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