prism has authority to issue
110,000,000 shares of capital stock, consisting of 100,000,000 shares of common
stock, par value $.01 per share (the "Shares"), of which, as of January 31,
2000, 14,670,560 Shares were issued and outstanding, and of these ______________
are owned by Acquisition; and 10,000,000 shares of preferred stock, par value
$.01 per share, no shares of which are outstanding;
WHEREAS, on the date of this Agreement, Acquisition has authority to
issue 1000 shares of common stock, par value $.01 per share ("Acquisition Common
Stock"), of which 100 shares are issued and outstanding and owned by RBC
Holdings (Delaware) Inc., a Delaware corporation ("Parent");
WHEREAS, the respective Boards of Directors of Prism and Acquisition have
determined that it is advisable and in the best interests of each of such
corporations that Acquisition be merged with and into Prism upon the terms and
subject to the conditions set forth in the Merger Agreement dated as of March
10, 2000 among Royal Bank of Canada, a Canadian commercial bank and the indirect
parent of Acquisition, Prism and Acquisition (the "Merger Agreement") and this
Agreement for the purpose of completing the acquisition of Prism by Parent;
WHEREAS, the Board of Directors of Acquisition has, by resolutions duly
adopted, approved, certified, executed and acknowledged this Agreement;
WHEREAS, Parent has approved this Agreement as the sole stockholder of
Acquisition; and
WHEREAS, the Board of Directors of Prism has approved this Agreement, and
directed that this Agreement be submitted to a vote of its stockholders, if such
a vote is necessary under Delaware law. Capitalized terms used and not defined
herein shall have the meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Prism and Acquisition hereby agree as follows:
<PAGE> 59
1. Merger. Acquisition shall be merged with and into Prism (the
"Merger"), and Prism shall be the surviving corporation (hereinafter sometimes
referred to as the "Surviving Corporation"). The Merger shall become effective
at such time as a properly executed and certified copy of the Merger Certificate
is duly accepted for record by the Secretary of State of the State of Delaware
for filing pursuant to the Delaware General Corporation Law, or such later time
as Acquisition and Prism may agree upon and set forth in the Merger Certificate
(not exceeding 30 days after the Merger Certificate is accepted for record; the
time the Merger becomes effective being referred to herein as the "Effective
Time").
2. Governing Documents. The Certificate of Incorporation of Acquisition
in effect at the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with applicable law. The
Bylaws of Acquisition in effect at the Effective Time shall be the Bylaws of the
Surviving Corporation until amended in accordance with applicable law.
3. Succession. At the Effective Time, the separate corporate existence of
Acquisition shall cease, and Prism shall possess all the assets, rights,
privileges, powers and franchises, of a public and private nature and be subject
to all the restrictions, disabilities and duties of each of the Constituent
Corporations, and all and singular, the assets, rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to each of the Constituent Corporations on
whatever account, shall be transferred to, vested in and devolved on the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the respective
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, in either of such Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger; but all rights of creditors and all
liens upon any property of Acquisition shall be preserved unimpaired. To the
extent permitted by law, any claim existing or action or proceeding pending by
or against either of the Constituent Corporations may be prosecuted as if the
Merger had not taken place. All debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it.
4. Directors and Officers. The directors and officers of Acquisition at
the Effective Time shall be the initial directors and officers, holding the same
titles and positions, of the Surviving Corporation, and after the Effective Time
shall serve in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation.
5. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors or assigns, there shall be executed
and delivered on behalf of Acquisition such deeds and other instruments, and
there shall be taken or caused to be taken by it all such further and other
action, as shall be appropriate, advisable or necessary in order to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation the
title to and possession of all property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Acquisition, and otherwise to
carry out the purposes of this Agreement, and the officers and directors of the
Surviving Corporation are fully authorized in the name and on
2
<PAGE> 60
behalf of Acquisition or otherwise, to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
6. Conversion of Shares. At the Effective Time, each Share (together with
any associated rights to purchase preferred stock issued pursuant to the Rights
Agreement dated as of January 27, 2000 between the Company and LaSalle Bank
National Association) issued and outstanding immediately prior to the Effective
Time (excluding (i) Shares held by any of Prism's subsidiaries and (ii) Shares
held by Parent, Acquisition or any other subsidiary of Parent) shall, by virtue
of the Merger and without any action on the part of Acquisition, Prism or the
holder thereof, be converted into and shall become the right to receive [$7.50]
in cash, without interest (the "Cash Merger Consideration"), provided, however,
that each such Share held by Parent, Acquisition or any subsidiary of Parent,
Acquisition or Prism immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of Acquisition, Prism or the
holder thereof, be canceled and retired and will cease to exist and no payment
shall be made with respect thereto. At the Effective Time, each share of
Acquisition Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into and shall become one validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation.
7. Conditions to Merger. The Merger shall have received the approval, if
such is required by law, of the holders of Shares pursuant to the Delaware
General Corporation Law and to the other conditions set forth in Article 7 of
the Merger Agreement.
8. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which, immediately prior to the Effective Time,
represented Shares shall, respectively, without further action by any party, be
deemed for all purposes to evidence the right to receive the Cash Merger
Consideration as herein provided. The registered owner on the books and records
of the Surviving Corporation or its transfer agents of any such outstanding
stock certificate shall not have exercised nor be entitled to exercise any
voting or other rights with respect to, or to receive any dividends or other
distributions upon, the shares of Acquisition Common Stock or any other
securities whatsoever.
9. Options. At the Effective Time, each outstanding option to purchase
Shares issued pursuant to Prism's 1999 Omnibus Stock Incentive Plan (the "1999
Option Plan"), Prism's 2000 Stock Option Plan or any other stock option plan,
program, arrangement or agreement to which Prism is a party shall be treated as
set forth in the Merger Agreement. The 1999 Option Plan shall terminate as of
the Effective Time.
10. Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented by written agreement of the parties hereto at any time
prior to the Effective Time with respect to any of the terms contained herein.
11. Abandonment. At any time prior to the Effective Time, this Agreement
may be terminated and the Merger may be abandoned by the Board of Directors of
Prism, notwithstanding approval of this Agreement by the stockholder of
Acquisition or, if such was required, by the stockholders of Prism, or both, (a)
if the conditions to consummation of the Merger set forth in Article 7 of the
Merger Agreement are not satisfied or waived or (b) by mutual agreement of the
Boards of Directors of the parties.
3
<PAGE> 61
11. Amendment. At any time prior to the Effective Time, this Agreement
may be amended by the Boards of Directors of the parties hereto to the extent
permitted by applicable law, notwithstanding approval of this Agreement by the
stockholder of Acquisition or, if such was required, by the stockholders of
Prism, or both.
12. Counterparts. In order to facilitate the filing and recording of this
Agreement, the same may be executed in two or more counterparts, each of which
shall be deemed to be an original and the same agreement.
IN WITNESS WHEREOF, Prism and Acquisition have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
PRISM FINANCIAL CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PRISM ACQUISITION SUBSIDIARY, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
4
<PAGE> 62
CERTIFICATE OF THE SECRETARY
OF
PRISM FINANCIAL CORPORATION
I, the Secretary of Prism Financial Corporation, hereby certify that the
Plan and Agreement of Merger to which this certificate is attached, after having
been first duly signed on behalf of the corporation by the President and
Secretary under the corporate seal of the corporation, was duly approved and
adopted.
WITNESS my hand and seal of Prism Financial Corporation this ____ day of
________ 2000.
---------------------------
Secretary
<PAGE> 63
CERTIFICATE OF THE SECRETARY
OF
PRISM ACQUISITION SUBSIDIARY, INC.
I, the Secretary of Prism Acquisition Subsidiary, Inc., hereby certify
that the Plan and Agreement of Merger to which this certificate is attached,
after having been first duly signed on behalf of the corporation by the
President and Secretary under the corporate seal of the corporation, was duly
approved and adopted by written consent of the sole stockholder of the
corporation, dated ________, 2000.
WITNESS my hand and seal of Prism Acquisition Subsidiary, Inc. this
____ day of ________ 2000.
---------------------------
Secretary
<PAGE> 1
EXHIBIT 12(d)(2)
ROYAL BANK OF CANADA
Royal Bank Plaza
MUTUAL CONFIDENTIALITY AGREEMENT 200 Bay Street
Toronto, Ontario
M5J 2J5 Canada
(416) 974-9878
CONFIDENTIAL
as of January 31, 2000
Prism Financial Corporation
440 North Orleans
Chicago, Illinois 60610
Attention: Mark Filler
President & CEO
Dear Sirs:
Re: Confidentiality and Non-Disclosure Covenants
In connection with a possible transaction (the "Transaction") between Royal
Bank of Canada or any of its affiliates and Prism Financial Corporation
(hereinafter individually referred to as the "Party", the "Disclosing Party" or
the "Recipient Party", as the case may be, and collectively referred to as the
"Parties") the Parties are providing to each other certain information that is
non-public, confidential and/or proprietary in nature concerning their
respective business, operations and assets. In consideration of the Parties
providing such information to each other, each Party agrees, for a period of
two years from the date of this agreement, to treat any confidential
information concerning the other Party, whether prepared by or on behalf of
such Party or otherwise identified as confidential information at the time of
disclosure, in accordance with the provisions of this agreement and to take or
abstain from taking certain other actions hereinafter set forth.
1. The term "Confidential Information" includes all information of the
Disclosing Party provided under this agreement provided, however, that
it does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by the
Recipient Party, (ii) was within the Recipient Party's possession on a
non-confidential basis prior to its being provided to the Recipient
Party by or on behalf of the Disclosing Party, (iii) is or becomes
available to the Recipient party on a non-confidential basis from a
source other than the Disclosing Party or its Representatives (as
defined below) which source, to the best of the Recipient Party's
knowledge, is not prohibited from disclosing such information by a
legal, contractual or fiduciary obligation, or (iv) is independently
developed by the Recipient Party without the use of the Disclosing
Party's information.
<PAGE> 1
EXHIBIT 12(d)(3)
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (the "Agreement"), dated as of March 10,
2000, by and among Royal Bank of Canada, a Canadian commercial bank ("Parent"),
Rainbow Acquisition Subsidiary, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Acquisition"), and the Stockholders listed on Schedule I
hereto (each, a "Stockholder," and collectively, the "Stockholders") of Prism
Financial Corporation, a Delaware corporation (the "Company"). Capitalized terms
used and not defined herein have the meanings given them in the Merger
Agreement, dated as of the date hereof, by and among Parent, Acquisition and the
Company (as amended from time to time, the "Merger Agreement").
WHEREAS, concurrently herewith, Parent, Acquisition and the Company
are entering into the Merger Agreement, a copy of which in the form to be
executed has been delivered to each Stockholder, pursuant to which, among other
things, Acquisition will make a cash tender offer (the "Offer") for all of the
issued and outstanding shares of common stock, par value $.01, of the Company
(each, a "Share," and one or more, the "Shares"), and Acquisition will
subsequently be merged with and into the Company (the "Merger"), in each case
upon the terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, each Stockholder Beneficially Owns (as defined in Section
2(a)) the number of Shares set forth opposite such Stockholder's name in column
3 of Schedule I hereto; and
WHEREAS, in order to induce Parent and Acquisition to enter into the
Merger Agreement and to perform their obligations thereunder and as a condition
thereof, the Stockholders are entering into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, the parties hereby agree as follows:
SECTION 1. TENDER OF SHARES.
Each Stockholder hereby agrees to tender the Shares owned by such
Stockholder, or cause such Shares to be tendered, into the Offer promptly after
Parent causes Acquisition to commence the Offer, but in no event later than five
(5) Business Days after the date on which Stockholder receives the Offer
Documents for tendering such Shares. Each Stockholder further agrees that such
Stockholder shall not withdraw any Shares so tendered unless and until after the
Termination Date occurs. With respect to the Shares tendered pursuant to this
Section 1, each Stockholder will receive the same price per Share (but in any
event not less than $7.50 per Share) received by the other stockholders of the
Company pursuant to the Offer. For purposes of this Agreement, the "Termination
Date" shall be the first to occur of (a) the date that Acquisition terminates
the Offer in accordance with the terms of the Merger Agreement, (b) the date the
Offer expires in accordance with the terms of the Merger Agreement, or (c) the
date the Merger Agreement is terminated pursuant to Article 8 of the Merger
Agreement, in each case without such Shares being purchased by Acquisition
pursuant to the Offer.
<PAGE> 2
SECTION 2. AGREEMENT TO VOTE; IRREVOCABLE PROXY.
(a) Each Stockholder hereby agrees that during the period commencing
on the date of this Agreement and continuing until the first to occur of the
Effective Time (as defined in the Merger Agreement) or the Termination Date, at
any meeting of the holders of the Shares, however called, or in connection with
any written consent of the holders of Shares, such Stockholder shall vote (or
cause to be voted) the Shares held of record or Beneficially Owned by such
Stockholder, whether owned on the date hereof or hereafter acquired, (i) in
favor of approval of the Merger Agreement, all transactions contemplated
thereby, and any actions required in furtherance thereof and hereof (including
election of such directors of the Company as Parent is entitled to designate
pursuant to Section 1.3(a) of the Merger Agreement); (ii) against any action or
agreement that is intended, or could reasonably be expected, to impede,
interfere with, or prevent the Offer or the Merger or result in a breach in any
respect of any covenant, representation or warranty or any other obligation or
agreement of the Company or any of its subsidiaries under the Merger Agreement
or this Agreement; and (iii) except as specifically requested in writing in
advance by Parent, against any of the following actions (other than the Merger
and the transactions contemplated by the Merger Agreement and this Agreement)
that are submitted to a vote of the holders of the Shares: (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or any of its subsidiaries or affiliates; (B)
any sale, lease, transfer or disposition by the Company or any of its
subsidiaries of any assets outside the ordinary course of business or any assets
which in the aggregate are material to the Company and its subsidiaries taken as
a whole, or a reorganization, recapitalization, dissolution or liquidation of
the Company or any of its subsidiaries or affiliates; (C)(1) any change in the
present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or Bylaws; (2) any other material change in the
corporate structure or business of the Company or any of its subsidiaries; or
(3) any other action or agreement that is intended, or could reasonably be
expected, to impede, interfere with or prevent the Offer, the Merger or the
transactions contemplated by this Agreement or the Merger Agreement. None of the
Stockholders shall enter into any agreement or understanding with any Person,
the effect of which would be inconsistent with or violative of the provisions
and agreements contained in Section 1 or 2 hereof.
As used in this Agreement, the term "Beneficially Own" or
"Beneficial Ownership" with respect to any securities means having "beneficial
ownership" of such securities as determined pursuant to Rule 13d-3 under the
Exchange Act, including pursuant to any agreement, arrangement or understanding,
whether or not in writing, except that the term shall not include Shares which a
Stockholder has the right to acquire under any of the Company Stock Options
unless such Shares have been acquired upon exercise of such Company Stock
Options. Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Stockholder shall include securities
Beneficially Owned by all other Persons with whom a Stockholder would constitute
a "group" within the meaning of Section 13(d)(3) of the Exchange Act.
(b) Effective on the date that all waiting periods under the HSR Act
applicable to the acquisition of the Shares pursuant to the Offer or to Section
3 of this Agreement have been terminated or shall have expired and all
applicable approvals or notices under the Bank Act and the Bank Holding Company
Act and any other notices to or approvals, authorizations or consents
<PAGE> 3
of any other Governmental Entity (including any Agency) and to or of any
Investor required in respect thereto shall have been filed or obtained and until
the Termination Date, and in order to secure its obligations hereunder, each
Stockholder hereby grants to, and appoints James T. Rager and Robert K. Horton,
in their respective capacities as officers of Parent, and any individual who
shall hereafter succeed to any such office of Parent, and any other designee of
Parent, and each of them individually, with full power of substitution and
resubstitution, such Stockholder's true and lawful irrevocable proxy to vote
such Stockholder's Shares, or grant a consent or approval in respect of such
Stockholder's Shares, on such matters and as indicated in Section 2(a) above.
Each Stockholder (i) agrees to take such further action and execute such other
instruments as may be necessary to effectuate the intent of this proxy, (ii)
hereby represents that any proxy heretofore given in respect of the
Stockholder's Shares is not irrevocable, and (iii) hereby revokes any proxy
previously granted by such Stockholder with respect to its Shares. Each
Stockholder understands and acknowledges that Parent and Acquisition are
entering into the Merger Agreement in reliance on such Stockholder's execution
and delivery of this irrevocable proxy. Each Stockholder hereby affirms that
this irrevocable proxy is given in connection with the execution of this
Agreement and the Merger Agreement, and further affirms that this irrevocable
proxy is coupled with an interest in this Agreement for the term stated herein
and may under no circumstances be revoked prior to the Termination Date. Each
Stockholder hereby ratifies and confirms all that this irrevocable proxy may
lawfully do or cause to be done by virtue hereof. This proxy is executed and
intended to be irrevocable in accordance with the provisions of Section 212(e)
of the DGCL. This proxy shall terminate automatically on the Termination Date.
SECTION 3. GRANT OF OPTION.
(a) Subject to the terms of this Section 3, each Stockholder hereby
grants to Acquisition (or its designee), effective on the date hereof, an
irrevocable option (each, an "Option") to purchase all Shares held of record or
Beneficially Owned by such Stockholder at a purchase price per Share equal to
the Per Share Amount.
(b) Acquisition may exercise the Options, in whole, at any time and
from time to time, following the occurrence of a Purchase Event (as defined
below); provided that the Options shall expire and be of no further force and
effect upon the earliest to occur (the "Expiration Date") of (i) the Tender
Offer Purchase Time or (ii) at the close of business on the third business day
after the receipt by Parent of a Superior Proposal Notice pursuant to Section
8.1(d)(i) of the Merger Agreement or (iii) the ninetieth (90th) day after the
exercise of the Options, if the Option Closing shall not have occurred.
Notwithstanding anything herein to the contrary Acquisition, at its option, may
elect, pursuant to this Section 3(b) and Section 8.3(d) of the Merger Agreement,
either to exercise the Options or to accept payment of the Breakup Fee provided
for in Section 8.3 of the Merger Agreement, but shall not be entitled to
exercise the Options and retain the Breakup Fee. In the event Acquisition
determines to exercise the Options, Acquisition shall notify the Company of its
waiver of receipt of the Breakup Fee pursuant to the Merger Agreement.
(c) As used herein, a "Purchase Event" shall mean the receipt by
Parent of a Superior Proposal Notice pursuant to Section 8.1(d)(i) of the
Merger Agreement.
<PAGE> 4
(d) To exercise the Options, Acquisition shall, prior to the
Expiration Date, give written notice to the Stockholder who granted such Option
specifying the time for the closing (the "Option Closing") of such purchase. The
Option Closing shall be held at the office of Gibson, Dunn & Crutcher LLP, at
1050 Connecticut Avenue, N.W., Washington, DC 20036 on the date that is no later
than three business days after the date on which each of the conditions set
forth in Section 3(e) below has been satisfied or waived by Acquisition.
(e) The occurrence of the Option Closing shall be subject to the
satisfaction of each of the following conditions:
(i) to the extent necessary, all waiting periods under
the HSR Act applicable to the purchase of the Shares pursuant to
Section 3 of this Agreement have been terminated or shall have
expired and all required approvals or notices under the Bank Act and
the Bank Holding Company Act and any other notices to or approvals,
authorizations or consents of any other Governmental Entity
(including any Agency) and to or of any Investor required in respect
thereto shall have been filed or obtained; and
(ii) no preliminary or permanent injunction or other
order, decree or ruling issued by any court of governmental or
regulatory authority, domestic or foreign, of competent jurisdiction
prohibiting the exercise of an Option or the delivery of Shares
shall be in effect.
(f) At the Option Closing, (i) Acquisition (or its designee) shall
pay, by wire transfer, an amount equal to the product of (A) the Per Share
Amount and (B) the number of Shares owned by such Stockholder; and (ii) each
Stockholder whose Shares are being purchased shall deliver or shall cause to be
delivered to Acquisition a certificate or certificates evidencing such
Stockholder's Shares, and such Stockholder agrees that such Shares shall be
transferred free and clear of all liens. All such certificates representing
Shares shall be duly endorsed in blank, or with appropriate stock powers, duly
executed in blank, attached thereto, in proper form for transfer, with the
signature of such Stockholder thereon guaranteed, and with all applicable taxes
paid or provided for.
SECTION 4. AFTER-ACQUIRED SHARES.
Notwithstanding anything herein to the contrary, any Shares acquired
by such Stockholder after the date hereof, whether by exercise of Company Stock
Options, by purchase, by exchange or by inheritance or bequeath or otherwise,
shall be subject to all of the representations, warranties, covenants and
agreements of such Stockholder contained herein. In the event of a share
dividend or distribution, or any change in the Shares by reason of any share
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such share dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
<PAGE> 5
SECTION 5. OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES.
Each Stockholder, severally and not jointly, hereby represents,
warrants and covenants to Parent and Acquisition as of the date hereof and as of
the Tender Offer Purchase Time as follows:
(a) On the date hereof, such Stockholder is the record and
Beneficial Owner of the number of Shares set forth opposite such Stockholder's
name in column 3 of Schedule I hereto. On the date hereof, the Shares set forth
opposite such Stockholder's name in column 3 of Schedule I hereto constitute all
of the Shares owned of record or Beneficially Owned by such Stockholder. Such
Stockholder owns such Shares free and clear of all liens, claims, charges,
security interests, mortgages or other encumbrances, and such Shares are not
subject to any rights of first refusal, put rights, other rights to purchase or
encumber such Shares, or to any restrictions other than this Agreement as to the
encumbrance, disposition or voting of such Shares. Such Stockholder has
controlling voting power and sole power to issue instructions with respect to
the matters set forth in Section 2 hereof, sole power of disposition, sole power
of conversion, sole power to demand dissenters' rights and sole power to agree
to all of the matters set forth in this Agreement, in each case with respect to
all of the Shares set forth opposite such Stockholder's name in column 3 of
Schedule I hereto, without limitations, qualifications or restrictions on such
rights, except those arising under marital property laws or general fiduciary
principles applicable to such Stockholder.
(b) Such Stockholder has the legal capacity, power and authority to
enter into and perform all of such Stockholder's obligations under this
Agreement. The execution, delivery and performance of this Agreement by such
Stockholder will not violate any other agreement to which such Stockholder is a
party including, without limitation, any voting agreement, stockholder agreement
or voting trust. This Agreement has been duly and validly executed and delivered
by such Stockholder and, assuming the due authorization, execution and delivery
by Parent and Acquisition, constitutes a valid, legal and binding agreement of
such Stockholder, enforceable against such Stockholder in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally or by marital property
laws applicable to such Stockholder, and except as the availability of equitable
remedies may be limited by the application of general principles of equity
(regardless of whether such equitable principles are applied in a proceeding at
law or in equity). There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which such Stockholder is trustee
who is not a party to this Agreement and whose consent is required for the
execution and delivery of this Agreement or the consummation by any Stockholder
of the transactions contemplated hereby.
(c) (i) No filing with or notice to, and no permit, authorization,
consent or approval of, any Governmental Entity is necessary on the part of such
Stockholder for the execution of this Agreement by such Stockholder or the
consummation by such Stockholder of the transactions contemplated hereby; and
(ii) none of the execution, delivery or performance of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated hereby nor compliance by such Stockholder with any of the
provisions hereof will (A) result in a violation or breach of, or constitute
(with or without notice or lapse of time or
<PAGE> 6
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement, understanding or other instrument or obligation to which such
Stockholder is a party or by which such Stockholder or any of such Stockholder's
properties or assets may be bound; or (B) conflict with or violate any order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Stockholder or any of such Stockholder's properties or assets.
(d) No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by the Merger Agreement based upon arrangements made
by or on behalf of such Stockholder.
(e) Such Stockholder shall not, in its capacity as a Stockholder,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with or provide any non-public information to any
Person or group (other than Parent and Acquisition or any designees or Parent
and Acquisition) concerning any Third Party Acquisition. In addition, such
Stockholder will not, in its capacity as a Stockholder, and will instruct his
agents and affiliates not to, directly or indirectly, make or authorize any
public statement, recommendation or solicitation in support of any Acquisition
Proposal made by any Person or group (other than Parent or Acquisition).
(f) Such Stockholder shall not, directly or indirectly: (i) tender
its Shares in any tender offer or exchange offer for the Shares other than the
Offer; (ii) except as contemplated by this Agreement or the Merger Agreement,
otherwise offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
its Shares; (iii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of its Shares into a voting trust or enter into
a voting agreement with respect to any Shares; or (iv) take any action that
would make any representation or warranty of such Stockholder contained herein
untrue or incorrect or have the effect of preventing or impairing such
Stockholder from performing its obligations under this Agreement.
(g) Such Stockholder hereby acknowledges that such Stockholder has
received a true and correct copy of the Merger Agreement, that such Stockholder
has read and understands the provisions thereof (including, but not limited to,
the representations and warranties of the Company set forth in Article 3 of the
Merger Agreement (the "Company's Representations and Warranties"). Such
Stockholder acknowledges that it shall be responsible for indemnifying,
reimbursing and holding harmless the Parent Indemnitees (as defined in Section
10(a) below) for breaches of the Company's Representations and Warranties to the
extent provided in Section 10 notwithstanding the expiration of the Company's
Representations and Warranties pursuant to the Merger Agreement.
(h) Such Stockholder understands and acknowledges that Parent and
Acquisition are relying upon the foregoing representations, warranties and
covenants by such Stockholder, and on such Stockholder's execution and delivery
of this Agreement in entering into the Merger Agreement.
<PAGE> 7
SECTION 6. CONDITIONS TO OBLIGATIONS OF PARENT AND ACQUISITION.
Such Stockholder acknowledges and agrees that the obligations of
Parent and Acquisition to consummate the Offer and the Merger are subject to the
satisfaction of the following conditions: (i) each of the conditions set forth
in the Merger Agreement and (ii) compliance by such Stockholder with the
provisions of Section 1 of this Agreement.
SECTION 7. FURTHER ASSURANCES.
From time to time, at Parent's request and without further
consideration, each Stockholder agrees to execute and deliver such additional
documents and take all such further lawful action as may be necessary or
desirable to consummate and make effective, and to cause the Company to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement.
SECTION 8. STOP TRANSFER; FORM OF LEGEND.
Each Stockholder agrees and covenants to Parent that such
Stockholder shall not (a) transfer or encumber or agree to transfer or encumber
any of such Stockholder's Shares prior to the Effective Time or (b) request that
the Company register the transfer (book-entry or otherwise) of any certificate
or uncertificated interest representing any of such Stockholder's Shares, in
either case without the consent of the Parent. If reasonably requested by
Parent, any certificates representing the Stockholders' Shares shall contain the
following legend:
"The securities represented by this certificate are
subject to certain restrictions on transfer and other
terms of a Stockholders' Agreement, dated as of March
10, 2000, among Royal Bank of Canada, Rainbow
Acquisition Subsidiary, Inc., and the parties listed on
the signature pages thereto, a copy of which is on file
in the principal office of Royal Bank of Canada."
SECTION 9. ESCROW ACCOUNT.
At the Tender Offer Purchase Time, Acquisition shall deposit, out of
funds otherwise owing to each Stockholder in respect of the Per Share Amount
immediately upon payment thereof, an amount equal to the product of (a) Seven
Million Five Hundred Thousand Dollars ($7,500,000) multiplied by (b) the
Indemnification Percentage set forth opposite such Stockholder's name in column
4 of Schedule I (with respect to each Stockholder, such Stockholder's
"Indemnification Percentage") in immediately available funds by a wire transfer
to an interest-bearing account (the "Escrow Account") designated by the escrow
agent (the "Escrow Agent") pursuant to an Escrow Agreement, substantially in the
form attached hereto as Exhibit A, to be executed by Parent, each Stockholder
and such Escrow Agent (the "Escrow Agreement"), to be held pursuant to the terms
and conditions hereof and thereof. Each of the parties agrees that (i) the
amounts so deposited in the Escrow Account constitute contingent purchase price
the fair market value of which cannot reasonably be ascertained until the
termination of the Escrow Agreement and (ii) for income tax purposes each
Stockholder's amount realized from the sale of its Shares shall not include
amounts deposited in the Escrow Account but shall include amounts (other than
earnings on amounts held in the Escrow Account)
<PAGE> 8
paid from the Escrow Account to such Stockholder (which amounts shall be
treated as realized by the Stockholder in his tax year in which such payment is
received). No party shall take a position that is inconsistent with the previous
sentence in any Tax Return, audit or other proceeding.
SECTION 10. INDEMNIFICATION.
(a) After the Tender Offer Purchase Time, subject to the limitations
set forth in this Section 10, the Parent and its affiliates (collectively, the
"Parent Indemnitees") shall each be indemnified and reimbursed and held harmless
to the extent set forth in this Section 10 by each of the Stockholders severally
in respect of any and all damages, losses, costs, expenses, liabilities,
judgments, awards, fines, sanctions, penalties, claims, charges and amounts paid
in settlement, including, without limitation, the reasonable costs, fees and
expenses of attorneys, accountants and other agents and representatives, in each
case net of any proceeds of insurance policies received by such Parent
Indemnitee in connection therewith ("Damages") incurred by any Parent Indemnitee
as a result of any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement of such Stockholder in this
Agreement.
(b) After the Tender Offer Purchase Time, subject to the limitations
set forth in this Section 10, each Parent Indemnitee shall be indemnified and
reimbursed and held harmless to the extent set forth in this Section 10 by the
Stockholders in respect of any and all Damages incurred by any Parent Indemnitee
as a result of (i) any inaccuracy or misrepresentation in or breach of any of
the Company's Representations and Warranties, or (ii) whether or not resulting
from any inaccuracy or misrepresentation in or breach of any of the Company's
Representations and Warranties, (A) any fines, orders, judgments or penalties
imposed on the Company or any of its subsidiaries as a result of any violation
of any law or regulation by the Company or any of its subsidiaries prior to the
Effective Time other than any of the foregoing related to the matters set forth
on Schedule II, (B) the matters set forth in Schedule II or (C) to the extent
that an additional payment is due under the agreement listed on Schedule III to
this Agreement solely as a result of the transactions contemplated by the Merger
Agreement.
(c) Any indemnification of the Parent Indemnitees shall be limited
to and effected solely by disbursement from the Escrow Account in accordance
with the terms and subject to the conditions contained in the Escrow Agreement.
Payments of indemnification from such Escrow Account shall be deemed to be made
first from the principal or corpus of the Escrow Account and thereafter from the
accumulated earnings, if any, on funds held in the Escrow Account. For the
avoidance of doubt, the sole recourse of any Parent Indemnitee for any breach of
any representation or warranty by any Stockholder hereunder or pursuant to
paragraph (b) above shall be limited to the actual funds deposited by such
Stockholder in the Escrow Account and any interest thereon.
(d) With respect to Damages incurred by Parent Indemnitees pursuant
to (a) Section 10(a) above, Parent shall only be entitled to make a claim
against the funds deposited in the Escrow Account (and accumulated earnings
thereon) by the Stockholder responsible for the breach or (b) Section 10(b)
above, Parent shall be entitled to make a claim against all funds deposited in
the Escrow Account (including accumulated earnings thereon) by all Stockholders
and the obligation to indemnify, reimburse and hold harmless the Parent
Indemnitees with
<PAGE> 9
respect to such Damages shall be allocated among the Stockholders on the
basis of their Stockholders' Indemnification Percentage.
(e) If any Parent Indemnitee shall believe that such Parent
Indemnitee is entitled to indemnification pursuant to this Section 10 in respect
of any Damages, such Parent Indemnitee shall give to the Escrow Agent and to
each relevant Stockholder or to all Stockholders, as the case may be, written
notice thereof in such form and manner specified in the Escrow Agreement. The
failure of such Parent Indemnitee to give notice of any claim for
indemnification promptly shall not adversely affect such Parent Indemnitee's
right to indemnity hereunder except to the extent the relevant Stockholder or
the Stockholders are prejudiced by such failure. All such claims for
indemnification must be made not later than midnight on the date that is one
year after the Tender Offer Purchase Time.
(f) For purposes of determining the breach of any of the Company's
Representations or Warranties and the amount of Damages for which
indemnification shall be available hereunder, (i) references to "Material
Adverse Effect" and "material" (and other forms of materiality qualifiers) in
the Company's Representations and Warranties shall not be applicable and (ii)
each of the Company's Representations and Warranties shall be deemed to have
been made as of the date of this Agreement and as of the Tender Offer Purchase
Time, except to the extent any of the Company's Representations and Warranties
is expressly made as of a specific date, in which case it shall be deemed to
have been made as of the date specified.
(g) Notwithstanding any other provision of this Section 10, (i) no
Parent Indemnitee shall be entitled to make a claim under Section 10(a) or
clause (i) of Section 10(b) against any Stockholder in respect of Damages unless
the aggregate amount of all Damages incurred by the Parent Indemnitees for which
the Stockholders would but for this Section 10(g), be liable exceeds, on a
cumulative basis $500,000, in which case the Stockholders shall be liable for
all such Damages that exceed such amount and such Parent Indemnitee may assert
its right to indemnification hereunder to the full extent of such excess,
subject to Section 10(d); and (ii) no Parent Indemnitee shall be entitled to
make a claim under Section 10(b)(ii)(B) against any Stockholder in respect of
Damages unless the aggregate amount of all Damages incurred by the Parent
Indemnitees for which the Stockholders would but for this Section 10(g), be
liable exceeds, on a cumulative basis $500,000, in which case the Stockholders
shall be liable for all such Damages that exceed such amount, provided that, for
purposes of calculating Damages under this clause (ii), only 60% of actual
Damages shall be included as Damages subject to Section 10(d).
(h) Parent Indemnitees shall, in good faith, defend against any
claim, suit or proceeding that could result in a claim for Damages under this
Section 10 and shall use reasonable efforts to minimize the extent of such
Damages. No Parent Indemnitee shall settle any claim, suit or proceeding without
the consent of each indemnifying Stockholder, which consent shall not be
unreasonably be held; provided that the Parent Indemnitee need not obtain the
consent of any Stockholder who denies any indemnification obligation with
respect to such claim, suit or proceeding.
(i) If Parent or any director, officer, employee, counsel,
accountant, advisor or other representative of Parent has obtained, prior to the
date of this Agreement, actual knowledge of
<PAGE> 10
any information relevant to the accuracy of the representations and
warranties of any Stockholder or the Company's Representations and Warranties,
then for purposes of this Section 10, such information shall be deemed to have
been contained in the applicable representation and warranty such Stockholder as
of the date of this Agreement and to have been disclosed by the Company in the
Company Disclosure Schedule.
SECTION 11. TERMINATION; SURVIVAL.
The representations, warranties, covenants and agreements contained
herein with respect to the Shares shall terminate on and shall not survive the
Termination Date. Notwithstanding the foregoing, if the Tender Offer Purchase
Time shall have occurred, the representations and warranties of the
Stockholders, the Company's Representations and Warranties (solely for purposes
of Section 10 hereof) and the provisions of Sections 9, 10 and 13 of this
Agreement shall be deemed to survive for a period of one year after the Tender
Offer Purchase Time.
SECTION 12. STOCKHOLDER CAPACITY.
No Person executing this Agreement who is or becomes during the term
hereof a director or executive officer of the Company makes any agreement or
understanding herein in his or her capacity as such director or executive
officer. Each Stockholder signs solely in its capacity as the record and/or
Beneficial Owner of its Shares.
SECTION 13. DISPUTE RESOLUTION.
(a) Any dispute or difference between any one or more Stockholders,
on the one hand, and Parent or Acquisition, on the other hand, arising out of
this Agreement or the transactions contemplated hereby or by the Merger
Agreement, including, without limitation, any dispute between a Parent
Indemnitee and any one or more Stockholders under Section 10 but excluding any
suit for specific performance as provided in Section 14(l), which the parties
are unable to resolve themselves shall be submitted to and resolved by
arbitration as provided herein. Any disputing party may request the American
Arbitration Association (the "AAA") to designate one arbitrator, who shall be
qualified as an arbitrator under the standards of the AAA, who shall be a
retired or former judge of any appellate or trial court of the State of
Illinois, any United States appellate court or the United States District Court
for any Illinois District, who is, in any such case, not affiliated with any
party in interest to such arbitration, and who has substantial professional
experience with regard to legal matters.
(b) The arbitrator shall consider the dispute at issue in Chicago,
Illinois at a mutually agreed upon time within 60 calendar days (or such longer
period as may be acceptable to the parties to the arbitration or as directed by
the arbitrator) after the designation of the arbitrator. The arbitration
proceeding shall be held in accordance with the rules for commercial arbitration
of the AAA in effect on the date of the initial request by the disputing party
that gave rise to the dispute to be arbitrated (as such rules are modified by
the terms of this Agreement or may be further modified by mutual agreement of
the disputing parties) and shall include an opportunity for the parties to
conduct discovery in advance of the proceeding. Notwithstanding the foregoing,
the disputing parties shall agree that they will attempt, and they intend that
they and the arbitrator should use its best efforts in that attempt, to conclude
the arbitration proceeding
<PAGE> 11
and have a final decision from the arbitrator within 120 calendar days
after the designation of the arbitrator; provided, however, that the arbitrator
shall be entitled to extend such 120 calendar day period for a total of two 120
calendar day periods. The arbitrator shall deliver a written award with respect
to the dispute to each of the parties to the arbitration, who shall promptly act
in accordance therewith. Each party to such arbitration agrees that any award of
the arbitrator shall be final, conclusive and binding and that it will not
contest any action by any other party thereto in accordance with the award of
the arbitrator. It is specifically understood and agreed that any party may
enforce any award rendered pursuant to the arbitration provisions of this
Section 13 by bringing suit in any court of competent jurisdiction.
SECTION 14. MISCELLANEOUS.
(a) This Agreement and the Merger Agreement constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof. This Agreement
may not be assigned by any Stockholder except in connection with a transfer of
its Shares. Parent or Acquisition may assign, in its sole discretion, its rights
and obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent.
(b) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party.
(c) The failure of any party hereto to exercise any right, power or
remedy provided under this Agreement or otherwise available in respect hereof at
law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(d) This Agreement may not be amended, changed, supplemented, waived
or otherwise modified or terminated, with respect to any Stockholder, except
upon the execution and delivery of a written agreement executed by Parent,
Acquisition and such Stockholder; provided that Schedule I hereto may be
supplemented by Parent by adding the name and other relevant information
concerning any Stockholder of the Company who agrees to be bound by the terms of
this Agreement (by executing a counterpart signature page hereof) without the
agreement of any other party hereto, and thereafter such added Stockholder shall
be treated as a "Stockholder" for all purposes of this Agreement.
(g) If any provision of this Agreement or the application thereof to
any Person or circumstance is held invalid or unenforceable, the remainder of
this Agreement and the application of such provision to other Persons or
circumstances shall not be affected thereby and to such end the provisions of
this Agreement are agreed to be severable.
(h) All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by
<PAGE> 12
delivery in Person, by facsimile or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
if to any Stockholder: At the address set forth
opposite such Stockholder's
name in column 2 of
Schedule I hereto.
if to Parent or Acquisition: 200 Bay Street
14th Floor, North Tower
Toronto, Ontario, Canada
Telecopier: 416-974-9344
Attention: Robert K. Horton
with a copies to: RBC Head Office Law Department
1 Place Ville Marie
4th Floor, East Wing
Montreal, Quebec
M5J2J5 Canada
Telecopier: (514) 874-0241
Attention: Sarah J. Azzarello
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Telecopier: 212-351-4035
Attention: Lawrence J. Hohlt,
Esq.
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(i) This Agreement shall be governed and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws thereof.
(j) The descriptive headings used herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
(k) Each Stockholder agrees that this Agreement and the obligations
hereunder shall attach to such Stockholder's Shares and shall be binding upon
any Person to which record or Beneficial Ownership of such Shares shall pass,
whether by operation of law or otherwise, including, without limitation, such
Stockholder's heirs, guardians, administrators or successors. Notwithstanding
any transfer of Shares, the transferor shall remain liable for the performance
of all obligations of the transferor under this Agreement. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto and its
successors and permitted assigns and nothing in this Agreement express or
implied is intended to or shall confer upon any other Person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
(l) Each of the Stockholders hereby acknowledges and agrees that its
failure to perform its agreements and covenants hereunder will cause irreparable
injury to Parent
<PAGE> 13
and Acquisition for which damages, even if available, will not be an adequate
remedy. Accordingly, each Stockholder hereby consents to the issuance of
injunctive relief by any court of competent jurisdiction to compel performance
of such Stockholder's obligations and to the granting by any court of the remedy
of specific performance of its obligations hereunder.
(m) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
<PAGE> 14
IN WITNESS WHEREOF, Parent and Acquisition have caused this
Stockholders' Agreement to be duly executed, and each Stockholder has duly
executed this Agreement, as of the day and year first above written.
ROYAL BANK OF CANADA
By: /s/ ROBERT K. HORTON
-------------------------------
Name: Robert K. Horton
Title: Senior Vice President
RAINBOW ACQUISITION
SUBSIDIARY, INC.
By: /s/ ROBERT K. HORTON
-------------------------------
Name: Robert K. Horton
Title: Senior Vice President
STOCKHOLDERS
/s/ MARK A. FILLER
-------------------------------------
Mark A. Filler, individually and as
controlling general partner of Filler
Growth and Retention Fund I L.P.
/s/ TERRY A. MARKUS
-------------------------------------
Terry A. Markus, individually and as
controlling general partner of Markus
Growth and Retention Fund I L.P.
ESTATE OF BRUCE C. ABRAMS
By: /s/ NANCY C. ABRAMS
--------------------------
Nancy C. Abrams, Executor
<PAGE> 15
SCHEDULE I
<TABLE>
<CAPTION>
column 1 column 2 column 3 column 4
NUMBER OF SHARES INDEMNIFICATION
STOCKHOLDER ADDRESS OWNED PERCENTAGE
_____________________ ________________________ ________________________ ________________________
<S> <C> <C> <C>
Mark A. Filler, 226 Prospect 1,966,671 20%
individually and Highland Park,
as controlling general Illinois 60035
partner of Filler
Growth and Retention
Fund I L.P.
Terry A. Markus, 3448 Dauphine Avenue 1,673,150 18%
individually and as Northbrook, Illinois 60062
controlling general
partner of Markus
Growth and Retention
Fund I L.P.
Estate of Bruce C. c/o Louis S. Harrison 5,503,745 62%
Abrams Lord, Bissell & Brook
115 South LaSalle
Chicago, Illinois 60603
</TABLE>
<PAGE> 16
[Schedules II and III intentionally ommitted. Such schedules will be supplied
supplementally to the Securities and Exchange Commission upon its request.]
<PAGE> 17
EXHIBIT A
FORM OF ESCROW AGREEMENT
A-1
<PAGE> 18
FORM OF
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement") is entered into this ___ day of
___________ 2000 by and among the individuals named on SCHEDULE A hereto
(each a "Stockholder," and collectively, the "Stockholders"), Royal Bank of
Canada, a Canadian commercial bank ("RBC"), and
__________________________________________ (the "Escrow Agent").
RECITALS
WHEREAS, pursuant to a Merger Agreement dated as of March 10, 2000 (the
"Merger Agreement"), among RBC, Rainbow Acquisition Subsidiary, Inc., a Delaware
corporation and a wholly owned, indirect subsidiary of RBC ("Acquisition"), and
Prism Financial Corporation, a Delaware corporation (the "Company"), Acquisition
will merge with and into the Company, with the Company as the surviving
corporation; and
WHEREAS, as a condition of and inducement to Parent's and Acquisition's
entering into the Merger Agreement and incurring the obligations set forth
therein, the Stockholders have entered into a stockholders' agreement dated as
of March 10, 2000 (the "Stockholders' Agreement"), pursuant to which, among
other things, the Stockholders will indemnify, reimburse and hold harmless RBC
and its affiliates (the "RBC Indemnitees") against Damages (as defined in the
Stockholders' Agreement) incurred by such RBC Indemnitees under the
circumstances, and subject to the limitations, set forth in the Stockholders'
Agreement and this Agreement (the "Indemnity Obligations").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants, terms and conditions set forth in this Agreement, the parties hereto
agree as follows:
1. Appointment of the Escrow Agent; Deposit of Escrow Amount. The
Stockholders and RBC hereby constitute and appoint the Escrow Agent as, and the
Escrow Agent hereby agrees to assume and perform the duties of, the escrow agent
under and pursuant to this Agreement. The Escrow Agent acknowledges receipt of
an executed copy of the Stockholders' Agreement and the amount set forth
opposite each Stockholder's name under the "Initial Escrow Deposit" column of
Schedule A hereto (with respect to each Stockholder, such Stockholder's "Initial
Escrow Deposit") from or on behalf of the Stockholders as provided in Section 9
of the Stockholders' Agreement. The aggregate amount of the Initial Escrow
Deposits of all Stockholders is equal to Seven Million Five Hundred Thousand
Dollars ($7,500,000) (the "Escrow Amount").
2. The Escrow Fund. The Escrow Amount and all earnings thereon (the
Escrow Amount and all such earnings being referred to herein together as the
"Escrow Fund") shall be held by the Escrow Agent as a trust fund in a separate
account maintained for the purpose, on the terms and subject to the conditions
of this Agreement. Except as otherwise provided in Section 10 hereof, amounts
held in the Escrow Fund shall not be available to, and shall not be
1
<PAGE> 19
used by, the Escrow Agent to set off any obligations of either RBC or the
Stockholders owing to the Escrow Agent in any capacity.
3. Investment of the Escrow Fund; Taxes.
(a) Investment of the Escrow Fund. The Escrow Agent shall invest
and reinvest all cash funds held from time to time in the Escrow Fund in
any one or more of the following kinds of investments: (i) bonds or other
obligations of, or guaranteed by, the government of the United States of America
having maturities of not greater than thirty (30) days (and, in any event, not
maturing after the Release Date); (ii) commercial paper rated, at the time of
the Escrow Agent's investment therein or contractual commitment providing for
such investment, at least P-1 by Moody's Investors Service, Inc. and A-1 by
Standard & Poor's Corporation and having maturities of not greater than thirty
(30) days (and, in any event, not maturing after the Release Date); (iii)
corporate obligations rated, at the time of the Escrow Agent's investment
therein or contractual commitment providing for such investment, among the two
highest ratings by any nationally recognized statistical ratings organization
and having maturities of not greater than 180 days; (iv) demand or time deposits
in, certificates of deposit of, or bankers' acceptances issued by, a depository
institution or trust company incorporated under the laws of the United States of
America or any State thereof if, in any such case, the depository institution
or, trust company has combined capital and surplus of not less than One Hundred
Million Dollars ($100 million) (any such institution being herein called a
"Permitted Bank"), having maturities of not greater than thirty (30) days (and,
in any event, not maturing after the Release Date); or (v) a Money Market
Account at the Escrow Agent, fully insured up to the maximum extent permitted by
law by the Federal Deposit Insurance Corporation.
(b) Taxes; Back-up Withholding. Each of the Stockholders and RBC
acknowledges that the payment of any interest earned on funds invested in
the Escrow Fund will be subject to back-up withholding unless a properly
completed Internal Revenue Service Form W-8 or W-9 certification is submitted to
the Escrow Agent. All taxes in respect of earnings on the Escrow Fund shall be
the obligation of and shall be paid when due by, the Stockholders, who shall
indemnify and hold RBC and the Escrow Agent harmless from and against all such
taxes.
4. Claims Against the Escrow Fund.
(a) Concurrently with the delivery of a written notification to the
relevant Stockholder of a claim for indemnity under Section 10(a) of the
Stockholders' Agreement (or, in the case of a claim for indemnity under Section
10(b) of the Stockholders' Agreement, to each of the Stockholders), RBC will
deliver to the relevant Stockholder or to each of the Stockholders, as the case
may be, and the Escrow Agent a certificate in substantially the form of ANNEX I
attached hereto (a "Certificate of Instruction"). The Escrow Agent shall give
written notice to the relevant Stockholder or to each of the Stockholders, as
the case may be, of its receipt of a Certificate of Instruction not later than
the second (2nd) business day next following receipt thereof, together with a
copy of such Certificate of Instruction.
(b) If the Escrow Agent (i) shall not, within thirty (30) calendar
days following receipt by the relevant Stockholders of a Certificate of
Instruction (the "Objection Period"), have received a certificate in
substantially the form of ANNEX II attached hereto (an "Objection Certificate")
signed by the relevant Stockholder with respect to a claim for indemnification
under Section 10(a) of the Stockholders' Agreement or any of the Stockholders
2
<PAGE> 20
with respect to a claim for indemnification under Section 10(b) of the
Stockholders' Agreement, as the case may be, disputing the relevant
Stockholder's or the Stockholders', as the case may be, obligation to pay the
amount of the Damages referred to in such Certificate of Instruction, or (ii)
shall have received such an Objection Certificate within the Objection Period
and shall thereafter have received either (x) a certificate substantially in the
form of ANNEX III attached hereto (a "Resolution Certificate") signed by RBC and
the relevant Stockholder or each of the Stockholders, as the case may be,
stating that RBC and the relevant Stockholder or Stockholders, as the case may
be, have agreed that the amount of the Damages referred to in such Resolution
Certificate is payable to one or more of the RBC Indemnitees or (y) a copy of
the final award rendered by the arbitrator pursuant to Section 13 of the
Stockholders' Agreement accompanied by a certificate substantially in the form
of ANNEX IV attached hereto (an "Arbitration Certificate") signed by RBC stating
that the amount of the Damages referred to in such Arbitration Certificate is
payable to one or more of the RBC Indemnitees by the relevant Stockholder or the
Stockholders, as the case may be, then the Escrow Agent shall, subject to
Section 5, on the tenth (10th) business day next following (A) the expiration of
the Objection Period or (B) the Escrow Agent's receipt of a Resolution
Certificate or an Arbitration Certificate, as the case may be, (or as soon
thereafter as the appropriate amount of funds in the Escrow Account may be
withdrawn from investments made pursuant to Section 3(a) without penalty) pay
over to RBC from the Escrow Fund, by wire transfer of immediately available
funds to a bank account of RBC's designation, the amount set forth in the
Certificate of Instruction or, if the related Resolution Certificate or
Arbitration Certificate specifies that a lesser amount than the amount set forth
in the Certificate of Instruction is payable, such lesser amount.
(c) Any certificate or notice to be delivered to the Escrow
Agent pursuant to paragraph (b) by RBC or any of the Stockholders shall
be concurrently delivered to the relevant Stockholder or to each of the other
Stockholders, as the case may be, or RBC, respectively. The Escrow Agent shall
give written notice to RBC and each Stockholder of its receipt of an Objection
Certificate not later than the second (2nd) business day next following receipt
thereof, together with a copy of such Objection Certificate. The Escrow Agent
shall give written notice to the relevant Stockholder or to each of the
Stockholders, as the case may be, of its receipt of an Arbitration Certificate
not later than the second (2nd) business day next following receipt thereof,
together with a copy of such Arbitration Certificate.
(d) Upon RBC's determination that it has no claim or has
released its claim with respect to any Damages referred to in a
Certificate of Instruction (or a specified portion thereof), RBC will promptly
deliver to the relevant Stockholder or to each of the Stockholders, as the case
may be, and to the Escrow Agent a certificate substantially in the form of ANNEX
V attached hereto (an "RBC Cancellation Certificate") canceling such Certificate
of Instruction (or such specified portion thereof, as the case may be), and such
Certificate of Instruction (or portion thereof) shall thereupon be deemed
canceled. The Escrow Agent shall give written notice to the relevant Stockholder
or to each of the Stockholders, as the case may be, of its receipt of an RBC
Cancellation Certificate not later than the second (2nd) business day next
following receipt thereof, together with a copy of such RBC Cancellation
Certificate.
(e) Upon receipt of a copy of the final award rendered by the
arbitrator pursuant to Section 13 of the Stockholders' Agreement stating
that none of the Damages referred to in a Certificate of Instruction as to which
the relevant Stockholder or the Stockholders, as the case may be, delivered an
Objection Certificate within the Objection Period is payable to any
3
<PAGE> 21
RBC Indemnitee by the relevant Stockholder or the Stockholders, as the
case may be, will promptly deliver to RBC and the Escrow Agent a copy of such
order (accompanied by a certificate substantially in the form of ANNEX VI
attached hereto (a "Stockholder Cancellation Certificate")) signed by, the
relevant Stockholder or each of the Stockholders, as the case may be, canceling
such Certificate of Instruction, and such Certificate of Instruction shall
thereupon be deemed canceled. The Escrow Agent shall give written notice to RBC
of its receipt of a Stockholder Cancellation Certificate not later than the
second (2nd) business day next following receipt thereof, together with a copy
of such Stockholder Cancellation Certificate.
(f) Upon the payment by the Escrow Agent of the amount referred
to in a Certificate of Instruction, Resolution Certificate or Arbitration
Certificate (or a lesser amount pursuant to Section 5(e)), such Certificate of
Instruction, Resolution Certificate or Arbitration Certificate, as the case may
be, shall be deemed canceled. Upon the receipt by the Escrow Agent of a
Resolution Certificate, an Arbitration Certificate, an RBC Cancellation
Certificate or a Stockholder Cancellation Certificate, the related Certificate
of Instruction shall be deemed canceled.
5. Allocation of Damages to and among Stockholders.
(a) The Escrow Agent shall establish and maintain separate books
of account with respect to each Stockholder's Initial Escrow Deposit, all
earnings thereon, all payments in respect of Damages allocated to such
Stockholder pursuant to Section 10(a) of the Stockholders' Agreement and all
payments in respect of Damages allocated to such Stockholder pursuant to Section
10(b) of the Stockholders' Agreement in proportion to such Stockholder's
Indemnification Percentage, all as if the portion of the Escrow Fund
attributable to such Stockholder were held in a separate account. At the request
of any Stockholder, the Escrow Agent shall promptly provide such Stockholder
with a statement showing all deposits, earning and disbursements of funds
attributable to such Stockholder and the balance of the funds held in the Escrow
Account attributable to such Stockholder.
(b) Any Damages paid by the Escrow Agent pursuant to any
Certificate of Instruction, Resolution Certificate or Arbitration
Certificate shall be allocated entirely to a Stockholder or allocated among all
Stockholders in accordance with their respective Indemnification Percentages as
indicated in the Certificate of Instruction, Resolution Certificate or
Arbitration Certificate as the case may be. In making any allocation in
accordance with a Certificate of Instruction, Resolution Certificate or
Arbitration Certificate, the amount allocated to any Stockholder shall be equal
to (i) in the case of Damages allocated entirely to such Stockholder pursuant to
Section 10(a) of the Stockholders' Agreement, the lesser of (x) the amount of
the Damages set forth in the Certificate of Instruction, Resolution Certificate
or Arbitration Certificate, as the case may be, and (y) the balance of the funds
held in the Escrow Account attributable to such Stockholder as determined by the
books of account maintained by the Escrow Agent pursuant to clause (a); and (ii)
in the case of Damages allocated among the Stockholders in accordance with their
respective Indemnification Percentages pursuant to Section 10(b) of the
Stockholders' Agreement, the lesser of (x) the amount of the Damages set forth
in the Certificate of Instruction, Resolution Certificate or Arbitration
Certificate, as the case may be, multiplied by such Stockholder's
Indemnification Percentage and (y) the balance of the funds held in the Escrow
Account attributable to such Stockholder as determined by the books of account
maintained by the Escrow Agent pursuant to clause (a).
4
<PAGE> 22
(c) In the event that the Escrow Agent determines, based on the
books of account maintained by the Escrow Agent pursuant to clause (a),
that the balance of the funds held in the Escrow Account attributable to any
Stockholder equals zero, the Escrow Agent shall promptly deliver to RBC and to
such Stockholder a notice substantially in the form of ANNEX VII attached hereto
(the "Zero Balance Notice") signed by the Escrow Agent stating that the balance
of the funds held in the Escrow Account attributable to any Stockholder equals
zero. From and after the receipt by RBC of a Zero Balance Notice with respect to
any Stockholder, neither RBC nor any other RBC Indemnitee shall assert any claim
for indemnification or Damages against such Stockholder and, notwithstanding any
other provision of this Agreement or of the Stockholders' Agreement, the
Indemnification Obligation of such Stockholder shall terminate.
6. Release of Escrow Fund. The Escrow Agent shall pay over to each of the
Stockholders from the Escrow Fund, by wire transfer of immediately available
funds to a bank account designated by each of the Stockholders, the amount of
any funds remaining in the Escrow Fund upon the earlier to occur of:
(a) the termination of the Indemnification Obligation pursuant
to Section 10(e) of the Stockholders' Agreement (the "Release Date"); or
(b) the receipt by the Escrow Agent of a certificate
substantially in the form of ANNEX VIII attached hereto (a "Release
Certificate") signed by RBC and each of the Stockholders stating that no
further claims shall be made against the Escrow Fund in respect of the Indemnity
Obligation.
7. Termination. This Agreement shall terminate upon distribution of
all of the Escrow Fund pursuant to Section 5 or 6.
8. Duties and Obligations of the Escrow Agent. The duties and obligations
of the Escrow Agent shall be limited to and determined solely by the provisions
of this Agreement and the certificates delivered in accordance herewith and the
Escrow Agent is not charged with knowledge of or any duties or responsibilities
in respect of any other agreement or document. In furtherance and not in
limitation of the foregoing:
(a) No Liability with Respect to Investments. The Escrow Agent
shall not be liable for any loss of earning sustained as a result of
investments made hereunder in accordance with the terms hereof;
(b) Reliance on Certificates. The Escrow Agent shall be fully
protected in relying in good faith upon any written certification,
notice, direction, request, waiver, consent, receipt or other document that the
Escrow Agent reasonably believes to be genuine and duly authorized, executed and
noticed as provided herein;
(c) Limited Liability for Certain Actions. The Escrow Agent
shall not be liable for any error of judgment or calculation (including
any calculations made pursuant to Section 5 of this Agreement), or for any act
done or omitted by it, or for any mistake in fact or law, or for anything that
it may do or refrain from doing in connection herewith; provided, however, that
notwithstanding any other provision in this Agreement, the Escrow Agent shall be
liable for its willful misconduct or gross negligence or breach of this
Agreement;
5
<PAGE> 23
(d) Reliance on Advice of Counsel. The Escrow Agent may seek the
advice of legal counsel selected with reasonable care in the event of any
dispute or question as to the construction of any of the provisions of this
Agreement or its duties hereunder, and it shall incur no liability and shall be
fully protected in respect of any action taken, omitted or suffered by it in
good faith in accordance with the opinion of such counsel;
(e) Refraining from Action. In the event that the Escrow Agent
shall in any instance, after seeking the advice of legal counsel pursuant
to the immediately preceding clause, in good faith be uncertain as to its duties
or rights hereunder, it shall be entitled to refrain from taking any action in
that instance and its sole obligation, in addition to those of its duties
hereunder as to which there is no such uncertainty, shall be to keep safely all
property held in the Escrow Fund until it shall be directed otherwise in writing
by each of the parties hereto or by the final award rendered by the arbitrator
pursuant to Section 13 of the Stockholders' Agreement; provided, however, in the
event that the Escrow Agent has not received such written direction or order
within 180 calendar days after requesting the same, it shall have the right to
interplead RBC and the Stockholders in any court of competent jurisdiction and
request that such court determine its rights and duties hereunder; and
(f) Acting though Agents. The Escrow Agent may execute any of
its powers or responsibilities hereunder and exercise any rights
hereunder either directly or by or through agents or attorneys selected with
reasonable care. Nothing in this Agreement shall be deemed to impose upon the
Escrow Agent any duty to qualify to do business or to act as fiduciary or
otherwise in any jurisdiction other than the Escrow Agent's primary place of
business and the Escrow Agent shall not be responsible for and shall not be
under a duty to examine into or pass upon the validity, binding effect,
execution or sufficiency of this Agreement or of any amendment or supplement
hereto.
9. Cooperation. RBC and the Stockholders shall provide to the Escrow
Agent all certificates, instruments and other documents within their respective
powers that are necessary for the Escrow Agent to perform its duties and
responsibilities hereunder.
10. Fees and Expenses; Indemnity. RBC shall pay all of the fees (as set
forth on the Fee Schedule attached hereto as SCHEDULE B) of the Escrow Agent for
its services hereunder as and when billed by the Escrow Agent, and each shall
reimburse and indemnify the Escrow Agent for, and hold it harmless against, any
loss, damages, cost or expense, including but not limited to reasonable
attorneys' fees, reasonably incurred by the Escrow Agent in connection with the
Escrow Agent's performance of its duties and obligations under this Agreement,
as well as the reasonable costs and expenses of defending against any claim or
liability relating to this Agreement; provided that notwithstanding the
foregoing, RBC shall not be required to indemnify the Escrow Agent for any such
loss, liability, cost or expense arising as a result of the Escrow Agent's
willful misconduct or gross negligence or breach of this Agreement. Any such
fees, expenses or indemnification obligations of RBC shall be paid directly to
the Escrow Agent by RBC and shall not be paid out of the Escrow Fund; provided,
however, that the Escrow Agent shall be entitled to withhold from any amount
payable to RBC pursuant to Section 5 the amount of any such fees, expenses or
indemnity payments due and unpaid by RBC.
11. Resignation and Removal of the Escrow Agent.
6
<PAGE> 24
(a) Resignation or Removal. The resignation of the Escrow Agent
shall be effective as such 30 days following the giving of written notice
thereof to the Stockholders and RBC. In addition, the Escrow Agent may be
removed and replaced on a date designated in a written instrument signed by a
majority-in-interest of the Stockholders (or their authorized representative or
attorney-in-fact) and RBC and delivered to the Escrow Agent. Notwithstanding the
foregoing, no such resignation or removal shall be effective until a successor
escrow agent has acknowledged its appointment as such as provided in paragraph
(c) below. In either event, upon the effective date of such resignation or
removal, the Escrow Agent shall deliver the property comprising the Escrow Fund
to such successor escrow agent, together with such records maintained by the
Escrow Agent in connection with its duties hereunder and other information with
respect to the Escrow Fund as such successor may reasonably request.
(b) Appointment of Successor Escrow Agent. If a successor
escrow agent shall not have acknowledged its appointment as such as
provided in paragraph (c) below, in the case of a resignation, prior to the
expiration of thirty (30) days following the date of a notice of resignation or,
in the case of a removal, on the date designated for the Escrow Agent's removal,
as the case may be, because the Stockholders and RBC are unable to agree on a
successor escrow agent, or for any other reason, the Escrow Agent may select a
successor escrow agent and any such resulting appointment shall be binding upon
all of the parties to this Agreement, provided that any such successor selected
by the Escrow Agent shall be a Permitted Bank (as defined in Section 3(a))
qualified to do business in the State of Illinois.
(c) Acknowledgment by Successor Escrow Agent; Release of Escrow
Agent. Upon written acknowledgment by a successor escrow agent appointed
in accordance with the foregoing provisions of this Section 11 of its Agreement
to serve as escrow agent hereunder and the receipt of the property then
comprising the Escrow Fund, the Escrow Agent shall be fully released and
relieved of all duties, responsibilities and obligations under this Agreement,
subject to the proviso contained in Section 8(c), and such successor escrow
agent shall for all purposes hereof be the Escrow Agent.
(d) Automatic Succession. Notwithstanding any other provision
of this Section 11, any Permitted Bank into which the Escrow Agent is
merged or with which it is consolidated, or any Permitted Bank to which the
Escrow Agent transfers a substantial portion of its escrow business shall be the
successor escrow agent without the execution or filing of any paper or any
further act on the part of any party hereto.
12. Specific Performance. Each of the Stockholders hereby acknowledges
that its failure to perform its agreements and covenants hereunder will cause
irreparable injury to RBC and the RBC Indemnitees for which damages, even if
available, will not be an adequate remedy. Accordingly, each Stockholder hereby
consents to the issuance of injunctive relief by a court of competent
jurisdiction to compel performance of such Stockholder's obligations and to the
granting by any court of the remedy of specific performance of its obligations
hereunder.
13. General Provisions.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested) to each other party as follows:
7
<PAGE> 25
(i) if to RBC, to:
200 Bay Street
14th Floor, North Tower
Toronto, Ontario
M5J2J5 Canada
Telecopier: (416) 974-9344
Attention: Robert K. Horton
with a copies to:
RBC Head Office Law Department
1 Place Ville Marie
4th Floor, East Wing
Montreal, Quebec
M5J2J5 Canada
Telecopier: (514) 874-0241
Attention: Sarah J. Azzarello
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Telecopier: (213) 229-7520
Attention: Lawrence J. Hohlt, Esq.
(ii) if to the Stockholders or any Stockholder:
to the address set forth opposite such
Stockholder's name on Schedule A [with a
copy to any party designated thereon].
(iii) if to the Escrow Agent, to:
___________________________
___________________________
___________________________
___________________________
Telecopier: ________________
Attention: _________________
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(b) Waiver of Breach. The failure of any party hereto to
exercise any right, power or remedy provided under this Agreement or
otherwise available in respect hereof at law or in equity, or to insist upon
compliance by any other party hereto with its obligations hereunder, and any
custom or practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
(a) Entire Agreement. This Agreement and the Stockholders'
Agreement constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, among the parties
8
<PAGE> 26
with respect to the subject matter hereof. Any modification of this Agreement
shall be effective only if it is in writing and signed by the parties to this
Agreement. This Agreement may not be assigned by any Stockholder. This Agreement
is personal to the Escrow Agent and, except as otherwise provided in Section 11,
shall not be assignable by the Escrow Agent without the written consent of a
majority-in-interest of the Stockholders and RBC.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
regard to the principles of conflicts thereof.
(g) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement.
(c) Amendments. This agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, with respect to
any Stockholder, except upon the execution and delivery of a written agreement
executed by RBC, Acquisition and such Stockholder; provided that Schedule A
hereto may be supplemented by RBC after notice to the Escrow Agent and each of
the Stockholders by adding the name and other relevant information concerning
any Stockholder of the Company who becomes a party to the Stockholders'
Agreement (by executing a counterpart signature page hereof) without the
agreement of any other party hereto, and thereafter such added Stockholder shall
be treated as a "Stockholder" for all purposes of this Agreement.
(d) Validity. If any provision of this Agreement or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
(f) Descriptive Headings. The descriptive heading used herein
are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
9
<PAGE> 27
IN WITNESS WHEREOF, each of RBC and the Escrow Agent has caused this
Escrow Agreement to be duly executed, and each Stockholder has duly executed
this Agreement as of the day and year first above written.
ROYAL BANK OF CANADA
By:
________________________________
Name:
Title:
By:
_________________________________
Name:
Title:
ESCROW AGENT
___________________________
By:
________________________
Name:
Title:
RAINBOW ACQUISITION SUBSIDIARY,
INC.
By:
_________________________________
Name:
Title:
STOCKHOLDERS
_______________________________________________
Mark A. Filler, individually and as controlling
general partner of Filler Growth and Retention
Fund I L.P.
________________________________________________
Terry A. Markus, individually and as controlling
general partner of Markus Growth and Retention
Fund I L.P.
ESTATE OF BRUCE C. ABRAMS
By:
____________________________________________
Nancy C. Abrams, Executor
10
<PAGE> 28
Dated: ____________, 200_
11
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Initial Indemnification
Stockholder Address Escrow Deposit Percentage
___________ _______ ______________ _______________
<S> <C> <C> <C>
Mark A. Filler
Terry A. Markus
Nancy C. Abrams, as
Executor of the Estate
of Bruce C. Adams
</TABLE>
1
<PAGE> 30
SCHEDULE B
Escrow Depository Services
Fee Schedule for Holding (Depository) Escrows
I. ACCEPTANCE FEE: ESCROW
II. ANNUAL ADMINISTRATION FEE:
III. INVESTMENT PROCESSING FEES:
IV. ACTIVITY FEES:
V. OUT-OF-POCKET EXPENSES:
VI. EXTRAORDINARY SERVICES AND EXPENSES:
1
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 10th day of March 2000, by and among
Prism Financial Corporation, a Delaware corporation (the "Company"), Mark A.
Filler (the "Executive"), and Royal Bank of Canada, a bank organized and
existing under the laws of Canada ("Acquiror").
WHEREAS, Acquiror and the Company have determined that it is in
their respective best interests to assure that the Company will have the
continued dedication of the Executive pending the merger (the "Merger") of
the Company and Rainbow Acquisition Subsidiary, Inc., a Delaware corporation
and wholly owned subsidiary of Acquiror ("Acquisition") pursuant to the
Merger Agreement dated as of March 10, 2000 among the Company, Acquiror and
Acquisition (the "Merger Agreement"), and to provide the Company, as the
surviving corporation of the Merger, with continuity of management.
Therefore, in order to accomplish these objectives, the Executive, Acquiror
and the Company have entered into this employment agreement.
WHEREAS, the Executive desires to accept such continued
employment, subject to the terms and provisions of this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EFFECTIVE TIME. The "Effective Time" shall mean the
effective time of the Merger, provided the Executive is employed by the
Company at such time. As of the Effective Time, any and all other employment
agreements entered into between the Company and Executive prior to the
Effective Time (including, without limitation, any employment agreement
entered into among the Company, Executive and Acquiror in connection with or
in contemplation of the transactions contemplated by the Merger Agreement)
shall terminate and become null and void, provided that any option agreements
between the Executive and the Company shall terminate and become null and
void only upon the final installment payment of the special retention bonus
contemplated by Section 2.10(b) of the Merger Agreement and provided further
that upon any termination of the Merger Agreement, this sentence will be
inapplicable.
2. EMPLOYMENT PERIOD. The Company hereby agrees to continue
to employ the Executive, and the Executive hereby agrees to continue in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing as of the Effective Time and ending on December 31,
2003 (the "Employment Period").
3. TERMS OF EMPLOYMENT.
(a) Position and Duties.
(i) During the Employment Period, the Executive
shall serve as President and Chief Executive Officer and as a member of
the Board of Directors of the Company with the appropriate authority,
duties and responsibilities attendant to such
<PAGE> 2
position. After the Employment Period, the Executive may continue to
serve the Company under a mutually agreed upon arrangement.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote substantially all of his business
attention and time to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, it shall not be a violation of this Agreement for
the Executive to continue, with respect to current positions and
arrangements disclosed to the Board of the Company (the "Board") and,
with prior written approval of the Board of Directors of the Company,
with respect to future positions and arrangements, to, (A) serve on a
reasonable number of corporate, civic or charitable boards or
committees, (B) deliver a reasonable number of lectures and speeches
and (C) manage personal investments, so long as such activities do not
interfere with the proper performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. Promptly after the Effective Time, Executive will submit to
the Board a list of all existing board or committee memberships and
submit to the Board for approval a list of pending or future board or
committee memberships, which approval will not be unreasonably
withheld.
(b) Compensation.
(i) Annual Base Salary. During the initial twelve
months of the Employment Period, the Executive shall receive an annual
base salary ("Annual Base Salary") of $250,000, payable in accordance
with regular payroll practices of the Company. Thereafter, the
Executive shall receive an annual base salary in an amount determined
by the Board, but not less than his initial Annual Base Salary with any
such increased amount thereafter being the Annual Base Salary. Any
increase in Annual Base Salary shall not serve to limit or reduce any
other obligation to the Executive under this Agreement. The Executive
shall not be entitled to receive any additional consideration for
service during the Employment Period as a member of the Board of
Directors of the Company or any of its subsidiaries.
(ii) Interim Bonus and Annual Bonus. Provided the
Executive's employment has not been terminated for Cause or due to a
voluntary termination by the Executive (other than due to Constructive
Termination, death or Disability) on the respective dates of payment,
the Executive shall be eligible to participate in a bonus pool (the
"Interim Bonus") on December 31, 2000 where the aggregate pool for all
participants shall not be less than $105,000. The Executive shall be
eligible to participate in an annual cash bonus pool for executives
("Annual Bonus") with respect to the first 12 months of this Agreement,
whereby the aggregate pool for all participants shall not be less than
$1,825,000 to be paid no later than 13 months after the date of this
Agreement. The distribution of 50% of the Annual Bonus Pool will be
unconditional and solely at the discretion of Mark Filler (with no
restriction whatsoever) and the remainder at the discretion of the
Board. Thereafter, the Executive shall be
2
<PAGE> 3
eligible to receive annual bonuses during the Employment Period in an
amount and in accordance with any plan as may be determined by the
Board.
(iii) Stock Options. The Executive shall be eligible
to participate in the Acquiror's 1999 Stock Option Plan (the "Plan"),
with grants made at the discretion of the Acquiror's Board of
Directors. Any stock options granted to the Executive shall be subject
to all of the terms and conditions of the Plan, including applicable
provisions regarding vesting, and expiration of options upon
termination of employment. Such stock options shall be administered in
accordance with the Plan attached hereto as Appendix A and pursuant to
a Stock Option Agreement reasonably acceptable, including as to
vesting, to the Executive.
(iv) Profit Sharing. In addition, provided the
Executive's employment has not been terminated for Cause or due to a
voluntary termination by the Executive, on the one-year anniversary of
the Effective Time, the Executive shall receive, on the thirtieth day
after the last day of each of the Company's 2001, 2002 and 2003 fiscal
year, a profit-sharing bonus equal to 2.5% of the pre-tax net income of
the Company (the "Profit Sharing Bonus"), prorated for that portion of
the fiscal year that the Executive was employed by the Company. With
respect to the Profit Sharing Bonus, the parties will reasonably agree
upon the allocation of profits related to synergies with Acquiror and
Acquiror's other affiliates. The goodwill amortization associated with
the acquisition of the Company pursuant to the Merger Agreement will
not be deducted from the calculation of pre-tax net income of the
Company for purposes of this Section 3(a)(iii). If Acquiror determines
to reorganize the Company, the parties will determine a fair,
reasonable formula in keeping with the intent of this Agreement. The
Profit Sharing Bonus shall be earned by Executive and accrued on a
daily basis.
(v) Other Employee Benefit Plans. During the
Employment Period, except as otherwise expressly provided herein, the
Executive shall be entitled to participate in all employee benefit,
welfare and other plans, practices, policies and programs of the
Company (collectively, "Employee Benefit Plans"), subject only to the
generally applicable eligibility provisions of such plans; provided
that the Executive shall at all times during the Employment Period, be
entitled to receive benefits that are comparable to those provided to
other employees in positions of comparable rank with the Acquiror and
its wholly owned subsidiaries. In addition, during the Employment
Period, the Executive will be entitled to participate in Acquiror's
leased automobile program which will provide a leased automobile up to
a capital cost limit of $27,200 plus fuel, maintenance, insurance and
reserved parking at the Executive's place of work. The Company will
pay the cost of personal initiation fees and annual dues for a
recreational or social club of the Executive's choosing.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The ExecutiveSection s
employment shall terminate automatically upon the ExecutiveSection s death
during the Employment Period and in that case the Date of Termination shall
be the date of death. If the Company determines in good faith that the
3
<PAGE> 4
Executive has become Disabled during the Employment Period (pursuant to the
definition of "Disabled" or "Disability" set forth below), the Company may
terminate Executive's employment by giving written notice to the Executive in
accordance with Section 10(c) of this Agreement of the Company's intention to
terminate Executive's employment. In such event, the ExecutiveSection s
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of the ExecutiveSection s duties. For
purposes of this Agreement, whether the Executive has become "Disabled" (or
incurs a Disability) shall be determined under the CompanySection s long-term
disability plan as in effect for employees of the Company as of the date of
this Agreement. If the ExecutiveSection s employment is terminated by reason
of disability, the Date of Termination shall be the Disability Effective
Date, or any later date specified by the Company.
(b) Cause. The Company may terminate the
ExecutiveSection s employment during the Employment Period for Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the commission by the Executive of an act of
criminal or fraudulent misconduct that results in material economic
harm or acute public embarrassment to the Company, its parent or a
subsidiary of the Company (including, but not limited to, the willful
violation of any material law, rule, regulation, or cease and desist
order applicable to the Executive) any breach by Executive of a
covenant contained in the Stockholders' Agreement or a deliberate
breach of a fiduciary duty owed by the Executive to the Company, its
parent or its parentSection s shareholders;
(ii) the ExecutiveSection s habitual absence from
work other than as a result of illness or Disability, continuous and
intentional failure to perform stated duties, gross negligence, or
gross incompetence in the performance of the ExecutiveSection s stated
duties; provided that the Executive shall be provided with notice of
any situation set forth herein and a reasonable opportunity to cure
such situation;
(iii) the ExecutiveSection s chronic alcohol or drug
abuse that results in a material impairment of the ExecutiveSection s
ability to perform his or her duties as an employee of the Company
provided that the Executive shall be provided a reasonable opportunity
to such if the Executive demonstrates a willingness to undergo
treatment or rehabilitation;
(iv) the rendering of a verdict of guilty against or
the entering of a nolo contendre plea by the Executive for any felony
offense (other than a law relating to a traffic violation or similar
offense), whether or not in the line of duty to the Company; or
(v) the final determination by a state or federal
banking agency or governmental authority having jurisdiction over the
Company that the Executive is not suitable to act in the capacity in
which he is employed by the Company or a downgrading in ratings by such
authority, as evidenced in the "Management Aspects During the Annual
Review," on the basis of such determination.
4
<PAGE> 5
(c) Notice of Termination. Termination of employment by
the Company or by the Executive shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Section
10(c). For purposes of this Agreement, a "Notice of Termination" means a
written notice which indicates the Date of Termination, as specified below.
The "Date of Termination" means:
(i) if the ExecutiveSection s employment is
terminated by the Company for Cause, the date of receipt of the Notice
of Termination or any later date specified therein within 30 days of
such notice, or
(ii) if the ExecutiveSection s employment is
terminated by the Executive, a date not less than 30 days after the
date of the Notice of Termination, provided, however, that the Company
may waive such 30-day provision.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death or Disability. If the ExecutiveSection s
employment is terminated by reason of the ExecutiveSection s death or
Disability during the Employment Period, this Agreement shall terminate
without further obligations to the Executive under this Agreement, other than
for payment of:
(i) the ExecutiveSection s Annual Base Salary
through the Date of Termination to the extent not theretofore paid;
(ii) the Interim Bonus and the Annual Bonus awarded
for the first twelve months of service, in each case to the extent not
theretofore paid;
(iii) a pro rata portion of the annual bonus awarded
for the fiscal year in which the Date of Termination occurs and the
annual bonus awarded for any fiscal year prior thereto, in each case to
the extent earned, accrued or owing to the Executive but not
theretofore paid;
(iv) a pro rata portion of any Profit Sharing Bonus
for the fiscal year in which the Date of Termination occurs and the
Profit Sharing Bonus for any fiscal year prior thereto, in each case to
the extent earned, accrued or owing to the Executive but not
theretofore paid; and
(iv) any other amounts or benefits required to be
paid or provided or which the Executive is eligible to receive through
the Date of Termination under any plan, program, policy or practice or
contract or agreement of the Company, to the extent not theretofore
paid or provided (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits") through the Date of Termination
and continuation of insurance plans as provided under COBRA.
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<PAGE> 6
Any Annual Base Salary, Interim Bonus and Annual Bonus payable pursuant
to this Section 5(a) shall be paid to the Executive as applicable, in a lump
sum in cash within 30 days after the Date of Termination; in the case of a
pro-rated Annual Bonus, as soon as practicable after the date such bonus is
determined.
(b) Termination Without Cause. If the Executive's
employment is terminated by the Company without Cause, or if the Executive
terminates as a result of a Constructive Termination (as defined below), this
Agreement shall terminate without further obligations to the Executive under
this Agreement, other than for payment of:
(i) the Executive's Annual Base Salary through the
Employment Period to the extent not theretofore paid;
(ii) the Interim Bonus and the Annual Bonus awarded
for the first twelve months of service, in each case to the extent not
theretofore paid;
(iii) a pro rata portion of the annual bonus awardedz
for the fiscal year in which the Date of Termination occurs and the
annual bonus for any fiscal year prior thereto, in each case to the
extent earned, accrued or owing to the Executive but not theretofore
paid;
(iii) a pro rata portion of any Profit Sharing Bonus
for the fiscal year in which the Date of Termination occurs and the
Profit Sharing Bonus for any fiscal year prior thereto, in each case to
the extent earned, accrued or owing to the Executive but not
theretofore paid; and
(iv) Other Benefits through the Date of Termination
and continuation of insurance plans as provided under COBRA.
For purposes of this Agreement, "Constructive Termination" means the
Executive's voluntary termination of employment after any of the following
are undertaken without the Executive's express written consent: (A) the
assignment to the Executive of any duties or responsibilities inconsistent
with the Executive's title and position, authority, duties or
responsibilities as contemplated by Section 3(a)(i) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for the purpose of this
clause (A) an isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; (B) a reduction in the Executive's Annual
Base Salary or a change in the Annual Bonus pool or in the percentage of
pre-tax net income payable as the Profit Sharing Bonus; (C) a relocation of
the Executive to a location more than ten (10) miles from the location at
which the Executive performed his duties immediately prior to the Effective
Time, except for required travel by the Executive on the Company's business
to an extent substantially consistent with the Executive's business travel
obligations prior to the Effective Time or (D) any breach by the Company or
Acquiror of this Agreement.
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(c) Termination for Cause; Voluntary Termination. If the
ExecutiveSection s employment shall be terminated by the Company for Cause or
the Executive terminates his employment prior to the end of the Employment
Period on his own initiative (other than due to Constructive Termination,
death or Disability), this Agreement shall terminate without further
obligation to the Executive other than the obligation to pay to the Executive
his Annual Base Salary through the Date of Termination to the extent
theretofore unpaid and the Other Benefits through the Date of Termination.
6. NO MITIGATION. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and such amounts shall not be reduced whether
or not the Executive obtains other employment.
7. COVENANT NOT TO COMPETE; CONFIDENTIAL INFORMATION;
INTELLECTUAL PROPERTY.
(a) From and after the Effective Time during the term of
this Agreement, and for a period of six (6) months after the Date of
Termination, the Executive shall not:
(i) directly or indirectly, own, manage, operate,
join, control, or participate in the ownership, management, operation
or control of, or be employed by or perform services for, any Competing
Business, whether for compensation or otherwise, without the prior
written consent of the Company. For the purposes of this Agreement, a
"Competing Business" shall be (A) any business by which the Executive
is employed which is, at the Date of Termination, a significant
competitor of the Company; it being agreed that the term "business"
shall refer to the specific division or subsidiary by which Executive
is employed, not such division's or subsidiary's corporate group; (B)
any Company the primary business of which is the origination of
residential mortgage loans whether or not Executive is employed by such
business; or (C) any affordable or historic tax syndication business;;
provided, that, the Executive may own up to five percent (5%) (measured
by value) of the outstanding securities of any public entity, the
shares of which are traded on a national stock exchange or quoted on
the Nasdaq National Market;
(ii) in any manner, directly or indirectly, Solicit
a Client to transact business with a Competing Business or to reduce or
refrain from doing any business with the Company, or interfere or
damage (or attempt to interfere with or damage) any relationship
between the Company and a Client. For purposes of the Agreement, the
term "Solicit" means any direct or indirect written or oral
communication, inviting, advising, encouraging, inducing or requesting
any person or entity, in any manner, to take or refrain from taking any
action. For purposes of this Agreement, the term "Client" means any
client or customer or prospective client or customer of the Company to
whom the Executive provided services, or for whom the Executive
transacted business, or whose identity became known to the Executive in
connection with the Executive's relationship with or employment by the
Company; or
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<PAGE> 8
(iii) directly or indirectly (whether on the
Executive's own behalf or on behalf of any other person or entity)
solicit, entice, advise or encourage any officer, employee or
consultant (determined as of the Date of Termination of the Executive)
of the Company or any of its affiliates or subsidiaries to terminate
such person's or entity's employment or consulting relationship or with
respect to any officer or employee of the Company or its subsidiaries,
hiring any such officer or employee.
(b) The Executive hereby acknowledges that, as an
employee of the Company, he will have access to, be making use of, acquiring
and adding to confidential information of a special and unique nature and
value relating to the Company and its strategic plan and financial
operations. The Executive further recognizes and acknowledges that all
confidential information is the exclusive property of the Company, is
material and confidential, and is critical to the successful conduct of the
business of the Company. Accordingly, the Executive hereby covenants and
agrees that he will only use confidential information for the benefit of the
Company or any of its affiliates or subsidiaries and in the course of his
employment for the Company and shall not at any time, directly or indirectly,
during the term of this Agreement and thereafter, divulge, reveal or
communicate any confidential information to any person, firm, corporation or
entity whatsoever, or use any confidential information for his own benefit or
for the benefit of others except as provided herein. All confidential
information removed by the Executive shall be returned to the Company upon
termination of his employment and no copies thereof shall be kept by the
Executive.
(c) Any termination of the ExecutiveSection s employment
or of this Agreement shall have no effect on the continuing operation of this
Section 7.
(d) In addition to the cessation of payments set forth in
Section 7(f), the Executive acknowledges and agrees that the Company will
have no adequate remedy at law, and could be irreparably harmed, if the
Executive breaches or threatens to breach any of the provisions of this
Section 7. The Executive agrees that the Company shall be entitled to
equitable and/or injunctive relief to prevent any breach or threatened breach
of this Section 7, and to specific performance of each of the terms hereof in
addition to any other legal or equitable remedies that the Company may have.
The Executive further agrees that he shall not, in any equity proceeding
relating to the enforcement of the terms of this Section 7, raise the defense
that the Company has an adequate remedy at law.
(e) The terms and provisions of this Section 7 are
intended to be separate and divisible provisions and if, for any reason, any
one or more of them is held to be invalid or unenforceable, neither the
validity nor the enforceability of any other provision of this Agreement
shall thereby be affected. The parties hereto acknowledge that the potential
restrictions on the ExecutiveSection s future employment imposed by this
Section 7 are reasonable in both duration and geographic scope and in all
other respects. If for any reason any court of competent jurisdiction shall
find any provisions of this Section 7 unreasonable in duration or geographic
scope or otherwise, the Executive and the Company agree that the restrictions
and prohibitions contained herein shall be effective to the fullest extent
allowed under applicable law in such jurisdiction.
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<PAGE> 9
(f) The parties acknowledge that this Agreement would not
have been entered into and the benefits described in Sections 3 or 5 would
not have been promised in the absence of the ExecutiveSection s promises
under this Section 7 and that should the Executive be finally determined by
an arbitrator to have engaged in any activity or conduct proscribed
hereunder, all payments under this Agreement other than Other Benefits to the
extent required to be continued by law or by the terms of the applicable plan
shall cease.
(g) The Executive hereby assigns to the Company all of
Executive's right, title and interest in and to, inventions, trade secrets,
works of authorship, ideas, methods, improvements, databases, know-how, data,
developments or discoveries, whether or not patentable or copyrightable (the
"Work Product") which (i) will be, are or have been made, invented,
conceived, reduced to practice, developed or created during the Employment
Period or (ii) using the equipment, supplies, facilities and/or confidential
or proprietary information of the Company. The Executive will take such
action as may be necessary to assist the Company in obtaining statutory or
common law protections for the Work Product.
8. SUCCESSORS.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution. Any purported or attempted assignment in violation hereof
shall be null and void. This Agreement shall inure to the benefit of and be
enforceable by the ExecutiveSection s legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
9. ARBITRATION. Any and all disputes, claims or
controversies, arising from or regarding the interpretation, performance,
enforcement or termination of this Agreement shall (except as provided herein
with respect to injunctive relief) be resolved by final and binding confidential
arbitration, to be held in Chicago, Illinois, in accordance with the Employment
Arbitration Rules of the American Arbitration Association and this Section 9.
Nothing in this Section is intended to prevent either party from obtaining
either injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration or from utilizing any judicial court system
to seek enforcement of an arbitration award.
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<PAGE> 10
10. MISCELLANEOUS.
(a) Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to
principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.
(c) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery or overnight courier to the
other parties or by registered or certified mail, return receipt requested,
postage prepaid, addressed or by facsimile transmitted as follows:
If to the Executive:
Mark A. Filler
226 Prospect
Highland Park, Illinois 60035
Telecopier: 847-266-7019
If to the Company:
440 North Orleans
Chicago, Illinois 60610
Attn: Mark A. Filler
Telecopier: 312-494-0184
If to the Acquiror:
Royal Bank of Canada
200 Bay Street
14th Floor, North Tower
Toronto, Ontario, Canada
Attn: Robert K. Horton
Telecopier: 416-974-9344
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
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<PAGE> 11
(e) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld on such payment pursuant to any applicable law or
regulation or may condition any transfer of property to the Executive on the
ExecutiveSection s satisfaction of such withholding obligations in a manner
satisfactory to the Company.
(f) The ExecutiveSection s or the CompanySection s
failure to insist upon strict compliance with any provision of this Agreement
or the failure to assert any right the Executive or the Company may have
hereunder shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the
ExecutiveSection s hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its name
on its behalf, all as of the day and year first above written.
EXECUTIVE
/s/ MARK A. FILLER
----------------------------
Mark A. Filler
COMPANY
PRISM FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ DAVID A. FISHER
------------------------
Name: David A. Fisher
Title: Chief Financial Officer and
Senior Vice President
Acquiror agrees that as of the Effective Time it will honor this
Agreement and treat the Agreement as its own.
ACQUIROR
ROYAL BANK OF CANADA,
a Canadian commercial bank
By: /s/ ROBERT K. HORTON
------------------------
Name: Robert K. Horton
Title: Senior Vice President,
Strategic Initiatives
By: /s/ JAMES T. RAGER
------------------------
Name: James T. Rager
Title: Vice Chairman, Personal and
Commercial Banking
12
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 10th day of March 2000, by
and among Prism Financial Corporation, a Delaware corporation (the
"Company"), David A. Fisher (the "Executive"), and Royal Bank of Canada, a bank
organized and existing under the laws of Canada ("Acquiror").
WHEREAS, Acquiror and the Company have determined that
it is in their respective best interests to assure that the Company will have
the continued dedication of the Executive pending the merger (the "Merger") of
the Company and Rainbow Acquisition Subsidiary, Inc., a Delaware corporation and
wholly owned subsidiary of Acquiror ("Acquisition") pursuant to the Merger
Agreement dated as of March 10, 2000 among the Company, Acquiror and Acquisition
(the "Merger Agreement"), and to provide the Company, as the surviving
corporation of the Merger, with continuity of management. Therefore, in order to
accomplish these objectives, the Executive, Acquiror and the Company have
entered into this employment agreement.
WHEREAS, the Executive desires to accept such continued
employment, subject to the terms and provisions of this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EFFECTIVE TIME. The "Effective Time" shall mean
the effective time of the Merger, provided the Executive is employed
by the Company at such time. As of the Effective Time, any and all other
employment agreements entered into between the Company and Executive prior to
the Effective Time (including, without limitation, any employment agreement
entered into among the Company, Executive and Acquiror in connection with or in
contemplation of the transactions contemplated by the Merger Agreement) shall
terminate and become null and void, provided that any option agreements between
the Executive and the Company shall terminate and become null and void only
upon the final installment payment of the special retention bonus contemplated
by Section 2.10(b) of the Merger Agreement and the payment of the sale bonus
contemplated by the option and provided further that upon any termination of
the transactions contemplated by the Merger Agreement, this sentence will be
inapplicable.
2. EMPLOYMENT PERIOD. The Company hereby agrees to
continue to employ the Executive, and the Executive hereby agrees to
continue in the employ of the Company subject to the terms and conditions of
this Agreement, for the period commencing as of the Effective Time and ending
on December 31, 2003 (the "Employment Period").
3. TERMS OF EMPLOYMENT.
(a) Position and Duties.
(i) During the Employment Period, the
Executive shall serve as Chief Financial Officer and Senior
Vice President of the Company with the
<PAGE> 2
appropriate authority, duties and responsibilities attendant to
such position. After the Employment Period, the Executive may
continue to serve the Company under a mutually agreed upon
arrangement.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote substantially
all of his business attention and time to the business and affairs
of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period, it
shall not be a violation of this Agreement for the Executive to (A)
continue, with respect to current positions and arrangements
disclosed to the Board and, with prior written approval of the Board
of Directors of the Company (the "Board"), with respect to future
positions and arrangements, to serve on a reasonable number of
corporate, civic or charitable boards or committees, (and promptly
after the Effective Time, Executive will submit to the Board a list
of all existing board or committee memberships and submit to the
Board for approval a list of pending or future board or committee
memberships, which approval will not be unreasonably withheld); (B)
deliver a reasonable number of lectures and speeches and (C) manage
personal investments, so long as such activities do not interfere
with the proper performance of the Executive's responsibilities as
an employee of the Company in accordance with this Agreement.
(b) Compensation.
(i) Annual Base Salary. During the initial
twelve months of the Employment Period, the Executive shall receive
an annual base salary ("Annual Base Salary") of $150,000, payable in
accordance with regular payroll practices of the Company.
Thereafter, the Executive shall receive an annual base salary in an
amount determined by the Board, but not less than his initial Annual
Base Salary with any such increased amount thereafter being the
Annual Base Salary. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under
this Agreement. The Executive shall not be entitled to receive any
additional consideration for service during the Employment Period as
a member of the Board of Directors of the Company or any of its
subsidiaries.
(ii) Interim Bonus and Annual Bonus. Provided
the Executive's employment has not been terminated for Cause or due
to a voluntary termination by the Executive (other than due to
Constructive Termination, death or Disability) on the respective
dates of payment, the Executive shall be eligible to participate in
a bonus pool (the "Interim Bonus") on December 31, 2000 where the
aggregate maximum of the pool for all participants shall not be less
than $105,000. The Executive shall be eligible to participate in an
annual cash bonus pool for executives ("Annual Bonus") with respect
to the first 12 months of this Agreement, whereby the aggregate pool
for all participants shall not be less than $1,825,000 to be paid no
later than 13 months after the date of this Agreement. The
distribution of 50% of the Annual Bonus Pool will be unconditional
and solely at the discretion of Mark Filler (with no
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<PAGE> 3
restriction whatsoever) and the remainder at the discretion of the
Board. Thereafter, the Executive shall be eligible to receive
annual bonuses during the Employment Period in an amount and in
accordance with any plan as may be determined by the Board.
(iii) Stock Options. The Executive shall be
eligible to participate in the Acquiror's 1999 Stock Option Plan
(the "Plan"), with grants made at the discretion of the Acquiror's
Board of Directors. Any stock options granted to the Executive shall
be subject to all of the terms and conditions of the Plan, including
applicable provisions regarding vesting, and expiration of options
upon termination of employment. Such stock options shall be
administered in accordance with the Plan attached hereto as Appendix
A and pursuant to a Stock Option Agreement reasonably acceptable,
including as to vesting, to the Executive.
(iv) Other Employee Benefit Plans. During
the Employment Period, except as otherwise expressly provided
herein, the Executive shall be entitled to participate in all
employee benefit, welfare and other plans, practices, policies and
programs of the Company (collectively, "Employee Benefit Plans"),
subject only to the generally applicable eligibility provisions of
such plans; provided that the Executive shall at all times during
the Employment Period, be entitled to receive benefits that are
comparable to those provided to other employees in positions of
comparable rank with the Acquiror and its wholly owned subsidiaries.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death
during the Employment Period and in that case the Date of Termination shall be
the date of death. If the Company determines in good faith that the Executive
has become Disabled during the Employment Period (pursuant to the definition of
"Disabled" or "Disability" set forth below), the Company may terminate
Executive's employment by giving written notice to the Executive in accordance
with Section 10(b) of this Agreement of the Company's intention to terminate
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement, whether
the Executive has become "Disabled" (or incurs a Disability) shall be
determined under the Company's long-term disability plan as in effect for
employees of the Company as of the date of this Agreement. If the Executive's
employment is terminated by reason of disability, the Date of Termination shall
be the Disability Effective Date, or any later date specified by the Company.
(b) Cause. The Company may terminate the
Executive's employment during the Employment Period for Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the commission by the Executive of an
act of criminal or fraudulent misconduct that results in material
economic harm or acute public embarrassment to the Company, its
parent or a subsidiary of the Company (including, but
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<PAGE> 4
not limited to, the willful violation of any material law, rule,
regulation, or cease and desist order applicable to the Executive)
or a deliberate breach of a fiduciary duty owed by the Executive
to the Company, its parent or its parent's shareholders;
(ii) the Executive's habitual absence from
work other than as a result of illness or Disability, continuous and
intentional failure to perform stated duties, gross negligence, or
gross incompetence in the performance of the Executive's stated
duties provided that the Executive shall be provided with notice of
any situation set forth herein and a reasonable opportunity to cure
such situation;
(iii) the Executive's chronic alcohol or drug
abuse that results in a material impairment of the Executive's
ability to perform his or her duties as an employee of the Company
provided that the Executive shall be provided a reasonable
opportunity to cure if the Executive demonstrates a willingness to
undergo treatment or rehabilitation;
(iv) the rendering of a verdict of guilty
against or the entering of a nolo contendere plea by the Executive
for any felony offense (other than a law relating to a traffic
violation or similar offense), whether or not in the line of duty to
the Company; or
(v) the final determination by a
state or federal banking agency or governmental authority having
jurisdiction over the Company that the Executive is not suitable to
act in the capacity in which he is employed by the Company or a
downgrading in ratings by such authority, as evidenced in the
"Management Aspects During the Annual Review," on the basis of such
determination.
(c) Notice of Termination. Termination of
employment by the Company or by the Executive shall be communicated
by Notice of Termination to the other party hereto given in accordance with
this Section 10(c). For purposes of this Agreement, a "Notice of Termination"
means a written notice which indicates the Date of Termination, as specified
below. The "Date of Termination" means:
(i) if the Executive's employment is
terminated by the Company for Cause, the date of receipt of the
Notice of Termination or any later date specified therein within 30
days of such notice, or
(ii) if the Executive's employment is
terminated by the Executive, a date not less than 30 days after the
date of the Notice of Termination, provided, however, that the
Company may waive such 30-day provision.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death or Disability. If the Executive's
employment is terminated by reason of the Executive's death or Disability
during the Employment Period, this Agreement
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<PAGE> 5
shall terminate without further obligations to the Executive under this
Agreement, other than for payment of:
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid;
(ii) the Interim Bonus and the Annual Bonus
awarded for the first twelve months of service, in each case to the
extent not theretofore paid;
(iii) a pro rata portion of the annual bonus
awarded for the fiscal year in which the Date of Termination occurs
and the annual bonus awarded for any fiscal year prior thereto, in
each case to the extent earned, accrued or owing to the Executive
but not theretofore paid; and
(iv) any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive
through the Date of Termination under any plan, program, policy or
practice or contract or agreement of the Company, to the extent not
theretofore paid or provided (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits") through the Date
of Termination and continuation of insurance plans as provided under
COBRA.
Any Annual Base Salary, Interim Bonus and Annual Bonus payable
pursuant to this Section 5(a) shall be paid to the Executive as applicable, in a
lump sum in cash within 30 days after the Date of Termination; in the case of a
pro-rated Annual Bonus, as soon as practicable after the date such bonus is
determined.
(b) Termination Without Cause. If the Executive's
employment is terminated by the Company without Cause, or if the Executive
terminates as a result of a Constructive Termination (as defined below), this
Agreement shall terminate without further obligations to the Executive under
this Agreement, other than for payment of:
(i) the Executive's Annual Base Salary through
the Employment Period to the extent not theretofore paid;
(ii) the Interim Bonus and the Annual Bonus
awarded for the first twelve months of service, in each case to the
extent not theretofore paid;
(iii) a pro rata portion of the annual bonus
awarded for the fiscal year in which the Date of Termination occurs
and the annual bonus for any fiscal year prior thereto, in each case
to the extent earned, accrued or owing to the Executive but not
theretofore paid; and
(iv) Other Benefits through the Date of
Termination and continuation of insurance plans as provided under
COBRA.
5
<PAGE> 6
For purposes of this Agreement, "Constructive Termination" means the
Executive's voluntary termination of employment after any of the following are
undertaken without the Executive's express written consent: (A) the assignment
to the Executive of any duties or responsibilities inconsistent with the
Executive's title and position, authority, duties or responsibilities as
contemplated by Section 3(a)(i) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for the purpose of this clause (A) an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive; (B) a reduction in the Executive's Annual Base Salary or a change in
the Annual Bonus pool; (C) a relocation of the Executive to a location more
than ten (10) miles from the location at which the Executive performed his
duties immediately prior to the Effective Time, except for required travel by
the Executive on the Company's business to an extent substantially consistent
with the Executive's business travel obligations prior to the Effective Time or
(D) any breach by the Company or Acquiror of this Agreement.
(c) Termination for Cause; Voluntary
Termination. If the Executive's employment shall be terminated by the Company
for Cause or the Executive terminates his employment prior to the end of the
Employment Period on his own initiative (other than due to Constructive
Termination, death or Disability), this Agreement shall terminate without
further obligation to the Executive other than the obligation to pay to the
Executive his Annual Base Salary through the Date of Termination to the extent
theretofore unpaid and the Other Benefits through the Date of Termination.
6. NO MITIGATION. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and such amounts shall not be reduced whether or
not the Executive obtains other employment.
7. COVENANT NOT TO COMPETE; CONFIDENTIAL
INFORMATION; INTELLECTUAL PROPERTY.
(a) During the term of this Agreement, and for a
period of six (6) months after the Date of Termination, the Executive shall not:
(i) directly or indirectly, own,
manage, operate, join, control, or participate in the ownership,
management, operation or control of, or be employed by or perform
services for, any Competing Business, whether for compensation or
otherwise, without the prior written consent of the Company. For the
purposes of this Agreement, a "Competing Business" shall be (A) any
business by which the Executive is employed which is, at the Date
of Termination, a significant competitor of the Company; it being
agreed that the term "business" shall refer to the specific
division or subsidiary by which Executive is employed, not such
division's or subsidiary's corporate group; (B) any Company the
primary business of which is the origination of residential
mortgage loans whether or not the Executive is employed by such
business; or (C) any affordable or historic tax syndication
business; provided, that, the Executive may own up to five percent
(5%) (measured by value) of the outstanding securities of any public
6
<PAGE> 7
entity, the shares of which are traded on a national stock exchange
or quoted on the Nasdaq National Market;
(ii) in any manner, directly or indirectly,
Solicit a Client to transact business with a Competing Business or
to reduce or refrain from doing any business with the Company, or
interfere or damage (or attempt to interfere with or damage) any
relationship between the Company and a Client. For purposes of the
Agreement, the term "Solicit" means any direct or indirect written
or oral communication , inviting, advising, encouraging, inducing or
requesting any person or entity, in any manner, to take or refrain
from taking any action. For purposes of this Agreement, the term
"Client" means any client or customer or prospective client or
customer of the Company to whom the Executive provided services, or
for whom the Executive transacted business, or whose identity became
known to the Executive in connection with the Executive's
relationship with or employment by the Company; or
(iii) directly or indirectly (whether on the
Executive's own behalf or on behalf of any other person or entity)
solicit, entice, advise or encourage any officer, employee or
consultant (determined as of the Date of Termination of the
Executive) of the Company or any of its affiliates or subsidiaries
to terminate such person's or entity's employment or consulting
relationship or with respect to any officer or employee of the
Company or its subsidiaries, hiring any such officer or employee.
(b) The Executive hereby acknowledges that, as an
employee of the Company, he will have access to, be making use of, acquiring and
adding to confidential information of a special and unique nature and value
relating to the Company and its strategic plan and financial operations. The
Executive further recognizes and acknowledges that all confidential information
is the exclusive property of the Company, is material and confidential, and is
critical to the successful conduct of the business of the Company. Accordingly,
the Executive hereby covenants and agrees that he will only use confidential
information for the benefit of the Company or any of its affiliates or
subsidiaries and in the course of his employment for the Company and shall not
at any time, directly or indirectly, during the term of this Agreement and
thereafter, divulge, reveal or communicate any confidential information to any
person, firm, corporation or entity whatsoever, or use any confidential
information for his own benefit or for the benefit of others except as provided
herein. All confidential information removed by the Executive shall be returned
to the Company upon termination of his employment and no copies thereof shall be
kept by the Executive.
(c) Any termination of the Executive's employment
or of this Agreement shall have no effect on the continuing operation of this
Section 7.
(d) In addition to the cessation of payments set
forth in Section 7(f), the Executive acknowledges and agrees that the Company
will have no adequate remedy at law, and could be irreparably harmed, if the
Executive breaches or threatens to breach any of the provisions of this Section
7. The Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 7,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable
7
<PAGE> 8
remedies that the Company may have. The Executive further agrees that he shall
not, in any equity proceeding relating to the enforcement of the terms of this
Section 7, raise the defense that the Company has an adequate remedy at law.
(e) The terms and provisions of this Section 7 are
intended to be separate and divisible provisions and if, for any reason, any one
or more of them is held to be invalid or unenforceable, neither the validity nor
the enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 7 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 7
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(f) The parties acknowledge that this
Agreement would not have been entered into and the benefits described in
Sections 3 or 5 would not have been promised in the absence of the Executive's
promises under this Section 7 and that should the Executive be finally
determined by an arbitrator to have engaged in any activity or conduct
proscribed hereunder, all payments under this Agreement other than Other
Benefits to the extent required to be continued by law or by the terms of the
applicable plan shall cease.
(g) The Executive hereby assigns to the
Company all of Executive's right, title and interest in and to,
inventions, trade secrets, works of authorship, ideas, methods, improvements,
databases, know-how, data, developments or discoveries, whether or not
patentable or copyrightable (the "Work Product") which (i) will be, are or have
been made, invented, conceived, reduced to practice, developed or created
during the Employment Period or (ii) using the equipment, supplies, facilities
and/or confidential or proprietary information of the Company. The Executive
will take such action as may be necessary to assist the Company in obtaining
statutory or common law protections for the Work Product.
8. SUCCESSORS.
(a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. Any purported or attempted assignment in violation hereof shall be
null and void. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if
8
<PAGE> 9
no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
9. ARBITRATION. Any and all disputes, claims or
controversies, arising from or regarding the interpretation, performance,
enforcement or termination of this Agreement shall (except as provided herein
with respect to injunctive relief) be resolved by final and binding confidential
arbitration, to be held in Chicago, Illinois, in accordance with the Employment
Arbitration Rules of the American Arbitration Association and this Section 9.
Nothing in this is intended to prevent either party from obtaining either
injunctive relief in court to prevent irreparable harm pending the conclusion of
any such arbitration or from utilizing any judicial court system to seek
enforcement of an arbitration award.
10. MISCELLANEOUS.
(a) Any capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Merger Agreement.
(b) This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(c) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery or overnight
courier to the other parties or by registered or certified mail, return receipt
requested, postage prepaid, addressed or by facsimile transmitted as follows:
If to the Executive:
David Fischer
1414 W. Wolfram, Apt. 1
Chicago, Illinois 60657
Telecopier: 312-494-0184
If to the Company:
440 North Orleans
Chicago, Illinois 60610
Attn: Mark A. Filler
Telecopier: 312-494-0184
If to the Acquiror:
9
<PAGE> 10
Royal Bank of Canada
200 Bay Street
14th Floor, North Tower
Toronto, Ontario, Canada
Attn: Robert K. Horton
Telecopier: 416-974-9344
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(e) The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation or
may condition any transfer of property to the Executive on the Executive's
satisfaction of such withholding obligations in a manner satisfactory to the
Company.
(f) The Executive's or the Company's failure
to insist upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
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<PAGE> 11
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
EXECUTIVE
/s/ DAVID A. FISHER
-------------------------
David A. Fisher
COMPANY
PRISM FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ MARK A. FILLER
------------------------------
Name: Mark A. Filler
Title: President and Chief Executive Officer
Acquiror agrees that as of the Effective Time it will
honor this Agreement and treat the Agreement as its own.
ACQUIROR
ROYAL BANK OF CANADA,
a Canadian commercial bank
By: /s/ ROBERT K. HORTON
--------------------------------
Name: Robert K. Horton
Title: Senior Vice President, Strategic
Initiatives
By: /s/ JAMES T. RAGER
----------------------------------
Name: James T. Rager
Title: Vice Chairman, Personal and
Commercial Banking
11
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 10th day of March 2000, by and among
Prism Financial Corporation, a Delaware corporation (the "Company"), Eric A.
Gurry (the "Executive"), and Royal Bank of Canada, a bank organized and existing
under the laws of Canada ("Acquiror").
WHEREAS, Acquiror and the Company have determined that it is in
their respective best interests to assure that the Company will have the
continued dedication of the Executive pending the merger (the "Merger") of the
Company and Rainbow Acquisition Subsidiary, Inc., a Delaware corporation and
wholly owned subsidiary of Acquiror ("Acquisition") pursuant to the Merger
Agreement dated as of March 10, 2000 among the Company, Acquiror and Acquisition
(the "Merger Agreement"), and to provide the Company, as the surviving
corporation of the Merger, with continuity of management. Therefore, in order to
accomplish these objectives, the Executive, Acquiror and the Company have
entered into this employment agreement.
WHEREAS, the Executive desires to accept such continued
employment, subject to the terms and provisions of this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EFFECTIVE TIME. The "Effective Time" shall mean the effective
time of the Merger, provided the Executive is employed by the Company at such
time. As of the Effective Time, any and all other employment agreements entered
into between the Company and Executive prior to the Effective Time (including,
without limitation, any employment agreement entered into among the Company,
Executive and Acquiror in connection with or in contemplation of the
transactions contemplated by the Merger Agreement) shall terminate and become
null and void, provided that any option agreements between the Executive and the
Company shall terminate and become null and void only upon the final installment
payment of the special retention bonus contemplated by Section 2.10(b) of the
Merger Agreement and provided further that upon any termination of the
transactions contemplated by the Merger Agreement, this sentence will be
inapplicable.
2. EMPLOYMENT PERIOD. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing as of the Effective Time and ending on December 31, 2003 (the
"Employment Period").
3. TERMS OF EMPLOYMENT.
(a) Position and Duties.
(i) During the Employment Period, the Executive
shall serve as Senior Vice President of the Company with the appropriate
authority, duties and
<PAGE> 2
responsibilities attendant to such position. After the Employment Period,
the Executive may continue to serve the Company under a mutually agreed
upon arrangement.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote substantially all of his business
attention and time to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, it shall not be a violation of this Agreement for the
Executive (A) to continue, with respect to current positions and
arrangements disclosed to the Board and, with prior written approval of
the Board of Directors of the Company (the "Board"), with respect to
future positions and arrangements, to, serve on a reasonable number of
corporate, civic or charitable boards or committees (and promptly after
the Effective Time, Executive will submit to the Board a list of all
existing board or committee memberships and submit to the Board for
approval a list of pending or future board or committee memberships,
which approval will not be unreasonably withheld); (B) deliver a
reasonable number of lectures and speeches and (C) manage personal
investments, so long as such activities do not interfere with the proper
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
(b) Compensation.
(i) Annual Base Salary. During the initial twelve
months of the Employment Period, the Executive shall receive an annual
base salary ("Annual Base Salary") of $150,000, payable in accordance
with regular payroll practices of the Company. Thereafter, the Executive
shall receive an annual base salary in an amount determined by the Board,
but not less than his initial Annual Base Salary with any such increased
amount thereafter being the Annual Base Salary. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. The Executive shall not be entitled
to receive any additional consideration for service during the Employment
Period as a member of the Board of Directors of the Company or any of its
subsidiaries.
(ii) Interim Bonus and Annual Bonus. Provided the
Executive's employment has not been terminated for Cause or due to a
voluntary termination by the Executive (other than due to Constructive
Termination, death or Disability) on the respective dates of payment, the
Executive shall be eligible to participate in a bonus pool (the "Interim
Bonus") on December 31, 2000 where the aggregate pool for all
participants shall not be less than $105,000. The Executive shall be
eligible to participate in an annual cash bonus pool for executives
("Annual Bonus") with respect to the first 12 months of this Agreement,
whereby the aggregate pool for all participants shall not be less than
$1,825,000 to be paid no later than 13 months after the date of this
Agreement. The distribution of 50% of the Annual Bonus Pool will be
unconditional and solely at the discretion of Mark Filler (with no
restriction whatsoever) and the remainder at the discretion of the Board.
Thereafter, the Executive shall be
2
<PAGE> 3
eligible to receive annual bonuses during the Employment Period in an
amount and in accordance with any plan as may be determined by the Board.
(iii) Stock Options. The Executive shall be eligible
to particpate in the Acquiror's 1999 Stock Option Plan (the "Plan"), with
grants made at the discretion of the Acquiror's Board of Directors. Any
stock options granted to the Executive shall be subject to all of the
terms and conditions of the Plan, including applicable provisions
regarding vesting, and expiration of options upon termination of
employment. Such stock options shall be administered in accordance with
the Plan attached hereto as Appendix A and pursuant to a Stock Option
Agreement reasonably acceptable, including as to vesting, to the
Executive.
(iv) Other Employee Benefit Plans. During the
Employment Period, except as otherwise expressly provided herein, the
Executive shall be entitled to participate in all employee benefit,
welfare and other plans, practices, policies and programs of the Company
(collectively, "Employee Benefit Plans"), subject only to the generally
applicable eligibility provisions of such plans; provided that the
Executive shall at all times during the Employment Period, be entitled to
receive benefits that are comparable to those provided to other employees
in positions of comparable rank with the Acquiror and its wholly owned
subsidiaries.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the
Employment Period and in that case the Date of Termination shall be the date of
death. If the Company determines in good faith that the Executive has become
Disabled during the Employment Period (pursuant to the definition of "Disabled"
or "Disability" set forth below), the Company may terminate Executive's
employment by giving written notice to the Executive in accordance with Section
10(b) of this Agreement of the Company's intention to terminate Executive's
employment. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
whether the Executive has become "Disabled" (or incurs a Disability) shall be
determined under the Company's long-term disability plan as in effect for
employees of the Company as of the date of this Agreement. If the
Executive's employment is terminated by reason of disability, the Date of
Termination shall be the Disability Effective Date, or any later date specified
by the Company.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the commission by the Executive of an act of
criminal or fraudulent misconduct that results in material economic harm
or acute public embarrassment to the Company, its parent or a subsidiary
of the Company (including, but not limited to, the willful violation of
any material law, rule, regulation, or cease and
3
<PAGE> 4
desist order applicable to the Executive) or a deliberate breach of a
fiduciary duty owed by the Executive to the Company, its parent or its
parent's shareholders;
(ii) the Executive's habitual absence from work other
than as a result of illness or Disability, continuous and intentional
failure to perform stated duties, gross negligence, or gross incompetence
in the performance of the Executive's stated duties provided that the
Executive shall be provided notice of any situation set forth herein and
a reasonable opportunity to cure such situation;
(iii) the Executive's chronic alcohol or drug abuse
that results in a material impairment of the Executive's ability to
perform his or her duties as an employee of the Company provided that the
Executive shall be provided a reasonable opportunity to cure if the
Executive demonstrates a willingness to undergo treatment or
rehabilitation;
(iv) the rendering of a verdict of guilty against or
the entering of a nolo contendere plea by the Executive for any felony
offense (other than a law relating to a traffic violation or similar
offense), whether or not in the line of duty to the Company; or
(v) the final determination by a state or federal
banking agency or governmental authority having jurisdiction over the
Company that the Executive is not suitable to act in the capacity in
which he is employed by the Company or a downgrading in ratings by such
authority, as evidenced in the "Management Aspects During the Annual
Review," on the basis of such determination.
(c) Notice of Termination. Termination of employment by
the Company or by the Executive shall be communicated by Notice of Termination
to the other party hereto given in accordance with this Section 10(c). For
purposes of this Agreement, a "Notice of Termination" means a written notice
which indicates the Date of Termination, as specified below. The "Date of
Termination" means:
(i) if the Executive's employment is terminated by
the Company for Cause, the date of receipt of the Notice of Termination
or any later date specified therein within 30 days of such notice, or
(ii) if the Executive's employment is terminated by
the Executive, a date not less than 30 days after the date of the Notice
of Termination, provided, however, that the Company may waive such 30-day
provision.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death or Disability. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive under this Agreement, other than for payment of:
4
<PAGE> 5
(i) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid;
(ii) the Interim Bonus and the Annual Bonus awarded
for the first twelve months of service, in each case to the extent not
theretofore paid;
(iii) a pro rata portion of the annual bonus awarded
for the fiscal year in which the Date of Termination occurs and the
annual bonus awarded for any fiscal year prior thereto, in each case to
the extent earned, accrued or owing to the Executive but not theretofore
paid; and
(iv) any other amounts or benefits required to be
paid or provided or which the Executive is eligible to receive through
the Date of Termination under any plan, program, policy or practice or
contract or agreement of the Company, to the extent not theretofore paid
or provided (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits") through the Date of Termination and
continuation of insurance plans as provided under COBRA.
Any Annual Base Salary, Interim Bonus and Annual Bonus payable pursuant
to this Section 5(a) shall be paid to the Executive as applicable, in a lump sum
in cash within 30 days after the Date of Termination; in the case of a pro-rated
Annual Bonus, as soon as practicable after the date such bonus is determined.
(b) Termination Without Cause. If the Executive's
employment is terminated by the Company without Cause, or if the Executive
terminates as a result of a Constructive Termination (as defined below), this
Agreement shall terminate without further obligations to the Executive under
this Agreement, other than for payment of:
(i) the Executive's Annual Base Salary through the
Employment Period to the extent not theretofore paid;
(ii) the Interim Bonus and the Annual Bonus awarded
for the first twelve months of service, in each case to the extent not
theretofore paid;
(iii) a pro rata portion of the annual bonus awarded
for the fiscal year in which the Date of Termination occurs and the
annual bonus for any fiscal year prior thereto, in each case to the
extent earned, accrued or owing to the Executive but not theretofore
paid; and
(iv) Other Benefits through the Date of Termination
and continuation of insurance plans as provided under COBRA.
For purposes of this Agreement, "Constructive Termination" means the
Executive's voluntary termination of employment after any of the following are
undertaken without the Executive's express written consent: (A) the assignment
to the Executive of any duties or responsibilities
5
<PAGE> 6
inconsistent with the Executive's title and position, authority, duties or
responsibilities as contemplated by Section 3(a)(i) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for the purpose of this clause
(A) an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive; (B) a reduction in the Executive's Annual Base Salary or
change in the Annual Bonus pool; (C) a relocation of the Executive to a location
more than ten (10) miles from the location at which the Executive performed his
duties immediately prior to the Effective Time, except for required travel by
the Executive on the Company's business to an extent substantially consistent
with the Executive's business travel obligations prior to the Effective Time or
(D) any breach by the Company or Acquiror of this Agreement.
(c) Termination for Cause; Voluntary Termination. If the
Executive's employment shall be terminated by the Company for Cause or the
Executive terminates his employment prior to the end of the Employment Period on
his own initiative (other than due to Constructive Termination, death or
Disability), this Agreement shall terminate without further obligation to the
Executive other than the obligation to pay to the Executive his Annual Base
Salary through the Date of Termination to the extent theretofore unpaid and the
Other Benefits through the Date of Termination.
6. NO MITIGATION. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
and such amounts shall not be reduced whether or not the Executive obtains other
employment.
7. COVENANT NOT TO COMPETE; CONFIDENTIAL INFORMATION;
INTELLECTUAL PROPERTY.
(a) During the term of this Agreement, and for a period of
six (6) months after the Date of Termination, the Executive shall not:
(i) directly or indirectly, own, manage, operate,
join, control, or participate in the ownership, management, operation or
control of, or be employed by or perform services for, any Competing
Business, whether for compensation or otherwise, without the prior
written consent of the Company. For the purposes of this Agreement, a
"Competing Business" shall be (A) any business by which the Executive is
employed which is, at the Date of Termination, a significant competitor
of the Company; it being agreed that the term "business" shall refer to
the specific division or subsidiary by which Executive is employed, not
such division's or subsidiary's corporate group; (B) any Company the
primary business of which is the origination of residential mortgage
loans whether or not Executive is employed by such business; or (C) any
affordable or historic tax syndication business; provided, that, the
Executive may own up to five percent (5%) (measured by value) of the
outstanding securities of any public entity, the shares of which are
traded on a national stock exchange or quoted on the Nasdaq National
Market;
6
<PAGE> 7
(ii) in any manner, directly or indirectly, Solicit a
Client to transact business with a Competing Business or to reduce or
refrain from doing any business with the Company, or interfere or damage
(or attempt to interfere with or damage) any relationship between the
Company and a Client. For purposes of the Agreement, the term "Solicit"
means any direct or indirect written or oral communication , inviting,
advising, encouraging, inducing or requesting any person or entity, in
any manner, to take or refrain from taking any action. For purposes of
this Agreement, the term "Client" means any client or customer or
prospective client or customer of the Company to whom the Executive
provided services, or for whom the Executive transacted business, or
whose identity became known to the Executive in connection with the
Executive's relationship with or employment by the Company; or
(iii) directly or indirectly (whether on the
Executive's own behalf or on behalf of any other person or entity)
solicit, entice, advise or encourage any officer, employee or consultant
(determined as of the Date of Termination of the Executive) of the
Company or any of its affiliates or subsidiaries to terminate such
person's or entity's employment or consulting relationship or with
respect to any officer or employee of the Company or its subsidiaries,
hiring any such officer or employee.
(b) The Executive hereby acknowledges that, as an employee
of the Company, he will have access to, be making use of, acquiring and adding
to confidential information of a special and unique nature and value relating to
the Company and its strategic plan and financial operations. The Executive
further recognizes and acknowledges that all confidential information is the
exclusive property of the Company, is material and confidential, and is critical
to the successful conduct of the business of the Company. Accordingly, the
Executive hereby covenants and agrees that he will only use confidential
information for the benefit of the Company or any of its affiliates or
subsidiaries and in the course of his employment for the Company and shall not
at any time, directly or indirectly, during the term of this Agreement and
thereafter, divulge, reveal or communicate any confidential information to any
person, firm, corporation or entity whatsoever, or use any confidential
information for his own benefit or for the benefit of others except as provided
herein. All confidential information removed by the Executive shall be returned
to the Company upon termination of his employment and no copies thereof shall be
kept by the Executive.
(c) Any termination of the Executive's employment or of
this Agreement shall have no effect on the continuing operation of this Section
7.
(d) In addition to the cessation of payments set forth in
Section 7(f), the Executive acknowledges and agrees that the Company will have
no adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 7. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 7,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable remedies that the Company may have. The Executive further
agrees that he shall not, in any equity proceeding relating to the enforcement
of the terms of this Section 7, raise the defense that the Company has an
adequate remedy at law.
7
<PAGE> 8
(e) The terms and provisions of this Section 7 are intended
to be separate and divisible provisions and if, for any reason, any one or more
of them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 7 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 7
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(f) The parties acknowledge that this Agreement would not
have been entered into and the benefits described in Sections 3 or 5 would not
have been promised in the absence of the Executive's promises under this Section
7 and that should the Executive be finally determined by an arbitrator to have
engaged in any activity or conduct proscribed hereunder, all payments under this
Agreement other than Other Benefits to the extent required to be continued by
law or by the terms of the applicable plan shall cease.
(g) The Executive hereby assigns to the Company all of
Executive's right, title and interest in and to, inventions, trade secrets,
works of authorship, ideas, methods, improvements, databases, know-how, data,
developments or discoveries, whether or not patentable or copyrightable (the
"Work Product") which (i) will be, are or have been made, invented, conceived,
reduced to practice, developed or created during the Employment Period or (ii)
using the equipment, supplies, facilities and/or confidential or proprietary
information of the Company. The Executive will take such action as may be
necessary to assist the Company in obtaining statutory or common law protections
for the Work Product.
8. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. Any
purported or attempted assignment in violation hereof shall be null and void.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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9. ARBITRATION. Any and all disputes, claims or controversies,
arising from or regarding the interpretation, performance, enforcement or
termination of this Agreement shall (except as provided herein with respect to
injunctive relief) be resolved by final and binding confidential arbitration, to
be held in Chicago, Illinois, in accordance with the Employment Arbitration
Rules of the American Arbitration Association and this Section 9. Nothing in
this Section is intended to prevent either party from obtaining either
injunctive relief in court to prevent irreparable harm pending the conclusion of
any such arbitration or from utilizing any judicial court system to seek
enforcement of an arbitration award.
10. MISCELLANEOUS.
(a) Any capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(c) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery or overnight courier to the other
parties or by registered or certified mail, return receipt requested, postage
prepaid, addressed or by facsimile transmitted as follows:
If to the Executive:
Eric A. Gurry
1640 N. Burling Street, #3
Chicago, Illinois 60614
Telecopier: 312-494-0184
If to the Company:
440 North Orleans
Chicago, Illinois 60610
Attn: Mark A. Filler
Telecopier: 312-494-0184
If to the Acquiror:
Royal Bank of Canada
200 Bay Street
14th Floor, North Tower
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<PAGE> 10
Toronto, Ontario, Canada
Attn: Robert K. Horton
Telecopier: 416-974-9344
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation or may condition any
transfer of property to the Executive on the Executive's satisfaction of such
withholding obligations in a manner satisfactory to the Company.
(f) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder shall not be deemed to
be a waiver of such provision or right or any other provision or right of this
Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
EXECUTIVE
/s/ ERIC A. GURRY
---------------------------
Eric A. Gurry
COMPANY
PRISM FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ MARK A. FILLER
---------------------------
Name: Mark A. Filler
Title: President and Chief Executive Officer
Acquiror agrees that as of the Effective Time it will honor this
Agreement and treat the Agreement as its own.
ACQUIROR
ROYAL BANK OF CANADA,
a Canadian commercial bank
By: /s/ ROBERT K. HORTON
---------------------------
Name: Robert K. Horton
Title: Senior Vice President, Strategic
Initiatives
By: /s/ JAMES T. RAGER
---------------------------
Name: James T. Rager
Title: Vice Chairman, Personal and
Commercial Banking
11
