Exhibit 10.2
AGREEMENT FOR THE PURCHASE AND SALE
OF THE CAPITAL STOCK OF
PACIFIC GUARANTEE MORTGAGE CORPORATION
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
The omitted text has been marked with a bracketed asterisk ("[*]") and has
been filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2
Purchase and Sale of Shares . .. . . . . . . . . . . . . . . . . . . . .5
2.1 Agreement to Sell and Purchase. . . . . . . . . . . . . . . . . .5
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 3
Consideration and Payment of Terms . . . . . . . . . . . . . . . . . .5
3.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 Additional Consideration. . . . . . . . . . . . . . . . . . . . .6
ARTICLE 4
Representations and Warranties of Sellers. . . . . . . . . . . . . . . 10
4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . 10
4.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 No Restrictions; Binding Effect; Approval of Change of
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Title to the Shares . . . . . . . . . . . . . . . . . . . . . . 12
4.7 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 12
4.8 Corporate Records and Action. . . . . . . . . . . . . . . . . . 13
4.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 13
4.10 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 Events Since December 31, 1997. . . . . . . . . . . . . . . . . 14
4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.13 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . 16
4.14 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . 17
4.15 Accounts Receivable; Notes Receivable . . . . . . . . . . . . . 17
4.16 Intellectual Property and Software. . . . . . . . . . . . . . . 17
4.17 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . 19
4.18 Litigation; Regulatory Examination. . . . . . . . . . . . . . . 20
4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.20 Schedule of Loans . . . . . . . . . . . . . . . . . . . . . . . 21
4.21 Compliance with Law Including Consumer Law. . . . . . . . . . . 21
4.22 Forms; Policies and Procedures. . . . . . . . . . . . . . . . . 22
4.23 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . 22
4.24 Environmental Warranties. . . . . . . . . . . . . . . . . . . . 22
4.25 Payroll List. . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.26 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 24
4.27 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . 24
4.28 Employee Policies . . . . . . . . . . . . . . . . . . . . . . . 24
i
PAGE
----
4.29 Referral Sources; Investors . . . . . . . . . . . . . . . . . . 25
4.30 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.31 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . 25
4.32 Personal Guarantees . . . . . . . . . . . . . . . . . . . . . . 25
4.33 Brokerage Fee . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.34 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 25
4.35 Business Records. . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 5
Representations and Warranties of Purchaser. . . . . . . . . . . . . . 26
5.1 Organization and Standing . . . . . . . . . . . . . . . . . . . 26
5.2 No Restrictions; Authorization; Binding Effect; Approval
of Change of Control. . . . . . . . . . . . . . . . . . . . . 26
5.3 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . 27
5.6 Authorization for Common Stock Issued by Purchaser. . . . . . . 27
5.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 27
5.8 No Material Adverse Change or Extraordinary Dividends
or Distributions. . . . . . . . . . . . . . . . . . . . . . . 27
5.9 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 28
5.10 Corporate Records and Action. . . . . . . . . . . . . . . . . . 28
5.11 Events Since December 31, 1997. . . . . . . . . . . . . . . . . 28
5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.13 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . 30
5.14 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . 30
5.15 Accounts Receivable; Notes Receivable . . . . . . . . . . . . . 30
5.16 Litigation; Regulatory Examination. . . . . . . . . . . . . . . 31
5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.18 Compliance with Consumer Law. . . . . . . . . . . . . . . . . . 31
5.19 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . 31
5.20 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 32
5.21 Brokerage Fee . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.22 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 32
5.23 Warehouse Line and Gestation Repo Line Terms. . . . . . . . . . 32
ARTICLE 6
Covenants of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Conduct of Businesses; Notification of Breaches in
Representations or Warranties . . . . . . . . . . . . . . . . 32
6.2 Notification of Breach of Representation, Warranty or
Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Forebearances by PGM. . . . . . . . . . . . . . . . . . . . . . 33
6.4 Good Faith Negotiations . . . . . . . . . . . . . . . . . . . . 34
6.5 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . 34
6.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ii
PAGE
----
6.7 Government Approval. . . . . . . . . . . . . . . . . . . . . . . 35
6.8 Additional Financial Statements. . . . . . . . . . . . . . . . . 36
6.9 Supplements to Schedules . . . . . . . . . . . . . . . . . . . . 36
6.10 Consents of Third Parties. . . . . . . . . . . . . . . . . . . . 36
6.11 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . 36
6.12 Guarantees and Collateral Pledges. . . . . . . . . . . . . . . . 37
6.13 Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 7
Covenants of Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1 Notification of Breach of Warranty or Covenant . . . . . . . . . 37
7.2 Forebearances by Purchaser . . . . . . . . . . . . . . . . . . . 37
7.3 Good Faith Negotiations. . . . . . . . . . . . . . . . . . . . . 38
7.4 Government Approvals . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 8
Joint Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.1 Access and Information . . . . . . . . . . . . . . . . . . . . . 38
8.2 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.3 Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . 40
8.4 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . 40
8.5 Other Documentation. . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 9
Conditions to Obligation to Close . . . . . . . . . . . . . . . . . . . 41
9.1 Mutual Conditions. . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Conditions to Obligations of Purchaser to Effect the
Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.3 Conditions to Obligations of Sellers to Effect the Closing . . . 43
ARTICLE 10
Post Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Post Closing Covenants of Purchaser Regarding
Financing of PGM. . . . . . . . . . . . . . . . . . . . . . . 45
10.2 Covenant Not to Compete and Not to Solicit by Sellers
Surviving Closing . . . . . . . . . . . . . . . . . . . . . . 46
10.3 Limited Indemnification by Sellers. . . . . . . . . . . . . . . 49
10.4 Exposure on Breach of Warranty by Purchaser . . . . . . . . . . 53
10.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.6 Personal Guaranties . . . . . . . . . . . . . . . . . . . . . . 53
10.7 New Joint Venture Operations. . . . . . . . . . . . . . . . . . 53
10.8 Oak Park Estates REO. . . . . . . . . . . . . . . . . . . . . . 54
10.9 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 54
iii
PAGE
----
ARTICLE 11
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.1 Termination and Cure Upon Material Adverse Change. . . . . . . . 54
11.2 Other Termination. . . . . . . . . . . . . . . . . . . . . . . . 54
11.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE 12
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.1 Survival of Representations and Warranties . . . . . . . . . . . 55
12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.3 Press Releases; Employee Communications. . . . . . . . . . . . . 56
12.4 Right of Offset. . . . . . . . . . . . . . . . . . . . . . . . . 56
12.5 Written Agreement to Govern. . . . . . . . . . . . . . . . . . . 56
12.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.7 Injunctive Remedy for Breach . . . . . . . . . . . . . . . . . . 56
12.8 Notices and Other Communications . . . . . . . . . . . . . . . . 56
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 59
12.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 59
12.12 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.13 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . 60
12.14 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.15 Waiver of Provisions . . . . . . . . . . . . . . . . . . . . . . 60
12.16 ARBITRATION; GOVERNING LAW; CONSENT TO
JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.17 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . 63
12.18 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SCHEDULES AND EXHIBITS
Schedule 4.1 -- Organization and Good Standing of PGM
Schedule 4.2 -- Qualifications
Schedule 4.3 -- Governmental Notices, Authorizations, Filings, Etc.
Required to effect Change of Control
Schedule 4.4 -- Conflicts
Schedule 4.5 -- Current Capitalization of PGM
Schedule 4.7 -- Subsidiaries, Joint Ventures
Schedule 4.10 -- Disclosed Liabilities
Schedule 4.11 -- Events Since December 31, 1997
Schedule 4.12 -- Taxes
Schedule 4.13 -- Liens
Schedule 4.16 -- Intellectual Property
Schedule 4.17 -- Material Contracts
Schedule 4.18 -- Litigation, Administration
Schedule 4.19 -- Insurance
iv
PAGE
----
Schedule 4.20 -- Description of Loan Portfolio, Loan Locks and
Branches
Schedule 4.23 -- Licenses and Permits
Schedule 4.25 -- Payroll List
Schedule 4.28 -- Employee Pension Funds
Schedule 4.29 -- Employee Policies and Practices Not Included in
Employee Handbook
Schedule 4.30 -- Bank Accounts
Schedule 4.31 -- Powers of Attorney
Schedule 6.7 -- Required Consents
Exhibit A -- Special Shareholders Agreement
Exhibit B -- Term Sheet
Exhibit C -- Employment Agreement
Exhibit D -- Employment Agreement
v
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into this 31st day of July, 1998,
by and between PRISM MORTGAGE COMPANY, an Illinois corporation ("Purchaser"),
and XXXXXXX X. XXXXXXX ("Xxxxxxx") and XXXXX X. XXXXXXX ("Xxxxxxx") (together
"Sellers").
W I T N E S S E T H:
WHEREAS, Sellers own all of the issued and outstanding shares of
capital stock of Pacific Guarantee Mortgage Corporation ("PGM"); and
WHEREAS, PGM, which has its principal place of business at 000 Xxxxx
Xxxxxxxxx, Xxxxx X, Xxxxx Xxxxxxxx, Xxxxxxxxxx 00000 (the "Premises") is
either directly or through the PGM Joint Ventures (as defined below) in the
business of brokering, originating, funding and closing residential mortgage
loans (collectively, the "Business"); and
WHEREAS, Sellers desire to sell to Purchaser and Purchaser desires to
purchase from Sellers all of the issued and outstanding shares of capital
stock of PGM (collectively, the "Shares") subject to the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized Terms herein, not otherwise defined, shall have the meanings set
forth in this Article:
"AFFILIATE" shall mean any legal entity or person which directly or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, Purchaser or PGM. The term "control" means the
power to direct or cause the direction of the management and policies of an
entity.
"BRANCH OPERATORS AGREEMENTS" shall mean those certain agreements
between PGM and Net Branch operators substantially in the form as provided to
Purchaser by PGM as of the Closing.
1
"BUSINESS DAY" shall mean any day which is not a Saturday or Sunday
and which is not a day on which national banks in Chicago, Illinois or San
Francisco, California are required or permitted to be closed.
"CONTRACT YEAR" shall mean a one year period ending on an anniversary
of the date on which the Closing occurs.
"EQUITY VALUE PLAN" or "EVP"shall mean that certain Equity Value Plan
established among PGM, Purchaser and the administrator of the Equity Value
Plan (the "EVP Administrator"), pursuant to an Equity Value Plan Agreement,
entered into by and between the Purchaser and in form and substance
acceptable to the Purchaser, PGM and the Sellers.
"HOLDERS" shall mean the Sellers, the "EVP Administrator" (as defined
in Section 3.2) and "Permitted Assignees" (as defined in Section 3.2)
entitled to receive Additional Consideration.
"IPO OR SALE OF PURCHASER" shall mean the occurrence of (a) any
initial public offering of shares of capital stock of Purchaser (b) the sale
of all or substantially all of the assets of the Company or (c) the sale of
eighty percent (80%) or more of the outstanding shares of Purchaser, whether
such sale in (b) or (c) is effected directly or indirectly through a merger,
consolidation or reorganization.
"NET BRANCHES" shall mean PGM branch operations operating under a "PGM
Branch Operators Agreement" as in effect on the date of this Agreement or as
from time to time hereafter modified by the approval of the Board of PGM,
which branches are licensed and authorized to conduct the Business and in
which the responsibility and compensation to the Branch Manager are as set
forth in the PGM Branch Operators Agreement.
"NORTHERN CALIFORNIA" shall be defined as those counties in California
north of and including Salinas and Monterey counties.
"ORDINARY COURSE OF BUSINESS" shall mean in the ordinary course of
business in accordance with appropriate and legal past practices and
procedures by the Purchaser or PGM, as applicable, in ordinary business
circumstances.
"PGM MANAGED BRANCH" shall mean offices other than Net Branches
operated directly by PGM.
"PGM'S MORTGAGE BANKING NET INCOME" shall include all service release
premiums, incentive income, gain on sale income, interest income, income
generated as a result of bulk sales, assignment of trade or co-issuer
transactions and all similar income generated from the sale of loans in the
secondary market and shall be computed on a product by product basis by
calculating the total gross revenues generated by each
2
product for PGM and Purchaser and its Affiliates. Such gross revenue shall
be allocated as PGM Mortgage Banking Net Income based on (i) the ratio of the
[*] the Purchaser or its Affiliates relative to the [*] Purchaser and its
Affiliates (including the PGM loans) (ii) multiplied by [*] from which total
is subtracted all mortgage banking expenses incurred in connection with such
revenues allocated to PGM based on the ratio of the [*] and funded by PGM or
Purchaser relative to [*] Purchaser and its Affiliates (including PGM Loans),
adjusted by subtracting (i) all hedging costs allocated to PGM based on the
[*] Purchaser and PGM to the [*] Purchaser and its Affiliates (including
PGM) taking into account [*] compared to [*], (ii) any costs and expenses
associated with any repurchase obligations of PGM, and (iii) any special fees
paid to or reduced premiums received from purchasers of loan product of PGM
or Purchaser due to [*] such loans by PGM [*], and adjusted further by adding
or subtracting any [*] reflected on the rate sheet of PGM distributed to its
loan officers vis-a-vis the rate sheets of Purchaser and its Affiliates
distributed to their loan officers.
If PGM retains underwriting and closing operations [*].
By way of example, assume PGM [*] of $500 Million [*] of $200 Million
[*] of $300 Million, that the mortgage banking operations [*] $250 Million [*]
$300 Million [*] and $500 Million [*]. Assume further Purchaser and its
Affiliates [*] of $10 Million [*] $5 Million in [*] and $15 Million [*] $1
Million in hedging costs [*] $10 Million in mortgage banking operating
expenses [*] 3,000 loans [*].
If PGM does not retain underwriting and closing:
PGM Mortgage Banking Net Income would equal
[*].
[*] $500 Million/$750 Million x $10 Million) +($200 Million/$500
Million x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)
[*] 3,000/10,000 x $10 Million - ($1 Billion/$2.05 Billion x $1 Million)
[*] $6,666,666.66 + 2,000,000 + $5,625,000 - [$3,000,000 - $487,804]
[*] $10,803,862
If PGM retains underwriting and closing:
[*] ($500 Million/$750 Million x $10 Million) + ($200 Million/$500
Million x $5 Million)
[*] ($300 Million/$800 Million x $15 Million)]
[*] [3,000/10,000 x ($10 Million (3,000/10,000 x $2 Million))]
[*] [$1 Billion/$2.05 Billion x $1 Million ]
[*] [$6,666,666.66 + 2,000,000 + $5,625,000 ]
[*] [3/10 x ($10 Million - $600,000)] - [$487,804]
3
[*] $14,291,666 - ($2,820,000) - ($487,804)
[*] $10,983,862*
* [*] underwriting and closing [*] would then be [*].
"PGM NET INCOME" shall equal PGM's pretax Mortgage Banking Net Income
plus all other pre-tax income generated by the PGM Operations calculated in
accordance with GAAP, including, without limitation, revenues from loan
origination including underwriting and other fee income, minus all
operational, administrative and out-of-pocket expenses including, without
limitation, all underwriting and closing costs in California, directly
associated with the operation of PGM included in the expenses and subtracted
from revenues in computing PGM Net Income and all indirect or other expenses
of Purchaser and its Affiliates to the extent they are associated with
services provided to PGM and apply to PGM Operations (including, without
limitation, accounting, financial, legal and other services relating to the
provision of technology, human resources, accounting, insurance and national
marketing and otherwise provided by national senior management) allocated to
or on behalf of PGM based on the ratio of [*] compared to [*]. In no event
shall [*] the purchase contemplated hereby (other than [*]) be deemed to
constitute direct or indirect charges to PGM for the purpose of this
definition.
"PGM JOINT VENTURES" shall mean the PGM Joint Ventures disclosed in
Schedule 4.7.
"PURCHASER NET INCOME" shall mean all pre-tax net income of Purchaser
and its Affiliates including all PGM Net Income.
"PGM OPERATIONS" shall mean all operations of PGM existing as of the
Closing plus (i) all other operations of PGM located in Northern California
which may be opened after the Closing (including new branches and/or
acquisitions), (ii) any new operations (i.e. not acquisitions) in California
which are opened by PGM after the Closing, (iii) any existing or new Net
Branches which are operated by PGM throughout the United States, (iv) any
conversions to PGM Managed Branches of new or existing Net Branches that at
the time of such conversion have been opened for two (2) years or more, (v)
the joint venture to be established with Keystroke and (vi) any other
operations of a PGM Joint Venture created for assisting in loan origination
and processing for which PGM is a processing agent and which is expressly
approved as a PGM Operation by Purchaser in writing, in its reasonable
discretion.
"PGM POST TAX NET INCOME" shall mean PGM Net Income minus all payments
of taxes on all distributions to pay taxes of Sellers and other shareholders
of PGM Purchasers.
"PURCHASER SHAREHOLDERS" shall mean the shareholders of Purchaser.
4
"SHAREHOLDERS AGREEMENT" shall mean that certain Special Shareholders
Agreement dated of even date herewith between Purchaser, the Sellers and
participants in the Equity Value Plan, in the form of Exhibit A, attached
hereto and made a part hereof.
"THIRD PARTIES" shall mean any person or entity other than (a)
Purchaser or PGM or (b) any Affiliate of Purchaser or PGM.
ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 AGREEMENT TO SELL AND PURCHASE. Upon the terms and
subject to the conditions set forth herein, and in reliance on the respective
representations and warranties of the parties, Sellers shall sell the Shares
to Purchaser, and Purchaser shall purchase the Shares from Sellers, on the
Closing Date and at the time and place of Closing referred to in Section 2.2
below, for the price and in accordance with the provisions specified in
Article 3 hereof, free and clear of all claims, liens, charges, security
interests, equities and encumbrances of any nature whatsoever and free and
clear of any sale, transfer or transaction taxes of any kind whatsoever
relating to the transfer of the Shares to Purchaser hereunder.
2.2 CLOSING. The consummation of the purchase and sale of
the Shares (the "Closing") shall take place at the offices of Xxxxxxx &
Xxxxx, Suite 1800, 000 Xxxxx XxXxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx at 10:30 a.m.
local time on June 30, 1998, or at such other place, time and date as the
parties may hereafter agree upon in writing (hereinafter the "Closing Date").
ARTICLE 3
CONSIDERATION AND PAYMENT TERMS
3.1 PURCHASE PRICE. Purchaser shall pay the following
consideration subject to the terms set forth below:
(a) AMOUNT OF THE CLOSING DATE PURCHASE PRICE. The
aggregate consideration to be paid by Purchaser to Sellers for the Shares as
at the Closing Date (the "Closing Date Purchase Price") as follows:
(i) The "BASE CASH PRICE" equal to
$2,425,000; PLUS
(ii) The "BASE STOCK PRICE" shall mean
common stock of Purchaser ("Stock"), which when issued will
represent five percent (5%) of the issued and outstanding stock of
Purchaser as of
5
the Closing Date subject to dilution caused by a stock offering or
warrants or options prior to or within six (6) months after the
Closing based on a valuation of Purchaser of $50 Million or more.
(b) BASE CASH PRICE INTEREST ADJUSTMENT. If the
Closing Date occurs after June 19, 1998, the Base Cash Price shall be
increased each day at a per annum interest rate equal to 1/2% below the Prime
Rate as printed in the most recent Midwest edition of the WALL STREET
JOURNAL, computed on a 365-day year basis, unless such delay is caused by an
act or omission of PGM or the Sellers other than a delay caused solely by a
failure to obtain the Required Regulatory Approvals (as defined in Section
6.7 below) provided that if on or after June 30, 1998, the Required
Regulatory Approvals have not been obtained but all other conditions
precedent to the Closing have been met, and Purchaser (but not the Sellers)
has waived the receipt of Required Regulatory Approvals as a condition
precedent to the Closing, no further interest adjustment shall be made for
such post-June 30, period.
(c) BASE CASH PRICE END OF YEAR ADJUSTMENT. On or
before April 15, 1999, Purchaser will pay Sellers an aggregate amount equal
to $75,000 if PGM Net Income for Calendar Year 1998 is greater than or equal
to $3,075,000. If PGM Net Income for 1998 is less than $3,075,000, no such
amount shall be payable.
(d) INDEMNIFICATION AMOUNT. On the Closing Date,
Purchaser shall deliver to the Indemnity Account (as defined in Section
10.3(c)) $1,000,000 (the "Indemnification Amount"), plus if the Closing
occurs after June 19, 1998, an "Indemnification Amount Interest Adjustment"
computed in the same manner as provided for the Base Cash Price Interest
Adjustment.
3.2 ADDITIONAL CONSIDERATION.
(a) CALCULATION OF ADDITIONAL CONSIDERATION. In
addition to the consideration set forth in Section 3.1 above, Purchaser shall
pay to Sellers and allocate to the Equity Value Plan described above, the
"Additional Consideration" all on the terms and conditions set forth in this
Section 3.2.
(i) SELLERS. At the time of an IPO or
Sale of Purchaser, the Sellers will be entitled to receive the
"Seller's Additional Stock Consideration" consisting of additional
stock in the case of an IPO or a sale of all or substantially all
of the assets, or stock, or at the option of the Purchaser, stock
appreciation rights (the dollar equivalent value of the stock) in
Purchaser in the case of a sale of 80% or more of the stock of
Prism, in an amount to be determined by the following formula:
-------------------------------------------------------------------------------
Value of Stock or PGM Net
Appreciation Rights = [*] X Income [*] X [*]%
to be received by Seller
-------------------------------------------------------------------------------
6
By way of example, if Purchaser completes an IPO [*] and at the time of the
offering, [*] and PGM Net Income was $22,500,000, Sellers Additional
Consideration would be computed as follows:
$ [*] - $[*] x $22,500,000 [*] x [*]% = $[*]
---------------
[*]%
$[*] = [*]% of Purchaser Stock after
------------------------------------- offering
$[*]
Alternatively, if there is a Sale of Purchaser, i.e. if there is a
sale of all or substantially all of the assets or eighty percent (80%) or
more of the Stock in a private sale, [*] and, at the time of the sale, [*]
and PGM Net Income was $22,500,000, Sellers Additional Consideration would be
computed as follows:
$[*] x $22,500,000 [*] x [*]% = $[*]
For purposes of this calculation, PGM Net Income and [*] will be determined
on a trailing twelve-months basis.
Allocation of the 20% Additional Consideration to each individual Seller will
be on the basis of shares of PGM sold.
(i) EQUITY VALUE PLAN.
A. At the time of an IPO or Sale of
Purchaser, the participants in the Equity Value Plan will be entitled to
receive the "Equity Value Plan Stock Consideration" consisting of
additional stock in the case of an IPO or a sale of all or substantially
all of the assets, or stock, or, at the option of the Purchaser, stock
appreciation rights (the dollar equivalent value of the stock) in
Purchaser in the case of a sale of 80% or more of the Stock of Prism in
an amount to be determined by the following formula:
Value of Stock or
Appreciation Rights to = [*] x PGM Net Income [*] x [*]%
be received by EVP
By way of example, if Purchaser completes an IPO [*] and at the time of the
offering, [*] and PGM Net Income was $22,500,000, Equity Value Plan
Participants Stock Consideration would be computed as follows:
$ [*]
--------------- - $[*] x $22,500,000 [*] x [*]% = $[*]
[*]%
7
$[*] = [*]% of Purchaser Stock after
------------------------------------- offering
$[*]
Alternatively, if there is a Sale of Purchaser, i.e. if there is a
sale of all or substantially all of the assets or all of the Stock in a
private sale, [*] and, at the time of the sale, [*] and PGM Net Income was
$22,500,000, the Equity Value Plan Stock Consideration would be computed as
follows:
$[*] x $22,500,000 [*] x [*]% = $[*]
$[*] = [*]% of Purchaser Post-Sale
------------------------------------- Stock
$[*]
For purposes of this calculation, PGM Net Income and [*] will be determined
on a trailing twelve-months basis.
B. An earnout for the five-year period
immediately after the Closing equal to 1.0% of PGM Net Income for each
year during the first five year period (The Equity Value Plan Earnout
Consideration"), which such consideration shall be paid to the Equity
Value Plan regardless of whether there occurs an IPO or Sale of
Purchaser.
C. Notwithstanding anything to the
contrary, the costs of establishing the Equity Value Plan shall be
covered by or reimbursed from the payment of the Equity Value Plan
Earnout Consideration to the Equity Value Plan.
If the Purchaser Shareholders enter into any restriction on the sale
of their stock for a period of time following any IPO, the Holders shall be
subject to the same restriction with respect to stock received as Additional
Consideration or Equity Value Plan Stock Earnout. If the Purchaser
Shareholders generally obtain [*] or the rights to receive cash or other
consideration in an IPO or Sale of Purchaser, the Holders shall be afforded
such rights on a pro rata basis with respect to shares of Purchaser received
as Additional Consideration or Equity Value Plan Stock Earnout.
D. PAYMENT OF EQUITY VALUE PLAN EARNOUT
CONSIDERATION. The Equity Value Plan Earnout Consideration for each
Contract Year will be paid by check to the Equity Value Plan on or before
120 days after the Calendar Year end immediately following such Contract
Year. A report setting forth in reasonable detail the computation of the
Equity Value Plan Earnout Consideration for each Contract Year shall be
delivered to the Equity
8
Value Plan Administrator concurrently with the payment of the Equity
Value Plan Consideration for such year.
(b) DISTRIBUTION OF SELLERS' ADDITIONAL STOCK
CONSIDERATION AND THE EQUITY VALUE PLAN STOCK CONSIDERATION. The Sellers or
Holders will receive their appropriate Stock Consideration immediately before
and concurrently with the occurrence of the IPO or Sale of Purchaser, in
which such case the Sellers or Holders shall receive their appropriate (i)
Stock in the case of an IPO or a sale of all or substantially all of the
assets of Purchaser or (ii) Stock or appreciation rights, at the option of
the Purchaser in the case of a sale of eighty percent (80%) of the Stock of
Purchaser.
(c) RECORDS AND INSPECTION OF RECORDS FOR CALCULATION
OF ADDITIONAL CONSIDERATION. During the period Purchaser is required to pay
the Additional Consideration, Purchaser shall maintain, and cause its
subsidiaries to maintain, accurate books of account and records and other
data necessary for the computation of the Additional Consideration.
Purchaser shall permit the Holders and their representatives, agents,
accountants and advisors to examine such books of account and make copies
thereof from time to time during normal business hours and upon reasonable
advance notice for the purpose of determining the accuracy of such
computations. The costs of any such inspection shall be borne by the Holders
unless (i) such inspection reveals an underpayment in the aggregate
Additional Consideration paid to the Holders of 5% or more (but in any event
at least $2,000) AND (ii) if such inspection is challenged by Purchaser
pursuant to the next paragraph, the appraisal process set forth therein
confirms such underpayment of 5% or more, in which case the costs of such
inspection shall be borne by Purchaser.
If the Holders' inspection discloses a discrepancy resulting in an
underpayment of the Additional Consideration, the Holders shall notify
Purchaser thereof in writing, which notice shall specify the basis for such
discrepancy in reasonable detail. Within twenty (20) Business Days after
Purchaser's receipt of such notice, Purchaser shall either (i) pay to the
Holders the aggregate amount of such underpayment, or (ii) notify the Holders
in writing that it disputes the amount of such underpayment, stating its
grounds therefor in reasonable detail. If Purchaser and the Holders are
unable to resolve Purchaser's objections within twenty (20) Business Days
after Purchaser has notified the Holders of its objections, and the matter in
dispute concerns only the calculation of the amount of the Additional
Consideration the matter in dispute shall be referred to an appraiser
mutually acceptable to the parties hereto, which shall be instructed to
resolve the matter in dispute promptly. If the Holders and the Purchaser
cannot agree on an appraiser, the Holders shall select a one appraiser,
Purchaser another and each of such appraisers shall together select a third
appraiser who shall conduct such appraisal. The determination of such
appraiser shall be final, binding and conclusive on Purchaser and the
Holders. The fees of such appraisers and such appraisals for making all such
determinations shall be borne equally by Purchaser, on the one hand, and
Holders, on the other.
9
(d) RESTRICTIONS ON ASSIGNMENT. The right to receive
the Additional Consideration may not be transferred by the Sellers or by any
Holder, except as follows:
(i) such right may be transferred upon the
death of a Holder to the heirs of such Holder;
(ii) such right may be transferred by a
Holder to the spouse and children of such Holder or to a trust
created for the primary benefit of such Holder or his or her
spouse and children; and
(iii) in accordance with the Shareholders
Agreement,
(each a "Permitted Assignee"); PROVIDED, that Purchaser shall not be
obligated to make any payment to a Permitted Assignee unless (i) Purchaser
has received notice of such transfer from the assignor, setting forth the
name, address and employer identification number or social security number of
such Permitted Assignee and (ii) such notice has been received by Purchaser
at least ten (10) Business Days before the next payment of the Additional
Consideration is made.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, as to themselves, PGM and each PGM Joint Venture, as
applicable, represent and warrant to Purchaser on the date hereof and as of
the Closing Date as follows:
4.1 ORGANIZATION AND STANDING. PGM is a corporation which is
duly organized, validly existing and in good standing under the laws of
California. Sellers have delivered to Purchaser complete and correct copies
of the Articles of Incorporation and By-Laws, as amended, of PGM. PGM has
and the PGM Joint Ventures have all necessary corporate powers and authority
to engage in the business in which they are presently engaged (as such
business is presently being conducted), to own all property now owned by
them, and to lease all of the property used by them under lease. Complete
copies of the corporate minutes and stock transfer records of PGM and the PGM
Joint Ventures have been delivered to Purchaser for Purchaser's review, and
contain minutes and consents for all actions taken by the shareholders and
directors of PGM and the PGM Joint Ventures for which such consents were
required, and complete and accurate records of all issuances and transfer of
shares of its capital stock and partnership, joint venture or limited
liability shares or interests, as applicable. Schedule 4.1 hereto contains a
complete and accurate list of the officers and directors of PGM.
10
4.2 QUALIFICATION. PGM and the PGM Joint Ventures have not
failed to qualify in any jurisdiction where a failure to so qualify would
have a material adverse effect on the financial condition or results of
operations of PGM. Schedule 4.2 hereto identifies each jurisdiction where
PGM and each PGM Joint Venture is duly qualified to do business as a foreign
corporation, and PGM is in good standing in each such jurisdiction.
4.3 NO RESTRICTIONS; BINDING EFFECT; APPROVAL OF CHANGE OF
CONTROL. Except as contemplated by this Agreement or as set forth in Schedule
4.3, neither Sellers, PGM nor any PGM Joint Venture is subject to any
material restriction, agreement, law, rule, regulation, ordinance, code,
writ, injunction, award, judgment or decree which would prohibit or be
violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby. Sellers have all power to execute and
deliver this Agreement and the instruments, documents and agreements to be
executed and delivered pursuant hereto and to consummate the transactions
contemplated hereby and thereby. This Agreement and each of the instruments,
documents and agreements to be executed and delivered pursuant hereto have
been or will be duly executed and delivered by Sellers, and each constitutes
a legal, valid and binding obligation of Sellers, enforceable against Sellers
or PGM, as applicable, in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally and subject to the availability of equitable remedies.
Except as contemplated by this Agreement or as set forth in Schedule 4.3,
neither sellers, PGM nor the PGM Joint Ventures are required to give any
notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement and to the extent the transaction
contemplated hereby gives any Joint Venture Partner to a Joint Venture or
Partnership Agreement the right to terminate the applicable Joint Venture or
Partnership Agreement (as disclosed on Schedule 4.3), neither PGM nor the
Sellers have received any notice of termination or been given any reason to
believe that any partner intends to terminate any Partnership or Joint
Venture Agreement.
4.4 NONCONTRAVENTION. Except as set forth in Schedule 4.4,
neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby and thereby nor any direct or indirect
change of control of PGM or any PGM Joint Venture will (a) violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
memorandum of understanding regulatory order or understanding to which PGM is
a party or is otherwise subject, (b) conflict with or result in a breach of
the provisions of the Articles of Incorporation or By-laws of PGM, as amended
to date or of any agreements governing any PGM Joint Venture, or (c) conflict
with, result in the breach of, constitute a default under, result in the
acceleration of, create in any person or entity the right to accelerate,
terminate, modify or cancel, or require any notice under, any material
contract, lease, license, indenture, agreement, mortgage, instrument of
indebtedness or other instrument to which PGM or the PGM Joint Ventures is a
party or by which PGM or any PGM Joint Venture or any property
11
of PGM or any PGM Joint Venture is bound or result in the creation or
imposition of any lien or encumbrance on any of such property, and PGM and
the Sellers shall obtain all consents, waivers and amendments necessary to
resolve any such violation or conflict identified on Schedule 4.4 on or
before the Closing. To the extent that Sellers have identified any right of
termination in Schedule 4.4 with respect to Branch Operators Agreements or
otherwise, neither PGM nor the Sellers have received any notice of
termination or been given any reason to believe that the counterparty to any
Branch Operators Agreement intends to terminate its Branch Operators
Agreements with PGM.
4.5 CAPITAL STRUCTURE. Osenton and Barbera are the only
record and beneficial owners of the Shares as of the date hereof and Schedule
4.5 hereto accurately sets forth the number of authorized and issued and
outstanding shares of capital stock of PGM. The Shares represent all the
issued and outstanding shares of capital stock of PGM and all Shares are duly
authorized, validly issued and outstanding, and are fully paid and
non-assessable. Except as set forth in said Schedule 4.5, no other class or
series of capital stock of PGM is presently authorized. Except as set forth
in Schedule 4.5, (i) there is no obligation, option or warrant which is
binding upon PGM to issue, sell, redeem, purchase or exchange any of its
capital stock or any right relating thereto, (ii) there is no obligation,
debt, liability or security of PGM that is convertible into capital stock of
PGM, (iii) there are no outstanding stock appreciation rights, phantom stock
or similar rights, and (iv) there are no agreements to pay a percentage of
profits, revenue or volume of loans originated, brokered or assigned, except
as described in the Branch Operators Agreement or the PGM Joint Venture
Agreements, the recipient of such percentages, and their percentages which
are identified in Schedule 4.5 hereof.
4.6 TITLE TO THE SHARES.
(a) Sellers are the record and beneficial owners and
holders of the Shares and each respectively has good title to his respective
Shares, free and clear of all liens, encumbrances, pledges, security interests,
options, claims, charges and restrictions of any nature whatsoever, except those
that will be released at Closing; and
(b) Sellers have full voting power over the Shares,
subject to no proxy, shareholders agreement or voting trust, and have full
right, power and authority to sell and deliver the Shares to Purchaser and to
deliver the Shares to Purchaser in the manner provided for in this Agreement.
4.7 NO SUBSIDIARIES. Except as set forth on Schedule 4.7,
PGM does not own any shares of or equity interest in any corporation,
partnership, limited liability company, joint venture, association (excluding
memberships in trade associations) or other entity and the execution and
delivery of this Agreement and the consummation of the transactions
contemplated thereby and hereby do not and will not violate or conflict with
or create a default under, or give the counterparty to such agreement the
right to terminate, the agreements governing any of the joint ventures set
forth on Schedule 4.7. To the extent that this Agreement and the
consummation of the transactions contemplated hereby give any partner to any
partnership or joint venture agreement the right to
12
terminate or modify a partnership or joint venture agreement as disclosed on
Schedule 4.7, neither PGM nor the Sellers have received any notice of
termination or modification or been given any reason to believe that any
partner intends to terminate or modify any partnership or joint venture
agreement on account of this Agreement or the transactions contemplated
hereby.
4.8 CORPORATE RECORDS AND ACTION. PGM has previously
furnished to Purchaser a copy of the Articles of Incorporation and all
amendments thereto of PGM, and prior to the Closing shall furnish to
Purchaser a copy of the foregoing, certified as being true, correct and
complete by the Secretary of State of California. PGM has previously
furnished to Purchaser a complete copy of the By-laws and all amendments
thereto of PGM, all joint venture agreements, partnership agreements,
articles of organization and other material documents concerning the
organization or the business of each PGM Joint Venture and prior to the
Closing shall furnish to Purchaser certification by the Secretary of PGM as
to the accuracy of such documents. PGM has previously made available to
Purchaser the complete minute books of PGM and the PGM Joint Ventures. As of
the Closing, all corporate actions taken by the Sellers, Board of Directors
or any committee of the Board of Directors of PGM is fairly and accurately
summarized in all material respects in the minute books of PGM. PGM has
previously made available to Purchaser the stock ledger books of PGM. All
issuances, cancellations, transfers and exchanges of capital stock of PGM as
of the Closing are reflected in its stock ledger books.
4.9 FINANCIAL STATEMENTS. The financial statements of PGM
for the years ended December 31, 1996 and 1997, including the balance sheets
as of said dates and the statements of income, statements of stockholders'
equity and statements of cash flows, reviewed in the case of the 1996
financial statements by Xxxxxxx X. Xxxxx, certified public accountant, and in
the case of the 1997 financial statements by Xxxx X. Xxxxxx, certified public
accountant, and unaudited financial statements for the first four months of
1998 (collectively, the "Financial Statements"), copies of which have been
previously delivered to Purchaser, (a) have been prepared from the books and
records of PGM in accordance with generally accepted accounting principles
applied on a consistent basis, and (b) fairly present the financial position
of PGM as of the respective dates included therein and the results of
operations, changes in equity and cash flows of PGM for the respective
periods covered by the Financial Statements.
4.10 LIABILITIES. Except as set forth in Schedule 4.10, PGM
and the PGM Joint Ventures have no liabilities (whether known or unknown,
absolute or contingent, liquidated or unliquidated and whether due or to
become due), including any liability for Taxes (as defined in Section 4.12),
except for (a) liabilities set forth on the balance sheet of PGM as of
December 31, 1997 included in the Financial Statements (the "Year-End Balance
Sheet"), (b) liabilities incurred since that date in the ordinary course of
business in accordance with past practices including, without limitation,
under PGM's warehouse lines of credit, and (c) costs and expenses incurred in
connection with the transactions contemplated by this Agreement subject to
the $[*] limitation set forth in Section 12.2 hereof. Except as set forth in
Schedule 4.10, PGM or the PGM Joint
13
Ventures are not liable upon or with respect to or obligated in any other way
to provide funds in respect of or to guaranty or indemnification or assume in
any manner (including, without limitation, under or pursuant to any
agreement, arrangement, commitment or understanding, whether written or
oral), any debt, obligation or dividend of any other person or entity.
4.11 EVENTS SINCE DECEMBER 31, 1997. Since December 31,
1997, except as disclosed on Schedule 4.11, there has not been:
(a) Any casualty damage, destruction, loss or forfeiture
(whether or not covered by insurance) or adverse change, actual or threatened,
to or affecting (i) any material property or asset of PGM or any PGM Joint
Venture, or (ii) the material business or condition (financial or other) of PGM
or any PGM Joint Venture, or (iii) the results of operations or prospects of PGM
or any PGM Joint Venture;
(b) Any direct or indirect redemption, purchase or other
acquisition by PGM of any capital stock of PGM, or any declaration, setting
aside or payment of any dividend or distribution with respect to any capital
stock of PGM;
(c) Any material increase in the compensation or
benefits (including bonuses) payable or to become payable by PGM to any of its
respective directors, officers, employees or agents, other than increases in the
ordinary course of PGM's business to persons receiving annual compensation
(other than the increase in the salary of Xxxxx Xxxxxxx, VP/Accounting, from
$51,900 to $60,000, effective April 1, 1998), including increases in commission
compensation to employees compensated solely on a commission basis;
(d) Any contractual commitment by PGM or any PGM Joint
Venture to any third party, other than as provided in this Agreement or arising
in the ordinary course of PGM's or such PGM Joint Venture's business, relating
to (i) the property, assets or business of PGM or any PGM Joint Venture, or
(ii) the acquisition or disposition of property or assets (including, without
limitation, any leasehold estate) of PGM or any PGM Joint Venture;
(e) Any transaction, other than at arm's length in the
ordinary course of business, between PGM and any shareholder, director, officer
or affiliate of PGM or any PGM Joint Venture or any affiliate of any such
officer, director or shareholder;
(f) Any waiver or surrender by PGM or any PGM Joint
Venture of any valuable right or property other than for fair consideration;
(g) Any material change in the manner in which PGM or
any PGM Joint Venture operates its Business which has had or may reasonably be
expected to have an adverse effect on the assets or properties, liabilities,
condition (financial or other) or results of operations of PGM or any PGM Joint
Venture;
14
(h) any indebtedness for borrowed money incurred by PGM
or any PGM Joint Venture, other than indebtedness incurred to the Sellers in an
amount not to exceed $850,000 subordinated to other debt of PGM, either now or
hereafter incurred from time to time, in form and substance satisfactory to
Purchaser (the "Sellers' Indebtedness") and indebtedness to Xxxx and Xxxxx
Xxxxxx in an amount not to exceed $200,000 and to Forest and Xxxxxx Xxxxxx in an
amount not to exceed $200,000 (together such indebtedness called the "Willat
Indebtedness"), evidenced by notes, and/or loan agreements and subordinated to
other debt of PGM, all as satisfactory to Purchaser in its sole discretion;
(i) any material change in any accounting policies,
procedures or practices employed with respect to PGM or any PGM Joint Venture;
(j) any sale of any of the assets of PGM or any PGM
Joint Venture, other than sales of loans in the ordinary course of business;
(k) any capital expenditures paid or incurred by PGM or
any PGM Joint Venture, other than capital expenditures incurred in the ordinary
course of business which do not exceed $50,000 for any single item or group of
related items;
(l) any acceleration, termination, cancellation or
adverse modification of any material agreement, contract, lease or license to
which PGM or any PGM Joint Venture is a party or by which it is bound;
(m) any dividend, payment or other distribution with
respect to any of the capital stock of PGM, other than (i) distributions to the
Sellers in March, 1998 in the amount of $845,000, and (ii) distributions to pay
income taxes of Sellers in connection with Sellers' taxes under Sections 1366
and 1377(a)(i) of the Code, and (iii) distributions required in the ordinary
course of business;
(n) any redemption or purchase of any Shares or any
option to purchase PGM Common Shares, other than (i) the purchase from Xxxxxx
Xxxxx of 36,000 shares of PGM Common for a purchase price of $75,000 in March,
1998 and (ii) the purchases from each of Xxxxxxxx Xxxxxxx and Xxxxxx Xxxxxxx of
100 shares of stock for the purchase price of $200 each, respectively;
(o) any issuance of any Shares or of any options,
warrants or other rights to purchase such shares; or
(p) any other material transaction of PGM or any PGM
Joint Venture other than in the ordinary course of business consistent with past
practices.
4.12 TAXES.
(a) Except as disclosed in Schedule 4.12, PGM has filed
all returns and/or reports relating to Taxes (as hereinafter defined) which PGM
or any PGM
15
Joint Venture was required to file prior to the date of this representation
(collectively the "Tax Returns"). All Taxes owed by PGM or any PGM Joint
Venture have been paid. As used herein, "Taxes" mean any federal, state,
local or foreign income, gross receipts, franchise, payroll, employment,
excise, unemployment, personal property, sales, use, value added,
alternative, estimated or other tax or tax obligation of any kind whatsoever,
including any interest, penalty or addition thereto.
(b) Proper and accurate amounts have been withheld by or
on behalf of PGM or any PGM Joint Venture with respect to all compensation paid
to employees of PGM or any PGM Joint Venture for all periods ending on or before
the Closing Date. PGM has required each employee who exercised an option to
purchase PGM Common Shares to pay to PGM or any PGM Joint Venture cash in an
amount sufficient to satisfy in full PGM's obligation to withhold Federal, state
or local income or other taxes incurred by reason of such exercise. All
deposits required with respect to compensation paid to employees of PGM or any
PGM Joint Venture have been made in compliance with applicable laws.
(c) Neither PGM nor any PGM Joint Venture has made any
payment, nor is obligated to make any payment, and is not a party to any
agreement that could obligate it to make any payment that will not be deductible
(in whole or in part) for Federal income tax purposes by reason of Section 280G
of the Code or under Proposed Treasury Regulation Section 1.280G-1. No
provision of this Agreement, or any agreement executed and delivered pursuant
hereto or thereto obligates PGM to make any payment in the nature of
compensation that will not be deductible (in whole or in part) for federal
income tax purposes by reason of Section 280G of the Code or under Proposed
Treasury Regulation Section 1.280G-1.
(d) PGM and the PGM Joint Ventures have not waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(e) Except as set forth on Schedule 4.12, none of PGM's
tax returns has been audited or is currently the subject of an audit by a
governmental agency. Except as set forth on Schedule 4.12, PGM has not received
any notice of a deficiency or proposed deficiency in any of the taxes paid by or
on behalf of PGM or any PGM Joint Venture and neither PGM, nor any PGM joint
Venture has entered into any settlements or tax agreements, and has not been the
subject of audits or proceedings by any federal or state taxing authority.
(f) PGM has made its election under Section 1360, ET
SEQ. of the Code to be, and is currently, an S corporation.
4.13 TITLE TO ASSETS. PGM and each PGM Joint Venture owns
all its assets free and clear of any mortgage, pledge, lien, encumbrance or
other security interest, other than liens for real estate taxes not yet due
or payable, liens for capitalized leases entered into in the ordinary course
of business and the liens described in
16
Schedule 4.13. Other than the real estate known as Oak Park Estates
described on Schedule 10.8, PGM and the PGM Joint Venture do not currently
own any real property.
4.14 CONDITION OF ASSETS. The personal property owned and
leased by PGM is in good operating condition and repair, ordinary wear and
tear excepted. Any real estate leased by PGM or any PGM Joint Venture is in
good condition and PGM and the PGM Joint Ventures are not obligated to
perform any material repairs or maintenance to such real estate.
4.15 ACCOUNTS RECEIVABLE; NOTES RECEIVABLE. The accounts
receivable and notes receivable set forth in the Financial Statements for the
period ended December 31, 1997 and the accounts receivable of PGM arising
after that date represent valid claims payable to PGM for the provision of
services or other charges arising in the ordinary course of business of PGM
on or before the date thereof. Each of the account receivables or note
receivables on such Financial Statements, constitute valid claims arising
from bona fide transactions in the ordinary course of PGM's business and are
not subject to any claim for set-off, reduction or rebate.
4.16 INTELLECTUAL PROPERTY AND SOFTWARE.
(a) Schedule 4.16 correctly identifies all issued
domestic and foreign patents, patent applications pending, patent applications
in process, trademarks, trademark registrations, trademark registration
applications, service marks, service xxxx registrations, service xxxx
registration applications, copyright registrations, copyright registration
applications, license agreements, rights acquired through litigation, logos,
trade names, slogans owned by PGM or by any PGM Joint Venture and which are
presently used in the business of PGM or such PGM Joint Venture, and are
material to the operation of PGM (the foregoing, along with know-how and trade
secrets owned by PGM or by any PGM Joint Venture which are material to the
operation of PGM or any PGM Joint Venture are hereinafter collectively referred
to as the "Intellectual Property"). Schedule 4.16 correctly identifies all
issued patents, patent applications pending, patent applications in process,
trademarks, trademark registrations, trademark registration applications,
service marks, service xxxx registrations, service xxxx registration
applications, copyright registration applications, licenses, rights acquired
through litigation, logos, trade names, slogans, know-how and trade secrets
other than Software (as defined in Section 4.16(g) below) that are currently
expressly licensed to or by PGM or to or by any PGM Joint Venture and are
material to the operation of PGM or any PGM Joint Venture ("Licensed
Intellectual Property"). Except for any implied licenses and those licenses
granted in the Branch Operators Agreements or in the Joint Venture Agreements,
neither Sellers nor PGM has granted any license to any person with respect to
any Intellectual Property or Licensed Intellectual Property, except those set
forth in Schedule 4.16. Except as set forth in Schedule 4.16, the agreements
and/or arrangements for the Licensed Intellectual Property are in full force and
effect, and are free and clear of all adverse claims, options, liens, charges,
security interests, covenants, conditions, agreements, restrictions,
encumbrances and defenses other than Permitted
17
Encumbrances, and no material default by PGM or by any PGM Joint Venture
exists thereunder.
(b) Neither PGM nor any PGM Joint Venture has any
registered or registerable patents with respect to its products, services, and
business.
(c) Intellectual Property consisting of issued
trademarks ("Trademarks") are valid and subsisting and there are no challenges
pending or, to the knowledge of Sellers, PGM or any PGM Joint Venture,
threatened, to the validity of any Trademarks.
(d) Except as disclosed on Schedule 4.16, neither PGM
nor any PGM Joint Venture is a party to any license or agreement relating to any
unpatented inventions, discoveries, specifications, data, processes, formulae,
trade secrets, proprietary technical information or know-how used by PGM with
respect to its business (hereinafter collectively "Know-How"). Except as
disclosed on Schedule 4.16, PGM owns and is legally entitled to exploit the
Know-How as used in the business as currently conducted without restrictions and
free of any adverse claim or claim of infringement.
(e) There are no interference, opposition or
cancellation proceedings or infringement suits pending or, to Sellers', PGM's or
any PGM Joint Venture's knowledge, threatened, with respect to any Intellectual
Property or Licensed Intellectual Property, except to the extent disclosed in
Schedule 4.16 hereto. To Sellers' or PGM's knowledge, no other person is
infringing any Intellectual Property, Licensed Intellectual Property, or
Know-How currently owned by or licensed to PGM or any PGM Joint Venture, except
as disclosed in Schedule 4.16 hereto, and neither PGM nor any PGM Joint Venture
is infringing, nor within the last five (5) years has PGM infringed or been
charged with infringing, any patent or trademark right of any person, or the
rights of any person with respect to Know-How, except to the extent disclosed in
Schedule 4.16 hereto.
(f) The Intellectual Property, Licensed Intellectual
Property and Know-How comprise all of the intellectual property rights owned or
expressly licensed to PGM or to any PGM Joint Venture and pertaining to the
conduct of its business as now operated, or as presently planned to be operated,
and there are no limitations or restrictions and no conflict or asserted
conflict with intellectual property rights of others.
(g) Except as set forth on Schedule 4.16 hereto, all of
the computer software used by or for PGM or by or for any PGM Joint Venture in
the conduct of its business (the "Software") is either (i) owned by PGM or such
PGM Joint Venture, as applicable, free and clear of any and all liens, claims,
equities, security interests and encumbrances whatsoever except Permitted
Encumbrances, or (ii) used by PGM or by such PGM Joint Venture pursuant to a
fully-paid license granted to PGM or to such PGM Joint Venture by the third
party pursuant to the terms of such license.
18
Except as set forth on Schedule 4.16, no such computer software license shall
terminate or become terminable as a result of the transaction contemplated
herein. There are no infringement suits pending or, to the knowledge of
Sellers or PGM, threatened, against PGM or any PGM Joint Venture with respect
to any of the Software, and, to the knowledge of Sellers and PGM, no fact or
condition exists which could give rise to any such infringement suit.
4.17 MATERIAL CONTRACTS. Schedule 4.17 lists the following
contracts, leases and agreements in effect to which PGM and each of the PGM
Joint Ventures is a party or is bound:
(a) any agreement for the lease, as lessee, of vehicles;
(b) any agreement (or group of related agreements) for
the lease of personal property to or from any person or entity providing for
rent in excess of $20,000 during any twelve month period;
(c) any agreement for the lease of real property;
(d) any agreement (or group of related agreements) or
indemnity under which PGM or any PGM Joint Venture has created, incurred,
assumed, guaranteed any debt or obligation including without limitation any
indebtedness for borrowed money, warehouse lines of credit, or any capitalized
lease or purchase money obligation;
(e) any agreement under which PGM or any PGM Joint
Venture has granted a lien, pledge, security interest or other encumbrance upon
any of its assets;
(f) licenses of any of the Software, other than licenses
to customers granted in the ordinary course of business pursuant to agreements
which restrict the use and right to copy such Software in a manner which
protects the proprietary rights of PGM or any PGM Joint Venture in the Software
and do not restrict PGM's or the PGM Joint Venture's (as applicable) right to
use and exploit such Software;
(g) any agreement under which PGM or any PGM Joint
Venture has an obligation to indemnify a director, officer or employee or an
obligation to indemnify any person or entity including, without limitation, with
respect to any representation, warranty or covenant made by PGM or any PGM Joint
Venture;
(h) any agreement concerning confidentiality or
noncompetition given by PGM;
19
(i) any agreement for the employment of any individual
on a full-time, part-time, consulting or other basis other than oral retainers
of professionals terminable at will;
(j) any other plan, contract or arrangement, whether
formal or informal, which involve direct or indirect compensation (including
bonus, stock option, severance, golden parachute, deferred compensation, special
retirement, consulting and similar agreements) for the benefit of one or more of
the current or former directors, officers or employees of PGM or any PGM Joint
Venture (other than employee policies described in Schedule 4.28);
(k) any material guaranty or suretyship, performance
bond or contribution agreement;
(l) any material distribution, marketing, sales
representative or dealership agreement;
(m) any agreement between any shareholder, director or
officer of PGM and PGM or between any partner, member, manager or officer of a
PGM Joint Venture and such PGM Joint Venture; and
(n) any other material contract or commitment.
With respect to each such agreement, except as otherwise disclosed in
Schedule 4.17: (i) such agreement is in full force and effect and constitutes
the legal, valid and binding obligation of PGM or a PGM Joint Venture, as
applicable, and, to the knowledge of Sellers, the other parties thereto,
enforceable in accordance with its terms, (ii) such agreement will not be
terminated as a result of the Closing, (iii) neither PGM nor the PGM Joint
Ventures are in default in any material respect under such agreement and no
event has occurred which, with the passage of time, would constitute such a
default, and (iv) to the knowledge of Sellers, no other party is in default in
any material respect under such agreement. No bonus or severance will become
due and payable under any existing agreement between PGM and any of its
employees as a result of the Closing and the change of control effected thereby.
4.18 LITIGATION; REGULATORY EXAMINATION. Except as set forth
on Schedule 4.18, neither PGM, Seller nor any PGM Joint Ventures are (a)
subject to any outstanding injunction, judgment, order, decree, ruling,
memorandum of understanding, cease and desist order or administrative
sanction or (b) a party or, to the knowledge of PGM or Seller, threatened to
be made a party to any action, suit, proceeding, hearing, audit,
investigation, criminal investigation or criminal proceeding of or before any
grand jury, court, quasi-judicial agency, administrative agency or
arbitrator. During the past five years, neither PGM nor the PGM Joint
Ventures have been audited or investigated by any instrumentality,
commission, division, subdivision, department, agency or procuring office or
other entity of the federal or state government other than routine
20
examinations by federal and state regulators, and such routine examinations
have not revealed any material non-compliance with law, regulation or
applicable standards.
4.19 INSURANCE. PGM and each PGM Joint Venture maintains and
has maintained such insurance as is required by law or agreements to which
they are a party and such other insurance, in amounts and insuring against
hazards and other liabilities, as is customarily maintained by companies
similarly situated. Except as set forth on Schedule 4.19, neither PGM nor
any PGM Joint Venture maintains any insurance on the lives of any of its
shareholders, other than group insurance on those shareholders who are also
employees. Schedule 4.19 also describes all health insurance, life insurance,
disability, or other health policies and any "stop-loss" policy entered into
for or on behalf of PGM employees and the periodic premiums due thereon.
4.20 SCHEDULE OF LOANS. Schedule 4.20, prepared as of the
date of this Agreement, contains a detailed description of the loan portfolio
currently held by PGM and each PGM Joint Venture and all loans currently
outstanding on PGM's warehouse line, includes a detailed schedule of all
delinquencies and payment histories, the discount or actual prices at which
loans were sold to government agencies or other third parties, accurately
describes all loans subject to repurchase obligations of PGM or of a PGM
Joint Venture and a list of all uninsured FHA and VA loans of PGM or any PGM
Joint Venture. Except as set forth in Schedule 4.20, all mortgage insurance
premiums and all VA funding fees are to the knowledge of Sellers current
with respect to each loan for which such insurance is required (and to the
extent that they are not current, either with or without the knowledge of
Sellers, and not disclosed in the Schedule, Sellers agree that they shall
constitute an Indemnification Claim under Section 10.3 hereof). Schedule
4.20 also sets forth a list of all loan locks taken by PGM and each PGM Joint
Venture and all losses caused by such loan locks or losses caused by loans
that do not close in accordance with the loan lock agreement which locks or
losses have occurred within one hundred eighty (180) days of the date of this
Agreement which are still outstanding (provided that despite such listing on
Schedule 4.20, any losses suffered by PGM that are not mitigated shall
constitute an Indemnified Claim as defined in Section 10.3(b)(ii)) and lists
all branches, including all branches of PGM for the twenty-four (24) month
period immediately preceding the Closing (including any branches sold or
closed) and setting forth the volume of loans made at each such branch.
4.21 COMPLIANCE WITH LAW INCLUDING CONSUMER LAW. Except as
described on Schedule 4.21, PGM and each PGM Joint Venture has complied with
all applicable material laws, rules, regulations, ordinances and codes,
whether federal, state, local or foreign and, including, without limitation,
all laws and regulations relating to occupational health and safety, equal
employment opportunities, fair employment practices, and sex, race,
religious, age and other prohibited discrimination, all other labor laws,
including without limitation the Family and Medical Leave Act, and all
licensure, disclosure, usury and other consumer credit laws and regulations
governing residential mortgage lending and brokering, including, but not
limited to, all applicable rules, regulations, standards and guidelines
promulgated by the United States Department of Housing and Urban Development
("HUD"), the Federal Home Loan
21
Mortgage Corporation ("FHLMC"), the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), the Veterans
Administration ("VA") and the Board of Governors of the Federal Reserve
System, the state agencies and all applicable provisions of the Real Estate
Settlement Procedures Act of 1974, the Flood Insurance Protection Act, the
Consumer Credit Protection Act, the Truth in Lending Act, the Equal Credit
Opportunity Act and the Fair Credit Reporting Act, all as amended from time
to time, and all regulations promulgated thereunder (the foregoing statutes
and laws called "Consumer Credit Law") and except as set forth on Schedule
4.21 and, except for correspondence received in connection with Required
Regulatory Approvals, copies of which have been delivered to Purchaser, no
notice or correspondence (whether regarding litigation, regulatory action or
otherwise) has been received by PGM from or on behalf of consumers which is
likely to have a material adverse effect on the Business or the manner in
which PGM conducts the Business or notice from any regulatory agency in which
such regulatory agency has alleged noncompliance with any Consumer Credit
Law or other applicable law. PGM and each of the PGM Joint Ventures has
complied with all applicable appraisal and accounting standards.
4.22 FORMS; POLICIES AND PROCEDURES. PGM has provided
Purchaser with all its standard consumer forms, including all form
disclosures and notices, brokers agreements, notes, mortgages, instruments
and agreements used in the Business (the "Consumer Forms") or those of the
PGM Joint Ventures. PGM has provided Purchaser with a copy of PGM's internal
practices and procedures and PGM and its employees have complied and are in
compliance with such practices and procedures in all material respects. All
such practices and procedures and all Consumer Forms comply in all material
respects with (i) Consumer Credit Law, as required in the states in which PGM
is conducting its Business, and (ii) any standards imposed by HUD, FHLMC,
GNMA, FNMA and the VA, to the extent applicable, and any other applicable law
or regulation.
4.23 LICENSES AND PERMITS. PGM and each PGM Joint Venture
has obtained all licenses, permits, qualifications, franchises and other
governmental authorizations and approvals, including, without limitation, all
state mortgage brokers and mortgage bankers licenses and, as applicable,
approvals by HUD, FHLMC, GNMA, FNMA and the VA, required in order for it to
conduct the Business as presently conducted, all of which are listed on
Schedule 4.23 hereto. All of such licenses, permits, qualifications,
franchises and other authorizations are in full force and effect and will
remain in full force and effect immediately after the Closing and shall not
be violated by or affected, impaired or require any further action to remain
effective as a result of the Closing, except as set forth on Schedule 4.23.
No material violation exists in respect of any such license, permit,
qualification, franchise, authorization or approval. No proceeding is
pending, or to the knowledge of PGM, threatened to revoke or limit any such
license, permit, qualification, franchise, authorization or approval.
4.24 ENVIRONMENTAL WARRANTIES. No real property owned or
leased by PGM or any PGM Joint Venture ("Real Property") contains any
Hazardous Substance (as hereinafter defined) or any underground or
above-ground storage tank containing or
22
which has contained any Hazardous Substance. Neither PGM nor any of its
Affiliates or tenants (a) has conducted or authorized the generation,
transportation, storage, treatment, or disposal of any Hazardous Substance at
any parcel of real estate, except in compliance with Environmental Law (as
defined below in this Section 2.24); (b) has handled, treated, stored,
transported, released or disposed of any Hazardous Substance at any off-site
facility except in compliance with Environmental Law; (c) has allowed the
migration of any Hazardous Substance from any parcel of the Real Property
onto any neighboring property; (d) is aware of the migration of any Hazardous
Substance from any neighboring property onto the Real Property; (e) is aware
of any pending or threatened litigation or proceedings before any court or
any administrative agency in which any person or entity has alleged the
presence, release, threat of release, or placement of any Hazardous Substance
on or in any parcel of the Real Property, or the generation, transportation,
storage, treatment, or disposal of any Hazardous Substance at any parcel of
the Real Property; (f) possesses actual knowledge that any governmental or
quasi-governmental authority or agency (federal, state or local) has
determined, or threatens to determine, that there is a presence, release,
threat of release, or placement of any Hazardous Substance on or in any
parcel of the Real Property, or the generation, transportation, storage,
treatment or disposal of any Hazardous Substance at any parcel of the Real
Property; or (g) has received any communications or entered into any
agreement with any governmental or quasi-governmental authority or agency
(federal, state or local) or any other person or entity including, but not
limited to, any prior owners of any parcel of the Real Property, relating in
any way to the presence, release, threat of release, damages from a release,
placement of any Hazardous Substance on or in any parcel of the Real
Property, or the generation, transportation, storage, treatment, or disposal
of any Hazardous Substance at the Real Property. For purposes of this
Agreement, "Hazardous Substance" shall mean any asbestos, polychlorinated
biphenyls (PCBs), petroleum and petroleum by-products, and any other
substance, waste, pollutant, contaminant, or other material which is listed,
defined, identified or regulated as such by any Environmental Law. For
purposes of this Agreement "Environmental Law" shall mean any applicable
federal, state or local law, rule, regulation, order, governmental policy,
guideline or procedure or rule or theory of common law (including theories
based on nuisance or strict liability), and any judicial interpretation of
any of the foregoing, which pertains to any Hazardous Substance, human health
or the environment, and shall include without limitation, the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 ET SEQ., and the Occupational Health and Safety Act, 29
U.S.C. 651, ET SEQ.
4.25 PAYROLL LIST. Schedule 4.25 sets forth a complete list
of all employees of PGM and of each PGM Joint Venture, including their date
of birth, date of first hire, rates of compensation, unpaid accrued vacation
and any other material terms of their employment as of the date set forth in
Schedule 4.25, the bonuses paid to them with respect to the year ended
December 31, 1997 and all other benefits payable to or on behalf of employees
by PGM or any PGM Joint Venture, including without limitation any benefits
with respect to car or phone rental, entertainment, travel or per diem
allowances, club memberships, and similar such benefits, whether related to
23
business entertainment or otherwise, and separately lists all current
employees who have in either 1997 or 1998 had an increase in their total
annual salary (including any bonuses) from the previous calendar year and the
amount of each such increase.
4.26 LABOR RELATIONS. Neither PGM nor any PGM Joint Venture
is a party to or bound by any collective bargaining agreement. To the best
of Sellers' knowledge, there is no current union organizational activity with
respect to the employees of PGM or any PGM Joint Venture and there has not
been any such activity in the past twelve months. No allegation, charge or
complaint of age, disability, sex, race or other unlawful discrimination or
similar charge whether under federal, state or local law, or of any violation
of the Americans with Disabilities Act, has been made or, to the knowledge of
PGM or any PGM Joint Venture, threatened against PGM or any PGM Joint Venture.
4.27 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule
4.27, neither PGM nor the PGM Joint Ventures sponsor, maintain or contribute
to any "employee benefit plan" (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
employee fringe benefit plan or program, nonqualified deferred compensation
plan or program, incentive compensation plan or program, stock option plan or
program, restrictive stock plan or program, stock appreciation rights plan or
program, phantom stock plan or program, or any other plan, program,
agreement, trust, fund or arrangement for the benefit of any employee
(collectively all of such plans or programs are referred to as "Employee
Plans"). Complete and accurate copies of each document under which an
Employee Plan is sponsored or maintained, related amendments, employee
summaries (including, but not limited to, summary plan descriptions), trust
agreements, Internal Revenue Service ("IRS") determination letters, if
applicable, and the three most current Form 5500 series filings (and related
schedules and reports), if applicable, have been provided to Purchaser.
Except as set forth on Schedule 4.27, each Employee Plan: (a) which is
intended or treated as a qualified retirement plan under Section 401(a) of
the Code is, in fact, qualified thereunder, has received a favorable
determination letter from the IRS and no event has occurred which could
result in the revocation of such plan's qualified status; (b) which is
otherwise intended or treated as providing tax-advantaged benefits under the
Code, is in compliance with the applicable requirements under the Code; (c)
is not subject to, or governed by, Title IV of ERISA; (d) has been operated
and administered in compliance with all applicable requirements under Federal
and state law; and (e) is not the subject of, or a party to, any pending or
threatened litigation, investigation or audit. Except as set forth on
Schedule 4.27, no Employee Plan provides for any medical or health care
coverage following termination of employment, except to the extent
specifically required under Sections 601 through 608 of ERISA and Section
4980B of the Code (collectively such requirements are referred to as "COBRA
Continuation Coverage). Except as set forth on Schedule 4.27, no person is
currently receiving COBRA Continuation Coverage with respect to any Employee
Plan.
4.28 EMPLOYEE POLICIES. A current and accurate copy of the
employee handbook of PGM currently in effect has been made available to
Purchaser. Except as
24
set forth in Schedule 4.28, such handbook covers all employees of PGM and PGM
Joint Ventures and fairly and accurately summarizes all material employee
policies, vacation policies and payroll practices of PGM and the PGM Joint
Ventures. To PGM's knowledge, none of its employees or those of PGM Joint
Ventures is party to an agreement with a prior employer with respect to
confidentiality or a covenant not to compete or non-solicitation which is
still in force and effect.
4.29 REFERRAL SOURCES; INVESTORS. Except as set forth on
Schedule 4.29, PGM has not been advised that any of its loan officers,
referral sources or investors intend to cease doing business with PGM which
cessation in the aggregate or otherwise could have a material adverse effect
on the Business, financial condition or prospects of PGM or those of the PGM
Joint Ventures.
4.30 BANK ACCOUNTS. Schedule 4.30 sets forth a complete list
of each financial institution in which PGM and the PGM Joint Ventures have an
account or safe deposit box, together with a list of all assets held in such
box as of the date set forth in Schedule 4.30, the number of each such
account or box and the names of all persons authorized to draw thereon, to
give instructions with respect thereto or to have access thereto.
4.31 POWERS OF ATTORNEY. Except as set forth in Schedule
4.31, there are no outstanding powers of attorney executed on behalf of PGM
or any PGM Joint Venture.
4.32 PERSONAL GUARANTEES. Schedule 4.32 describes all
guaranties of Sellers of any obligations of PGM (the "Personal Guaranties").
4.33 BROKERAGE FEE. Except for the arrangements with the
STRATMOR Group, the terms of which have been fully disclosed to Purchaser,
neither Sellers nor PGM have engaged any investment banker, finder, broker or
similar agent with respect to the transactions contemplated by this Agreement
which may give rise to any brokerage fee, finder's fee, commission or similar
liability on the part of Sellers, PGM or Purchaser.
4.34 FULL DISCLOSURE. The representations and warranties of
Sellers contained in this Agreement, all schedules prepared for this Article
by or on behalf of Sellers and elsewhere described herein (the "Disclosure
Schedules") and the documents executed and delivered to Purchaser pursuant
hereto, taken as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
4.35 BUSINESS RECORDS. No material records of accounts,
personnel records or other business records related to the Business have been
destroyed within the last five (5) years, other than in the ordinary course
of business consistent with past
25
practices, and, there exists no such records other than those records
delivered by Seller and PGM to Purchaser at the Closing on the Closing Date.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers, on the date hereof and
on the Closing Date, as follows:
5.1 ORGANIZATION AND STANDING. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, and has full corporate power and authority to enter into
and perform this Agreement and consummate the transactions contemplated
hereby. Schedule 5.1 hereto contains a complete and accurate list of the
officers and directors of Purchaser.
5.2 NO RESTRICTIONS; AUTHORIZATION; BINDING EFFECT; APPROVAL
OF CHANGE OF CONTROL. Purchaser is not subject to any material restriction,
agreement, law, rule, regulation, ordinance, code, writ, injunction, award,
judgment or decree which would prohibit or be violated by the execution and
delivery hereof or the consummation of the transactions contemplated hereby.
Purchaser has all necessary power and authority and has taken, or will have
taken prior to the Closing, as applicable, all action necessary to execute
and deliver this Agreement and the instruments, documents and agreements to
be executed and delivered pursuant hereto, to consummate the transactions
contemplated by this Agreement and to perform its obligations under this
Agreement and the instruments, documents and agreements to be executed and
delivered pursuant hereto. This Agreement and each of the instruments,
documents and agreements to be executed and delivered pursuant hereto has
been duly executed and delivered by Purchaser, and each constitutes a legal,
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditor's rights generally and subject to the
availability of equitable remedies. Except as provided otherwise in this
Agreement and as set forth on Schedule 5.2, Purchaser is not required to give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
5.3 NONCONTRAVENTION. Neither the execution and delivery of
this Agreement by Purchaser nor the consummation of the transactions
contemplated hereby and thereby will (a) violate any statute, regulation,
rule, judgment, order, decree, stipulation or injunction to which Purchaser
is subject, (b) conflict with or result in a breach of the provisions of the
Articles of Incorporation or By-laws of Purchaser, as amended to date, or (c)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any person or entity the right to accelerate,
26
terminate, modify or cancel any contract, lease, license, indenture,
agreement, mortgage, instrument of indebtedness or other instrument to which
Purchaser is a party or by which Purchaser or any property of Purchaser is
bound.
5.4 CAPITALIZATION. The authorized capital Stock of
Purchaser consists of 1,000,000 shares of Common Stock, of which 101,000 were
issued and outstanding as of the date hereof.
5.5 CAPITAL STRUCTURE. The only record and beneficial
owners of the Stock as of the date hereof are set forth on Schedule 5.5 and
Schedule 5.5 hereto accurately sets forth the number of authorized and issued
and outstanding shares of Stock of Purchaser. All such issued and
outstanding shares of Stock are duly authorized, validly issued and
outstanding, and are fully paid and non-assessable. Except as set forth in
said Schedule 5.5, no other class or series of Stock is presently authorized.
Except as set forth in Schedule 5.5, there is no obligation, option or
warrant which is binding upon Purchaser to issue, sell, redeem, purchase or
exchange any of its Stock or any right relating thereto, and there are no
obligation, debt, liability or security of Purchaser is convertible into
Stock of Purchaser and there are no outstanding stock appreciation rights,
phantom stock or similar rights or agreements to pay a percentage of profits,
revenue of volume of loans originated, brokered or assigned.
5.6 AUTHORIZATION FOR COMMON STOCK ISSUED BY PURCHASER.
Purchaser has taken all action necessary to permit it to issue the number of
shares of Stock required to be issued pursuant to the Agreement at Closing.
The Stock issued pursuant to the Agreement at Closing, will, when issued, be
duly authorized, validly issued, fully paid and nonassessable, and no
stockholder of Purchaser will have any preemptive right of subscription or
purchase in respect thereof.
5.7 FINANCIAL STATEMENTS. The consolidated financial
statement dated December 31, 1997 set forth in Purchaser's audited financial
statements, including the balance sheets as of said date and the statements
of income, statements of stockholder's equity and statements of cash flow,
and unaudited financial statements for the first quarter of 1998, all
previously delivered to Sellers, have been prepared from the books and
records of Purchaser in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the consolidated
financial position of Purchaser and its consolidated subsidiaries as of its
dates included therein, and the results of operations, changes in equity and
cash flows of Purchaser for the periods covered by such financial statements.
5.8 NO MATERIAL ADVERSE CHANGE OR EXTRAORDINARY DIVIDENDS OR
DISTRIBUTIONS. Since December 31, 1997, there has been no material adverse
change in the business of Purchaser or any dividend, payment or other
distribution with respect to any of the Stock of Purchaser, other than (i) a
distribution to the shareholders of Purchaser in January, 1998 in the amount
of $600,000, and (ii) distributions in the amount of $514,000 required to pay
estimated first quarter 1998 taxes and (iii) distributions required in the
ordinary course of business.
27
5.9 NO SUBSIDIARIES. Except as set forth on Schedule 5.9,
Purchaser does not own any shares of or equity interest in any corporation,
partnership, limited liability company, joint venture, association (excluding
memberships in trade associations) or other entity and the execution and
delivery of this Agreement and consummation of the transactions contemplated
thereby and hereby do not and will not violate or conflict with or create a
default under, or give the counterparty to such agreement the right to
terminate, the agreements governing any of the joint ventures set forth on
Schedule 5.9.
5.10 CORPORATE RECORDS AND ACTION. Purchaser has previously
furnished to Purchaser a copy of the Articles of Incorporation and all
amendments thereto of Purchaser, and prior to the Closing shall furnish to
Purchaser a copy of the foregoing, certified as being true, correct and
complete by the Secretary of State of Illinois. Purchaser has previously
furnished to Sellers a complete copy of the By-laws and all amendments
thereto of Purchaser, and prior to the Closing shall furnish to Sellers a
copy of such By-laws and all amendments thereto, certified by the Secretary
of Purchaser. Purchaser has previously made available to Sellers the
complete minute books of Sellers. As of the Closing, all corporate actions
taken by the shareholders, Board of Directors or any committee of the Board
of Directors of Purchaser is fairly and accurately summarized in all material
respects in the minute books of Purchaser. Purchaser has previously made
available to Sellers the stock ledger books of Purchaser. All issuances,
cancellations, transfers and exchanges of capital stock of Purchaser as of
the Closing are reflected in its stock ledger books.
5.11 EVENTS SINCE DECEMBER 31, 1997. Since December 31,
1997, except as disclosed on Schedule 5.11, there has not been:
(a) Any casualty damage, destruction, loss or forfeiture
(whether or not covered by insurance) or adverse change, actual or threatened,
to or affecting (i) any material property or asset of Purchaser, or (ii) the
material business or condition (financial or other) of Purchaser, or (iii) the
material results of operations or prospects of Purchaser;
(b) Any direct or indirect redemption, purchase or other
acquisition by Purchaser of any capital stock of Purchaser, or any declaration,
setting aside or payment of any dividend or distribution with respect to any
capital stock of Purchaser;
(c) Any material increase in the compensation or
benefits (including bonuses) payable or to become payable by Purchaser to any of
its respective directors, officers, employees or agents, other than increases in
the ordinary course of Purchaser's business to persons receiving annual
compensation of greater than Eighty Thousand Dollars ($80,000.00), including
increases in commission compensation to employees compensated solely on a
commission basis;
28
(d) Any contractual commitment by Purchaser to any
third party, other than as provided in this Agreement or arising in the
ordinary course of Purchaser's business, relating to the acquisition or
disposition of material property or assets (including, without limitation,
any leasehold estate) of Purchaser;
(e) Any transaction, other than at arm's length in the
ordinary course of business, between Purchaser and any shareholder, director,
officer or affiliate of Purchaser or any affiliate of any such officer, director
or shareholder;
(f) Any waiver or surrender by Purchaser of any valuable
right or property other than for fair consideration;
(g) Any material change in the manner in which Purchaser
operates its Business which has had or may reasonably be expected to have an
adverse effect on the assets or properties, liabilities, condition (financial or
other) or results of operations of Purchaser;
(h) Any material change in any accounting policies,
procedures or practices employed with respect to Purchaser;
(i) Any sale of any of any material assets of Purchaser,
other than sales of loans in the ordinary course of business;
(j) Any redemption or purchase of (i) any Stock of
Purchaser or, (ii) any option to purchase Stock of Purchaser;
(k) Any issuance of any options, warrants or other
rights to purchase Stock of Purchaser; or
(l) Any other material transaction other than in the
ordinary course of business consistent with past practices.
5.12 TAXES.
(a) Except as disclosed in Schedule 5.12, Purchaser has
filed all returns and/or reports relating to Taxes (as hereinafter defined)
which Purchaser was required to file prior to the date of this representation
(collectively the "Prism Tax Returns"). All Taxes owed by Purchaser have been
paid.
(b) Proper and accurate amounts have been withheld by or
on behalf of Purchaser with respect to all compensation paid to employees of
Purchaser for all periods ending on or before the Closing Date. Purchaser has
required each employee who exercised an option to purchase Stock to pay to
Purchaser cash in an amount sufficient to satisfy in full Purchaser's obligation
to withhold Federal, state or local income or other taxes incurred by reason of
such exercise. All deposits required with
29
respect to compensation paid to employees of Purchaser have been made in
compliance with applicable laws.
(c) Purchaser has not made any payment, and is not
obligated to make any payment, and is not a party to any agreement that could
obligate it to make any payment that will not be deductible (in whole or in
part) for Federal income tax purposes by reason of Section 280G of the Code or
under Proposed Treasury Regulation Section 1.280G-1. No provision of this
Agreement, the Agreement of Closing or any agreement executed and delivered
pursuant hereto or thereto obligates Purchaser to make any payment in the nature
of compensation that will not be deductible (in whole or in part) for federal
income tax purposes by reason of Section 280G of the Code or under Proposed
Treasury Regulation Section 1.280G-1.
(d) Purchaser has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) Except as set forth on Schedule 5.12(e), none of
Purchaser's tax returns has been audited or is currently the subject of an audit
by a governmental agency. Except as set forth on Schedule 5.12(e), Purchaser
has not received any notice of a deficiency or proposed deficiency in any of the
taxes paid by Purchaser and Purchaser has not entered into any settlements or
tax agreements, and has not been the subject of audits or proceedings by any
federal or state taxing authority.
5.13 TITLE TO ASSETS. Purchaser owns all its assets free and
clear of any mortgage, pledge, lien, encumbrance or other security interest,
other than liens for real estate taxes not yet due or payable, liens for
capitalized leases entered into in the ordinary course of business and the
liens described in Schedule 5.13. Purchaser does not own and has not in the
past owned any real property.
5.14 CONDITION OF ASSETS. The personal property owned and
leased by Purchaser is in good operating condition and repair, ordinary wear
and tear excepted. The real estate leased by Purchaser is in good condition
and Purchaser is not obligated to perform any material repairs or maintenance
to such real estate.
5.15 ACCOUNTS RECEIVABLE; NOTES RECEIVABLE. The accounts
receivable and notes receivable set forth in the financial statements of
Purchaser for the period ended December 31, 1997 and the material accounts
receivable of Purchaser arising after that date represent valid claims
payable to Purchaser for the provision of services or other charges arising
in the ordinary course of business of Purchaser on or before the date
thereof. Each of the account receivables or note receivables on such
Financial Statements, constitute valid claims arising from bona fide
transactions in the ordinary course of Purchaser's business and are not
subject to any claim for set-off, reduction or rebate.
30
5.16 LITIGATION; REGULATORY EXAMINATION. Except as set forth
on Schedule 5.16, Purchaser is not (a) subject to any outstanding injunction,
judgment, order, decree, ruling, memorandum of understanding, cease and
desist order or administrative sanction or (b) a party or, to the knowledge
of Purchaser, threatened to be such a party to any action, suit, proceeding,
hearing, audit, investigation, initial investigation or criminal proceeding
of or before any grand jury, court, quasi-judicial agency, administration
agency or arbitration, and during the past five years, Purchaser has not been
audited or investigated by any instrumentality, commission, division,
subdivision, department, agency or procuring office or other entity of the
federal or state government other than routine examinations by federal and
state regulators, and such routine examinations have not revealed any
material non-compliance with law, regulation or applicable standards.
5.17 INSURANCE. Purchaser maintains and has maintained such
insurance as is required by law and such other insurance, in amounts and
insuring against hazards and other liabilities, as is customarily maintained
by companies similarly situated.
5.18 COMPLIANCE WITH CONSUMER LAW. Purchaser has complied
with all applicable material laws, rules, regulations, ordinances and codes,
whether federal, state, local or foreign and, including, without limitation,
all laws and regulations relating to occupational health and safety, equal
employment opportunities, fair employment practices, and sex, race,
religious, age and other prohibited discrimination, all labor laws,
including, without limitation, the Family and Medical Leave Act, and all
licensure, disclosure, usury and other consumer credit laws and regulations
governing residential mortgage lending and brokering, including, but not
limited to, all applicable rules, regulations, standards and guidelines
promulgated by HUD, GNMA, FHLMC, FNMA and VA and the Board of Governors of
the Federal Reserve System, the state agencies and all applicable provisions
of Consumer Credit Law, and, except as set forth on Schedule 5.18, no notice
or correspondence (whether regarding litigation, regulatory action or
otherwise) has been received by Purchaser from or on behalf of consumers
which is likely to have a material adverse effect on Purchaser's business or
the manner in which it conducts its business or notice from any regulatory
agency in which such regulatory agency alleges noncompliance with any
Consumer Credit Law or other applicable law. Purchaser has complied with all
applicable appraisal and accounting standards.
5.19 LICENSES AND PERMITS. Purchaser has obtained all
licenses, permits, qualifications, franchises and other governmental
authorizations and approvals, including, without limitation, all state
mortgage brokers and mortgage bankers licenses and, as applicable, approvals
by HUD, FHLMC, GNMA, FNMA and the VA, required in order for it conduct the
businesses as presently conducted, all of which are listed on Schedule 5.19
hereto. All of such licenses, permits, qualifications, franchises and other
authorizations are in full force and effect and will remain in full force and
effect immediately after the Closing and shall not be violated by or
affected, impaired or require any further action to remain effective as a
result of the Closing. No material
31
violation exists in respect of any such license, permit, qualification,
franchise, authorization or approval. No proceeding is pending, or to the
knowledge of Purchaser, threatened to revoke or limit any such license,
permit, qualification, franchise, authorization or approval.
5.20 LABOR RELATIONS. Purchaser is not a party to or bound
by any collective bargaining agreement. There is no current union
organizational activity with respect to the employees of Purchaser and there
has not been any such activity in the past twelve months. No allegation,
charge or complaint of age, disability, sex, race or other unlawful
discrimination or similar charge whether under federal, state or local law,
or of any violation of the Americans with Disabilities Act, has been made or,
to the knowledge of Purchaser, threatened against Purchaser.
5.21 BROKERAGE FEE. Except for the arrangements with the
STRATMOR Group, the terms of which have been fully disclosed to Sellers,
neither Purchaser nor any of its shareholders has engaged any investment
banker, finder, broker or similar agent with respect to the transactions
contemplated by this Agreement which may give rise to any brokerage fee,
finder's fee, commission or similar liability on the part of Purchaser.
5.22 FULL DISCLOSURE. The representations and warranties of
Purchaser contained in this Agreement, the Schedules and the documents
executed and delivered to Shareholders pursuant hereto, taken as a whole, do
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
5.23 WAREHOUSE LINE AND GESTATION REPO LINE TERMS. Schedule
5.23 provides a full and complete list of the terms of all of Purchaser's
warehouse line and gestation repo line arrangements including maximum lending
limits, rates and rate adjustments and any other information pertinent to
such agreements.
ARTICLE 6
COVENANTS OF SELLERS
Sellers, with respect to PGM, hereby covenant to Purchaser the following,
from the date hereof through the Closing:
6.1 CONDUCT OF BUSINESSES; NOTIFICATION OF BREACHES IN
REPRESENTATIONS OR WARRANTIES. Until the Closing, except as required or
specifically contemplated by this Agreement, the Sellers and PGM covenant
that PGM and the PGM Joint Ventures will conduct the Business in the ordinary
and usual course of business, consistent with past practices, and shall use
its best efforts to preserve the goodwill of its employees, representatives
and suppliers. PGM will promptly notify Purchaser in
32
writing if PGM is advised that any of the loan officers, referral sources or
investors of PGM or PGM Joint Ventures intends to cease doing business with
PGM or PGM Joint Ventures because of the Closing or the announcement thereof
or otherwise which cessation either alone or when aggregated with other such
cessations could have a material adverse effect on the Business, financial
condition or prospects of PGM or PGM Joint Ventures.
6.2 NOTIFICATION OF BREACH OF REPRESENTATION, WARRANTY OR
COVENANT. The Sellers will notify Purchaser immediately if any of the
representations, warranties or covenants in Section 4 hereof become untrue in
any material respect, and shall make immediate efforts to correct or cure
such breach.
6.3 FOREBEARANCES BY PGM. Except as contemplated by this
Agreement or consented to by Purchaser in writing, during the period from the
date hereof through the Closing, the Sellers covenant that PGM shall not:
(a) authorize or effect any change in its charter or
by-laws;
(b) grant any option, warrant or other right to purchase
or obtain any of its capital stock, or issue, sell or otherwise dispose of any
of its capital stock (except upon the conversion or exercise of options
presently outstanding and in accordance with the respective terms thereof);
(c) declare, set aside or pay any dividend or
distribution with respect to its capital stock, or redeem, repurchase or
otherwise acquire any of its capital stock;
(d) create, incur, assume or guaranty any indebtedness
for borrowed money other than indebtedness incurred in the ordinary course of
business including, without limitation, under any warehouse line of credit;
(e) grant any lien, pledge, security interest or other
encumbrance upon any of its assets other than capitalized leases permitted under
Section 4.11(k);
(f) make any capital expenditure except capital
expenditures incurred in the ordinary course of business which do not exceed
$20,000 for any single item or group of related items;
(g) make any loan to or investment in, or acquire any
securities or assets of any other person or entity, except for mortgage loans
made in the ordinary course of business made under the same standards and
guidelines as such loans were made prior to December 31, 1997;
(h) increase the rate of compensation or materially
increase the benefits payable or to become payable to any of its directors,
officers or employees
33
(other than raises made in the ordinary course of business to employees who
are not directors or officers provided that such raise to any such employee
shall not exceed 10% of the base compensation of such employee in effect at
December 31, 1997 and an increase in the annual salary of Xxxxx Xxxxxxx,
VP/Accounting, from $51,900 to $60,000 effective April 1, 1998) or make any
material change in any of the terms of employment of any of its directors,
officers or employees;
(i) change any material accounting policies, procedures
or practices employed by it;
(j) sell any of its assets, other than sales of loans in
the ordinary course of business where applicable pursuant to appropriate
guidelines of the governing federal agency or issue, sell, encumber or give any
option or right to purchase any shares of PGM's capital stock or other
securities;
(k) amend any Tax Return;
(l) enter into any material contract, agreement or lease
other than in the ordinary course which would be required to be disclosed
hereunder without Purchaser's consent which consent shall not be unreasonably
withheld, or make any change in any existing contracts, agreements or leases
other than in the ordinary course of business without Purchaser's consent which
consent shall not be unreasonably withheld;
(m) pay or discharge any long-term liability other than
in accordance with its terms;
(n) take or omit to take any action, the effect of which
act or omission would render inaccurate any of the representations and
warranties set forth in Article 4 herein as of the Closing Date;
(o) implement or agree to any implementation of or
amendment or supplement to any employee profit sharing, pension, bonus,
commission, incentive, retirement, medical reimbursement, life insurance,
deferred compensation or any other employee benefit plan or arrangement; or
(p) agree or commit to do any of the foregoing.
6.4 GOOD FAITH NEGOTIATIONS. Sellers agree to negotiate and
proceed in good faith to promptly consummate the transactions hereunder.
6.5 ACQUISITION PROPOSALS. Neither Sellers, PGM nor the PGM
Joint Ventures nor any of PGM's or the PGM Joint Ventures' respective
officers, directors, members, managers, employees, representatives or agents,
shall (a) directly or indirectly take (nor shall PGM or any PGM Joint Venture
permit any of their respective officers, directors, members, managers,
employees, investment bankers, attorneys, accountants
34
or other agents or affiliates to take) any action to encourage, solicit,
initiate or otherwise facilitate the submission by a third party of, or
negotiate or enter into any agreement with a third party with respect to, a
proposal to acquire, directly or indirectly, any of the capital stock of PGM
or the partner, joint venture or other ownership interest of any PGM Joint
Venture, whether by stock purchase, merger, sale of shares of capital stock,
or partnership or membership interest or by license agreement or otherwise or
sale of any material portion of its assets (except sales of loans in the
ordinary course of business) (any such submission, negotiations or agreement
called an "Acquisition Proposal"), and Sellers, PGM or the PGM Joint
Ventures, as applicable, shall immediately terminate any current negotiations
and contacts, or (b) disclose directly or indirectly to any person preparing
to make an Acquisition Proposal any confidential information regarding PGM or
any PGM Joint Venture, or (c) enter into any understanding, agreement or
commitment with any third party providing for a business combination, equity
investment, or sale or license of any significant assets of PGM or any PGM
Joint Venture. Upon receipt of any such Acquisition Proposal by any third
party, Sellers shall promptly advise Purchaser of the proposal and provide it
copies of all materials pertaining thereto. If the parties have not
consummated the Closing prior to July 5, 1998 for any reason other than due
to the failure to obtain State Required Regulatory Approvals, then, subject
to the obligation to negotiate in good faith set forth in Section 6.4 above,
the provisions of this Section 6.5 shall be void with respect to any
Acquisition Proposal first received after such date.
6.6 CONSENTS. Prior to the Closing, Sellers and PGM shall
use reasonable efforts to obtain the consents, waivers and other approvals,
which may be required from any lender, lessor or non-government customer in
order to effectuate the Closing.
6.7 GOVERNMENT APPROVAL. Promptly following the execution
of this Agreement, PGM with the reasonable cooperation of Purchaser and the
Sellers shall in good faith notify and with the assistance of Purchaser as
provided in Section 7.4, make best efforts to obtain approvals from the
States of Massachusetts, Nevada and Washington and the District of Columbia
(the "Required Regulatory Approvals") and the States of Florida, Georgia,
Michigan and Virginia (the "Other State Regulatory Approvals") and to the
extent otherwise required or appropriate under applicable law all other
governing federal and state agencies regarding the transactions contemplated
by this Agreement to the extent such notice or approval is required by
applicable law. PGM shall immediately notify Purchaser if PGM receives any
inquiry from such agencies regarding the Closing or any indication that PGM's
licensed status with such agency will be impaired by the Closing. PGM's
reasonable costs of obtaining such consents, including but not limited to
those of outside counsel, shall be costs payable by PGM pursuant to Section
12.2. To the extent such costs incurred prior to Closing (exclusive of
Purchaser's costs pursuant to Section 7.4) when aggregated with other costs
described in Section 12.2 exceed the $[*] maximum set forth in Section 12.2,
the costs of PGM shall be borne by Sellers. All costs of obtaining the
foregoing approvals and consents incurred after Closing shall be borne by PGM.
35
6.8 ADDITIONAL FINANCIAL STATEMENTS. PGM shall furnish to
Purchaser unaudited financial statements for PGM for each month which closes
more than 25 days prior to the Closing within 25 days after the end of such
month. Such financial statements shall be certified by the Chief Financial
Officer or Treasurer of PGM, in his or her capacity as such, as having been
prepared in accordance with generally accepted accounting principles on a
basis consistent with the Financial Statements and as fairly presenting the
financial position of PGM as of their respective dates and the results of its
operations for the periods then ended (subject in the case of the monthly
financial statements to normal year end adjustments which, in the aggregate,
are not material).
6.9 SUPPLEMENTS TO SCHEDULES. From time to time after the
date hereof and prior to the Closing Date, PGM will promptly supplement or
amend the Disclosure Schedules with respect to any matter which PGM deems
necessary or advisable to include therein. However, no such supplement or
amendment of the Disclosure Schedules shall be deemed to cure any breach of
any representation or warranty made in this Agreement even if Purchaser
proceeds with the Closing. Notwithstanding any supplement or amendment to the
Schedules, Purchaser shall be entitled to its rights and remedies under
Section 10.3 and Section 11.1.
Sellers shall have no liability under Section 10.3 or 11.1 hereof for
Ordinary Course Disclosures. As used herein, "Ordinary Course Disclosures"
mean supplements to the Disclosure Schedule to reflect (a) events which occur
after the date hereof which are required to be disclosed pursuant to Section
4.11 and to which Purchaser has consented pursuant to Section 6.3, and (b)
contracts entered into in the ordinary course of business after the date
hereof which are required to be disclosed pursuant to Section 4.17 and to
which Purchaser has consented.
6.10 CONSENTS OF THIRD PARTIES. On or prior to the Closing
Date, Sellers, at their expense, shall obtain or cause to be obtained all
consents and other approvals of all lessors, lenders, governmental
authorities and other third parties including, without limitation, any
spousal consents which are required to be obtained by Sellers, PGM or PGM
Joint Ventures as a result of the transactions contemplated by this
Agreement, which consents and approvals shall continue each applicable lease,
loan or other arrangement related to PGM on substantially identical terms as
exist on the date hereof. The reasonable costs of obtaining such consents,
including but not limited to those of outside counsel, shall be costs payable
by PGM pursuant to Section 12.2. To the extent such costs when aggregated
with other costs described in Section 12.2 exceed the $[*] maximum set forth
in Section 12.2, such costs incurred prior to Closing shall be borne by
Sellers.
6.11 TRANSFER OF SHARES. At the Closing, Sellers shall cause
the certificate or certificates for the Shares to be delivered to Purchaser,
duly endorsed for transfer or with executed stock powers attached.
36
6.12 GUARANTEES AND COLLATERAL PLEDGES. Except for those
guaranties set forth on Schedule 6.12, Sellers acknowledges that PGM has not
guaranteed the indebtedness of any affiliates of Sellers other than PGM or
such PGM Joint Venture, itself (collectively the "Affiliate Guarantees") at
any banks or lending institutions or otherwise which have not been
terminated, cancelled and of no further force or effect, and any security
interest or lien right or security interest which such bank or lending
institution had or may have had with respect to the Affiliate Guarantees have
been released. At the Closing on the Closing Date, Sellers shall deliver to
Purchaser written evidence of the termination of any Affiliate Guarantees and
any liens or security interests securing such Affiliate Guarantees. Except
for Personal Guaranties, Sellers have not guarantied the indebtedness of PGM
or the PGM Joint Ventures.
6.13 SUBORDINATION. At Closing, Sellers covenant to cause
the obligees on the Sellers' Indebtedness and the Willat Indebtedness to be
subordinated to other indebtedness of Purchaser whether now existing or
hereafter arising which subordination shall be evidenced by subordination
agreements or such other documentation which shall be in form and substance
acceptable to Purchaser and Purchaser's lender or lenders, provided that, in
lieu of the foregoing subordination with respect to the Willat Indebtedness,
such Willat Indebtedness, at Purchaser's option, shall be repaid from PGM's
capital.
ARTICLE 7
COVENANTS OF PURCHASER
Purchaser hereby covenants to Sellers that from the date hereof through
the Closing as follows:
7.1 NOTIFICATION OF BREACH OF WARRANTY OR COVENANT.
Purchaser will notify Sellers immediately if any of the warranties or
covenants in Section 5 hereof become untrue in any material respect and shall
make immediate efforts to correct or cure such breach.
7.2 FOREBEARANCES BY PURCHASER. Except as contemplated by this
Agreement or consented to by Sellers in writing, during the period from the date
hereof through the Closing, Purchaser covenants that it shall not:
(a) authorize or effect any change in its charter or
by-laws;
(b) declare, set aside or pay any dividend or
distribution with respect to its capital stock, or redeem, repurchase or
otherwise acquire any of its capital stock;
(c) increase the rate of compensation or materially
increase the benefits payable or to become payable to any of its directors,
officers or employees
37
(other than raises made in the ordinary course of business to employees who
are not directors or officers provided that such raise to any such employee
shall not exceed 10% of the base compensation of such employee in effect at
December 31, 1997) or make any material change in any of the terms of
employment of any of its directors, officers or employees;
(d) change any material accounting policies, procedures
or practices employed by it;
(e) sell any of its assets, other than sales of loans in
the ordinary course of business where applicable pursuant to appropriate
guidelines of the governing federal agency or issue, sell, encumber or give any
option or right to purchase any shares of Purchaser's capital stock or other
securities;
(f) amend any Prism Tax Return;
(g) pay or discharge any long-term liability other than
in accordance with its terms;
(h) implement or agree to any implementation of or
amendment or supplement to any employee profit sharing, pension, bonus,
commission, incentive, retirement, medical reimbursement, life insurance,
deferred compensation or any other employee benefit plan or arrangement; or
(i) agree or commit to do any of the foregoing.
7.3 GOOD FAITH NEGOTIATIONS. Purchaser agrees to negotiate
and proceed in good faith to promptly consummate the transactions hereunder.
7.4 GOVERNMENT APPROVALS. Prior to the Closing, Purchaser
shall use reasonable efforts to cooperate with Purchaser in obtaining the
Required Regulatory Approvals, the Other State Regulatory Approvals and the
other consents, waivers and other approvals set forth in Section 6.7.
Purchaser shall cause PGM to bear all costs of obtaining the Required
Regulatory Approvals and the Other State Regulatory Approvals incurred after
the Closing.
ARTICLE 8
JOINT COVENANTS
8.1 ACCESS AND INFORMATION. Each of the Sellers and
Purchaser will afford to the other and its Representatives (as hereinafter
defined) such access during normal business hours throughout the period prior
to the Closing Date to its, and in the case of the Sellers', PGM's or the PGM
Joint Ventures' books records, offices, and other facilities and to its
shareholders, officers, directors, employees, investment bankers,
38
attorneys, accountants and other agents or affiliates as the other party may
reasonably request, provided that such investigation shall not unreasonably
interfere with such party's ability to conduct its business in the ordinary
course and that neither party shall contact any of the other party's key
employees, vendors, or customers without first obtaining consent of the other
party, which consent shall not be unreasonably withheld. No investigation or
absence of investigation by Purchaser of PGM and the PGM Joint Ventures or by
Seller of Purchaser prior to the date hereof or pursuant to this Section
shall be deemed to modify any of the representations or warranties contained
herein.
(a) All Information (as hereinafter defined) disclosed
to a Recipient (as hereinafter defined) and its Representatives shall be
utilized by the Recipient and its Representative for the sole purpose of
evaluating the Closing and shall be kept confidential until the Closing is
consummated. In the event the Closing is not consummated, each Recipient and
its Representatives shall continue to keep the Information confidential and
shall not directly or indirectly utilize such Information in any way detrimental
to the Disclosing Party.
(b) As used herein, "Disclosing Party" means Purchaser,
PGM, or the Sellers, whichever discloses Information (as hereinafter defined),
and "Recipient" means Purchaser, its subsidiaries, Purchaser or the Sellers,
whichever is receiving Information from a Disclosing Party.
(c) As used herein, "Information" means all information
delivered by or on behalf of a Disclosing Party, its subsidiaries or their
respective officers, directors, employees and/or agents to the Recipient or its
Representatives before or after the date of this Agreement, whether orally or in
writing, and all reproductions, copies, notes, analyses, compilations, studies,
interpretations or other documents prepared by the Recipient or others which
contain, are based upon, or otherwise reflect such information, but does not
include any information which at the time of disclosure to the Recipient or
thereafter (i) is generally available to and known by the public (other than as
a result of a disclosure directly or indirectly by the Recipient or its
Representatives), (ii) was available to the Recipient on a nonconfidential basis
from a source other than the Disclosing Party and its subsidiaries and
Representatives, provided that such source is not, and was not, bound by a
confidentiality agreement with the Disclosing Party or another party or
otherwise prohibited from transmitting such information by a contractual, legal
or fiduciary obligation to the Disclosing Party, its subsidiaries or another
party, or (iii) has been independently acquired or developed by the Recipient as
shown by written records without violating any of the Recipient's obligations
under this Agreement.
(d) As used herein, "Representatives" mean those
directors, officers, employees, representatives, auditors, legal counsel,
advisors and other authorized representatives of the Recipient who need to know
Information for the purpose of evaluating the Recipient's participation in the
Closing (it being understood that prior to any disclosure of Information by a
Recipient to any Representative, the Recipient will inform such Representative
of the confidential nature of the Information
39
and obtain from such Representative an agreement to be bound by the terms of
this Section to the same extent as if such Representative had joined this
Agreement for the purpose of agreeing to be bound by this Section). A
Recipient shall be responsible for any breach of the terms of this Section by
any of its Representatives.
(e) If a Recipient or any of its Representatives becomes
legally compelled (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or similar process) to disclose any of the
Information, or reasonably determines that such disclosure is required in order
to defend itself against a legal proceeding brought by a third party, the
Recipient shall provide the Disclosing Party with prompt prior written notice of
such requirement or determination so that the Disclosing Party may seek a
protective order or other appropriate remedy and/or waive compliance with the
terms of this Section. In the event that such protective order or other remedy
is not obtained, or that the Disclosing Party waives compliance with the
provisions of this Section, the Recipient shall exercise reasonable commercial
efforts to obtain assurance that confidential treatment will be accorded such
Information. The provisions of this paragraph shall not apply to Purchaser and
its Representatives after the Closing.
(f) If the Closing is not consummated, each Recipient
will return to the Disclosing Party all copies of Information in the Recipient's
possession or in the possession of its Representatives, and each Recipient will
destroy all copies of any analyses, compilations, studies or other documents
prepared by such Recipient or for its use containing or reflecting any
Information.
8.2 PUBLICITY. Neither Purchaser nor Sellers shall announce
or disclose publicly the terms or provisions hereof without the prior written
approval of the other party, except such disclosure as may be required under
securities law or common law (subject to giving the other party notice as
promptly as possible of the intention to make such disclosure and providing
the other party an opportunity to review the wording of such disclosure), and
disclosure to its attorneys, accountants, lenders, bankers, investment
bankers, government agencies and employees.
8.3 SHAREHOLDERS AGREEMENT. Purchaser and Sellers shall
enter into the Shareholders Agreement.
8.4 EMPLOYMENT AGREEMENTS. At the Closing, Purchaser and
each of Barbera and Osenton shall enter into their respective Executive
Employment Agreements in the form annexed hereto as Exhibit "C" and "D",
respectively (the "Employment Agreements").
8.5 OTHER DOCUMENTATION. At the Closing, Sellers shall
deliver all the Shares, together with stock powers and all other documents
required or appropriate to effect the transactions contemplated hereby.
40
ARTICLE 9
CONDITIONS TO OBLIGATION TO CLOSE
9.1 MUTUAL CONDITIONS. The obligations of each party to
effect the Closing shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) LITIGATION. Immediately prior to the Closing, there
shall be no material action or proceeding initiated by any governmental agency
or third party which seeks to restrain, prohibit or invalidate the transactions
hereunder or to recover substantial damages or other substantial relief with
respect thereto, and no injunction or restraining order shall have been issued
by any court restraining, prohibiting or invalidating the transactions
hereunder.
(b) SHAREHOLDERS AGREEMENT. Purchaser and the Sellers
shall have entered into the Shareholders Agreement.
(c) EMPLOYMENT. Barbera and Osenton shall each have
entered the respective Employment Agreement with PGM.
9.2 CONDITIONS TO OBLIGATIONS OF PURCHASER TO EFFECT THE
PURCHASE. The obligations of Purchaser to effect the Closing shall be subject
to the fulfillment on or prior to the Closing Date of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Sellers set forth in Article 4 of this Agreement shall be true
and correct on the date of this Agreement and as of the Closing Date. It being
understood that Ordinary Course Disclosures and any breach of a representation
or warranty disclosed to the Purchaser which in the reasonable discretion of the
Purchaser has no material adverse effect (either alone or when aggregated with
any other breach) on the ability to consummate the transaction, the value of PGM
or the Business shall not constitute a breach of such representations and
warranties. Purchaser shall have received a certificate, executed by the
President and Executive Vice President of PGM, dated the Closing Date, to the
effect that the representations and warranties of PGM set forth in Article 4 of
this Agreement are true and correct on the date of this Agreement and, except as
disclosed to Purchaser and accepted by Purchaser, as of the Closing Date, as if
made again on and as of the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS. The Sellers and PGM
shall have performed all obligations required to be performed by it under this
Agreement on and prior to the Closing Date, except for the failure to perform
obligations which do not, in the reasonable discretion of the Purchaser have no
material adverse effect on the ability to consummate the Closing and the
Business of PGM. Purchaser shall have received a certificate executed by the
President and Executive Vice President of PGM to that effect dated the Closing
Date.
41
(c) DUE DILIGENCE. Purchaser shall have completed its
due diligence investigation of PGM and nothing shall have come to Purchaser's
attention in the course of such due diligence which causes Purchaser to
determine not to proceed with the Closing.
(d) OPINION OF COUNSEL. Purchaser shall have received
written opinion of Weiner, Brodsky, Xxxxxx & Xxxxx, P.C. and Xxxxxx X. Gamer,
both counsel to PGM, dated the Closing Date, in the form of Exhibit "F-1" and
"F-2", respectively, hereto.
(e) EXECUTION AND DELIVERY OF ALL ANCILLARY DOCUMENTS.
There shall have been executed by the parties thereto and delivered to Purchaser
all other documents reasonably necessary to effect the transactions
contemplated.
(f) REGULATORY APPROVAL. All Required Regulatory
Approvals and any other applicable Federal and State agency approvals and
consents, including all described in Section 6.7, shall have been obtained to
the extent they are required or appropriate as a result of the change in control
of PGM effected by the Closing.
(g) CONSENTS. PGM shall have received all consents,
waivers and other approvals other than regulatory consents described in
Section 9.2(f) necessary in order for it to effect the Closing.
(h) CASUALTY. No casualty shall have occurred at the
facilities of PGM as a result of which Purchaser reasonably expects that PGM
will be unable to conduct its business in substantially the same manner as
previously conducted for a period of at least thirty (30) days after the Closing
Date.
(i) DELIVERY OF CORPORATE DOCUMENTS AND LIEN SEARCHES.
Sellers, at their sole expense, shall have delivered to Purchaser:
(a) Certificates of Good Standing of PGM and any PGM Joint Ventures, dated
within twenty (20) days of the Closing Date, for any state within which PGM or
any PGM Joint Venture is qualified to do business as a foreign corporation as
described in Section 4.2; (b) a certified copy of the Certificate of
Incorporation and By-Laws, and all continuations thereof and amendments thereto,
of PGM and of all joint venture agreements, partnership agreements, articles of
organization, or other organizational documents of each PGM Joint Venture; and
Purchaser shall at Purchaser's sole expense have obtained to its reasonable
satisfaction lien searches under the Uniform Commercial Code and other
applicable statutes for each County, and, where appropriate, other local
jurisdictions in which PGM or any PGM Joint Venture maintains inventory or a
place of business, as well as a judgment and tax lien search respecting PGM or
any PGM Joint Venture in each such jurisdiction.
(j) CERTIFICATE OF SELLERS. Purchaser shall have
received a certificate from Sellers dated as at the Closing Date: (a)
certifying, without qualification
42
or exception, that the conditions set forth in Sections 9.1 and 9.2 hereof
have been fully satisfied; and (b) specifying in which respects, if any, the
representations and warranties contained herein or in any certificate or
other writing delivered pursuant hereto or in connection herewith are
inaccurate on and as of the Closing Date. Such certificate shall be deemed a
representation and warranty by Sellers.
Notwithstanding anything herein to the contrary, Purchaser may waive any of the
foregoing conditions in Section 9.2 hereof, or to the extent such conditions are
imposed on PGM or Shareholders, in Section 9.1, or at Purchaser's option, cure
any such noncompliance with such conditions and subject to such limitations as
provided in Section 11.1.
9.3 CONDITIONS TO OBLIGATIONS OF SELLERS TO EFFECT THE
CLOSING. The obligations of Sellers to effect the Closing shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser set forth in Article 5 of this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date, as
if made again on such date. PGM shall have received a certificate, executed by
the President or an Executive Vice President of Purchaser, to the effect that
the representations and warranties of Purchaser set forth in Article 5 of this
Agreement are true and correct on the date of this Agreement and, except as
disclosed to PGM, as of the Closing Date, as if made again on and as of the
Closing Date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall at its
own cost have performed all material obligations required to be performed by it
under this Agreement prior to the Closing Date, and PGM shall have received a
certificate executed by the President or an Executive Vice President of
Purchaser to that effect dated the Closing Date.
(c) GENERAL COUNSEL. The General Counsel of Purchaser
shall have delivered a legal opinion to Sellers in form and substance reasonably
satisfactory to Sellers.
(d) REQUIRED REGULATORY APPROVALS. Sellers shall have
obtained either (i) the Required Regulatory Approvals or, (ii) if the Required
Regulatory Approvals have not been obtained, an Indemnification of Sellers by
Purchaser, in form and substance reasonably acceptable to Purchaser and to
Sellers, indemnifying Sellers for any and all losses personally caused Sellers
(including but not limited to the payment of all penalties and reasonable
attorneys fees) due to effecting the Closing without the Required Regulatory
Approvals as defined in Section 6.7.
(e) CERTIFICATE OF PURCHASER. Sellers shall have
received a certificate from Purchaser dated as at the Closing Date:
(a) certifying, without qualification or exception, that the conditions set
forth in Sections 9.1 and 9.3(a), (b) and
43
(c) hereof have been fully satisfied; and (b) specifying in which respects,
if any, the representations and warranties contained herein or in any
certificate or other writing delivered pursuant hereto or in connection
herewith are inaccurate on and as of the Closing Date. Such certificate shall
be deemed a representation and warranty by Purchaser.
44
ARTICLE 10
POST CLOSING COVENANTS
10.1 POST CLOSING COVENANTS OF PURCHASER REGARDING FINANCING OF
PGM
(a) After the Closing, Purchaser will arrange warehouse
lines reasonably necessary for the current and, to the extent necessary, the
future operations of PGM and PGM Joint Ventures and will charge PGM quarterly a
15% per annum cost of capital to the extent additional capital is required in
excess of capital generated by PGM from its operations to support the warehouse
lines being used for the operations of PGM and of the PGM Joint Ventures. For
purposes of determining whether additional capital is necessary, (i) PGM's Post
Tax Net Income will be allocated to PGM's balance sheet and (ii) a leverage
ratio will be assumed equal to the greater of (x) 20 to 1 and (y) the actual
leverage ratio permitted under Purchaser's warehouse lines which determination
shall be made at the end of each fiscal quarter.
By way of example assume PGM's net worth as of the end of the first
greater of 1998 is $1 million (giving PGM full credit in the calculation of its
net worth for any distributions or dividends by PGM to Prism). Further assume
that PGM generated $2 million of capital in the second quarter of 1998 (i.e.
after tax estimated net income for such quarter) and that capital was not needed
for operations or other purposes. Finally, assume that the maximum dollar
amount of PGM loans outstanding on Purchaser's warehouse lines at any time
during such quarter was $80 million. PGM would be charged a 15% per annum cost
of capital on $1 million ($37,500 for the quarter) computed as follows:
(80,000,000)
------------
20 = 4,000,000
4,000,000 - (2,000,000 + 1,000,000) = $1,000,000
$1,000,000 x 15% per annum = $150,000
$150,000 DIVIDED BY 4 = $37,500
(b) After the Closing, if PGM identifies acquisition
opportunities in Northern California, and Purchaser, in its reasonable
discretion, approves such acquisitions, then Purchaser shall make capital
available to PGM to implement such acquisition opportunities to the extent
additional capital over and above that generated by and credited to PGM is
required. PGM will be charged a 15% (per annum) cost of capital on such capital
in excess of capital generated from operations after subtracting capital
required to support warehouse lines described in 10.1(a) above. It is
understood that, at the request of Purchaser, PGM shall make any filing required
by Section 25.116 of the California General Corporate Law or otherwise, to
assure that
45
such 15% charge on capital shall not violate applicable usury law and that if
it is determined by Purchaser that such rate is nonetheless violative of
applicable law, the rate shall be reduced to a lawful rate.
By way of example, assume PGM's net worth (calculated as described in
Section 10.1(a)) as of the end of the last quarter of 1998 is $1 million.
Further assume that PGM generated $2 million of capital in 1998 and that was
not needed for operations or other purposes except $2.75 million of such
capital was needed to support PGM's warehouse lines in accordance with
Section 10.1(a). If $1.5 million is needed to implement an acquisition, PGM
will be charged a 15% (per annum) cost of capital on $1,250,000 ($187,500 for
the quarter) computed as follows:
PGM available capital = (2,000,000 + 1,000,000) - 2,750,000 = $250,000
Additional capital = 1,500,000 - 250,000 = $1,250,000
1,250,000 X 15% per annum = $187,500
187,500 DIVIDED BY 4 = $46,875
It is understood that, at the request of Purchaser, PGM shall at its own cost
make any filing required by Section 25.116 of the California General
Corporate Law or otherwise, to assure that such 15% charge on capital shall
not violate applicable usury law and that if it is determined by Purchaser
that such rate is nonetheless violative of applicable law, the rate shall be
reduced to a lawful rate.
10.2 COVENANT NOT TO COMPETE AND NOT TO SOLICIT BY SELLERS
SURVIVING CLOSING. The following covenants are made by Osenton and Barbera
to Purchaser and PGM in consideration of the transaction contemplated by this
Agreement, and it is expressly acknowledged and agreed by Osenton and Barbera
that such covenants are material inducements for Purchaser to enter into this
Agreement and to consummate the transaction contemplated hereby. In
addition, Osenton and Barbera each acknowledge that PGM, Purchaser and their
Affiliates have and will expend considerable time, money and resources in
recruiting, training and developing the skills and abilities of their
employees; developing business relationships with referral sources and
customers so as to improve the goodwill of PGM; establishing branches of PGM,
including, but not limited to, entering into long term leases for office
space; and establishing and maintaining close business relationships between
PGM's employees and PGM's customers. Osenton and Barbera each acknowledge
and agree that PGM is entitled to protect its investment in the foregoing and
to keep the results of its efforts for its exclusive use. Accordingly,
Osenton and Barbera agree to the covenants and conditions set forth in
Sections 10.2(a) through 10.2(g) hereof, and acknowledge and agree that they
are necessary to preserve and protect the legitimate business interests of
PGM, and shall be binding upon Osenton and Barbera during and after their
respective employment with PGM in accordance with their terms:
46
(a) NON-COMPETITION. During Osenton's and Barbera's
employment with PGM, pursuant to their respective Employment Agreements or
otherwise under another employment agreement or arrangement with PGM, Prism
or their Affiliates, and for the lesser of (i) a three (3) year period after
their employment under the Employment Agreements or otherwise under another
employment agreement or arrangement with PGM or its Affiliates is terminated
by either party thereto, for any reason, and (ii) the longest period of time
allowed by applicable law, Osenton and Barbera each covenant to not, directly
or indirectly, compete with PGM or its Affiliates (including without
limitation Purchaser and its Affiliates) with respect to the business (i.e.,
the residential mortgage lending and brokerage business) of PGM or its
Affiliates (including without limitation Purchaser and its Affiliates),
including any expansion of such business of PGM or its Affiliates (including
without limitation Purchaser and its Affiliates), which occurs during the
term of their employment, and any renewal term, including ancillary and
related activities which occur during the term of the Employment Agreement or
other employment agreement or arrangement with PGM, Purchaser or their
respective Affiliates, in the geographic region which is the smaller of (i)
all areas in which PGM or its Affiliates (including Purchaser and its
Affiliates), conduct any of their residential mortgage operations and where
they maintain branches, and (ii) the largest geographical area allowed by
law. Competition, for the purpose of this Agreement, shall include, but not
be limited to: (i) owning, maintaining, operating or engaging in the same or
similar line of business as PGM or its Affiliates (including without
limitation Purchaser and its Affiliates), or in any business which competes
with PGM or its Affiliates (including without limitation Purchaser and its
Affiliates); (ii) serving, advising, consulting with or being employed by any
individual, firm, agency, partnership, company or corporation (including any
pre-incorporated association) which engages in the same or similar business
as PGM or its Affiliates (including without limitation Purchaser and its
Affiliates), or which competes with PGM or its Affiliates (including without
limitation Purchaser and its Affiliates); and (iii) undertaking any efforts
or activities toward pre-incorporating, incorporating, organizing, financing
or commencing any competing business or activity which engages in the same or
similar line of business as PGM or its Affiliates (including without
limitation Purchaser and its Affiliates), provided that upon the termination
of Barbera's or Osenton's employment under their respective Employment
Agreement between Barbera or Osenton and PGM, Barbera or Osenton may be
employed by another mortgage company or become self-employed in their own
business, solely in the position of a commissioned loan officer, provided
that such employment shall not impair, abridge or otherwise affect Barbera's
or Osenton's duties, covenants or obligations as to competition hereunder and
with respect to solicitations of employees, agents, customers or referral
sources or otherwise under their re spective Employment Agreement.
(b) NON-SOLICITATION OF EMPLOYEES OR AGENTS. Osenton
and Barbera each hereby agree that, so long as either is employed by PGM
under the Employment Agreement or otherwise, and for the lesser of (i) a
three (3) year period after their employment is terminated for any reason,
and (ii) the longest period of time allowed by law, he shall not engage in
soliciting, diverting, hiring or inducing, or attempting to solicit, divert,
hire or induce, directly or indirectly (whether on their own
47
behalf, or that of any other person, business or entity) any employee or
agent of PGM or of any Affiliate, including without limitation Purchaser and
its Affiliates, who was employed by or under contract with PGM or any
Affiliate, including without limitation Purchaser and its Affiliates, within
three (3) years of the date of the termination of their employment
thereunder, to terminate his or her relationship with PGM or any such
Affiliate, including without limitation Purchaser and its Affiliates.
(c) NON-SOLICITATION OF CUSTOMERS AND REFERRAL
SOURCES. Osenton and Barbera each hereby agree that so long as employed, and
for the lesser of (i) a three (3) year period after their employment is
terminated by either party hereto, for any reason, and (ii) the longest
period of time allowed by law, they shall not, either directly or indirectly,
engage in calling upon, soliciting, diverting or inducing, or attempting to
call upon, solicit, divert or induce, and shall not, directly or indirectly,
use any non-public information relating to a customer of PGM or its
Affiliates, including without limitation Purchaser and its Affiliates,
obtained during their employment with PGM for calling upon, diverting,
soliciting or inducing, or attempting to call upon, divert, solicit or
induce, any customer or referral source of PGM (except loan clients obtained
through general marketing and clients with whom Osenton or Barbera,
individually, had a specific prior relationship), or of any Affiliate,
including without limitation Purchaser and its Affiliates, including any
individual or entity which has done business with PGM or its Affiliates,
including without limitation Purchaser and its Affiliates, at any time within
the three (3) years preceding the termination of their employment hereunder
(i) to do business with a competitor of PGM or (ii) not to do business with
PGM, or any of its Affiliates, including without limitation Purchaser and its
Affiliates.
(d) ENFORCEMENT. Osenton and Barbera each recognize
that the provisions of this Section 10.2 are vitally important to the
continuing welfare of PGM and its Affiliates and that money damages
constitute an inadequate remedy for any violation thereof. Accordingly, in
the event of any such violation by Osenton, Barbera, PGM and its Affiliates,
in addition to any other remedies they may have, shall have the right to
institute and maintain a proceeding to compel specific performance thereof or
to issue an injunction restraining any action by Osenton or Barbera in
violation of this Section 10.2, without the necessity of posting a bond.
(e) SURVIVAL OF COVENANTS. The provisions of this
Section 10.2 shall survive termination of Osenton's and Barbera's employment
for any reason. In addition, notwithstanding anything contained herein to
the contrary, any Indemnification Claims because of a breach of this Section
10.2 shall not be subject to the Indemnification Threshold Amounts or
Indemnification Cap contained in Section 10.3(b), provided that the covenants
in this Section 10.2 shall not survive the dissolution of Purchaser except
for a dissolution caused by the sale, merger or consolidation of the
Purchaser rather than the winding up of the business or affairs of Purchaser.
48
(f) EXCLUSIVITY. Osenton and Barbera each hereby
represent, covenant and warrant that as of the date of this Agreement, he is
bound by no employment agreement or non-competition agreement with a party
other than PGM and Purchaser, or any other similar agreement, except for this
Agreement and the Employment Agreement. Furthermore, during any period of
employment with Purchaser, PGM or otherwise, he shall not enter into, or
otherwise become bound by, any other Agreement or non-competition agreement,
or other similar agreement with any other party other than Purchaser, PGM and
its Affiliates.
10.3 LIMITED INDEMNIFICATION BY SELLERS.
(a) INDEMNIFICATION BY SELLERS FOR UNDISCLOSED
LIABILITIES OR LOSS FOR SCHEDULED ITEMS. The Sellers hereby jointly and
severally indemnify and hold harmless Purchaser and PGM and their respective
Affiliates with respect to any Indemnification Claim for Undisclosed
Liabilities or Loss from Scheduled Items resulting in an actual loss or any
liability, provided that such indemnification shall only be effective (i) for
any Indemnification Claim for Undisclosed Liabilities or Loss for Scheduled
Items submitted to Sellers before the [*] year anniversary of the date of the
Closing and (ii) to the extent the aggregate of all Indemnification Claims
exceeds $[*](the "Indemnification Threshold Amount"), and after PGM's rights
under all insurance policies, including, but not limited to errors and
omissions policies, have been exhausted, provided that, to the extent not
paid by PGM Branch Managers and other parties who may be responsible for such
Indemnification Claim (other than Purchaser, PGM or their Affiliates), all
deductibles on such policies shall be paid by Sellers as if such deductible
were Undisclosed Liabilities. Notwithstanding the foregoing, the aggregate
of such claims shall not be payable to the extent they exceed the
Indemnification Cap as defined below.
(b) DEFINITIONS FOR INDEMNIFICATION. For the
purposes of this Section 10.3, the following terms shall have the meaning set
forth below:
(i) "INDEMNIFICATION CAP" shall mean the
total of (1) [*] plus (2) the stock of Purchaser received by the
Sellers at Closing, having a value of such Stock not to exceed
$[*] at the time payment on such Indemnification Claim is made
(subject to any adjustment, if any, made in Section 11.1 hereto).
(ii) "INDEMNIFICATION CLAIM FOR UNDISCLOSED
LIABILITIES OR LOSS FOR SCHEDULED ITEMS" or "INDEMNIFICATION
CLAIM" shall mean any and all liabilities, claims, demands,
damages, losses, costs and expenses (after exhausting all
reasonable remedies available through insurance remedies in force)
incurred by PGM, PGM Joint Ventures or Purchaser or their
respective Affiliates which arise as a result of any liabilities,
demands, liens, damages, claims, expenses, causes of action
including without limitation cross-claims, counterclaims, rights
of set-off and recoupment, suits, administrative action,
49
agreements, damages, compensations, demands, actions, losses,
court costs and filing fees, attorneys' and paralegals' fees and
expenses of every kind and nature, including, without limitation,
those in law or in equity, arising with respect to any liability,
whether known or unknown, which are caused in whole or in part or
arise from occurrences, events, acts, omissions or situations
existing or occurring prior to May 1, 1998, including, without
limitation, those arising from a breach of warranty,
representation or covenant and those (i) which are not disclosed
in the Financial Statements delivered in connection herewith or
the Disclosure Schedules attached hereto or (ii) which are
disclosed in the Disclosure Schedules (including, without
limitation, those set forth in Disclosure Schedule 10.3(b)(ii))
other than those in Disclosure Schedule 10.3(e) and which, after
reasonable and diligent efforts to mitigate by PGM, result in
actual liabilities, losses, costs or expenses, provided that any
costs of such mitigation shall be included as a cost for the
purposes of this definition PROVIDED THAT Purchaser shall not,
during the period from June 30, 1999 through the end of the [*]
year anniversary of the date of Closing, conduct any extraordinary
or special audit, document or file review for the sole or primary
purpose of discovering new Indemnification Claims.
(c) ESCROW ACCOUNT FOR PAYMENT. At the Closing,
Purchaser shall deposit $1,000,000 (the Indemnification Amount) plus the
Indemnification Amount Interest Adjustment, if any, into an account to be
maintained at the Xxxx Xxxxxx Bank or such depository institution chosen by
Purchaser and reasonably acceptable to Sellers which account shall bear interest
at a rate reasonably acceptable to Sellers, and disclosed to Sellers prior to
Closing, and which shall be in the name and under the domain and control of the
Purchaser but subject to the terms of this Agreement provided that upon the
later of (i) thirty (30) days after the [*]-year indemnification period set
forth in Section 10.3(a) (i) or (ii) the payout or settlement of the
Indemnification Claim timely and properly made during such period, all principal
and interest remaining in the account (the "Indemnification Account") that has
not been paid on an Indemnification Claim shall thereupon be paid to Sellers in
accordance with the terms of this Agreement, provided that if the payout of the
Indemnification Account is to occur under this clause (ii), the Purchaser shall
retain in the Indemnification Account after the [*]-year period only those
amounts necessary to pay all Indemnification Claims then outstanding as
determined by Purchaser in its reasonable discretion, remitting the balance to
Sellers no later than thirty (30) days after the [*]-year indemnification period
set forth in Section 10.3(a)(i).
(d) PAYMENT OF INDEMNIFICATIONS. Any Indemnification
Claim described in this Section 10.3 shall first be paid in cash out of the
Indemnification Account after giving written notice reasonably supported by
appropriate documentation and an opportunity to Sellers to object and, if
possible within forty-five (45) days of such notice, cure such
Indemnification Claim. Any amount in excess of the amount in such
Indemnification Account that is still owed for an Indemnification Claim under
the terms of this Agreement shall then be paid in Stock of Purchaser as
provided in
50
Section 10.3(b)(i) above, PROVIDED THAT if either Seller no longer holds the
Stock of Purchaser adequate to pay such Indemnification Claim, such
Indemnification Claim shall be paid in cash in an amount equal to the value
of Stock described in the Indemnification Cap to the extent of such
deficiency. Such Indemnification Claim shall be payable on demand, after
notice as described in this Section 10.3(c), provided that in any
circumstances to which this indemnification provision applies, the Sellers
may at their own cost first employ their own legal counsel and consultants to
investigate and cure such claim and to facilitate their rights to be
consulted under Section 10.3(f); provided that they shall not have the right
to represent, prosecute, negotiate or defend PGM with respect to any such
liability.
(e) CERTAIN LOSSES NOT INDEMNIFIABLE. Notwithstanding
anything else to the contrary contained herein and in addition to the other
limitations set forth herein, the Sellers shall not be required to indemnify
Purchaser (or credit Purchaser with amounts toward the satisfaction of the
Indemnification Cap described in Section 10.3(b)(i) above), and Purchaser
shall not seek indemnity from the Sellers, and Sellers shall not be liable to
Purchaser, for any of the following types of losses:
(i) losses which arise from or in
connection with any claim made by Purchaser against the
Shareholders for consequential damages (which consequential
damages shall include, without limitation, lost profits (other
than a decrease in the value of a loan caused by a breach of
warranty, representation or covenant), lost investment or business
opportunity, lost interest or damages to reputation but which
shall not include the following losses, which SHALL be included in
the losses covered by the indemnification contained herein:
PUNITIVE DAMAGES, EXEMPLARY DAMAGES, TREBLE DAMAGES AND OPERATING
LOSSES);
(ii) losses attributable to or arising from
overhead allocations or administrative costs, the internal costs
of administering the requirements imposed by or under this
Agreement (provided, however, that Purchaser shall not contract
out to third parties any such costs of administering this
Agreement which, as of the date of this Agreement, would generally
be performed in the ordinary course of business by Purchaser) or,
except to the extent otherwise expressly contemplated by
Section 12.2 and otherwise hereby, including without limitation
the costs of complying with the requirements imposed by this
Agreement;
(iii) losses to the extent such loss or
causes arising solely after the Closing arising from Purchaser's
failure in any material respect to comply with its obligations
under this Agreement, provided, however, that Purchaser's
noncompliance with such obligations after the Closing Date shall
not limit Purchaser's ability to recover losses otherwise
indemnifiable by the Sellers under this Agreement unless such
noncompliance (A) adversely affects the Sellers' ability to
51
administer a claim made by Purchaser against the Sellers, in which
case the Sellers may withhold payment on those portions of such
claims to the extent caused by such noncompliance for which
Purchaser seeks reimbursement until Purchaser complies with its
obligations hereunder, or (B) adversely affects Purchaser's
ability to cure a breach, mitigate a loss or defend a claim (to
the extent such noncompliance has caused such adverse effect), or
(C) otherwise results in or increases the amount of loss (to the
extent the Purchaser's noncompliance unreasonably increased the
amount of loss), in which case the Sellers shall not be obligated
to indemnify Purchaser with respect to any such increase in the
amount of a loss;
(iv) losses arising from the items set
forth in Disclosure Schedule 10.3(e), provided that any claims,
demands, damages, losses, costs and expenses existing or arising
from similar occurrences, complaints and events that may be
litigated as part of a class action with the items set forth in
Schedule 10.3(e) shall be covered by the indemnification contained
herein, and provided further that and with respect to the
potential loss of relationship with Norwest, set forth in item 10
of Schedule 10.3(e), any litigation related to the incident
described in such item 10 shall be covered by the indemnification
contained herein;
(v) losses to the extent they occur in the
ordinary course of PGM's business.
(f) CONSULTATION WITH SELLERS; REASONABLENESS
STANDARD. Purchaser agrees to make all reasonable efforts (i) to advise
Sellers of claims and potential claims under the indemnification contained in
Section 10.3(a) and (ii) to consult with Sellers on an ongoing basis in
connection with litigation, prosecution, negotiation and settlement of any
such claims, and further agrees to act reasonably and in consultation with
Sellers and at Sellers' request with Sellers' attorneys and consultants in
litigating, prosecuting, negotiating and settling such claims.
(g) EXCLUSIVE REMEDY. Except as provided in
subsection 10.3(h) below and for any injunctive or other equitable relief,
after the Closing, the remedies contained in Section 10.3(a) - (e) shall be
Purchaser's exclusive remedy for a breach of representation, warranty or
covenant hereunder or any claim by Purchaser for losses that have occurred as
a result of the transaction.
(h) INDEMNITY WITH RESPECT TO BREACH, FRAUD OR
VIOLATION OF COVENANTS. Notwithstanding anything else in Section 10.3(a) - (g)
herein to the contrary, the Sellers further agree to indemnify Purchaser and
PGM for any claims, demands, damages or costs with respect to or arising from
any breach of the covenants contained in Section 10.2 hereof (e.g., the
covenants not to compete and not to solicit, etc.), any fraud on the part of
PGM or of any Seller occurring at any time, or any wilful,
52
knowing or intentional breach of any MATERIAL representation, warranty or
covenant of PGM or the Sellers contained in this Agreement, without regard to
any Indemnification Threshold Amount or Indemnification Cap.
10.4 EXPOSURE ON BREACH OF WARRANTY BY PURCHASER. Other than
with respect to fraud on the part of Purchaser, Purchaser shall not be liable
for any claim for breach of any representation, warranty or covenant by
Purchaser arising hereunder or under the transaction consummated hereunder if
at the time of such claim the value of the Purchaser, reasonably valued, is
equal to or greater than $50 million, and to the extent that the value of
Purchaser is less than $50 million, only then to the extent that such claims
when proven exceed in the aggregate $[*].
10.5 TAXES. Purchaser agrees to pay taxes or make
distributions to pay taxes arising under Sections 1366 and 1347(a)(2) of the
Internal Revenue Code arising from Sellers' ownership of shares of PGM for
the period from January 1, 1998 through the date of Closing, and Purchaser
and PGM agrees to pay or make distributions for such taxes of Sellers arising
out of Sellers' ownership of stock of Purchaser and PGM after the Closing on
a going forward basis, if such payment is not prohibited by applicable law or
any applicable provision of any credit documentation to which Purchaser is a
party or by which Purchaser is bound provided that Purchaser shall remain
liable for the unpaid balance and shall pay the same when legally permitted
and, shall to the extent permitted by applicable law and by the provisions
of such credit documentation, deliver a promissory note to such Sellers for
any such unpaid amount bearing a note of interest which to be adjusted
monthly equal to the Prime Rate as published in the Money Rate Tables of the
Midwest Edition of THE WALL STREET JOURNAL on the last day of the immediate
preceding month payable upon the removal of such legal or contractual
impediment. Purchaser agrees that it shall not enter into any loan agreement
containing any covenant explicitly prohibiting the payment of such taxes on
behalf of Sellers or PGM Shareholders generally.
10.6 PERSONAL GUARANTIES. Purchaser shall make best efforts
to obtain the release or termination of all Personal Guaranties from PGM's
lenders within ninety (90) days from the date of Closing. If any such
Personal Guaranties are not released within ninety (90) days of the Closing,
Purchaser shall indemnify Sellers and hold them harmless for and from any and
all claims and any and all losses by and all losses arising under such
Personal Guaranties for obligations under such Personal Guaranties arising
because of advances or obligations arising under the Guarantied Loans after
the Closing.
10.7 NEW JOINT VENTURE OPERATIONS. Purchaser agrees that it
shall not establish or seek in its own name or on behalf of any Affiliate
other than PGM to establish any net branch or joint venture arrangement with
a PGM Joint Venture or partner of a PGM Joint Venture, either directly or
indirectly, that PGM has requested that Purchaser approve, and that Purchaser
has failed to approve, as a "PGM Operation" under the definition of "PGM
Operations" in Article 1 hereof.
53
10.8 OAK PARK ESTATES REO. Osenton and Purchaser hereby
agree that to the extent that the amount realized on the payment or
liquidation of those certain assets, including the notes and the real estate,
described in Schedule 10.8, either by the payment of the notes or through the
foreclosure sale of the real property described therein, is less than the
book value of such assets as reflected on the books of PGM, Osenton shall on
demand pay PGM such difference, and to the extent such amount realized on
such assets exceed the book values of such assets, Purchaser shall cause PGM
to distribute to Osenton the amount of such difference. Osenton's and PGM's
obligation to pay the amounts under this Section 10.8 shall not be subject to
any limitations, i.e., the Indemnification Cap or Indemnification Threshold
Amount, contained in Section 10.3 or any of the limitations contained in
Section 10.4 hereof.
10.9 FURTHER ASSURANCES. The parties hereto agree to execute
such further documents, instruments and consents and to perform such further
acts, as may reasonably be necessary to effect the Closing and the
transactions contemplated hereunder.
ARTICLE 11
TERMINATION
11.1 TERMINATION AND CURE UPON MATERIAL ADVERSE CHANGE. If,
prior to the Closing, there has been a material adverse change, a material
breach of a representation, warranty or covenant which cannot be cured or
condition not satisfied or there have been any distributions by either
Purchaser or PGM to Sellers not permitted by this Agreement, the other party
shall have the option to either (i) terminate this Agreement immediately in
which event the parties shall have no further obligation to consummate the
Closing, (ii) waive such material adverse change, breach or distribution or
(iii) if the material adverse change, breach of representation, warranty or
covenant or distribution can be cured by an amount not to exceed $500,000
such adjustment in the Base Cash Price, with the consent of the other party,
consummate the Closing and adjust the Base Cash Price (it being understood
that if there is such adjustment, then there shall be an identical adjustment
in the Indemnification Cap as defined in Section 10.3 hereof), or (iv)
pursue any other remedies available to such party at law or equity; provided,
however, if the material adverse change or distribution was done with the
intent to impair or prevent the Closing, then the other party may elect to
consummate the Closing and adjust the Base Cash Price by the full amount of
the material adverse change, cost of curing the breach or the amount of the
distribution and pursue any other remedies available to such party at law or
equity.
11.2 OTHER TERMINATION. This Agreement may be terminated at
any time prior to the Closing Date:
(a) by mutual consent of Sellers and Purchaser;
54
(b) by either Sellers or Purchaser if the Closing Date
or Closing has not occurred by July 30, 1998 unless such delay in the Closing
Date or Closing is due to a failure to obtain a Required Regulation Approval or
caused by any act or omission of the party attempting to affect such
termination.
(c) by Purchaser, if any condition imposed on Sellers
(unless waived by Purchaser) in Section 9.1 or 9.2 cannot be satisfied by July
30, 1998; or
(d) by PGM and the Sellers if any condition imposed on
Purchaser (unless waived by PGM) in Section 9.1 or 9.3 cannot be satisfied by
July 30, 1998.
Any such termination shall be effected by the party asserting such termination
notifying the other party hereto as set forth in Section 12.8 hereof.
Notwithstanding the foregoing, all parties agree to act in good faith to effect
the transactions hereunder and reconcile and mitigate any technical or
nonmaterial noncompliance with the terms of this Agreement.
11.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 11.1 or 11.2, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of the Purchaser,
PGM or their respective directors and officers under this Agreement except as
set forth in Sections 6.4, 7.3, 8.1, 8.3, 12.1, 12.2, 12.3 and 12.16.
ARTICLE 12
MISCELLANEOUS
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations or warranties contained herein shall survive the Closing, and
any claims arising therefrom shall expire after [*] years from the later of
the date hereof or the date of Closing unless notified prior to [*] ([*])
years from the date hereof as provided in Section 10.3, except for breach of
covenants or claims of fraud or intentional, willful or knowing
misrepresentation to the other party until the applicable statute of
limitation has expired. Nothing contained in this Article shall affect the
obligations of any party to perform the agreements and covenants to be
performed by such party hereunder or in connection herewith either before or
after the Closing.
12.2 EXPENSES. Purchaser and Sellers will each be solely
responsible for and have all of its own respective expenses, activities and
other advisors, incurred at any time in documenting, negotiating,
consummating or executing this Agreement and the transactions contemplated
thereby; provided that PGM shall pay an amount not in excess of $[*] for the
costs of Sellers' accountants, attorneys, and other advisors and costs of
obtaining government approvals and other consents as all other costs incurred
in connection with the consummation of the sale (including all costs
associated with
55
PGM's arrangements with the STRATMOR Group), any such costs incurred prior to
the Closing in excess of such amount to be borne by Sellers.
12.3 PRESS RELEASES; EMPLOYEE COMMUNICATIONS. Any press
releases, news releases or other communication issued or to be issued to the
press, the media or otherwise to the public or any communication to the
employees or customers of PGM by any of the parties hereunder shall first be
reviewed and approved in writing by both Purchaser and Sellers.
12.4 RIGHT OF OFFSET. To the extent any indemnification
claim is not paid on demand, after reasonable time for investigation and
confirmation of such claim, the party making such claim may offset such claim
against any amount or claim due or owing to such party to the extent such
claim is not limited by or subject to limitation by this Agreement or
otherwise precluded by law.
12.5 WRITTEN AGREEMENT TO GOVERN. This Agreement, together
with all Exhibits, Schedules and other documents to be delivered pursuant
hereto, set forth the entire understanding and supersede all prior oral or
written agreements among the parties hereto relating to the subject matter
contained herein and all prior and contemporaneous discussions among the
parties hereto are merged herein. No party hereto shall be bound by any
definition, condition, representation, warranty, covenant or provision other
than as expressly stated in this Agreement or the Exhibits and other
documents to be delivered pursuant hereto, or as hereafter set forth in a
written instrument executed by such party or by a duly authorized
representative of such party.
12.6 SEVERABILITY. The parties hereto expressly agree that
it is not the intention of any party hereto to violate any public policy,
statutory or common law rules, regulations, treaties or decisions of any
government or agency thereof. If any provision of this Agreement is
judicially or administratively interpreted or construed as being in violation
of any such provision, such articles, sections, sentences, words, clauses or
combinations thereof shall be modified to the extent necessary to make them
enforceable or, if necessary, shall be inoperative, and the remainder of this
Agreement shall remain binding upon the parties hereto.
12.7 INJUNCTIVE REMEDY FOR BREACH. The parties agree that
irreparable damage would occur if any provision of this Agreement is not
performed in accordance with its specific terms or is otherwise breached.
The parties accordingly agree that the party not in breach shall be entitled
to injunction to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in addition to any other right
or remedy provided hereunder or at law or in equity.
12.8 NOTICES AND OTHER COMMUNICATIONS. All notices, demands
or requests provided for or permitted to be given pursuant to this Agreement
must be in writing. All notices, demands and requests shall be deemed to
have been properly served if given by personal delivery, or if transmitted by
telecopy, or if delivered to Federal Express or other reputable overnight
carrier for next business day delivery,
56
charges billed to or prepaid by shipper, or if deposited in the United States
mail, registered or certified with return receipt requested, proper postage
prepaid, addressed as follows:
If to PGM prior to the Closing, to: 000 Xxxxx Xxxxxxxxx, Xxxxx X
Xxxxx Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx Xxxxxxx/
Xxxxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
With a copy to: Weiner, Brodsky, Xxxxxx & Xxxxx
0000 Xxx Xxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxx Xxxxxxx, Esq.
Facsimile No.: 202/628-2011
If to PGM after the Closing, to: c/o Prism Mortgage Company
000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxx Xxxxxx, Esq.
Facsimile: 312/494-0184
c/o Prism Mortgage Company
000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attn: General Counsel
Facsimile: 312/494-0184
If to Sellers prior to the Closing, to: Xxxxx X. Xxxxxxx
c/o 000 Xxxxx Xxxxxxxxx, Xxxxx X
Xxxxx Xxxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: 510/970-7949
Xxxxxxx X. Xxxxxxx
c/o 000 Xxxxx Xxxxxxxxx, Xxxxx X
Xxxxx Xxxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: 510/970-0740
With a copy to: Weiner, Brodsky, Xxxxxx & Kider
0000 Xxx Xxxx Xxxxxx, X.X.,
Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxx Xxxxxxx, Esq.
57
Facsimile No.: 202/628-2011
If to Sellers after the Closing, to: Xxxxx X. Xxxxxxx
000 Xx. Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Facsimile No.: 510/970-7949
Xxxxxxx X. Xxxxxxx
000 Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: 510/970-7940
With a copy to: Weiner, Brodsky, Xxxxxx & Xxxxx
0000 Xxx Xxxx Xxxxxx, X.X.,
Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxx Xxxxxxx, Esq.
Facsimile No.: 202/628-2011
If to Purchaser before or after
Closing, to: Prism Mortgage Company
000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attn: General Counsel
Facsimile: 312/494-0184
58
Prism Mortgage Company
000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxx Xxxxxx, Esq.
Facsimile: 312/494-0184
With a copy to: Xxxxxxx & Xxxxx
Suite 1800
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Each notice, demand or request shall be effective upon personal
delivery, or upon confirmation of receipt of the applicable telecopy, or one
(1) business day after delivery to a reputable overnight carrier in
accordance with the foregoing, or upon return of a duly executed and proper
receipt of the same is deposited in the United States mail in accordance with
the foregoing. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given shall not
adversely impact the effectiveness of any such notice, demand or request.
Service by personal delivery upon Purchaser shall be valid only if delivered
personally to the President, Executive Vice President or General Counsel of
the Purchaser.
Any addressee may change its address for notices hereunder by giving
written notice in accordance with this Section.
12.9 COUNTERPARTS. This Agreement may be executed in
multiple counterparts and by the parties in separate counterpart, and shall
become effective when at least one counterpart has been signed by each party
and delivered personally or by facsimile machine to the other party. Each
counterpart shall constitute an original document, and all counterparts taken
together shall constitute one and the same document. The parties intend that
a facsimile signature shall have the same force and effect as an original
signature.
12.10 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns.
12.11 FURTHER ASSURANCES. At any time on or after the
closing on the Closing Date, the parties hereto shall each perform such acts,
execute and deliver such instruments, assignments, endorsements and other
documents and do all such other things consistent with the terms of this
Agreement as may be reasonably necessary to accomplish the transaction
contemplated in this Agreement or otherwise carry out the purpose of this
Agreement.
59
12.12 INTERPRETATION. The masculine, feminine or neuter
pronouns used herein shall be interpreted without regard to gender, and the
use of the singular or plural shall be deemed to include the other whenever
the context so requires. The headings in this Agreement and in the Schedules
and Exhibits hereto are inserted for convenience of reference only and shall
not be a part of or control or affect the meaning of this Agreement. All
references herein to "including" shall mean "including, but not limited to".
12.13 SCHEDULES AND EXHIBITS. The Schedules and Exhibits
referred to herein, whether or not attached hereto, are incorporated herein
by such reference as if fully set forth in the text hereof.
12.14 MODIFICATION. The parties to this Agreement may, by
mutual written consent executed by all of the parties hereto, modify or
supplement this Agreement.
12.15 WAIVER OF PROVISIONS. The terms, covenants,
representations, warranties and conditions of this Agreement may be waived
only by a written instrument executed by the party waiving compliance. The
failure of any party at any time to require performance of any provisions
hereof shall, in no manner, affect the right at a later date to enforce the
same. No waiver by any party of any condition, or breach of any provision,
term, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement. A breach of any
representation, warranty or covenant shall not be affected by the fact that a
more general or more specific representation, warranty or covenant was not
also breached.
12.16 ARBITRATION; GOVERNING LAW; CONSENT TO JURISDICTION
(a) NEGOTIATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR
CLAIMS RELATED TO OR BASED ON SELLERS' USE OF THE TRADEMARKS OR SELLERS' OR ANY
AFFILIATED PARTY'S COVENANT NOT TO COMPETE OR TO PROTECT TRADE SECRETS, FOR
WHICH PURCHASER OR PGM MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS SUCH PARTY
MAY DEEM APPROPRIATE, OR LITIGATION WITH CONSUMERS OR ANY GOVERNMENTAL AGENCIES,
NEITHER PARTY SHALL INSTITUTE ANY PROCEEDING IN ANY COURT OR ADMINISTRATIVE
AGENCY OR ANY ARBITRATION TO RESOLVE A DISPUTE BETWEEN THE PARTIES BEFORE THAT
PARTY HAS SOUGHT TO RESOLVE THE DISPUTE THROUGH DIRECT NEGOTIATION WITH THE
OTHER PARTY. IF THE DISPUTE IS NOT RESOLVED WITHIN THREE WEEKS AFTER A DEMAND
FOR DIRECT NEGOTIATION, THE PARTIES SHALL THEN ATTEMPT TO RESOLVE THE DISPUTE
THROUGH ARBITRATION AS PROVIDED IN THIS SECTION.
60
(b) SCOPE OF ARBITRATION. EXCEPT FOR CONTROVERSIES,
DISPUTES OR CLAIMS RELATED TO OR BASED ON SELLERS' USE OF THE TRADEMARKS OR
SELLERS' OR ANY AFFILIATED PARTY'S COVENANT NOT TO COMPETE OR TO PROTECT TRADE
SECRETS, FOR WHICH PURCHASER OR PGM MAY SEEK INJUNCTIVE OR SUCH OTHER RELIEF AS
SUCH PARTY MAY DEEM APPROPRIATE, OR LITIGATION WITH CONSUMERS OR ANY
GOVERNMENTAL AGENCIES, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN PURCHASER
AND SELLERS (AND ANY OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES THEREOF, IF
APPLICABLE) ARISING OUT OF OR RELATED TO
(i) THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN PURCHASER AND SELLERS THAT DO NOT HAVE THEIR OWN SPECIFIC
ARBITRATION PROVISIONS ("OTHER COVERED AGREEMENTS"); OR
(ii) THE VALIDITY OF THIS AGREEMENT OR ANY
OTHER COVERED AGREEMENT BETWEEN PURCHASER AND SELLERS OR ANY
PROVISION OF ANY SUCH AGREEMENT
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE CHICAGO, ILLINOIS OFFICE
OF JAMS/ENDISPUTE ON DEMAND OF PURCHASER OR SELLERS. SUCH ARBITRATION
PROCEEDING WILL BE CONDUCTED IN CHICAGO, ILLINOIS AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT RULES OF THE JAMS/ENDISPUTE. ALL
MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY THE FEDERAL
ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ.) AND NOT BY ANY STATE
ARBITRATION LAW.
THE DECISION AND AWARD OF THE ARBITRATOR SHALL BE BINDING AND CONCLUSIVE
UPON BOTH PURCHASER AND SELLERS, AND ENFORCEABLE IN ANY COURT OF COMPETENT
JURISDICTION. THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE
AWARD ANY LAWFULLY APPROPRIATE RELIEF AND TO ASSESS COSTS OR EXPENSES TO ONE OR
BOTH PARTIES, PROVIDED THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE
ANY TRADEMARK GENERIC OR OTHERWISE INVALID.
PURCHASER AND SELLERS AGREE TO BE BOUND BY THE PROVISIONS OF ANY
LIMITATION ON THE PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER
APPLICABLE LAW OR THIS AGREEMENT, WHICHEVER EXPIRES EARLIER. PURCHASER AND
SELLERS FURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING,
EACH MUST SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTI-
61
TUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF
CIVIL PROCEDURE) (EXCEPT ONE THAT COULD BE FILED UNDER ANOTHER AGREEMENT
HAVING ITS OWN ARBITRATION AGREEMENT) WITHIN THE SAME PROCEEDING AS THE CLAIM
TO WHICH IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS
DESCRIBED ABOVE WILL BE FOREVER BARRED.
EACH PARTY AGREES THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL,
NOT A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN PURCHASER
AND SELLERS MAY NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING
BETWEEN PURCHASER OR SELLERS, AS APPLICABLE, AND ANY OTHER PERSON,
CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP EXCEPT BY THE AGREEMENT
OF THE PARTIES, PROVIDED THAT PURCHASER OR SELLERS MAY CONSOLIDATE ANY
ARBITRATION PROCEEDING COMMENCED UNDER THIS SECTION 12 WITH ANY ARBITRATION
PROCEEDING COMMENCED BY PURCHASER OR SELLERS UNDER ANY OTHER COVERED
AGREEMENT EXECUTED IN CONNECTION HEREWITH.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION,
PURCHASER AND SELLERS SHALL EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN
TEMPORARY RESTRAINING ORDERS AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF
FROM A COURT OF COMPETENT JURISDICTION; PROVIDED, HOWEVER, THAT PURCHASER OR
SELLERS MUST CONTEMPORANEOUSLY SUBMIT THE DISPUTE FOR ARBITRATION ON THE
MERITS AS PROVIDED HEREIN.
THE PROVISIONS OF THIS SECTION WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(a) GOVERNING LAW WITH RESPECT TO ARBITRATION AND
OTHERWISE. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY THE
FEDERAL ARBITRATION ACT (9 U.S.C. Sections 1 ET SEQ). EXCEPT TO THE EXTENT
GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK ACT OF
1946 (XXXXXX ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW, THIS
AGREEMENT AND ALL CLAIMS ARISING BETWEEN PURCHASER AND SELLERS FROM OR UNDER
THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS AND THE
UNITED STATES OF AMERICA WITHOUT REGARD TO THEIR CONFLICT OF LAWS PRINCIPLES.
(b) CONSENT TO JURISDICTION. EACH PARTY AGREES THAT
THE OTHER PARTY MAY INSTITUTE ANY ACTION AGAINST IT (WHICH IS NOT REQUIRED TO
BE ARBITRATED HEREUNDER OR UNDER ANOTHER ARBITRATION AGREEMENT IN ANY OTHER
AGREEMENT) IN
62
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF
SUCH COURTS AND WAIVES ANY OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION
OF OR VENUE IN SUCH COURTS.
(c) WAIVER OF JURY TRIAL. PURCHASER AND SELLERS
IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM,
WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER OF THEM AGAINST THE OTHER.
12.17 WAIVER OF CONDITIONS. The conditions to each of the
parties' obligations to consummate the Closing are for the sole benefit of
such party and may be waived by such party in whole or in part to the extent
permitted to applicable law.
12.18 CONSTRUCTION. Each of the parties has been advised by
counsel and actively negotiated the terms of this Agreement. Accordingly,
the fact that this Agreement or any particular provision hereof was drafted
by counsel for any party shall not be considered in construing this Agreement.
IN WITNESS WHEREOF, each of Purchaser and PGM has caused this
Agreement to be executed on its behalf by its officer thereunto duly
authorized, all on or as of the day and year first above written.
PRISM MORTGAGE COMPANY,
an Illinois corporation
By: /s/ Xxxxx Xxxxxx
-----------------------------------
Its: Vice President
-----------------------------------
SHAREHOLDERS:
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxx X. Xxxxxxx
---------------------------------------
Xxxxx X. Xxxxxxx
63
CONSENT OF SPOUSE
I am the spouse of the Seller, Xxxxx Xxxxxxx, and hereby join in the
execution of this Agreement to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this
Agreement and that I desire to bind to the performance of this Agreement my
interest, if any, in any shares of capital stock of PGM and any options
therefor ("PGM Securities") and any securities of Prism in which the Seller
may receive an interest in connection with the transactions. Accordingly, I
agree that my community property interest, if any, in such PGM Securities and
any securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Agreement and that
such consent is binding upon my executors, administrators, heirs and assigns.
I acknowledge that the foregoing is not intended to, and shall not be
construed as, conferring or creating in me any interest in any PGM Securities
and any securities of Prism which the Seller may receive in connection with
the transactions. I hereby acknowledge that I have been afforded the
opportunity to have this Agreement and this Consent reviewed by a counsel of
my own choosing.
/s/ Xxxxxx Xxxxxx Barbera
------------------------------------
Xxxxxx Xxxxxx Xxxxxxx
64
CONSENT OF SPOUSE
I am the spouse of the Seller, Xxxxxxx Xxxxxxx, and hereby join in the
execution of this Agreement to evidence my knowledge of its existence and
acknowledgment that I understand and agree to the provisions of this
Agreement and that I desire to bind to the performance of this Agreement my
interest, if any, in any shares of capital stock of PGM and any options
therefor ("PGM Securities") and any securities of Prism in which the Seller
may receive an interest in connection with the transactions. Accordingly, I
agree that my community property interest, if any, in such PGM Securities and
any securities of Purchaser in which the Seller may receive any interest in
connection with the transactions shall be bound by this Agreement and that
such consent is binding upon my executors, administrators, heirs and assigns.
I acknowledge that the foregoing is not intended to, and shall not be
construed as, conferring or creating in me any interest in any PGM Securities
and any securities of Prism which the Seller may receive in connection with
the transactions. I hereby acknowledge that I have been afforded the
opportunity to have this Agreement and this Consent reviewed by a counsel of
my own choosing.
/s/ Xxxxxxxx X. Xxxxxxx
------------------------------------
Xxxxxxxx X. Xxxxxxx
65
