FORM OF
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (the "AGREEMENT"), effective as of March 19,
1999, by and among the shareholders (the "SHAREHOLDERS") of Prism Mortgage
Company, an Illinois corporation ("PRISM MORTGAGE"), set forth on signature
pages hereto, and Prism Financial Corporation, a Delaware corporation ("PRISM
FINANCIAL"). Prism Mortgage and Prism Financial are hereinafter referred to
collectively as the "CORPORATIONS."
WITNESSETH:
WHEREAS, the authorized capital of Prism Mortgage consists of
A. 1,000,000 shares of common stock, par value $.01 per share ("PRISM
MORTGAGE COMMON STOCK"), of which 111,942 are issued and outstanding on the date
hereof;
B. no shares of preferred stock; and
C. the Shareholders collectively hold all of the issued and outstanding
Prism Mortgage Common Stock.
WHEREAS, Prism Financial is a wholly-owned subsidiary of Prism Mortgage,
and its authorized capital stock currently consists of
A. 1,000 shares of common stock, par value $.01 per share, of which 100
shares are issued and outstanding and owned by Prism Mortgage; and
B. no shares of preferred stock.
WHEREAS, upon filing its amended and restated certificate of incorporation
(the "AMENDED CERTIFICATE") with the Secretary of State of the State of
Delaware, Prism Financial's capital stock will consist of
A. 100,000,000 shares of common stock ("PRISM FINANCIAL COMMON STOCK");
and
B. 10,000,000 shares of preferred stock.
WHEREAS, immediately prior to the consummation of the transactions
contemplated by this Agreement, pursuant to the Put Agreement or Call Agreement,
each of which was made and entered into as of the 31st day of December, 1998, by
and between Xxxxx Xxxxxx and GEM Value/Prism, LLC, the Put Agreement or Call
Agreement, each of which was made and entered into as of the 31st day of
December, 1998, by and between Xxxx Xxxxxx and GEM Value/Prism, LLC and the Put
Agreement or Call Agreement, each of which was made and entered into as of the
31st day of December, 1998, by and between Xxxxx Xxxxxx and GEM Value/Prism, LLC
(collectively the "SALE AGREEMENTS"), three of the Shareholders will sell a
portion of their shares of Prism Mortgage Common Stock to GEM Value/Prism, LLC
(the "SHAREHOLDER SALE") such that GEM Value/Prism, LLC shall be a shareholder
of Prism Mortgage and shall be included in the definition of Shareholder for all
purposes of this Agreement;
WHEREAS, each of the Shareholders desires to exchange all of its respective
shares of Prism Mortgage Common Stock, upon the terms and conditions set forth
in this Agreement, for shares of Prism Financial Common Stock (the "EXCHANGE");
and
WHEREAS, immediately following the Exchange and pursuant to an integrated
plan that includes the Exchange, Prism Financial will sell up to 2,875,000
shares of Prism Financial Common Stock (the "IPO") to the public pursuant to a
"firm commitment" underwriting agreement (the "UNDERWRITING AGREEMENT") such
that, immediately after the Exchange and IPO, the Shareholders and persons who
acquired shares of Prism Financial Common Stock pursuant to the IPO will own all
of the issued and outstanding shares of Prism Financial Common Stock; and
WHEREAS, the Shareholders intend that the Exchange constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the Exchange and IPO constitute a
transaction described in Section 351 of the Code;
NOW, THEREFORE, each of the Shareholders and Prism Financial hereby agree
as follows:
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ARTICLE I
Prism Financial hereby agrees to issue to each Shareholder that number of
shares of Prism Financial Common Stock set forth opposite such Shareholder's
name in column 3 of Attachment 2 hereto in exchange for the transfer by such
Shareholder to Prism Financial of all of such Shareholder's Prism Mortgage
Common Stock, which number is set forth opposite such Shareholder's name in
column 2 of Attachment 2 hereto. Subject to the terms and conditions of this
Agreement, the foregoing exchange shall become effective upon the satisfaction
or waiver of the conditions contained in Article IV hereof (the "EFFECTIVE
TIME").
ARTICLE II
The closing (the "CLOSING") of the transactions contemplated by this
Agreement shall be held immediately prior to the closing of the IPO. The date
of the Closing is herein referred to as the "CLOSING DATE."
ARTICLE III
A. Each Shareholder, severally and not jointly, represents and warrants
to Prism Financial that:
1. Each Shareholder owns its Prism Mortgage Common Stock in the
amount set forth opposite such Shareholder's name in column 2 of Attachment 2
hereto free and clear of any encumbrances, liens, pledges, security interests,
pre-emptive rights, voting or other trusts or any other restriction of any kind
whatsoever ("ENCUMBRANCES") except for Encumbrances arising from the Sale
Agreements or transactions with Xxxx Xxxxxx Bank pursuant to those certain
agreements listed on Attachment 3 hereto which such Encumbrances shall be
removed prior to the Effective Time, and, upon consummation of the transactions
contemplated by this Agreement, Prism Financial shall have good title to the
Prism Mortgage Common Stock exchanged by such Shareholder free and clear of all
Encumbrances.
2. Each Shareholder that is not an individual is duly organized
and validly existing under the laws of the state of its formation and has all
requisite powers and authority to own its assets and properties and to conduct
its business.
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3. No approval, proceeding or action, corporate, trust,
partnership, membership or other, on the part of any of the Shareholders or any
of their respective shareholders, beneficiaries, partners or members is
necessary to authorize the execution and delivery by such Shareholder of this
Agreement and the consummation by it of the transactions contemplated hereby.
4. Each Shareholder has full legal right, power and authority to
enter into and deliver this Agreement and to perform the terms, conditions and
obligations hereof. The execution, delivery and performance of this Agreement
do not, and the Exchange will not, (i) violate or conflict with (a) any law,
rule or regulation applicable to such Shareholders, (b) the certificate of
incorporation, bylaws, trust agreements, partnership, operating agreements or
similar formation documents, if any, of any Shareholder or (c) any agreement,
instrument or license to which such Shareholder is a party, or by which any such
Shareholder or any of its assets or properties may be bound or subject, (ii)
result in the creation of any encumbrance or charge upon Prism Mortgage Common
Stock or (iii) or violate any order, judgment, injunction, award or decree
applicable to such Shareholder of any court, arbitrator, governmental or
regulatory body. This Agreement constitutes the valid and legally binding
obligation of each Shareholder enforceable against each Shareholder in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally or general principles of
equity.
5. Such Shareholder, as of the date hereof, has, and as of the
Closing Date, will have:
(a) acknowledged that neither such Shareholder nor anyone
acting on such Shareholder's behalf has directly or indirectly offered the Prism
Financial Common Stock or any part thereof for sale to, or solicited any offer
to buy the same from, any other person;
(b) acknowledged that the Prism Financial Common Stock will
not be registered as of the Closing Date under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), by reason that the sale contemplated hereby is
exempt from registration pursuant to Section 4 of the Securities Act, and that
reliance of Prism Financial on such exemption is predicted in part on the
representations set forth in this Section 5 of Article III;
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(c) represented and warranted that the Prism Financial
Common Stock is being acquired by such Shareholder for its own account and not
with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act;
(d) represented and warranted that such Shareholder has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of such Shareholder's investment, and has the
ability to suffer the total loss of such Shareholder's investment;
(e) represented and warranted that, in making the decision
to acquire the Prism Financial Common Stock, such Shareholder has relied upon
independent investigations made by such Shareholder and, to the extent believed
appropriate by such Shareholder, by such Shareholder's own professional,
financial, tax and other advisors;
(f) represented and warranted that such Shareholder has had
access prior to its acquisition of the Prism Financial Common Stock to such
information relating to Prism Financial as it desired and that it has had the
opportunity to ask questions of and receive answers from the Corporations
concerning the terms and conditions of the offering of the Prism Financial
Common Stock and the IPO and to obtain additional information (to the extent the
Corporations possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify that accuracy of any information
furnished to it or to which it had access;
(g) represented and warranted that the offering to such
Shareholder was made only through direct personal communication between such
Shareholder and a representative of the Corporations and not through public
solicitation or advertising; and
(h) acknowledged that such Shareholder understands that the
Prism Financial Common Stock may not be sold, transferred or otherwise disposed
of without registration under the Securities Act or an exemption therefrom and
that, in the absence of an effective registration statement covering the Prism
Financial Common Stock or an available exemption from registration under the
Securities Act, the Prism Financial Common Stock must be held indefinitely.
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6. Such Shareholder will, at the time of the Exchange and
immediately after the Exchange and IPO, (i) have beneficial ownership of all
shares of Prism Financial Common Stock received by such Shareholder pursuant to
the Exchange, (ii) except with respect to certain pledges described in
Attachment 3, not have entered into any agreement or arrangement of any kind to
sell, exchange or otherwise dispose of any of such shares and (iii) have no plan
or intention to sell, exchange or otherwise dispose of such shares.
B. Prism Financial represents and warrants to each Shareholder that:
1. Prism Financial is duly organized and validly existing under
the laws of the State of Delaware.
2. Prism Financial has full legal right, power and authority to
enter into and deliver this Agreement and to perform the terms, conditions and
obligations hereof. The execution, delivery and performance of this Agreement
do not, and the Exchange will not, (i) violate or conflict with (a) any law,
rule or regulation applicable to Prism Financial, (b) Prism Financial's charter
or bylaws or (c) any agreement, instrument or license to which Prism Financial
is a party, or by which Prism Financial or any of its assets or properties may
be bound or subject, (ii) result in the creation of any encumbrance or charge
upon Prism Financial Common Stock or (iii) violate any order, judgment,
injunction, award or decree applicable to Prism Financial of any court,
arbitrator, governmental or regulatory body. This Agreement constitutes the
valid and legally binding obligation of Prism Financial enforceable against
Prism Financial in accordance with its terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting enforcement of creditor's rights generally or
general principles of equity.
3. Prism Financial Common Stock, when issued and delivered
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
4. The authorized capital stock of Prism Financial consists
solely of (a) 100,000,000 shares of common stock, of which approximately
15,000,000 shares will be issued and outstanding upon consummation of the IPO,
and (b) 10,000,000 shares of preferred stock, none of which will be issued and
outstanding upon consummation of the IPO.
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ARTICLE IV
At the Closing:
A. Each Shareholder will deliver to Prism Financial such Shareholder's
Prism Mortgage Common Stock representing the number of shares of Prism Mortgage
Common Stock set forth opposite such Shareholder's name in column 2 of
Attachment 2 hereto, with a stock power duly endorsed.
B. Prism Financial will deliver to each Shareholder certificates (in
such denominations and registered in such names as each Shareholder may request)
representing the number of shares of Prism Financial Common Stock set forth
opposite such Shareholder's name in column 3 of Attachment 2 hereto.
C. Each share of Prism Financial Common Stock held by Prism Mortgage
shall be cancelled.
ARTICLE V
A. The obligation of Prism Financial to consummate the transactions
contemplated hereby on the Closing Date is subject, at its option, to:
1. the representations and warranties of the Shareholders being
true and correct on the Closing Date with the same effect as if such
representations and warranties had been made at and as of that time;
2. Prism Financial Common Stock to be issued in connection with
the exchange shall have been listed, subject to official notice of issuance, by
the Nasdaq National Market;
3. the closing of the transactions contemplated by the
Shareholder Sale;
4. the concurrent closing of the IPO; and
5. the delivery by each of the Shareholders of its Prism Mortgage
Common Stock in an amount set forth opposite such Shareholder's name in column 3
of Attachment 2 hereto.
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B. The obligation of the Shareholders to consummate the transactions
contemplated hereby on the Closing Date is subject, at their option, to:
1. the representations and warranties of Prism Financial being
true and correct on the Closing Date with the same effect as if such
representations and warranties had been made at and as of such time;
2. Prism Financial Common Stock to be issued in connection with
the Exchange shall have been listed, subject to official notice of issuance, by
the Nasdaq National Market;
3. the concurrent closing of the IPO; and
4. the delivery of a true, correct and complete copy of an
executed underwriting agreement entered into in connection with the IPO.
ARTICLE VI
A. Each Shareholder agrees and acknowledges that it will not, directly
or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any Prism Financial Common Stock (each a "TRANSFER") unless: (i) the
transfer is exempt from the registration requirements of the Securities Act and
any applicable state securities laws, (ii) if Prism Financial so requests, Prism
Financial receives from the transferor an unqualified opinion of counsel that
such transfer may be effected without registration under the Securities Act and
any applicable state securities laws, and (iii) the transferee shall agree in
writing, in form and substance satisfactory to Prism Financial to become, and
becomes, bound by the restrictions on transfer applicable to a Shareholder
contained in this Section A of Article VI; PROVIDED that such restrictions shall
not apply to the sale of shares of Prism Mortgage Common Stock pursuant to the
Underwriting Agreement. Each subsequent holder of the Prism Financial Common
Stock by taking and holding the same shall be deemed to represent and warrant to
the parties hereto the representations and warranties set forth in Sections
5(a), (f), (h) and (i) of Article III hereof.
1. Any purported transfer in violation of this Section A of
Article VI shall be null and void and of no force or effect.
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2. The restrictions on transfer contained in this Section A of
Article VI shall not apply to any transfer pursuant to an effective registration
statement under the Securities Act or Rule 144 under the Securities Act as such
rule may be amended from time to time, in compliance with all applicable state
securities laws; PROVIDED, HOWEVER, that a Shareholder transferring Prism
Financial Common Stock pursuant to Rule 144 shall have its counsel provide the
Company with an opinion of the type customarily given in connection with any
sale pursuant to Rule 144.
B. Each certificate representing shares of Prism Financial Common Stock
issued hereunder shall bear substantially the following legend (unless and until
Prism Financial determines, based on the advice of counsel, that such legend is
no longer required to appear thereon):
"THE SHARES REPRESENTED BY THIS CERTIFICATE (THE 'SHARES') HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
'ACT'), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE
UNITED STATES OR OTHER JURISDICTION. NEITHER THE SHARES NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, SUCH REGISTRATION REQUIREMENTS. BY THE ACQUISITION HEREOF, THE
HOLDER AGREES THAT SUCH HOLDER WILL GIVE EACH PERSON TO WHOM THE SHARES ARE
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN THE
CASE OF ANY TRANSFER OR OTHER DISPOSITION MADE OTHERWISE THAN PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, THE HOLDER HEREOF SHALL
BE REQUIRED TO PROVIDE TO THE COMPANY, PRIOR TO SUCH TRANSFER, AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM,
OR NOT SUBJECT TO, REGISTRATION UNDER THE ACT AND IN COMPLIANCE WITH ALL
APPLICABLE STATE SECURITIES LAWS.
"IN ADDITION, THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A SHARE
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EXCHANGE AGREEMENT EFFECTIVE AS OF MARCH 19, 1999, BY AND AMONG PRISM
FINANCIAL AND EACH OF THE SHAREHOLDERS LISTED ON THE SIGNATURE PAGES
THERETO, TO WHICH REFERENCE IS MADE FOR THE TERMS AND PROVISIONS THEREOF.
A COPY OF THE SHARE EXCHANGE AGREEMENT MAY BE OBTAINED UPON REQUEST FROM
THE SECRETARY OF PRISM FINANCIAL AND MAY BE INSPECTED AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
C. At any time prior to the Closing Date, Prism Financial and the
Shareholders may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of the parties hereto, (c)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (d) waive compliance with any of
the agreements or conditions contained herein. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver under this Section C of Article VI shall be valid only if set forth in an
instrument in writing signed on behalf of such party. Except with respect to
the Registration Rights Agreement, this Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
agreements between the parties relating to the subject matter hereof.
D. Each of the Shareholders and Prism Financial agrees that it will (i)
report the Exchange and IPO as a transaction described in Section 351 of the
Code (and any similar provision of applicable state and local law) (a "SECTION
351 TRANSACTION") in all tax returns and filings and (ii) take no position that
is inconsistent with the characterization of the Exchange and IPO as a Section
351 Transaction in any audit, litigation or other proceeding.
E. This Agreement may be terminated at any time prior to the Closing:
1. by mutual consent of the parties hereto; and
2. by Prism Financial or any of the Shareholders if the Closing
does not occur on or before August 31, 1999; provided that neither Prism
Financial nor any Shareholder shall be entitled to terminate this Agreement
pursuant to this Section E of Article VI if such party's knowing or willful
breach of this Agreement has prevented the consummation of the transactions
contemplated hereby.
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F. All communications hereunder will be in writing and, if sent to
Prism Financial, will be marked, delivered, telecopied or telegraphed and
confirmed to Prism Financial Corporation, 000 X. Xxxxxxx, Xxxxxxx, XX 00000,
Attn: Xxxxx X. Xxxxxx, Fax No. (000) 000-0000, and, if sent to any of the
Shareholders, to the applicable Shareholder at the address listed on Attachment
2 hereto, or another address if supplementally supplied by such Shareholder to
the other parties hereto.
G. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
H. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
I. If any article, paragraph or provision of this Agreement is for any
reason determined to be invalid or unenforceable, such determination shall not
affect the validity or enforceability of any other article, paragraph or
provision hereof.
J. This Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors and legal representatives.
K. All representations and warranties contained in this Agreement shall
survive the execution and delivery of this Agreement.
L. Any legal action, suit or proceeding arising out of or relating to
this Agreement or the Exchange may be instituted only in the Federal or state
courts within the State of Illinois, and each party irrevocably submits to the
jurisdiction of such courts in any action, suit or proceeding, and each party
hereto agrees not to assert by way of motion as a defense or otherwise, in any
such action, suit or proceeding, any claim that it is not subject personally to
the jurisdiction of such courts, that the action, suit or proceeding is brought
in an inconvenient forum, that the venue of the action, suit or proceeding is
improper or that this Agreement or the subject matter hereof or thereof may not
be enforced in or by such courts.
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IN WITNESS WHEREOF, each of the Shareholders listed below and Prism
Financial, pursuant to authorization and approval given by its Board of
Directors, has caused this Agreement to be executed as of the date first above
written.
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Xxxxx X. Xxxxxx, solely in his capacity
as a shareholder of Prism Mortgage
Company
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Xxxxx X. Xxxxxx, solely in his capacity
as a shareholder of Prism Mortgage
Company
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Xxxx X. Filler, solely in his capacity
as a shareholder of Prism Mortgage
Company
-----------------------------------------
Xxxx Xxxxxxx, solely in her capacity as
a shareholder of Prism Mortgage Company
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Xxxxxxx X. Xxxxxxx, solely in his
capacity as a shareholder of Prism
Mortgage Company
-----------------------------------------
Xxxxx X. Xxxxxxx, solely in his
capacity as a shareholder of Prism
Mortgage Company
CTC TRUST
By:
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Name:
Title:
DONROSE TRUST
By:
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Name:
Title:
JBR TRUST #4
By:
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Name:
Title:
T&M CHILDREN'S TRUST
By:
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Name:
Title:
GEM/PRISM, LLC
By:
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Name:
Title:
XXXXXX CAPITAL TRUST
By:
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Name:
Title:
PRISM FINANCIAL CORPORATION
By:
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Name:
Title:
