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