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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
Commission File Number 0-24961
AMERICAN NATIONAL FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0731548
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17911 Von Karman Avenue, Suite 240, Irvine, California 92614
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(Address of principal executive offices) (Zip Code)
(949) 622-4700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ( X ) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common stock, no par value, 7,326,085 shares as of May 10, 2000
Exhibit Index appears on page 12 of 12 sequentially numbered pages.
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FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2000
TABLE OF CONTENTS
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Page
Number
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Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
A. Consolidated Balance Sheets as of 3
March 31, 2000 and December 31, 1999
B. Consolidated Statements of Earnings 4
for the three-month periods ended
March 31, 2000 and 1999
C. Consolidated Statements of Comprehensive Earnings 5
for the three-month periods ended
March 31, 2000 and 1999
D. Consolidated Statements of Cash Flows 6
for the three-month periods ended
March 31, 2000 and 1999
E. Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3. Quantitative and Qualitative Market Risk Disclosures 12
Part II: OTHER INFORMATION
Items 1, 3, 4 and 5 of Part II have been omitted because they are
not applicable with respect to the current reporting period.
Item 2. Changes in Security 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN NATIONAL FINANCIAL, INC.
---------------------------------
(Registrant)
By: /s/ Carl A. Strunk
---------------------------------
Carl A. Strunk
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer) and Director Date: May 15, 2000
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Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 2,489 $ 3,361
Short-term investments, at cost, which approximates fair market value ......... 666 1,514
Accrued investment interest ................................................... 208 245
Trade receivables, net of allowance for doubtful accounts of $2,116 in 2000 and
$2,097 in 1999 .............................................................. 5,501 4,526
Notes receivables, net ........................................................ 2,045 1,329
Deferred tax asset ............................................................ 2,073 2,082
Income tax receivable ......................................................... 1,305 1,128
Prepaid expenses and other current assets ..................................... 969 995
-------- --------
Total current assets ................................................... 15,256 15,180
Investment securities available for sale, at fair market value ................ 9,921 14,022
Property and equipment, net ................................................... 7,744 7,633
Title plants .................................................................. 2,677 2,377
Deposits with the Insurance Commissioner ...................................... 133 113
Intangibles, net of accumulated amortization of $1,072 in 2000 and $959 in 1999 11,908 7,999
-------- --------
Total assets ........................................................... $ 47,639 $ 47,324
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses ................................... $ 3,462 $ 5,506
Customer advances ............................................................. 1,884 1,779
Current portion of long-term debt ............................................. 311 53
Current portion of obligations under capital leases with affiliates ........... 69 67
Current portion of obligations under capital leases with non-affiliates ....... 127 125
Reserve for claim losses ...................................................... 2,369 2,341
Due to affiliate .............................................................. 1,573 1,642
-------- --------
Total current liabilities .............................................. 9,795 11,513
Long-term debt ................................................................ 4,040 1,991
Obligations under capital leases with affiliates .............................. 584 602
Obligations under capital leases with non-affiliates .......................... 1,154 1,187
-------- --------
Total liabilities ...................................................... 15,573 15,293
Shareholders' equity:
Preferred stock, no par value; authorized 5,000,000 shares;
issued and outstanding, none ................................................ -- --
Common stock, no par value; authorized, 50,000,000 shares;
issued and outstanding, 7,281,658 in 2000 and 7,180,495 in 1999 ............. -- --
Additional paid in capital .................................................... 22,245 21,884
Retained earnings ............................................................. 10,003 10,336
Accumulated other comprehensive loss .......................................... (182) (189)
-------- --------
Total shareholders' equity ............................................. 32,066 32,031
-------- --------
Total liabilities and shareholders' equity ............................. $ 47,639 $ 47,324
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
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AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
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THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
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(UNAUDITED)
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Revenues:
Net title service revenue -- related party ........................... $ 9,688 $14,277
Escrow fees .......................................................... 4,857 6,659
Other service charges ................................................ 2,865 3,392
Investment income .................................................... 279 83
-------- -------
Total revenues ................................................ 17,689 24,411
-------- -------
Expenses:
Personnel costs ...................................................... 11,817 13,829
Other operating expenses, includes $969,000 with affiliate in 2000 and
$1,048,000 with affiliate in 1999 .................................. 5,302 4,179
Title plant rent and maintenance ..................................... 1,133 1,582
-------- -------
Total expenses ................................................ 18,252 19,590
-------- -------
Earnings (loss) before income taxes .................................. (563) 4,821
Income taxes (benefit) ............................................... (231) 2,025
-------- -------
Net earnings (loss) .................................................. $ (332) $ 2,796
======== =======
Basic net earnings (loss) ............................................ $ (332) $ 2,796
======== =======
Basic earnings (loss) per share ...................................... $ (.05) $ 0.47
======== =======
Weighted average shares outstanding, basic basis ..................... 7,229 6,007
======== =======
Diluted net earnings (loss) .......................................... $ (332) $ 2,796
======== =======
Diluted earnings (loss) per share .................................... $ (.05) $ 0.46
======== =======
Weighted average shares outstanding, diluted basis ................... 7,229 6,139
======== =======
Cash dividends per share ............................................. $ 0.10 $ 0.10
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
4
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AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
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(UNAUDITED)
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Net earnings (loss) ........................................... $(332) $2,796
Other comprehensive gain - unrealized gain on investment,
securities available for sale (1) 7 --
----- ------
Comprehensive earnings (loss) ........................... $(325) $2,796
===== ======
</TABLE>
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(1) Net of income tax expense of $4 and $0, for the three months ended March
31, 2000 and 1999, respectively.
See accompanying notes to condensed consolidated financial statements
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AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ........................................................... $ (332) $ 2,796
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization ............................................... 588 495
Loss on sale of property and equipment ...................................... 1 --
Change in provision for claim losses ........................................ 28 --
Loss on sale of investments ................................................. 103 --
Changes in:
Trade receivables, net ................................................... (57) 458
Accrued investment interest .............................................. 37 --
Prepaid expenses and other assets ........................................ 163 2
Income taxes payable and deferred income taxes ........................... (169) (936)
Accounts payable and other accrued expenses .............................. (1,683) (1,721)
Due to (from) affiliate .................................................. (69) 32
Customer advances ........................................................ 105 7
------- --------
Total cash provided by (used in) operating activities ............... (1,285) 1,133
------- --------
Cash flow from investing activities:
Acquisition of subsidiary, net of cash acquired ............................... (2,747) (106)
Purchase of title plant ....................................................... -- (75)
Collection of notes receivable ................................................ 2 --
Purchase of property and equipment ............................................ (338) (1,236)
Proceeds from sale of property and equipment .................................. 1 --
Proceeds from sale of investments ............................................. 4,853 --
Additions to notes receivable ................................................. (718) --
Purchase of investments ....................................................... (20) (7)
------- --------
Total cash used in investing activities ............................. 1,033 (1,424)
------- --------
Cash flow from financing activities:
Net borrowings ................................................................ (9) (443)
Dividend paid ................................................................. (725) --
Proceeds from stock options exercised ......................................... -- 220
Proceeds from issuance of common stock ........................................ 161 9,202
Payments under capital lease obligations ...................................... (47) (672)
------- --------
Total cash provided by financing activities ......................... (620) 8,307
------- --------
Increase (decrease) in cash and cash equivalents .............................. (872) 8,016
Cash and cash equivalents at the beginning of period .......................... 3,361 10,345
------- --------
Cash and cash equivalents at end of period .................................... $ 2,489 $ 18,361
======= ========
</TABLE>
See accompanying notes to consolidated financial statements
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AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
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(UNAUDITED)
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Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest ............................................ $ 86 $ 42
Income taxes ........................................ -- 2,825
Purchase of subsidiary:
Assets acquired ........................................ 3,497 --
Liabilities assumed .................................... (750) --
------- ------
Net cash used to acquire business ...................... $ 2,747 $ --
------- ------
Non-cash investing activities:
Dividend declared and unpaid ........................... $ -- $ 715
</TABLE>
See accompanying notes to consolidated financial statements
7
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Notes to Condensed Consolidated Financial Statements
Note A - Basis of Financial Statements
The financial information included in this report includes the accounts of
American National Financial, Inc. and its subsidiaries (collectively, the
"Company") and has been prepared in accordance with generally accepted
accounting principles and the instructions to Form 10-Q and Article 10 of
Regulation S-X. All adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation have been included. This report
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Note B - State Banking Department
The State Banking Department, State of Arizona ("State Banking Department")
delivered their report of Examination of American Title Insurance of Arizona,
Inc. (formerly known as Nations Title Insurance of Arizona, Inc.) as of and for
the three-year period ending October 31, 1998, on March 4, 1999. The report as
forwarded to the Company by State Banking Department indicates that the Company
may not be in compliance with certain State Banking Department Regulations. The
State Banking Department provided the Company with an opportunity to present
additional information prior to making their final determination as to
compliance. The Company subsequently provided additional information to the
State Banking Department for review. The Company does not believe that
resolution of this matter will have a material impact upon the financials
statement of the Company. On April 18, 2000, the State Banking Department
conducted an on-site review of records provided by the Company. The Company was
verbally notified that a full audit for the period beginning November 1, 1998
through most current records will be conducted in late 2000.
Note C - Dividends
On April 12, 2000, the Company's Board of Directors declared a quarterly cash
dividend of $.10 per share, payable on May 12, 2000, to stockholders of record
on April 28, 2000.
Note D - Acquisitions
In January 2000, the Company purchased 100% of the stock of Bancserv, Inc., a
California corporation located in Santa Ana, California. Bancserv., Inc, is a
document company providing outsource services to the real estate and banking
industry through a national network of qualified notaries public. The purchase
price was $1.3 million, $400,000 paid in cash and a $900,000 promissory note
that bears interest at a rate of 7.50%, and is due in full on January 2005. The
note requires monthly payments of $18,000 beginning February 1, 2000.
In February 2000, the Company purchased 100% of the stock of Pioneer Land Title
Corporation ("Pioneer"), a New York corporation. Pioneer provides title and
escrow services in the state of New York. The purchase price was $1.8 million,
$360,000 paid in cash and a $1.4 million promissory note that bears interest at
6.56% per annum from the purchase date through the fourth anniversary date.
In February 2000, the Company purchased 100% of the membership interests of
Emerald Mortgagee Assistance Company ("EMAC"), a full service provider of
release and assignment document preparation, document retrieval and special
title assistance headquartered in Colorado with operations nationwide. The
purchase price of $1.9 million was paid in cash of $1.7 million, subject to
certain purchase price adjustments based on the combined equity of EMAC and
American Research Services, its affiliate, and 58,495 shares of the common stock
of the Company.
These transactions were accounted for under the purchase accounting method, the
results of operations were included in earnings from the date of the
acquisitions through March 31, 2000.
Note E - Employee and Non-Employee Director Stock Purchase Loan Programs
In September 1999, the Company's Board of Directors approved the adoption of the
American National Financial, Inc. Employee Stock Purchase Loan Plan ("Employee
Plan") and the Non-employee director Stock Purchase Loan Program ("Director
Program") The purchase of the Loan Plan and Loan Program is to provide key
employees and directors with further incentive to maximize shareholder value.
The Company authorized an aggregate of $2.0 million in loans. All
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loans are full recourse and unsecured, and will have a five-year term. Interest
will accrue on the loans at a rate of six and one quarter percent (6 1/4%) per
annum due at maturity. Loans may be repaid any time without penalty. Through
March 31, 2000, additional loans were made in the amount of $613,000 to purchase
152,640 shares of the Company's common stock at an average purchase price of
$3.99 per share. The total amount of loans outstanding at March 31, 2000 was
$1,866,000 to purchase 469,407 shares of the Company's common stock at the
average purchase price of $3.98 per share.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Factors That May Affect Operating Results
The statements contained in this report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
The reader should consult the risk factors listed from time to time and other
information disclosed in the Company's reports on Forms 10-K and filings under
the Securities Act of 1933, as amended.
Results of Operations
Total revenues for the first quarter ended March 31, 2000 decreased 27.5% to
$17.7 million from $24.4 million in the comparable 1999 period. Beginning in
mid-1999 interest rate increases caused by actions taken by the Federal Reserve
Board resulted in a significant decline in refinancing transactions, which
impacted the Company's order count and premium volume.
Net Title Service Revenue. Net title service revenue decreased $4.6 million or
32.2% to $9.7 million from $14.3 million for the comparable 1999 period. The
decrease in net title service revenue for the first quarter ended March 31, 2000
is consistent with the current real estate environment and the decline in opened
title orders. The average fee per file increased to $1,017 in 2000 compared to
$822 in the comparable 1999 period. The fee per file increase is indicative of a
change in the mix of title orders closing in a refinance market to the resale
higher fee per file business. Gross title premiums for quarter ended March 31,
2000 were $11.0 million compared to $16.2 million for the corresponding 1999
period.
Escrow Fees. Revenues from escrow fees decreased by $1.8 million or 27.1% to
$4.9 million in the first quarter of 2000 from $6.7 million in the comparable
1999 period. Escrow fees are primarily related to title insurance activity
generated by the Company's direct operations. The decrease is primarily the
result of market conditions relating to the refinance activity, the recent
interest rate increases and the decrease in closed title orders.
Other Service Charges. Other service charges were $2.9 million for the quarter
ended March 31, 2000 compared to $3.4 million for comparable 1999 period, a
decrease of $527,000 or 15.5%. The fluctuation in other fees and revenues are a
result of the level and mix of business related to the decrease in closed title
orders. The Company's strategy is to strengthen the ancillary service businesses
through acquisitions. The Company anticipates leveraging its core title and
escrow businesses and national presence to successfully expand ancillary service
businesses.
Investment Income. Investment and interest income are primarily a function of
securities markets and interest rates. Prior to 1999 the Company primarily
invested in interest bearing accounts and certificate of deposit. During 1999
the Company strengthened its balance sheet with the acquisition of National
Title Insurance of New York, Inc. ("National"), proceeds from the Initial Public
Offering and shifted the emphasis to a fixed income portfolio. Investment income
increased $196,000, or 236.1% to $279,000 compared to $83,000 in the
corresponding 1999 period.
The Company's operating expenses consist primarily of personnel and other
operating expenses, which are incurred as orders are received and processed. Net
title service revenue and certain other fees are recognized as income at the
time the transaction closes. As a result, revenue lags approximately 60-90 days
behind expenses and therefore gross margins may fluctuate.
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Personnel Costs. Personnel costs include base salaries, commissions and bonuses
paid to employees and are the most significant operating expense incurred by the
Company. As a percentage of total revenue, personnel costs increased to 66.8%
for the three-month periods ended March 31, 2000 compared to 56.7% for the
corresponding period in 1999. Personnel costs totaled $11.8 million and $13.8
million for the three-month periods ended March 31, 2000 and 1999, respectively.
These cost fluctuate with the level of orders opened and closed and the mix of
revenue. Personnel expenses have increased as a percentage of total revenue due
to costs related to acquisitions and expansions made during 1999 and 2000. The
quarter to quarter decrease in personnel costs is a result of the Company's
efforts to maintain appropriate personnel levels and costs relative to the
volume and mix of business and revenues. The Company continues to monitor the
prevailing market conditions and attempts to respond as necessary.
Other Operating Expenses. Other operating expenses consist of facilities
expenses, escrow losses, postage and courier services, data processing expense,
general insurance, trade and notes receivable allowance and depreciation. Other
operating expense increased as a percentage of total revenue to 30.0% in the
three-month periods ended March 31, 2000, compared to 17.1% for the 1999
corresponding period. Other operating expenses totaled $5.3 million and $4.2
million, for the three-month periods ended March 31, 2000 and 1999,
respectively. In response to market conditions, the Company implemented
aggressive cost control programs in order to maintain operating expenses
consistent with levels of revenue; however, certain fixed costs are incurred
regardless of revenue levels, resulting in year over year percentage
fluctuations. The Company continues to review operating expenses and will
evaluate expenses relative to existing and projected market conditions.
Title Plant Rent and Maintenance Expense. Title plant rent and maintenance
expense totaled $1.1 million and $1.6 million for the three-month periods ended
March 31, 2000 and 1999, respectively. Title plant rent and maintenance expense
decreased as a percentage of total revenue to 6.4% from 6.5% in the three-month
periods ended March 31, 2000 and 1999, respectively. The year over year
decreases in title plant expense is primarily a result of various contract
negotiations within several counties in California and Arizona and the decrease
in opened and closed title orders resulting in significant cost reductions for
the Company.
Income tax (benefit) expense for the three-month periods ended March 31, 2000
and 1999, as a percentage of earnings before income taxes was (41.0%) and 42.0%,
respectively. The fluctuations in income tax (benefit) expense as a percentage
of earnings before income taxes, are attributable to the effect of state income
taxes on the Company's primary subsidiary the wholly-owned underwritten title
company and the ancillary service companies; a change in the amount and the
characteristics of net income, operating income versus investment income; and
the tax treatment of certain items.
Liquidity and Capital Resources
The Company's current cash requirements include debt service, debt relating to
capital leases, personnel and other operating expenses, taxes and dividends on
its common stock. The Company believes that all anticipated cash requirements
for current operations will be met from internally generated funds. In the
future, the Company's cash requirements will include those relating to the
development of National's business. While the Company presently has in place
much of the infrastructure (principally consisting of personnel) that will be
used for this development, management believes that additional cash resources
will be required. The development of direct sales operations for the expansion
of National would require more cash resources than developing these operations
using agency relationships. Cash requirements for the development of National
are expected to be met from current cash balances and internally generated
funds.
One source of the Company's funds are distributions from its subsidiaries. As a
holding company, the Company may receive cash from its subsidiaries in the form
of dividends and as reimbursement for operating and other administrative
expenses it incurs. The Company's underwritten title company collects premiums
and fees and pays underwriting fees and operating expenses. The underwritten
title company is restricted only to the extent of maintaining minimum levels of
working capital and net worth, but are not restricted by state regulations or
banking authorities in their ability to pay dividends and make distributions.
National is subject to regulations that restrict its ability to pay dividends or
make other distributions of cash or property to its parent company without prior
approval from the Department of Insurance of the State of New York. The maximum
amount of dividends which can be paid by National to shareholders without prior
approval of the Insurance Commissioner is subject to restrictions. No dividends,
including all dividends paid in the preceding twelve months, which exceed 10% of
the outstanding capital shares can be paid without prior approval unless after
deducting dividends
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the Company has surplus to policyholders at least equal to the greater of 50% of
its reinsurance reserves or 50% of the minimum capital required. Additionally,
dividends are further limited to the Company's earned surplus.
The Company's other subsidiary operations collect revenue and pay operating
expenses; however, they are not regulated by insurance regulatory or banking
authorities. Positive cash flow from the underwritten title companies and other
subsidiary operations is invested primarily in cash and cash equivalents.
In December 1998, the Company entered into an agreement to purchase a home
office building in Orange, CA for $2.6 million. On April 14, 1999 the Company
completed the purchase of the home office building. The Company financed $2.1
million, secured by a first trust deed. The terms of the note require monthly
interest payments at prime and monthly principal payments of $4,000. The note
matures on April 1, 2004. Currently, the Orange County operations moved to the
new facility, and the Company expects to complete the relocation of its
executive and other related offices in third quarter 2000. The Company estimates
the costs associated with the relocation to be minimal.
Year 2000
Information technology is an integral part of the Company's business. The
Company also recognizes the critical nature of and the technological challenges
associated with the Year 2000 issue. The Year 2000 ("Y2K") issue results from
computer programs and computer hardware that utilize only two digits to identify
a year in the date field, rather than four digits. If such programs or hardware
are not modified or upgraded information systems could fail, lock up, or in
general fail to perform according to normal expectations. The Company has
implemented a program and committed both personnel and other resources to
determine the extent of Y2K issues. The scope of the Y2K program included a
review of the systems used in our title plants, title policy processing, escrow
production, claims processing, real estate related services, financial
management, human resources, payroll and infrastructure. In addition to a review
of internal systems, the Company has formally communicated with third parties
with which it does business in order to determine whether or not they are Y2K
compliant and the extent to which the Company may be vulnerable to third
parties' failure to become Y2K compliant. The Company continues the process of
identifying Y2K compliance issues in its systems, equipment and processes. The
Company will make any necessary changes to such systems, updating or replacing
such systems and equipment, and modifying such processes to make them Y2K
compliant.
The Company developed a four phase program to become Y2K compliant. Phase I is
"Plan Preparation and Identification of the Problem." This is a continuing
phase. Phase II is "Plan Execution and Remediation." Phase III is "Testing."
Phase IV is "Maintaining Y2K Compliance." The status of the Y2K compliance
program is monitored by senior management of the Company and by the Audit
Committee of the Company's Board of Directors. The costs of the Y2K related
efforts incurred to date have not been material, and the estimate of remaining
costs to be incurred is not considered to be material. These estimates may be
subject to change due to the complexities of estimating the cost of modifying
applications to become Y2K compliant and the difficulties in assessing third
parties', including various local governments upon which the Company relies upon
to provide title related data, ability to become Y2K compliant.
The Company has not experienced any Y2K compliance related issues to date.
Management of the Company believes that its electronic data processing and
information systems are Y2K compliant; however, there can be no assurance all of
the Company's systems are Y2K compliant, or the costs to be Y2K compliant will
not exceed management's current expectations, or that the failure of such
systems to be Y2K compliant will not have a material adverse effect on the
Company's business. The Company believes that functions currently performed with
the assistance of electronic data processing equipment could be performed
manually or outsourced if certain systems are determined not to be Y2K
compliant.
The Company completed a contingency plan in the event that any systems are not
Y2K compliant.
This entire section "Year 2000 Issues" is hereby designated a "Year 2000
Readiness Disclosure", as defined in the Year 2000 Information and Readiness
Disclosure Act.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT THE
MARKET RISK OF FINANCIAL INSTRUMENTS
The Company's Consolidated Balance Sheets includes a substantial amount of
assets and liabilities whose fair values are subject to market risks. The
following sections address the significant market risks associated with the
Company's financial activities for the three-month periods ended March 31, 2000
and 1999, respectively.
Interest Rate Risk
The Company's fixed maturity investments and borrowings are subject to interest
rate risk. Increases and decreases in prevailing interest rates generally
translate into decreases and increases in fair values of those instruments.
Additionally, fair values of interest rate sensitive instruments may be affected
by the creditworthiness of the issuer, prepayment options, relative values of
alternative investments, the liquidity of the instrument and other general
market conditions.
Equity Price Risk
The carrying values of investments subject to equity price risks are based on
quoted market prices or management's estimates of fair value as of the balance
sheet date. Market prices are subject to fluctuation and, consequently, the
amount realized in the subsequent sale of an investment may significantly differ
from the reported market value. Fluctuation in the market price of a security
may result from perceived changes in the underlying economic characteristics of
the investee, the relative price of alternative investments and general market
conditions. Furthermore, amounts realized in the sale of a particular security
may be affected by the relative quantity of the security being sold.
Part II: OTHER INFORMATION
Item 2. Changes in Securities
The following table sets forth the range of high and low closing prices for the
common stock on the NASDAQ Stock Exchange
High Low
------- -------
January 1, 2000 through May 9, 2000: $3.9375 $3.0000
On May 9, 2000, the last reported sale price of the common stock on the NASDAQ
Stock Exchange was $3.06 per share. As of May 9, 2000, the Company had less than
800 shareholders of record.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.16 -- Stock Purchase Agreement dated February 29,
2000 by and among American National Financial,
Inc. and Vincent L. Prandi and Daniel A. Ferrara.
Exhibit 10.17 -- Membership Interest Purchase Agreement dated
February 29, 2000 by and among American
National Financial, Inc. and Angela Muirhead and
Lawrence E. Castle.
Exhibit 11 -- Computation of Basic and Diluted Earnings Per
Share
Exhibit 27 -- Financial Data Schedule - March 31, 2000
Reports on Form 8-K:
None.
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EXHIBIT 10.16
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of February 29, 2000,
is entered into by and among American National Financial, Inc., a California
corporation (the "Purchaser"), Vincent L. Prandi, an individual ("Prandi"), and
Daniel A. Ferrara, an individual ("Ferrara," and collectively with Prandi, the
"Sellers"). This Agreement contemplates a transaction in which the Purchaser
will purchase for cash all of the issued and outstanding capital stock of
Pioneer Land Title Corporation, a New York corporation ("Pioneer"), and of 1
Stop Cyber Mall, Inc., a New York corporation ("1 Stop"), from the Sellers. In
consideration of the mutual agreements contained herein and for other good and
valuable consideration, the value, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
Terms and Conditions
Definitions. For purposes of this Agreement, the following terms have
the meanings set forth below.
"1 Stop" has the meaning set forth in the Preamble to this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Affiliated Groups" means any affiliated group within the meaning of
Section 1504(a) of the Code or any similar provision of state, local or foreign
Law.
"Agency Agreements" means (a) that certain Agency Agreement, dated May
6, 1992, by and between Commonwealth Land Title Insurance Company
("Commonwealth") and Pioneer Abstract Corp., the predecessor-in-interest of
Pioneer; (b) that certain Non-Exclusive Title Agency Agreement, dated March 26,
1991, by and between Title Insurance Company of Minnesota,
predecessor-in-interest of Old Republic Title Insurance Company ("Old
Republic"), and Pioneer Abstract Corp.; and (c) that certain Issuing Agency
Contract, dated May 12, 1997, by and between Chicago Title Insurance Company
("Chicago Title") and Pioneer; in each case as amended to date.
"Agreement" means this Stock Purchase Agreement, as the same may be
amended from time to time in accordance with the terms hereof.
"Ancillary Agreements" means (i) the employment agreement between
National Title Insurance Company of New York, Inc., a New York corporation, and
Prandi; (ii) the employment agreement between Pioneer and Ferrara; and (iii) the
Promissory Notes.
"Arbiter" has the meaning set forth in Section 2.3(c).
"Auditors Report" has the meaning set forth in Section 2.3(b).
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section 3.2.
"Closing Date Balance Sheet" has the meaning set forth in Section
2.3(a).
"Closing Date Net Asset Value" means the net asset value of Pioneer at
the Closing Date, as set forth on the Closing Date Balance Sheet.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
"Confidential Information" means any information, in whatever form or
medium, concerning the operations or affairs of Pioneer.
"Contracts" means, collectively, all contracts, agreements, commitments,
leases, licenses, instruments, bids and proposals to which a Pioneer Company is
a party as of the Closing Date, including, without limitation, those listed on
Schedule 4.11, all unfilled orders outstanding as of the Closing Date for the
purchase of goods or services by a Pioneer Company and all unfilled orders
outstanding as of the Closing Date for the sale of goods or services by a
Pioneer Company.
"Disclosure Schedules" means, collectively, the various Schedules
referred to in this Agreement.
"Employee Benefit Plan" means an Employee Pension Benefit Plan or an
Employee Welfare Benefit Plan, where no distinction is required by the context
in which the term is used.
"Employee Pension Benefit Plan" has the meaning set forth in Section
3(2) of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section
3(2) of ERISA.
"Environmental Laws" means any Law with respect to the preservation of
the environment or the promotion of worker health and safety, including any Law
relating to Hazardous Materials, drinking water, surface water, groundwater,
wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid
waste, waste water, storm water run-off, noises, odors, air emissions, waste
emissions or wells. Without limiting the generality of the foregoing, the term
will encompass each of the following statutes and the regulations promulgated
thereunder, and any similar applicable state, local or foreign Law, each as
amended (a) the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, (b) the Solid Waste Disposal Act, (c) the Hazardous
Materials Transportation Act, (d) the Toxic Substances Control Act, (e) the
Clean Water Act, (f) the Clean Air Act, (g) the Safe Drinking Water Act, (h) the
National Environmental Policy Act of 1969, (i) the Superfund Amendments and
Reauthorization Act of 1986, (j) Title III of the Superfund Amendments and
Reauthorization Act, (k) the Federal Insecticide, Fungicide and Rodenticide Act
and (k) the provisions of the Occupational Safety and Health Act of 1970
relating to the handling of and exposure to Hazardous Materials and similar
substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Ferrara" has the meaning set forth in the Preamble to this Agreement.
"Financial Statements" has the meaning set forth in Section 4.5(a).
"GAAP" means United States generally accepted accounting principles, as
in effect as of the date of this Agreement.
"Governmental Entity" means any government or any agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"Government Contracts" means a Contract between a Pioneer Company and
any Governmental Entity, including any facilities contract for the use of
government-owned facilities.
"Government Subcontract" means any Contract that is a subcontract
between a Pioneer Company and any third party relating to a contract between
such third party and any Governmental Entity.
"Hazardous Materials" means each and every element, compound, chemical
mixture, contaminant, pollutant, material, waste or other substance that is
defined, determined or identified as hazardous or toxic under any Environmental
Law or the Release of which is prohibited under any Environmental Law. Without
limiting the generality of the foregoing, the term will include (a) "hazardous
substances" as defined in the Comprehensive
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Environmental Response, Compensation, and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, or Title HI of the Superfund
Amendments and Reauthorization Act and regulations promulgated thereunder, each
as amended, (b) "hazardous waste" as defined in the Solid Waste Disposal Act and
regulations promulgated thereunder, each as amended, (c) "hazardous materials"
as defined in the Hazardous Materials Transportation Act and the regulations
promulgated thereunder, each as amended, (d) "chemical substance or mixture" as
defined in the Toxic Substances Control Act and regulation promulgated
thereunder, each as amended, (e) petroleum and petroleum products and byproducts
and (f) asbestos.
"Indemnified Party" has the meaning set forth in Section 11.5.
"Indemnifying Party" has the meaning set forth in Section 11.5.
"Initial Purchase Price" has the meaning set forth in Section 2.2.
"Intellectual Property" means, collectively, patents, patent
disclosures, trademarks, service marks, trade dress, logos, trade names and
copyrights, and all registrations, applications, re-issuances, continuations,
continuations-in-part, revisions, extensions, reexaminations and associated good
will with respect to each of the foregoing, computer software (including source
and object codes), computer programs, computer data bases and related
documentation and materials, data, documentation, trade secrets, confidential
business information (including ideas, formulas, compositions, inventions,
know-how, manufacturing and production processes and techniques, research and
development information, drawings, designs, plans, proposals and technical data,
financial, marketing and business data and pricing and cost information) and
other intellectual property rights (in whatever form or medium).
"Interim Balance Sheet" has the meaning set forth in Section 4.5(a).
"Interim Financial Statements" has the meaning set forth in Section
4.5(a).
"IRS" means the Internal Revenue Service of the Department of the
Treasury.
"Knowledge" as used with respect to the Sellers means information known
or which should be known by Prandi or Ferrara.
"Law" means any constitutional provision, statute, law, rule,
regulation, Permit, decree, injunction, judgment, order, ruling, determination,
finding or writ of any Governmental Entity.
"Lien" means any mortgage, pledge, security interest, charge, claim or
other encumbrance, other than (a) mechanics', materialmens' and similar liens
with respect to amounts not yet due and payable, (b) liens for Taxes not yet due
and payable and (c) liens securing rental payments under capital lease
arrangements.
"Losses" has the meaning set forth in Section 11.2(a).
"Multiemployer Plan" has the meaning set forth in Section 3(37) of
ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permit" means any license, permit, franchise, certificate of authority
or order, or any waiver of the foregoing, issued by any Governmental Entity.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a Governmental Entity.
"Pioneer" has the meaning set forth in the Preamble to this Agreement.
"Pioneer Company" means either Pioneer or 1 Stop. "Pioneer Companies"
means Pioneer and 1 Stop,
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<PAGE> 4
collectively.
"Pioneer Company Shares" means, collectively, all of the issued and
outstanding common stock, no par value, of Pioneer and 1 Stop.
"Prandi" has the meaning set forth in the Preamble to this Agreement.
"Prohibited Transactions" has the meaning set forth in Section 406 of
ERISA and Section 4975 of the Code.
"Promissory Notes" means the promissory notes issued by Purchaser to
each of Prandi and Ferrara in accordance with Section 2.2.
"Purchase Price" means $1,800,000 plus interest accruing thereon in
accordance with the terms of the Promissory Notes.
"Purchaser" has the meaning set forth in the Preamble to this Agreement.
"Purchaser Indemnified Parties" has the meaning set forth in Section
11.2(a).
"Purchaser's Accounting Firm" means KPMG Peat Marwick or any successor
organization.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, storing, escaping, leaching, dumping,
discarding, burying, abandoning or disposing into the environment.
"Reportable Event" has the meaning set forth in Section 4043 of ERISA.
"Schedule" means, unless the context otherwise requires, the referenced
Schedule included in the Disclosure Schedules.
"Seller Indemnified Parties" has the meaning set forth in Section 11.3.
"Seller's Group" shall mean any "affiliated group" (as defined in
Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) that includes Sellers and Pioneer.
"Sellers" has the meaning set forth in the Preamble to this Agreement.
"Sellers' Accounting Firm" means Libman & Futterman, P.C., or any
successor organization.
"Sellers' Life Insurance Policy" means a currently effective, paid-up
life insurance policy, in form and substance reasonably satisfactory to the
Purchaser and naming Purchaser as the beneficiary, which policy shall provide
for payment to the Purchaser, upon the death of Prandi or Ferrara, of an amount
equal to the sum of the outstanding principal balance on the Promissory Notes
held by Prandi and Ferrara on the date of such death.
"Tax" means any federal, state, local or foreign net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other tax, fee, assessment or charge, including any interest, penalty
or addition thereto.
"Tax Package" has the meaning set forth in Section 6.3.
"Tax Returns" shall mean all federal, state, local or foreign tax
returns, tax reports, and declarations of estimated tax, including without
limitation consolidated federal income tax returns of Seller's Group.
"Taxes" shall mean all federal, state, local or foreign income, gross
receipts, windfall or excess profits,
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severance, property, productions, sales, use, license, excise, franchise,
employment, withholding or similar taxes, together with any interest, additions
or penalties with respect thereto and any interest in respect of such additions
or penalties.
"Year 2000 Compliant" means that systems and products accurately process
date and time data (including, without limitation, calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first centuries, the
years 1999 and 2000, and leap year calculations. "Year-End Financial Statements"
has the meaning set forth in Section 4.5(a).
Section 2. Basic Transaction.
2.1 Purchase and Sale of Pioneer Company Shares. On the terms and
subject to the conditions set forth in this Agreement, at the Closing the
Purchaser will purchase from the Sellers, and the Sellers will sell, transfer,
assign, convey and deliver to the Purchaser, all right, title and interest in
and to the Pioneer Company Shares.
2.2 On the terms and subject to the conditions set forth in this
Agreement, at the Closing the Purchaser will pay to the Sellers the Purchase
Price, as follows:
(a) Purchaser will pay to Prandi the sum of One Hundred Eighty
Thousand Dollars ($180,000) by bank wire transfer of immediately available funds
to an account designated in writing by Prandi;
(b) Purchaser will pay to Ferrara the sum of One Hundred Eighty
Thousand Dollars ($180,000) by bank wire transfer of immediately available funds
to an account designated in writing by Ferrara;
(c) Purchaser will deliver to Prandi a promissory note
substantially in the form attached hereto as Exhibit A in the principal amount
of Seven Hundred Twenty Thousand Dollars ($720,000); and
(d) Purchaser will deliver to Ferrara a promissory note
substantially in the form attached hereto as Exhibit A in the principal amount
of Seven Hundred Twenty Thousand Dollars ($720,000). The payments described in
clauses (a) and (b) above are sometimes referred to collectively herein as the
"Initial Purchase Price." The Purchase Price will be subject to adjustment as
provided in Section 2.3.
2.3 Adjustment of Purchase Price
(a) No later than 45 days after the Closing Date, the Sellers will
deliver to Purchaser and to Sellers' Accounting Firm a balance sheet of Pioneer
as of the Closing Date (the "Closing Date Balance Sheet") prepared in accordance
with GAAP (except that the Closing Date Balance Sheet shall not be subject to
comparison with financial statements from previous periods) and certified by
Sellers as true and complete on the date thereof, from which the "Closing Date
Net Asset Value" of Pioneer will be derived in the manner set forth on the
schedule attached as Exhibit B to this Agreement.
(b) The Sellers will engage Sellers' Accounting Firm, at the
Sellers' expense, to (i) audit the Closing Date Balance Sheet and the
calculation of the Closing Date Net Asset Value in accordance with generally
accepted auditing standards, and (ii) deliver to the Sellers, the Purchaser and
Purchaser's Accounting Firm, within 60 days after the Sellers' delivery of the
Closing Date Balance Sheet pursuant to Section 2.3(a), a certificate signed by
the Sellers' Accounting Firm (the "Auditors Report") together with the Closing
Date Balance Sheet and the Closing Date Net Asset Value to which such Auditors
Report relates. The Auditors Report will report, without qualification or other
limitation arising out of the scope of the audit, that the Closing Date Balance
Sheet presents fairly the financial condition of Pioneer as of the Closing Date
in conformity with GAAP, except that the Closing Date Balance Sheet (i) shall
not be subject to comparison with financial statements from previous periods,
and (ii) will not give effect to any purchase accounting adjustments arising
from the transactions provided for in this Agreement.
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<PAGE> 6
(c) Within thirty (30) days after the receipt of the Auditors
Report, the Purchaser will deliver written notice to the Sellers of any
objections thereto, and will attempt in good faith to reach an agreement with
the Sellers as to any matters in dispute. If Purchaser does not give such notice
within thirty (30) days, then Purchaser shall be deemed to have waived its right
to dispute the Auditors Report. If Purchaser does give such notice within such
thirty (30) days, and if the Purchaser and the Sellers, notwithstanding such
good faith effort at resolution, fail to resolve all matters in dispute within
ten (10) days after the Purchaser advises the Sellers of its objections, then
any remaining disputed matters will be finally and conclusively determined by an
independent auditing firm of recognized national standing (the "Arbiter")
selected by the Purchaser and the Sellers, which firm will not be the regular
auditing firm of the Purchaser or the Seller. Promptly, but not later than
forty-five (45) days after its acceptance of its appointment, the Arbiter will
determine (based solely on presentations by the Sellers and the Purchaser and
not by independent review) only those matters in dispute and will render a
written report as to the disputed matters and the resulting calculation of the
Closing Date Net Asset Value, which report will be conclusive and binding upon
the parties. The fees and expenses of the Arbiter will be paid by the
non-prevailing party with respect to the determination of the Arbiter as set
forth in the Arbiter's report.
(d) For purposes of complying with the terms set forth herein, each
party will cooperate with and make available to the other party and its auditors
and representatives all information, records, data and auditors' working papers,
and will permit access to its facilities and personnel, as may be reasonably
required in connection with the preparation and analysis of the Closing Date
Balance Sheet and the calculation of the Closing Date Net Asset Value and the
resolution of any disputes thereunder. Without limiting the generality of the
foregoing, the Sellers will cause Sellers' Accounting Firm to make available at
its office to the Purchaser and Purchaser's Accounting Firm within three
business days after delivery of the Auditors Report pursuant to Section 2.3(b)
the workpapers therefor. After the Closing, the Purchaser's auditors will also
have access to Sellers' Accounting Firm's workpapers for the Closing Date
Balance Sheet as necessary for the purpose of providing regular auditing
services to Pioneer.
(e) In the event that the Closing Date Net Asset Value, as finally
determined pursuant to this Section 2.3, is less than $97,500.00, then the
Sellers will pay to the Purchaser the amount of such difference in cash. Any
payment pursuant to this Section 2.3(e) will be made within five business days
following the final determination of the Closing Date Net Asset Value in
accordance with this Section 2.3 by bank wire transfer or certified check of
immediately available funds to an account designated in writing by the
Purchaser. Any payment pursuant to this Section 2.3 will be treated by the
parties as an adjustment to the Purchase Price and the Purchase Price as so
adjusted will be referred to in this Agreement as the "Purchase Price."
Section 3. Closing and Closing Date.
3.1 Closing. Subject to the provisions of Section 10, the consummation
of the transactions contemplated by this Agreement (the "Closing") will take
place at the law offices of Stradling Yocca Carlson & Rauth, A Professional
Corporation, 660 Newport Center Drive, Newport Beach, California, and at the law
offices of Fasciana and Associates, P.C., 358 Fifth Avenue, New York, New York,
10001, on February 29, 2000, or at such other place or on such other date as the
Purchaser and the Sellers may mutually agree.
3.2 Closing Date. The date on which the Closing actually takes place is
referred to in this Agreement as the "Closing Date." The Closing will be deemed
for all purposes under this Agreement to have occurred as of 12:01 A.M.,
California time, on the Closing Date.
3.3 Deliveries at the Closing. At the Closing, (a) the Sellers will
deliver to the Purchaser the various certificates, instruments and documents
referred to in Section 10.1, (b) the Purchaser will deliver to the Sellers the
various certificates, instruments and documents referred to in Section 10.2, (c)
the Sellers will deliver to the Purchaser stock certificates representing all of
the issued and outstanding Pioneer Company Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (d) the Purchaser will
deliver to the Sellers the Initial Purchase Price and the Promissory Notes as
specified in Section 2.2.
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Section 4. Representations and Warranties of the Seller. The Sellers represent
and warrant to the Purchaser that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though then made and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4).
4.1 Organization. Pioneer and 1 Stop are corporations duly organized,
validly existing and in good standing under the laws of the State of New York.
The Pioneer Companies are duly qualified to conduct business and in good
standing under the laws of each jurisdiction where such qualification is
required. The Pioneer Companies have full corporate power and authority and all
Permits and authorizations necessary to carry on the businesses in which they
are engaged and in which they presently propose to engage and to own and use the
properties owned and used by them.
4.2 Authorization of Transaction. Each of Prandi and Ferrara has the
capacity and authority to execute and deliver this Agreement and each of the
Ancillary Agreements to which either is a party and to perform their respective
obligations hereunder and thereunder. This Agreement constitutes, and each of
the Ancillary Agreements when executed and delivered by the Sellers will
constitute, the valid and legally binding obligation of the Sellers party
thereto, enforceable in accordance with their respective terms and conditions.
4.3 Noncontravention; Consents.
(a) Neither the execution and delivery of this Agreement or any of
the Ancillary Agreements by the Sellers, nor the consummation by the Pioneer
Companies and the Sellers of the transactions contemplated hereby or thereby,
will violate any Law to which Pioneer or the Sellers are subject or any
provision of the charter or bylaws of Pioneer. Except as set forth on Schedule
4.3(a), neither the execution and delivery of this Agreement or any of the
Ancillary Agreement by the Sellers, nor the consummation by the Pioneer
Companies or the Sellers of the transactions contemplated hereby or thereby,
will constitute a violation of, be in conflict with, constitute or create a
default under or result in the creation or imposition of any Lien upon any
property of the Pioneer Companies or the Sellers pursuant to, any agreement or
commitment to which the Pioneer Companies or the Sellers are a party or by which
the Pioneer Companies, the Sellers or any of their respective properties
(including the Pioneer Company Shares) is bound or to which the Pioneer
Companies, the Sellers or any of such properties is subject.
(b) Except as set forth on Schedule 4.3(b), the Pioneer Companies
and the Sellers have given all required notices and obtained all licenses,
Permits, consents, approvals, authorizations, qualifications and orders of
Governmental Entities and parties to material contracts of the Pioneer Companies
as are required in order to enable the Sellers to perform their obligations
under this Agreement and each of the Ancillary Agreements, including all
consents and approvals required to permit the Sellers to transfer the Pioneer
Company Shares to the Purchaser. No Contract relating to the Pioneer Companies
has been amended to increase the amount payable by either thereunder or
otherwise modify the terms thereof in order to obtain any such consent, approval
or authorization.
4.4 Capitalization. Schedule 4.4 sets forth for Pioneer and for 1 Stop
(a) the number of shares of authorized capital stock of each class of their
capital stock, (b) the number of issued and outstanding shares of each class of
their capital stock, (c) the number of shares of their capital stock held in
treasury, (d) the names of their directors and elected officers, and (e) the
owners of their capital stock. The Sellers have delivered to the Purchaser
correct and complete copies of the charter and bylaws of Pioneer and 1 Stop as
amended to date. All of the issued and outstanding shares of capital stock of
the Pioneer Companies have been duly authorized and are validly issued, fully
paid and nonassessable. Except as set forth on Schedule 4.4, the Sellers hold of
record and own beneficially all of the outstanding shares of the Pioneer
Companies, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act of 1933, as amended, and applicable state
securities laws), Taxes, Liens, options, warrants, purchase rights, contracts,
commitments, equities, claims or demands. Except as set forth on Schedule 4.4,
there are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights or other contracts or
commitments that could require the Sellers to sell, transfer or otherwise
dispose of any capital stock of the Pioneer Companies or that could require
either Pioneer or 1 Stop to issue, sell or otherwise cause to become outstanding
any of their own capital stock. There are no outstanding stock appreciation,
phantom stock, profit participation or similar rights with respect to the
Pioneer Companies. There are
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no voting trusts, proxies or other agreements or understandings with respect to
the voting of any capital stock of the Pioneer Companies. Neither Pioneer nor 1
Stop is in default under or in violation of any provision of its charter or
bylaws. Except as set forth on Schedule 4.4, neither Pioneer nor 1 Stop controls
directly or indirectly, or has any direct or indirect equity participation in,
any Person.
4.5 Financial Statements.
(a) Set forth as Schedule 4.5 are correct and complete copies of
the unaudited balance sheets of Pioneer as of December 31, 1997, 1998 and 1999
and the related statements of income and cash flow for the years then ended (the
"Financial Statements"). The Financial Statements were prepared consistent with
past accounting practices (except, with respect to the December 31, 1999
Financial Statements, as disclosed in the notes thereto) and present fairly the
financial condition and the results of operations of Pioneer as of the dates and
for the periods indicated therein.
(b) 1 Stop has no material assets, liabilities, operations or
financial results.
4.6 Undisclosed Liabilities. Pioneer has no liabilities or obligations
(whether known or unknown, absolute or contingent, liquidated or unliquidated,
or due or to become due), which exceed, individually or in the aggregate, Ten
Thousand Dollars ($10,000), except for liabilities and obligations (i) reflected
or reserved for on the Interim Balance Sheet, (ii) that have arisen since the
date of the Interim Balance Sheet in the ordinary course of the operation of
Pioneer (none of which results from, arises out of, relates to, is the nature of
or was caused by any breach of contract, breach of warranty, tort, infringement
or violation of Law) or (iii) as set forth on Schedule 4.6.
4.7 Title Insurance Claims. Notwithstanding any liability or obligation
excepted pursuant to subclauses (i) through (iii) in Section 4.6 above:
(a) each title insurance policy originated by Pioneer was
originated in compliance with the underwriting criteria for such policy imposed
pursuant to the Agency Agreement under which such policy was issued (except
where Pioneer has placed policies in excess of the policy limits set forth in
the relevant Agency Agreement on certain occasions and either received a written
waiver from the relevant underwriter, disclosed to such underwriter the such
non-compliance at the time the policy was accepted or the relevant underwriter
accepted such title insurance policy premium notwithstanding such
noncompliance); and
(b) Pioneer has no liability (including, without limitation,
liability for the non-complying title insurance policies discussed in the
exception contained in clause (a) above) with respect to any title insurance
policy originated by Pioneer pursuant to the Agency Agreements through the
Closing Date.
4.8 Events Subsequent to Most Recent Fiscal Year End; Health of Sellers.
Since December 31, 1999, there has not been any material adverse change in the
business, financial condition, operations, results of operations or future
prospects of Pioneer. Included in Schedule 4.8 hereto are letters from the
personal physicians of each of Prandi and Ferrara, attesting to certain aspects
of the current physical condition of each of them. Since the date of the
respective letters, there has not been any change in the health of Prandi or
Ferrara with respect to the subject matter of the applicable letter.
4.9 Accounts Receivable. The accounts receivable reflected on the
Interim Balance Sheet are bona fide receivables, accounted for on a basis
consistent with that used in the preparation of the Financial Statements,
representing amounts due with respect to actual transactions in the ordinary
course of the operation of Pioneer.
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4.10 Tax Matters. Except as set forth in Schedule 4.10:
(a) all Tax Returns that are required to be filed by or with
respect to the Sellers' Group and the Pioneer Companies have been duly filed,
or, where not so filed, are subject to an extended due date pursuant to an
extension that has been obtained therefor,
(b) all such Tax Returns are true, complete and correct,
(c) all Taxes due and payable by the Sellers' Group and the Pioneer
Companies have been paid in full,
(d) none of the Tax Returns referred to in Schedule 4.10 has been
examined by the IRS or the appropriate state, local or foreign taxing authority,
(e) all deficiencies asserted or assessments made as a result of
such examinations have been paid in full,
(f) no issues that have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns referred
to in clause (a) are currently pending,
(g) no waivers of statutes of limitation have been given by or
requested with respect to any Taxes of the Sellers' Group or the Pioneer
Companies,
(h) to the Seller's Knowledge, there is no claim or assessment
threatened against Sellers or the Pioneer Companies,
(i) the Pioneer Companies have withheld and timely paid to the
appropriate taxing authority the required amounts in compliance with all tax
withholding provisions of applicable Law (including, without limitation, income,
social security and employment tax withholding),
(j) the Pioneer Companies have not made any payments, and are not a
party to any agreement that could obligate either to make any payments, that
would not be deductible, in whole or in part, under Section 280G or 162(m) of
the Code,
(k) the Sellers are not foreign persons subject to withholding
under Section 1445 of the Code, and
(l) Neither Pioneer nor 1 Stop are part of an Affiliated Group
other than one in which the Sellers are the common parent.
4.11 Contracts.
(a) Except for the Contracts listed on Schedule 4.11, the Pioneer
Companies are not party to or otherwise bound by any written or oral (i)
mortgage, indenture, note, installment obligation or other instrument relating
to the borrowing of money, (ii) guarantee of any obligation, (iii) letter of
credit, bond or other indemnity (including letters of credit, bonds or other
indemnities as to which either Pioneer Company is the beneficiary but excluding
endorsements of instruments for collection in the ordinary course of the
operation of the relevant Pioneer Company), (iv) currency or interest rate swap,
collar or hedge agreement, (v) agreement for the sale or lease by either Pioneer
Company to any Person of any material amount of its assets other than the
retirement or other disposition of assets no longer useful to the relevant
Pioneer Company in the ordinary course of its operation, (vi) agreement
requiring the payment by either Pioneer Company of more than $50,000 in any
12-month period for the purchase or lease of any machinery, equipment or other
capital assets, (vii) agreement providing for the lease or sublease by either
Pioneer Company (as lessor, sublessor, lessee or sublessee) of any real estate,
(viii) collective bargaining agreement, employment, severance or consulting
agreement or agreement providing for severance payments or other additional
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rights or benefits (whether or not optional) in the event of the sale of either
Pioneer Company, (ix) joint venture agreement, (x) teaming agreement, (xi)
Government Contract or Government Subcontract, and except as indicated, neither
Pioneer Company is a party to any Government Contract or Government Subcontract
pursuant to Section 8(a) of the Small Business Administration Act, (xii)
agreement requiring the payment to either Pioneer Company by any other Person of
more than $50,000 in any 12-month period for the purchase of goods or services,
(xiii) agreement requiring the payment by either Pioneer Company to any Person
of more than $50,000 in any 12-month period for the purchase of goods or
services; (xiv) license or sublicense agreement with respect to any item of
Intellectual Property (whether as licensor, licensee, sublicensor or
sublicensee) or (xv) agreement imposing non-competition or exclusive dealing
obligations on either Pioneer Company.
(b) The Sellers have made available to the Purchaser correct and
complete copies of each written agreement listed on Schedule 4.11, as amended to
date. Each Contract is a valid, binding and enforceable obligation of the
relevant Pioneer Company and the other party or parties thereto (subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar Laws affecting creditors' rights and remedies generally
and subject as to enforceability to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing) and is in
full force and effect. Except as set forth on Schedule 4.11, (i) neither the
Pioneer Companies nor, to the Sellers' Knowledge, any other party thereto, is in
material breach of any term of any Contract or has repudiated any term of any
Contract, (ii) no event, occurrence or condition exists that, with the lapse of
time, the giving of notice, or both, would become a material default under any
Contract by either Pioneer Company, or, to the Sellers' Knowledge, any other
party thereto and (iii) neither Pioneer Company has waived or released any of
its material rights under any Contract.
4.12 Real Property.
(a) Schedule 4.12 lists all lease and sublease agreements relating
to real property leased or subleased by Pioneer. Except as set forth on Schedule
4.12, with respect to each such lease and sublease:
(i) such lease or sublease constitutes the entire agreement
to which Pioneer is a party with respect to the real property leased thereunder;
(ii) Pioneer has not assigned, sublet, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold;
(iii) all facilities leased or subleased thereunder have
received all material approvals of Governmental Entities (including all Permits)
required in connection with the operation thereof and have been operated and
maintained in all material respects in accordance with all applicable Laws; and
(iv) there is no action, suit or proceeding pending against
Pioneer or, to the Sellers' Knowledge, any action, suit or proceeding pending or
threatened against Pioneer or any third party that would materially interfere
with the quite enjoyment of such leased real property after the Closing Date.
(b) All of the real property and facilities are to the Knowledge of
the Sellers leased by Pioneer, and all components of all improvements included
within such owned or leased real property, in working order and repair and do
not require material repair or replacement in order to serve their intended
purposes in all material respects, including use and operation consistent with
their present use and operation, except for scheduled maintenance, repairs and
replacements conducted or required in the ordinary course of the operation of
such leased real property.
(c) Other than options, rights of first refusal or other similar
arrangements in favor of Pioneer under the leases and subleases relating to the
real property leased by Pioneer, Pioneer has not entered into any contract,
arrangement or understanding with respect to the future ownership, development,
use, occupancy or operation of any parcel of real property leased by Pioneer.
(d) There are no pending or, to the Sellers' Knowledge, threatened
or contemplated condemnation or eminent domain proceedings that affect the real
property leased by Pioneer, and Pioneer has not
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received any notice, oral or written, of the intention of any Governmental
Entity or other Person to take or use all or any part thereof.
(e) Since Pioneer's leasing of the real property leased by Pioneer,
none of such property or any part thereof has suffered any material damage by
fire or other casualty that has not been completely restored.
(f) Pioneer has not received any written notice from any insurance
company that has issued a policy to Pioneer with respect to any of its leased
real property requiring the performance of any structural or other repairs or
alterations to such property.
(g) 1 Stop has no real property interests.
4.13 Title and Related Matters. Except as set forth on Schedule 4.13,
the Pioneer Companies now have, and on the Closing Date will have, good and
marketable title to all the properties and assets purported to be owned by them,
free and clear of all Liens. The properties and assets owned and leased by
Pioneer and 1 Stop include sufficient tangible personal property to conduct the
business and operations of Pioneer and 1 Stop, respectively, as presently
conducted.
4.14 Intellectual Property.
(a) The Pioneer Companies own or have the right to use pursuant to
valid license, sublicense, agreement or permission all Intellectual Property
necessary or desirable for their respective operations as presently conducted.
(b) Neither Pioneer Company has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of third parties. Neither Pioneer Company has received any charge,
complaint, claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that it must license or
refrain from using any Intellectual Property rights of any third party). To the
Sellers' Knowledge, no third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of the Pioneer Companies.
(c) Schedule 4.14 identifies each patent and each registered
trademark, service mark and copyright owned by the Pioneer Companies and
identifies each pending patent application or application for registration that
has been filed by the Pioneer Companies. The Sellers have made available to the
Purchaser correct and complete copies of all such patents, registrations and
applications, each as amended to date, and correct and complete copies of all
other written documentation evidencing ownership and prosecution of each such
item. With respect to each such item of intellectual property required to be
identified in Schedule 4.14:
(i) the relevant Pioneer Company possesses all right, title
and interest in and to such item, free and clear of any Lien, license or other
restriction;
(ii) such item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the Sellers' Knowledge,
threatened that challenges the legality, validity, enforceability, use or
ownership of such item; and
(iv) the relevant Pioneer Company has not agreed to
indemnify any Person for or against any interference, infringement,
misappropriation or other conflict with respect to such item.
(d) Schedule 4.14 identifies each license, sublicense, agreement or
permission pursuant to which the Pioneer Companies use any item of Intellectual
Property. With respect to each such license, sublicense, agreement or
permission:
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(i) to the Sellers' Knowledge, the underlying item of
Intellectual Property is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge;
(ii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the Sellers' Knowledge,
threatened that challenges the legality, validity or enforceability of the
underlying item of Intellectual Property;
(iii) the transactions contemplated by this Agreement and
the Ancillary Agreements shall not constitute a breach or default under, give
rise to a right of termination under or otherwise adversely affect the ability
of Purchaser to use the Intellectual Property in conducting the business of the
relevant Pioneer Company after the Closing Date; and
(iv) the relevant Pioneer Company has not granted any
sublicense or similar right with respect to such license, sublicense, agreement
or permission.
4.15 Litigation. Schedule 4.15 sets forth each instance in which either
Pioneer Company is (a) subject to any unsatisfied judgment order, decree,
stipulation, injunction or charge or (b) a party to or, to the Sellers'
Knowledge, is threatened to be made a party to any charge, complaint, action,
suit, proceeding, hearing or investigation of or in any court or quasi-judicial
or administrative agency of any federal, state, local or foreign jurisdiction.
There are no judicial or administrative actions, proceedings or investigations
pending or, to the Sellers' Knowledge, threatened that question the validity of
this Agreement or any of the Ancillary Agreements or any action taken or to be
taken by the Pioneer Companies or the Sellers in connection with this Agreement
or any of the Ancillary Agreements or that, if adversely determined, would have
a material adverse effect upon the Pioneer Companies' or the Sellers' ability to
enter into or perform their respective obligations under this Agreement or any
of the Ancillary Agreements to which any of them is a party.
4.16 Employee Benefits.
(a) Schedule 4.16 lists each Employee Benefit Plan that Pioneer or
the Sellers maintain with respect to the current or former employees of Pioneer
or to which Pioneer or the Sellers contribute with respect to any of the current
or former employees of Pioneer. With respect to each such Employee Benefit Plan:
(i) such Employee Benefit Plan (and each related trust,
insurance contract or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code and other applicable Laws;
(ii) all required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have
been filed or distributed appropriately with respect to such Employee Benefit
Plan and the requirements of Part 6 of Subtitle B of Title I of ERISA and
Section 4980B of the Code have been met with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan;
(iii) all contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of
Pioneer and the Sellers. All premiums or other payments for all periods ending
on or before the Closing Date have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan;
(iv) each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan" under Section
401(a) of the Code and has received, within the last two years, a favorable
determination letter from the IRS; and
(v) the Sellers have made available to the Purchaser correct
and complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the IRS, the most
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recent Form 5500 Annual Report, and all related trust agreements, insurance
contracts and other funding agreements which implement such Employee Benefit
Plan.
(b) With respect to each Employee Benefit Plan that Pioneer
maintains or ever has maintained, or to which it contributes, ever has
contributed or ever has been required to contribute, there have been no
Prohibited Transactions with respect to such Employee Benefit Plan, no fiduciary
has any liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of such
Employee Benefit Plan, and no action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of the assets of such
Employee Benefit Plan (other than routine claims for benefits) is pending or, to
the Sellers' Knowledge, threatened.
(c) Except as set forth on Schedule 4.16, Pioneer does not
contribute to, has never contributed to or has ever been required to contribute
to any Multiemployer Plan or has any liability (including withdrawal liability)
under any Multiemployer Plan. None of the transactions contemplated by this
Agreement or any Ancillary Agreement will trigger any withdrawal or termination
liability under any Multiemployer Plan set forth on Schedule 4.16.
(d) Except for the Sellers, 1 Stop has no employees, and 1 Stop has
no Employee Benefit Plans.
4.17 Environmental Matters. Except as set forth on Schedule 4.17, (a)
Pioneer has complied in all material respects with all Environmental Laws in
connection with the use, maintenance and operation of all real property leased
by it and otherwise in connection with its operations, (b) the Pioneer Companies
have no liability, whether contingent or otherwise, under any Environmental Law
with respect to their operations or properties, (c) no notices of any violation
or alleged violation of, non-compliance or alleged non-compliance with or any
liability under, any Environmental Law relating to the operations or properties
of the Pioneer Companies have been received by them during the past five years,
(d) there are no administrative, civil or criminal writs, injunctions, decrees,
orders or judgments outstanding or any administrative, civil or criminal
actions, suits, claims, proceedings or investigations pending or, to the
Sellers' Knowledge, threatened, relating to compliance with or liability under
any Environmental Law affecting the Pioneer Companies, and (e) no underground
tank or other underground storage receptacle for Hazardous Materials is located
on any of the real property leased by Pioneer.
4.18 Legal Compliance. Except as set forth on Schedule 4.18, the Pioneer
Companies have complied in all material respects with all applicable Laws and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed or commenced against or, to the Sellers'
Knowledge, has been threatened against the Pioneer Companies alleging any
failure to so comply.
4.19 Insurance. Schedule 4.19 contains a correct and complete list of
(a) all policies of insurance owned by the Sellers or any of their Affiliates
under which Pioneer or any of its properties or assets is insured; and (b) the
Sellers' Life Insurance Policy. All such policies are (or, in the case of the
Sellers' Life Insurance Policy, will be as of the Closing Date) in full force
and effect, are sufficient for compliance by Pioneer or Sellers with all
applicable requirements of Law and all agreements to which Pioneer or Sellers
are a party or subject.
4.20 Bank Accounts and Powers. Schedule 4.20 lists each bank, trust
company, savings institution, brokerage firm, mutual fund or other financial
institution with which the Pioneer Companies have an account or safe deposit box
relating to either of them and the names and identification of all Persons
authorized to draw thereon or to have access thereto. Schedule 4.20 lists the
names of each Person holding powers of attorney or agency authority from either
Pioneer Company and a summary of the terms thereof.
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4.21 Brokers' Fees. Neither the Pioneer Companies nor the Sellers have
any liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement for
which the Purchaser could become liable or obligated or for which the Pioneer
Companies, after the Closing Date, will have any continuing obligation.
4.22 Year 2000 Compliance. Except as set forth on Schedule 4.22, all
software, hardware, databases, and devices that run under the control of a
microprocessor used by the Pioneer Companies, and each of the hardware products
of the Pioneer Companies are Year 2000 Compliant, except for failures to be Year
2000 Compliant that would not have a material adverse effect on the business or
financial condition of either Pioneer Company.
4.23 Full Disclosure. No representation or warranty of the Sellers
contained in this Agreement contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading. There is no fact that the Sellers have not disclosed
to the Purchaser in writing that the Sellers presently believe has or will have
a material adverse effect on either Pioneer Company or a material adverse effect
on the ability of the Pioneer Companies or the Sellers to perform this Agreement
and the Ancillary Agreements to which any of them are a party.
Section 5. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Sellers that the statements contained in this
Section 5 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though then made and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 5).
5.1 Organization. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
5.2 Authorization of Transaction. The Purchaser has full power and
authority to execute and deliver this Agreement and each of the Ancillary
Agreements and to perform its obligations hereunder and thereunder. This
Agreement constitutes, and each of the Ancillary Agreements when executed and
delivered by the Purchaser will constitute, the valid and legally binding
obligation of the Purchaser, enforceable in accordance with its terms and
conditions. Attached as Exhibit C is a duly executed resolution of the Board of
Directors of the Purchaser authorizing the execution and delivery of this
Agreement and approving the Purchaser's performance of the transactions
contemplated hereby.
5.3 Noncontravention Consents
(a) Neither the execution and the delivery of this Agreement or any
of the Ancillary Agreements by the Purchaser, nor the consummation by the
Purchaser of the transactions contemplated hereby or thereby, will violate any
Law to which the Purchaser is subject or any provision of the charter or bylaws
of the Purchaser. Neither the execution and delivery of this Agreement or any of
the Ancillary Agreements by the Purchaser, nor the consummation by the Purchaser
of the transactions contemplated hereby or thereby, will constitute a violation
of, be in conflict with or constitute or create a default under, any agreement
or commitment to which the Purchaser is a party or by which the Purchaser or any
of its properties is bound or to which the Purchaser or any of such properties
is subject.
(b) The Purchaser has given all required notice and obtained all
licenses, Permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities as are required in order to enable the Purchaser
to perform its obligations under this Agreement and each of the Ancillary
Agreements.
5.4 Litigation. There are no judicial or administrative actions,
proceedings (including bankruptcy proceedings) or investigations pending or, to
the Purchaser's Knowledge, threatened that question the validity of this
Agreement or any of the Ancillary Agreements or any action taken or to be taken
by the Purchaser in connection with this Agreement or any of the Ancillary
Agreements or that, if adversely determined, would have an adverse effect upon
the Purchaser's ability to enter into or perform its obligations under this
Agreement or any of the Ancillary Agreements.
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5.5 Brokers' Fees. The Purchaser has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Pioneer or the Sellers
could become liable or obligated.
Section 6. Tax Matters.
6.1 Liability for Taxes and Related Matters.
(a) Sellers shall be liable for and indemnify the Purchaser for all
Taxes (including, without limitation, any obligation to contribute to the
payment of a tax determined on a consolidated, combined or unitary basis with
respect to a group of corporations that includes or included either Pioneer
Company and Taxes resulting from either Pioneer Company ceasing to be a member
of the Sellers' Group): (i) imposed on Sellers' Group (other than the Pioneer
Companies) for any taxable year and (ii) imposed on the Pioneer Companies or for
which the Pioneer Companies may otherwise be liable for any taxable year or
period that ends on or before the Closing Date and, with respect to any taxable
year or period beginning before and ending after the Closing Date, the portion
of such taxable year ending on and including the Closing Date. Sellers shall
also indemnify, defend and hold harmless the Purchaser from all costs and
expenses incurred by the Purchaser (including reasonable attorneys' fees and
expenses) in connection with any liability to, or claim by, any taxing
authority, for Taxes for which Sellers are required to indemnify the Purchaser
under this Section 6. Except as set forth in Section 6.1(e), Sellers shall be
entitled to any refund of Taxes of the Pioneer Companies received for such
periods. Indemnification made pursuant to this Section 6.1(a) shall be made in
accordance with Section 11 below.
(b) The Purchaser shall be liable for and indemnify Sellers for the
Taxes of the Pioneer Companies for any taxable year or period that begins after
the Closing Date and, with respect to any taxable year or period beginning
before and ending after the Closing Date, the portion of such taxable year
beginning after the Closing Date. The Purchaser shall also indemnify, defend and
hold harmless Sellers from all costs and expenses incurred by Sellers (including
reasonable attorneys' fees and expenses) in connection with any liability to, or
claim by, any taxing authority, for Taxes for which the Purchaser is required to
indemnify Sellers under this Section 6. The Purchaser shall be entitled to any
refund of Taxes of the Pioneer Companies received for such periods.
(c) For purposes of paragraphs (a) and (b) above, whenever it is
necessary to determine the liability for Taxes of the Pioneer Companies for a
portion of a taxable year or period that begins before and ends after the
Closing Date, the determination of the Taxes of the Pioneer Companies for the
portion of the year or period ending on, and the portion of the year or period
beginning after, the Closing Date shall be determined by assuming that the
Pioneer Companies had a taxable year or period which ended at the close of the
Closing Date, except that exemptions, allowances or deductions that are
calculated on an annual basis, such as the deduction for depreciation, shall be
apportioned on a time basis.
(d) If Sellers become entitled to a refund or credit of Taxes for
any period for which it is liable under Section 6.1(a) to indemnify the
Purchaser and such Taxes are attributable solely to the carryback of losses,
credits or similar items attributable to the Pioneer Companies and from a
taxable year or period that begins after the Closing Date, Sellers shall
promptly pay to the Purchaser the amount of such refund or credit together with
any interest thereon. In the event that any refund or credit of Taxes for which
a payment has been made is subsequently reduced or disallowed, the Purchaser
shall indemnify and hold harmless Sellers for any tax liability, including
interest and penalties, assessed against Sellers by reason of the reduction or
disallowance.
(e) Sellers shall file or cause to be filed when due all Tax
Returns that are required to be filed by or with respect to the Pioneer
Companies for taxable years or periods ending on or before the Closing Date and
shall pay any Taxes due in respect of such Tax Returns, and the Purchaser shall
file or cause to be filed when due all Tax Returns that are required to be filed
by or with respect to the Pioneer Companies for taxable years or periods ending
after the Closing Date and shall remit any Taxes due in respect of such Tax
Returns. Sellers shall pay the Purchaser the Taxes for which Sellers are liable
pursuant to Section 6.1(a) but which are payable with Tax Returns to be filed by
the Purchaser pursuant to the previous sentence within ten days prior to the due
date for the filing of such Tax Returns.
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(f) The Purchaser shall promptly notify Sellers in writing upon
receipt by the Purchaser, any of its Affiliates or the Pioneer Companies of
notice of any pending or threatened federal, state, local or foreign income or
franchise tax audits or assessments which may materially affect the tax
liabilities of the Pioneer Companies for which Sellers would be required to
indemnify the Purchaser pursuant to Section 6.1(a), provided, that failure to
comply with this provision shall not affect the Purchaser's right to
indemnification hereunder except and to the extent such delay is prejudicial to
Sellers. Seller shall have the sole right to represent the Pioneer Companies'
interests in any tax audit or administrative proceeding relating to taxable
periods ending on or before the Closing Date, and to employ counsel of its
choice at its expense. Notwithstanding the foregoing, Sellers shall not be
entitled to settle, either administratively or after the commencement of
litigation, any claim for Taxes which would adversely affect the liability for
Taxes of the Purchaser or the Pioneer Companies for any period after the Closing
Date to any extent (including, but not limited to, the imposition of income tax
deficiencies, the reduction of asset basis or cost adjustments, the lengthening
of any amortization or depreciation deductions, or the reduction of loss or
credit carryforwards) without the prior written consent of the Purchaser. Such
consent shall not be unreasonably withheld, and shall not be necessary to the
extent that Sellers have indemnified the Purchaser against the effects of any
such settlement. Sellers shall be entitled to participate at their expense in
the defense of any claim for Taxes for a year or period ending after the Closing
Date which may be the subject of indemnification by Sellers pursuant to Section
6.1(a) and, with the written consent of the Purchaser, and at their sole
expense, may assume the entire defense of such tax claim. Neither the Purchaser
nor the Pioneer Companies may agree to settle any tax claim for the portion of
the year or period ending on the Closing Date which may be the subject of
indemnification by Sellers under Section 6.1(a) without the prior written
consent of Sellers, which consent shall not be unreasonably withheld.
6.2 Transfer Taxes. All transfer taxes which may be imposed or assessed
as a result of the Purchaser's acquisition of the Pioneer Company Shares shall
be borne equally by Sellers and Buyer.
6.3 Information to be Provided by the Purchaser. With respect to the
taxable period in 1999 prior to the Closing Date, the Purchaser shall promptly
cause the relevant Pioneer Company to prepare and provide to Sellers a package
of tax information materials (a "Tax Package"), which shall be completed in
accordance with past practice of such Pioneer Company including past practice as
to providing the information, schedules and work papers and as to the method of
computation of separate taxable income or other relevant measure of income. The
Purchaser shall cause the Tax Package for the portion of the taxable period
ending on the Closing Date to be delivered to Seller within 120 days after the
Closing Date.
6.4 Assistance and Cooperation. After the Closing Date, each of Sellers
and the Purchaser shall:
(a) assist (and cause their respective Affiliates to assist) the
other party in preparing any Tax Returns or reports which such other party is
responsible for preparing and filing in accordance with this Section 6;
(b) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Returns of the Pioneer Companies;
(c) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to Taxes
of the Pioneer Companies;
(d) provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of either Pioneer Company for taxable
period for which the other may have a liability under this Section 6; provided,
that failure to comply with this provision shall not affect a party's rights to
indemnification hereunder except and to the extent such delay is prejudicial to
the other party; and
(e) furnish the other with copies of all correspondence received
from any taxing authority in connection with any tax audit or information
request with respect to any such taxable period.
6.5 Survival of Obligations. Subject to Section 11.1, the obligations of
the parties set forth in this Section 6 shall be unconditional and absolute and
shall remain in effect without limitation as to time.
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Section 7. Pre-Closing Covenants. The parties agree as follows with respect to
the period between the date of this Agreement and the Closing Date.
7.1 General. Each of the parties will use its reasonable best efforts to
take all action and to do all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 10).
7.2 Notices and Consents. The Sellers prior to the Closing Date will
give all notices to third parties and will use their reasonable best efforts at
their expense to obtain all third party consents that are required in connection
with the transactions contemplated by this Agreement, and will make all further
filings pursuant thereto that may be necessary, proper or advisable.
7.3 Conduct Business in Regular Course. The Sellers will cause the
Pioneer Companies to maintain the leased properties used or held for use in
their businesses in good operating condition and repair and make all necessary
renewals, additions and replacements thereto, will cause the Pioneer Companies
to carry on their operations substantially in the same manner as heretofore
conducted and will not cause or permit the Pioneer Companies to make or
institute any unusual or novel methods of purchase, sale, lease, management,
accounting or operation.
7.4 No General Increases. Except in the ordinary course of business
consistent with past practice, (a) the Sellers will not cause or permit the
Pioneer Companies to grant any general or uniform increase in the rates of pay
of employees of the Pioneer Companies, nor grant any general or uniform increase
in the benefits under any bonus or pension plan or other contract or commitment,
and (b) the Sellers will not cause or permit the Pioneer Companies to increase
the compensation payable or to become payable to officers, salaried employees
with a base salary in excess of $50,000 per year or agents of Pioneer, or
increase any bonus, insurance, pension or other benefit plan, payment or
arrangement made to, for or with any such officers, salaried employees or
agents, except for any increase required under the terms of any collective
bargaining agreement or consulting or employment agreement in effect on the date
of this Agreement.
7.5 Contracts and Commitments. The Sellers will not cause or permit the
Pioneer Companies to tender any bid, enter into any contract or commitment or
engage in any transaction, including any contract, commitment or engagement with
the Sellers or any division, unit or Affiliate of the Sellers, or effect any
change to any program, not in the usual and ordinary course of business and
consistent with the past operation of the relevant Pioneer Company.
7.6 Dividends and Distributions. The Sellers will not cause or permit
the Pioneer Companies to declare or pay any dividend or distribution with
respect to its capital stock or to repurchase, redeem or otherwise acquire for
value any shares of its capital stock (it being understood and acknowledged by
the parties that payment by Pioneer of (i) Prandi's and Ferrara's quarterly
federal and New York estimated income tax liabilities; and (ii) a monthly
dividend to each of Prandi and Ferrara of $1,000 per month are excepted to the
extent such payments are consistent with past practices).
7.7 Sale of Capital Assets. The Sellers will not cause or permit the
Pioneer Companies to sell or otherwise dispose of any of its capital assets.
7.8 Preservation of Organization. The Sellers will cause the Pioneer
Companies to use their best efforts to preserve their business organizations
intact, to keep available to Pioneer after the Closing Date the present officers
and employees of Pioneer and, subject to Section 7.9 below, to preserve the
present relationships of the Pioneer Companies with their suppliers and
customers and others having business relations with the Pioneer Companies.
7.9 Agency Agreements. [intentionally omitted]
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7.10 No Default. The Sellers will not cause or permit the Pioneer
Companies to commit or omit to take any act which will cause a termination of or
breach or default under any contract, commitment or obligation to which a
Pioneer Company is a party or by which its assets are bound, including the
Contracts.
7.11 Compliance with Laws. The Sellers will cause the Pioneer Companies
to comply in its operations in all material respects with all applicable Laws or
as may be required for the valid and effective transfer to the Purchaser of the
Pioneer Company Shares.
7.12 Full Access. The Sellers will permit representatives of the
Purchaser to have full access at all reasonable times to all premises,
properties, books, records, contracts and documents of or pertaining to the
Pioneer Companies.
7.13 Notice of Developments. The Sellers will give prompt written notice
to the Purchaser of any material development affecting the Pioneer Companies.
Each party will give prompt written notice to the other of any material
development affecting the ability of the parties to consummate the transactions
contemplated by this Agreement or any of the Ancillary Agreements.
7.14 Exclusivity. The Sellers and their respective Affiliates will not,
and will not cause or permit either Pioneer Company to, solicit, initiate or
encourage the submission of any proposal or offer from any Person, or negotiate
any unsolicited offer or proposal, relating to any (a) liquidation, dissolution
or recapitalization, (b) merger or consolidation, (c) acquisition or purchase of
securities or assets or (d) similar transaction or business combination
involving either Pioneer Company. The Sellers will notify the Purchaser promptly
if any Person makes any proposal, offer, inquiry or contact with respect to any
of the foregoing.
7.15 Debt Obligations. Prior to the Closing Date, the Sellers shall
cause the Pioneer Companies to repay in full all Indebtedness of the Pioneer
Companies and otherwise satisfy all debt obligations of the Pioneer Companies,
including obtaining acknowledgement of the release of all Liens against the
business or assets of the Pioneer Companies and causing the filing of
termination statements with respect to any outstanding UCC-1 financing
statements naming either Pioneer Company as a debtor.
7.16 Tax Matters. No new elections with respect to Taxes, or any changes
in current elections with respect to Taxes, relating to or affecting the Pioneer
Companies will be made by the Pioneer Companies or the Sellers after the date of
this Agreement without the prior written consent of the Purchaser. On or prior
to the Closing Date, the Sellers will provide the Purchaser, at the Purchaser's
request, with all clearance certificates or similar documents that may be
required by any state, local or other taxing authority in order to relieve the
Purchaser of any obligation to withhold or escrow any portion of the Purchase
Price. On or prior to the Closing Date, the Sellers will furnish to the
Purchaser an affidavit stating, under penalty of perjury, the Pioneer Companies'
and each of the Sellers' United States tax identification numbers and that
neither Seller is a foreign person, pursuant to Section 1445(b)(2) of the Code.
Section 8. Post-Closing Covenants. The parties agree as follows with respect to
the period following the Closing Date.
8.1 General. In case at any time after the Closing Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other party
reasonably may request, at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Section 11).
8.2 Litigation Support. In the event and for so long as any party is
actively contesting or defending against any charge, complaint, action, audit,
suit, proceeding, hearing, investigation, claim or demand in connection with (i)
any transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving either Pioneer Company, the other party will provide its reasonable
cooperation to the
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<PAGE> 19
contesting or defending party and its counsel in the contest or defense, make
available its personnel and provide such testimony and access to its books and
records as may be necessary in connection with the contest or defense, at the
sole cost and expense of the contesting or defending party (unless the
contesting or defending party is entitled to indemnification therefor under
Section 11).
8.3 Confidential Information. For a period of five years after the
Closing Date, the Sellers will treat and hold as such, and will not use for the
benefit of themselves or others, any Confidential Information. In the event the
Sellers or any of their respective Affiliates are requested or required (by oral
request or written request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand or similar process) to
disclose any Confidential Information, then the relevant Seller will notify the
Purchaser promptly in writing of the request or requirement so that the
Purchaser may seek an appropriate protective order or waive compliance with this
Section 8.3. If, in the absence of a protective order or receipt of a waiver
hereunder, the Sellers are, on the advice of outside counsel, compelled to
disclose any Confidential Information to any Governmental Entity or else stand
liable for contempt, then the Sellers may disclose such Confidential Information
to such Governmental Entity, provided, that the Sellers will use its reasonable
best efforts to obtain at the request of the Purchaser an order or other
assurance that confidential treatment will be accorded to such Confidential
Information.
8.4 Post-Closing Receipts. In the event that either party after the
Closing Date receives any funds properly belonging to the other party in
accordance with the terms of this Agreement, the receiving party will promptly
so advise such other party, will segregate and hold such funds in trust for the
benefit of such other party and will promptly deliver such funds, together with
any interest earned thereon, to an account or accounts designated in writing by
such other party.
8.5 Sellers' Life Insurance Policy. The Sellers shall maintain the
Sellers' Life Insurance Policy in effect through the earlier to occur of (a) the
Maturity Date of the Notes (as that term is defined therein) or so long as any
amounts are outstanding thereunder, and (b) the occurrence of a material breach
thereunder and the expiration of any applicable cure period. The Sellers shall
not permit such policy to be modified in any material respect (except that the
death benefit payable to Purchaser thereunder may be reduced to match reductions
in the outstanding principal balance on the Notes) without the prior written
consent of the Purchaser, and shall otherwise act in accordance with the
Certification of Life Insurance Policies, dated February 29, 2000, delivered by
the Sellers to the Purchaser at the Closing, the provisions of which are
incorporated herein by reference.
Section 9 Employee Benefits Responsibilities.
9.1 From and after the Closing Date, the Purchaser will assume liability
for and cause Pioneer to provide for all employees of Pioneer welfare benefits
substantially equivalent in the aggregate to like benefits which were provided
by Pioneer immediately prior to the Closing Date pursuant to the Employee
Benefit Plans as described in Schedule 4.16 of the Disclosure Schedules and the
summary plan descriptions noted therein; provided, that the liabilities so
assumed are limited to liabilities reflected on the Closing Date Balance Sheet
or on the Schedules hereto. As of the Closing Date, the Sellers' responsibility
to continue to maintain the Employee Benefit Plans for Pioneer employees will
terminate.
9.2 Pioneer employees will participate in Pioneer's employee benefit
plans after the Closing Date without any waiting periods, without any evidence
of insurability and without the application of any pre-existing physical or
mental condition restrictions except to the extent previously applicable under
the Employee Benefit Plans, but counting claims incurred prior to the Closing
Date for purposes of applying deductible, out-of-pocket maximums and other such
matters.
9.3 The Purchaser will also assume all liability and responsibility for
the payment of any otherwise eligible claims incurred under the Employee Benefit
Plans prior to the Closing Date but which have not been paid prior to the
Closing Date.
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9.4 Notwithstanding the foregoing provisions of this Section 9, nothing
in this Agreement will limit or restrict in any way the Purchaser's right to
modify, amend, terminate or establish employee benefit plans or arrangements in
whole or in part at any time after the Closing Date and this Agreement will not,
in any way or at any time, create any third party beneficiary rights for or on
behalf of any Person.
Section 10 Closing Conditions.
10.1 Conditions to Obligation of the Purchaser. The obligation of the
Purchaser to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties of the Sellers set forth in
Section 4 will be true and correct in all material respects at and as of the
Closing Date;
(b) the Sellers will have performed and complied with all of its
covenants hereunder in all material respects through the Closing Date;
(c) there will not be any action, suit or proceeding pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or any Ancillary Agreement, (ii) cause any of the transactions contemplated by
this Agreement or any Ancillary Agreement to be rescinded following
consummation, (iii) affect materially and adversely the right of the Purchaser
following the Closing Date to own the Pioneer Company Shares or to control the
Pioneer Companies, or (iv) affect materially and adversely, the right of the
Pioneer Companies to own their assets or to operate their businesses as
presently operated (and no such injunction, judgment, order, decree, ruling or
charge will be in effect);
(d) the Sellers will have obtained all consents, releases, waivers
and other documentation required in order for the Sellers to transfer and
deliver the Pioneer Company Shares to the Purchaser and fulfill their other
obligations hereunder;
(e) the Sellers will have delivered to the Purchaser a certificate
to the effect that each of the conditions specified above are satisfied in all
respects;
(f) the Sellers will have delivered to the Purchaser an executed
counterpart of each of the Ancillary Agreements to which they are a signatory;
(g) the Purchaser will have received the resignations, effective as
of the Closing, of each of the directors and officers of the Pioneer Companies,
other than those whom the Purchaser has specified in writing at least five
business days prior to the Closing;
(h) the Purchaser shall have received consents substantially in the
form attached hereto as Exhibit D executed by each of the spouses of the
Sellers;
(i) the Purchaser shall have received an opinion of counsel to the
Sellers in form and substance reasonably acceptable to the Purchaser;
(j) the Sellers shall have delivered to the Purchaser the Sellers'
Life Insurance Policy; and
(k) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments and other documents required to effect the transactions contemplated
hereby will be reasonably satisfactory in form and substance to the Purchaser.
The Purchaser may waive any condition specified in this Section 10.1 if it
executes a writing so stating at or prior to the
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Closing.
10.2 Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties of the Purchaser set forth
in Section 5 will be true and correct in all material respects at and as of the
Closing Date;
(b) the Purchaser will have performed and complied with all of its
covenants hereunder in all material respects through the Closing Date;
(c) there will not be any action, suit or proceeding pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or any Ancillary Agreement or (ii) cause any of the transactions contemplated by
this Agreement or any Ancillary Agreement to be rescinded following
consummation;
(d) the Purchaser will have delivered to the Sellers a certificate
to the effect that each of the conditions specified above is satisfied in all
respects;
(e) the Purchaser will have delivered to the Sellers an executed
counterpart of each of the Ancillary Agreements; and
(f) all actions to be taken by the Purchaser in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments and other documents required to effect the transactions contemplated
hereby will be reasonably satisfactory in form and substance to the Sellers.
The Sellers may waive any condition specified in this Section 10.2 if it
executes a writing so stating at or prior to the Closing.
Section 11. Remedies for Breaches of this Agreement.
11.1 Survival of Representations and Warranties. All of the
representations and warranties of the Sellers contained in Section 4 of this
Agreement or in any certificate delivered by the Sellers pursuant to this
Agreement will survive the Closing and continue in full force and effect until
the third anniversary of the Closing Date; provided, however, that (a) the
representations and warranties contained in Sections 4.1 (Organization), 4.2
(Authorization of Transaction) and 4.4 (Capitalization) shall continue in full
force and effect forever; and (b) the representations and warranties contained
in Sections 4.10 (Tax Matters) or 4.16 (Employee Benefits), or contained in any
certificate delivered by the Sellers relating thereto, shall remain in full
force and effect until 30 days after the expiration of the applicable statute of
limitations with respect to the matter to which the claim relates, as such
limitation period may be extended from time to time.
11.2 Indemnification Provisions for Benefit of the Purchaser.
Notwithstanding any investigation at any time made by or on behalf of the
Purchaser or any knowledge or information the Purchaser may have or be deemed to
have, in the event the Sellers breach (or in the event a third party alleges
facts that, if true, would mean the Sellers have breached) any of their
representations, warranties or covenants contained in this Agreement or any
certificate delivered by the Sellers pursuant to this Agreement, and provided
that the Purchaser makes a written claim for indemnification against the Sellers
prior to the expiration of any applicable survival period, then the Sellers will
indemnify the Purchaser from and against the entirety of any losses, expenses
(including reasonable attorneys', accountants' an experts' fees and expenses),
damages and other liabilities, including Tax-related liabilities pursuant to
Section 6 hereof (collectively, "Losses") suffered or incurred by the Purchaser
or any of its Affiliates (including the Pioneer Companies), or any of their
respective stockholders, directors, officers, employees and agents
(collectively, the "Purchaser Indemnified Parties"), resulting from, arising out
of, relating to, in the nature of or caused by such breach (including any Losses
suffered or incurred by any Purchaser Indemnified Party with respect to such
breach after the expiration of
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any applicable survival period. The liability of the Sellers hereunder shall not
be joint and several, but rather will be borne fifty percent (50%) by Prandi and
fifty percent (50%) by Ferrara, with neither having any liability for the
failure of the other to indemnify Purchaser. Notwithstanding anything contained
in this Agreement to the contrary, (i) neither Prandi nor Ferrara shall have any
liability to the Purchaser Indemnified Parties hereunder until the Losses
against which indemnification is sought aggregate in excess of Ten Thousand
Dollars ($10,000), and then Prandi and Ferrara shall have no liability for such
first Ten Thousand ($10,000) in Losses; and (ii) the entire, aggregate liability
of either Prandi or Ferrara to all Purchaser Indemnified Parties hereunder,
whether personal or otherwise and whether or not related to title insurance
policies, shall in no event exceed Two Hundred Fifty Thousand Dollars ($250,000)
for each of Prandi and Ferrara (for the avoidance of doubt, the corresponding
collective aggregate liability of Sellers hereunder shall be Five Hundred
Thousand Dollars ($500,000)).
11.3 Indemnification Provisions for Benefit of the Sellers.
Notwithstanding any investigation at any time made by or on behalf of the
Sellers or any knowledge or information the Sellers may have or be deemed to
have, in the event the Purchaser breaches (or in the event any third party
alleges facts that, if true, would mean the Purchaser has breached) any of its
representations, warranties or covenants contained in this Agreement, any
certificate delivered by the Purchaser pursuant to this Agreement or any
Ancillary Agreement and provided that the Sellers make a written claim for
indemnification against the Purchaser, then the Purchaser will indemnify the
Sellers from and against the entirety of any Losses the Sellers or any of its
Affiliates (excluding the Pioneer Companies), or any of their respective
stockholders, directors, officers, employees or agents (collectively, the
"Seller Indemnified Parties"), may suffer or incur resulting from, arising out
of, relating to, in the nature of or caused by such breach. Notwithstanding
anything contained in this Agreement to the contrary, (i) the Purchaser shall
have no liability to the Seller Indemnified Parties hereunder until the Losses
against which indemnification is sought aggregate in excess of Ten Thousand
Dollars ($10,000), and then the Purchaser shall have no liability for such first
Ten Thousand ($10,000) in Losses; and (ii) the entire, aggregate liability of
the Purchaser to all Seller Indemnified Parties hereunder shall in no event
exceed Five Hundred Thousand Dollars ($500,000).
11.4 Exception to Limits on Indemnification. The maximum limits on the
liability of Sellers to Purchaser set forth in Section 11.2 above shall not
apply in the event of a breach by Sellers of their obligation to deliver all of
the issued and outstanding Pioneer Company Shares pursuant to Section 3.3(c) or
their obligation to maintain the Sellers' Life Insurance Policy in effect
pursuant to Section 8.5; provided, however, that the exception to the limitation
of the Sellers' indemnification obligation provided by this Section 11.4 shall
apply to the Sellers' Life Insurance Policy only in the event and to the extent
payment is required to be made to the Purchaser thereunder and is not made. The
maximum limits on the liability of Purchaser to Sellers set forth in Section
11.3 above shall not apply in the event of a breach by Purchaser of its
obligation to pay the Purchase Price pursuant to Section 2 hereof or the
compensation due to Prandi and Ferrara pursuant to the Ancillary Agreements.
11.5 Indemnification Procedures. Except for claims for indemnification
made pursuant to Section 6 hereof, which claims shall follow the procedures set
forth in such Section, if any third party notifies any party hereto (the
"Indemnified Party") with respect to any matter that may give rise to a claim
for indemnification against the other party hereto (the "Indemnifying Party")
under this Section 11, then the Indemnified Party will notify the Indemnifying
Party thereof promptly and in any event within 30 days after receiving any
written notice from a third party; provided, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party will relieve the
Indemnifying Party from any obligation hereunder unless, and then solely to the
extent that, the Indemnifying Party is prejudiced thereby. Once the Indemnified
Party has given notice of the matter to the Indemnifying Party, the Indemnified
Party may defend against the matter in any manner it reasonably may deem
appropriate. In the event the Indemnifying Party notifies the Indemnified Party
within 30 days after the date the Indemnified Party has given notice of the
matter that the Indemnifying Party is assuming the defense of such matter (a)
the Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (b) the
Indemnified Party may retain separate counsel at its sole cost and expense
(except that the Indemnifying Party will be responsible for the fees and
expenses of such separate co-counsel to the extent the Indemnified Party
concludes in good faith that the counsel the Indemnifying Party has selected has
a conflict of interest), (c) the Indemnified Party will not consent to the entry
of a judgment or enter into any settlement with respect to the matter without
the written consent of the Indemnifying Party (not to be withheld or delayed
unreasonably) and (d) the Indemnifying Party will not consent to the entry of a
judgment with respect to the matter or enter into any settlement that does not
include a provision whereby the
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plaintiff or claimant in the matter releases the Indemnified Party from all
liability with respect thereto, without the written consent of the Indemnified
Party (not to be withheld or delayed unreasonably).
Section 12. Termination.
12.1 Termination of Agreement. The parties may terminate this Agreement
as provided below:
(a) the Purchaser and the Sellers may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) either the Sellers or the Purchaser may terminate this
Agreement by giving written notice to the other at any time prior to the Closing
if the Closing has not occurred on or before February 29, 2000.
12.2 Effect of Termination. If any party terminates this Agreement
pursuant to Section 12.1, all obligations of the parties hereunder will
terminate without liability of any party to the other party (except for any
liability of any party then in breach); provided, that the expense allocation
provisions contained in Section 13.2 will survive termination and remain in full
force and effect thereafter.
Section 13. Miscellaneous.
13.1 Press Releases and Announcements. No party will issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing Date without the prior approval of the other party; provided,
that the Purchaser may make any public disclosure it believes in good faith is
required by Law or by the rules and regulations of any stock exchange on which
the securities of such party are listed.
13.2 Expenses: Transfer Taxes. Each of the parties hereto will bear all
legal, accounting, investment banking and other expenses incurred by it or on
its behalf in connection with the transactions contemplated by this Agreement,
whether or not such transactions are consummated. The parties will each be
responsible for the payment of 50% of all sales, use, transfer, documentary or
stamp taxes and recording and filing fees applicable to the assignment of the
Pioneer Company Shares to the Purchaser or to any other transaction contemplated
by this Agreement or any of the Ancillary Agreements.
13.3 Remedies. Any party having any rights under any provision of this
Agreement will have all rights and remedies set forth in this Agreement and all
rights and remedies that such party may have been granted at any time under any
other agreement or contract and all of the rights that such party may have under
any Law. Any such party will be entitled to enforce such rights specifically,
without posting a bond or other security, to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
granted by Law.
13.4 Consent to Amendments. The provisions of this Agreement may be
amended or waived only by a written agreement executed and delivered by the
Sellers and the Purchaser. No other course of dealing between the parties to
this Agreement or any delay in exercising any rights hereunder will operate as a
waiver of any rights of such parties.
13.5 Successors and Assigns. No party hereto may assign or delegate any
of such party's rights or obligations under or in connection with this Agreement
or any Ancillary Agreement without the written consent of the other party
hereto; provided, that the Purchaser may without the written consent of Pioneer
or the Sellers assign its rights under this Agreement or any of the Ancillary
Agreements to one or more Affiliates of the Purchaser or to any Person acquiring
all or substantially all of the stock or assets of Pioneer from the Purchaser.
No assignment by the Purchaser pursuant to the proviso of the preceding sentence
will release the Purchaser of any of its obligations under this Agreement or any
Ancillary Agreement or waive or release any right or remedy the Sellers may have
against the Purchaser hereunder or thereunder. All covenants and agreements
contained in this Agreement or in any Ancillary Agreement by or on behalf of any
of the parties hereto or thereto will be binding upon and enforceable against
the respective successors and assigns of such party and will be enforceable by
and will inure to the benefit of the respective successors and permitted assigns
of such party.
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13.6 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
Law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable Law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
13.7 Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
13.8 Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
13.9 Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally to the
recipient or when sent to the recipient by telecopy (receipt confirmed), one
business day after the date when sent to the recipient by reputable express
courier service (charges prepaid) or three business days after the date when
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the Purchaser and the Seller at the addresses indicated below:
If to the Purchaser: American National Financial, Inc.
17911 Von Karman Avenue, Suite 300
Irvine, California 92614
Fax no. 949/622-4104
Attn: Michael C. Lowther
Chief Executive Officer
With a copy (which
will not constitute
notice) to: Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Newport Beach, California 92660
Fax no. 949/725-4100
Attn: C. Craig Carlson, Esq.
If to the Sellers: Vincent L. Prandi
Daniel A. Ferrara
2171 Jericho Turnpike
Commack, New York 11725
Fax no. 516/462-9616
With a copy (which
will not constitute
notice) to: John E. Fasciana, Esq.
Fasciana and Associates, P.C.
358 Fifth Avenue
New York, New York 10001
Fax No: (212) 922-9606
or to such other address or to the attention of such other party as the
recipient party has specified by prior written notice to the sending party.
13.10 No Third-Party Beneficiaries. This Agreement will not confer any
rights or remedies upon any
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Person other than the Sellers and the Purchaser and their respective successors
and permitted assigns.
13.11 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements or representations by or among the parties,
written or oral, that may have related in any way to the subject matter hereof.
13.12 Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent and no
rule of strict construction will be applied against any party. The use of the
word "including" in this Agreement means "including" without limitations and is
intended by the parties to be by way of example rather than limitation.
13.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
13.14 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO WILL
BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
CALIFORNIA.
[signature page to follow]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first written above.
AMERICAN NATIONAL FINANCIAL, INC.
------------------------------------
By: Michael C. Lowther
Its: Chief Executive Officer
VINCENT L. PRANDI
------------------------------------
DANIEL A. FERRARA
------------------------------------
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EXHIBIT 10.17
MEMBERSHIP INTEREST PURCHASE AGREEMENT
BY AND AMONG
SELLERS
ANGELA MUIRHEAD,
an individual
and
LAWRENCE E. CASTLE,
an individual
AND
PURCHASER
AMERICAN NATIONAL FINANCIAL, INC.,
a California corporation
MEMBERSHIP INTEREST PURCHASE AGREEMENT
This Membership Interest Purchase Agreement (this "Agreement") is entered into
as of February 29, 2000, by and among Angela Muirhead, an individual
("Muirhead"), Lawrence E. Castle, an individual ("Castle" - Muirhead and Castle
are sometimes referred to herein collectively as the "Sellers") and American
National Financial, Inc., a California corporation (the "Purchaser"). Certain
capitalized terms used without definition in this Agreement are defined in
Exhibit A.
RECITALS
A. Sellers are the record and beneficial owners of all of the outstanding
membership interests (the "Membership Interests") of Emerald Mortgagee
Assistance Company, LLC, a Colorado limited liability company ("EMAC") and
American Research Services, LLC, a Colorado limited liability company ("ARS" --
EMAC and ARS are referred to herein, individually, as a "Company," and
collectively, as the "Companies").
B. The Companies are full service providers of release and assignment document
preparation, document retrieval services and title research services, including,
but not limited to: on-site source retrieval and file review; off site paid loan
file review; nationwide document retrieval; preparation of assignment and
release forms for all fifty states; administering nationwide recording and
tracking of documents; working with title research providers to correct
intervening chain of assignment problems; and managing database tracking systems
to prepare weekly status reports for clients (the "Businesses").
C. The Purchaser desires to purchase from the Sellers, and the Sellers desire to
sell to the Purchaser, the Membership Interests in the Companies, on the terms
and conditions hereinafter set forth in this Agreement.
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AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties, intending to be legally bound, agree as follows:
ARTICLE 1
PURCHASE AND SALE OF MEMBERSHIP INTERESTS
SECTION 1.1 PURCHASE AND SALE OF MEMBERSHIP INTERESTS. Subject to the
terms and conditions of this Agreement, on the Closing Date (as hereinafter
defined), each Seller agrees, severally and not jointly, to sell, convey,
assign, transfer, set over and deliver one hundred percent (100%) of the
Membership Interest in the Companies owned by them to Purchaser, free and clear
of pledges, options and any other adverse interests whatsoever, and Purchaser
shall purchase and accept such Membership Interest from each of the Sellers.
ARTICLE 2
PAYMENT OF PURCHASE PRICE; CLOSING.
SECTION 2.1 PURCHASE PRICE. Subject to Section 2.2, as the purchase
price for the Membership Interest being acquired hereunder, Purchaser shall pay
to Sellers (as hereinafter defined) an aggregate consideration equal to One
Million Eight Hundred Forty Thousand Dollars ($1,840,000) (the "Purchase
Price"), which shall be paid in cash and stock of Purchaser as follows:
(a) Muirhead shall receive (a) Eight Hundred Twenty Thousand and
9/100ths Dollars ($820,000.09) in cash (the "Muirhead Holdback Cash"); and (b)
Twenty Nine Thousand Two Hundred Forty Eight (29,248)1 shares of Common Stock of
Purchaser (the "Muirhead Shares"); and
(b) Castle shall receive (a) Eight Hundred Twenty Thousand and
9/100ths Dollars ($820,000.09) in cash (the "Castle Holdback Cash" -- and
collectively with the Muirhead Holdback Cash, the "Holdback Cash"); and (b)
twenty Nine Thousand Two Hundred Forty Eight (29,248) shares of Common Stock of
Purchaser (the "Castle Shares," and collectively with the Muirhead Shares, the
"Holdback Shares").
(c) Notwithstanding the provisions of Sections 2.1(a) and (b)
above, Sellers reserve the right to reallocate a portion of the Purchase Price
between them in an amount not to exceed $100,000 to take into account a
disparity in their respective capital accounts in EMAC. The flow of funds
statement to be provided to Purchaser pursuant to Section 6.3(c) shall indicate
any reallocation of the Purchase Price between Sellers.
Notwithstanding the foregoing, the Holdback Cash and the Holdback Shares shall
be adjusted pursuant to Section 2.2 and delivered pursuant to Section 2.3.
SECTION 2.2 ADJUSTMENT TO PURCHASE PRICE.
(a) No later than March 15, 2000, Sellers will deliver to Purchaser
an internally prepared adjusted combined balance sheet for the Companies, dated
the Closing Date (the "Closing Date Balance Sheet"), prepared consistently with
the internally prepared adjusted combined balance sheet for the Companies, dated
November 30, 1999, previously delivered to Purchaser and included in Schedule
2.2(a) (the "November Balance Sheet").
(b) In the event that the Tangible Net Worth of the Companies,
determined based on the Closing Date Balance Sheet, is more than Three Hundred
Forty Two Thousand Dollars ($342,000), then Purchaser will owe and pay to
Muirhead and Castle the total amount of such difference in cash, fifty percent
(50%) to
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(1) The value of the shares of Common Stock of Purchaser received by any
of the Sellers pursuant to this Agreement was determined by calculating the
average closing price of the Common Stock of Purchaser, as quoted on the NASDAQ
National Market System, over the (10) day period ending on the third (3rd) prior
to the Closing Date, or $3.419.
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Muirhead and fifty percent (50%) to Castle in addition to the amounts set forth
in Section 1(a) and (b) above. In the event that the Tangible Net Worth of the
Company, determined based on the Closing Date Balance Sheet, is less than Three
Hundred Forty Two Thousand Dollars ($342,000.00), then Muirhead and Castle will
owe to Purchaser the amount of such difference, fifty percent (50%) from
Muirhead and fifty percent (50%) from Castle to be paid through a reduction of
the cash portion of the purchase price to be paid to each of Castle and
Muirhead, respectively pursuant to Section 2.1(a) and 2.1(b) above. As used
herein, the term "Tangible Net Worth" shall mean the sum of cash, accounts
receivable, inventory and other tangible assets less accounts payable and other
liabilities; provided, however, that (i) accrued benefits to employees shall not
be included in the calculation of Tangible Net Worth, and (ii) depreciation and
amortization on assets shall be calculated on a straight line basis from the
date of the acquisition of such asset. Any payment made pursuant to Section
2.2(b) will be treated by the parties as an adjustment to the Purchase Price and
the Purchase Price as so adjusted will be referred to in this Agreement as the
"Purchase Price."
(c) The number of Holdback Shares deliverable to Sellers shall be
reduced by such number of Holdback Shares, valued at $3.419 per share, as is
necessary to indemnify Purchaser for the dollar amount of Purchaser's losses, as
reasonably determined by Purchaser, arising from (i) accounts receivable shown
on the Closing Date Balance Sheet and included in the computation of Tangible
Net Worth but not collected by Purchaser by March 15, 2001, due to the
bankruptcy of FirstPlus Financial, and (ii) any other liabilities in existence
as of the date of the Closing Date Balance Sheet and not shown thereon, as
determined on March 15, 2001, except such liabilities as are disclosed in the
Schedules, the accrued benefits to employees referenced in Section 2.2(b) above
and the leases described on Schedule 3.6. In the event Purchaser writes off any
account receivable hereunder as uncollectible, such account receivable shall be
assigned to each of the Sellers in equal percentages.
(d) In the event of a dispute among Purchaser and the Sellers with
respect to the Closing Date Balance Sheet, Purchaser, and the Sellers shall
attempt in good faith to reach an agreement as to the matters in dispute. If
Purchaser and Sellers, notwithstanding such good faith effort, fail to resolve
the matters in dispute within ten (10) days after written notice of a dispute (a
"Dispute Notice") is given, then any remaining disputed matters will be finally
and conclusively determined by an independent auditing firm of recognized
national standing (the "Arbiter"), selected by Purchaser and the Sellers no
later than thirty (30) days from the date of the Dispute Notice. The Arbiter
will not be the regular auditing firm of Purchaser or either Company. Promptly,
but not later than forty-five (45) days after its acceptance of its appointment,
the Arbiter will determine (based solely on presentations by Sellers and
Purchaser and not by independent review) only those matters in dispute and will
render a written report as to the disputed matters, which report will be
conclusive and binding upon the parties. The fees and expenses of the Arbiter,
and any reasonable attorneys fees or costs will be paid by the non-prevailing
party with respect to the determination of the Arbiter as set forth in the
Arbiter's report.
(e) For purposes of complying with the terms set forth herein, each
party will cooperate with and make available to the other party and its auditors
and representatives all information, records, data and auditors' working papers,
and will permit access to its facilities and personnel, as may be reasonably
required in connection with the analysis of the Closing Date Balance Sheets and
the resolution of any disputes pertaining thereto.
SECTION 2.3 PAYMENT OF PURCHASE PRICE.
(a) Purchaser shall hold the Holdback Cash and the Holdback Shares
from and after the Closing Date until the Holdback Cash is delivered to the
Sellers pursuant to Section 2.3(a) and the Holdback Shares are delivered to the
Sellers pursuant to Section 2.3(c); provided, that dividends or other
distributions made on the Holdback Shares, if any, while the Holdback Shares are
held by Purchaser shall be the property of the Sellers and shall be delivered to
the Sellers simultaneously with the delivery of the Holdback Shares pursuant to
Section 2.3(c).
(b) On the later to occur of (i) the satisfaction of the conditions
set forth in Section 6.3, and (ii) March 15, 2000, Purchaser shall deliver to
Muirhead the Muirhead Holdback Cash, plus or minus any amounts added or deducted
therefrom pursuant to Section 2.2(b), and to Castle the Castle Holdback Cash,
plus or minus any amounts added or deducted therefrom pursuant to Section
2.2(b). Purchaser shall simultaneously pay such cash to Muirhead and Castle by
wire transfer to a bank account designated in writing by each.
(c) On March 15, 2001, Purchaser shall deliver: (i) to Muirhead,
the Muirhead Shares less fifty
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percent (50%) of the Holdback Shares retained by Purchaser to cover the
indemnity provision of Section 2.2(c) above; and (ii) to Castle, the Castle
Shares less fifty percent (50%) of the Holdback Shares retained by Purchaser to
cover the indemnity provision of Section 2.2(c) above. Fractional shares
resulting from the division of the Holdback Shares among Purchaser, Muirhead and
Castle shall be paid in cash, using a value of $3.419 per share.
SECTION 2.4 CLOSING. The closing of the purchase of the Membership
Interests (the "Closing") shall take place at the offices of Stradling Yocca
Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California
92660, and shall occur as of February 29, 2000, or at such other place, time
and/or date as may be jointly designated by the Sellers and the Purchaser (the
"Closing Date").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as set forth on the Disclosure Schedule, Muirhead and Castle hereby
represent and warrant, severally and not jointly, to the Purchaser as follows:
SECTION 3.1 FORMATION AND EXISTENCE; OWNERSHIP OF MEMBERSHIP INTERESTS.
(a) Form and Existence. Each Company is a limited liability company
duly formed, validly existing and in good standing under the laws of the State
of Colorado. Each Company has full power, under its organization documents and
the Colorado Limited Liability Company Act, to carry on its business as now
being conducted and to own and operate the property and assets now owned and
operated by it, and is duly qualified to transact business and is in good
standing in each jurisdiction where the ownership of its properties or the
conduct of its business requires such qualification and the failure to be so
qualified will have a Material Adverse Effect. Purchaser has been furnished with
true and correct copies of the Articles of Organization and Operating Agreement
of each Company.
(b) Ownership of Membership Interests. Each Seller is the sole
beneficial and record owner of, and at the Closing such Seller will sell and
convey to Purchaser, the Membership Interests in the Companies set forth
opposite such Seller's name on Schedule 3.1(b), free and clear of any pledges,
options and any adverse interests of any nature whatsoever, other than
transferability restrictions imposed by any applicable federal or state
securities laws. Such Seller has not, and as of the Closing such Seller shall
not have, sold or granted any options or rights to purchase, and such Seller is
not, and as of the Closing such Seller shall not be, a party to any agreement
obligating him or it to sell or grant options or rights to purchase, any of such
Membership Interest, except to the Purchaser.
(c) Outstanding Membership Interests. The Membership Interests set
forth opposite the respective names of the Sellers on Schedule 3.1(b) are the
only Membership Interests that have been authorized for issuance and have been
issued by the Companies and neither Company has (i) granted any options or
rights to purchase, or issued any securities that are exchangeable for or
exercisable into, any Membership Interests ("Derivative Interests") and (ii)
neither Company has entered into and is a party to any agreement, contract or
commitment obligating it to sell or issue any Membership Interests or any
Derivative Interests in such Company.
SECTION 3.2 POWER AND AUTHORITY. Muirhead and Castle, each for
themselves, have the legal right and capacity to execute and deliver this
Agreement and each of the other Acquisition Documents and to consummate the
transactions contemplated hereby and thereby to be consummated by them, and this
Agreement and each of the other Acquisition Documents will, at or prior to the
Closing, be duly and validly executed and delivered by each of them. Assuming
due authorization, execution and delivery by the Purchaser, this Agreement
constitutes, and each of the other Acquisition Documents when so executed and
delivered will constitute, legal, valid and binding obligations of each of them,
enforceable against each of them in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
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SECTION 3.3 CONFLICTS; CONSENTS OF THIRD PARTIES. Subject to receipt of
the consents and approvals referred to on Schedule 3.3, the execution and
delivery by each Seller of this Agreement and the other Acquisition Documents to
which such Seller is or will be a party, the consummation of the transactions
contemplated hereby or thereby or compliance by such Seller with any of the
provisions hereof or thereof (a) will not violate any provision of the Operating
Agreements or other charter documents of the Companies; (b) will not conflict
with, violate, result in the breach or termination of, or constitute a default
under (whether with notice or lapse of time or both), or accelerate or permit
the acceleration of the performance required by, any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which such
Seller or a Company is a party or by which the respective properties or assets
of such Seller or such Company is bound; (c) will not violate any statute, rule,
regulation, order or decree of any Governmental Entity by which a Company or
such Seller is bound; or (d) will not result in the creation of any lien,
charge, or encumbrance upon such Seller's Membership Interest or on any of the
assets or properties of the Companies, except, in case of clauses (b) and (c),
for such conflicts, violations, breaches or defaults as will not have a Material
Adverse Effect. No consent, approval or authorization of any governmental
authority is required on the part of the Sellers in connection with the
execution, delivery and performance of this Agreement and/or the other
Acquisition Documents.
SECTION 3.4 FINANCIAL STATEMENTS. Sellers have delivered to Purchaser
the November Balance Sheet. Except as set forth in Schedule 3.4, neither Company
has any liabilities or obligations which are, individually or in the aggregate,
material, which are not reflected on the November Balance Sheet, other than
liabilities or obligations incurred after November 30, 1999 in the ordinary
course of business consistent with past practices and which do not exceed
$125,000 in the aggregate.
SECTION 3.5 RECEIVABLES. Except as set forth on Schedule 3.5, all
accounts or notes receivable of the Companies which will be reflected on the
Closing Date Balance Sheet and included in the computation of Tangible Net Worth
are bona fide, have arisen in the ordinary course of business, and are owned
free and clear of any lien or encumbrance except for the liens in favor of the
bank lenders as disclosed on Schedule 3.5. No such receivables, to the knowledge
of the Sellers, have any right of recourse, defense, deduction, return of goods,
counterclaim, offset or setoff on the part of the obligor.
SECTION 3.6 REAL PROPERTY. Schedule 3.6(a) sets forth a list of all of
the real property leases in effect as of the date hereof under which either
Company is a lessee (collectively, the "Leased Property"). The Sellers have made
available to Purchaser true, correct and complete copies of all such leases,
including all amendments, modifications and renewals thereof. All such leases
are valid, binding and enforceable in accordance with their terms, and are in
full force and effect as of the date hereof. There are no existing defaults by
either Company beyond any applicable grace periods under such leases, and
neither Company has received any notice of default. The Companies have no real
property interests other than those set forth on Schedule 3.6(a).
SECTION 3.7 PERSONAL PROPERTY; SUFFICIENCY OF ASSETS. Schedule 3.7
contains a list of each Company's fixtures, machinery, equipment and other
tangible personal property assets (the "Tangible Personal Property"), other than
any such assets that have a book value of less than $1,000. Except as set forth
on Schedule 3.7, each Company has good title to, or holds by valid and existing
lease, all of its Tangible Personal Property, free and clear of all liens or
encumbrances, other than Permitted Encumbrances or encumbrances listed on
Schedule 3.7. All the Tangible Personal Property is in good operating condition
and repair, subject only to ordinary wear and tear. The Tangible Personal
Property, inventory, Owned Property, Leased Property and Proprietary Rights (as
defined below) are sufficient to conduct the Businesses on the Closing Date in
the same manner as conducted on the date hereof.
SECTION 3.8 SUBSIDIARIES AND PARTNERSHIPS. Except as set forth on
Schedule 3.8, the Companies have no subsidiaries or investments in other
corporations, limited liability companies, partnerships or joint ventures.
SECTION 3.9 MATERIAL CONTRACTS. Schedule 3.9 includes lists of: (a) all
commitments and agreements for the purchase of any materials, supplies or
services that involve an expenditure by a Company of more than $15,000 for any
one contract or series of related contracts; (b) all personal property leases
under which a Company is either lessor or lessee that involve annual payments or
receipts of $15,000 or more; (c) all agreements, guarantees, mortgages,
indentures and other instruments relating to indebtedness for borrowed money to
which a Company is a party or by which it or its properties are bound; (d) all
licenses and agreements relating to a Proprietary Right; (e) all policy manuals
of a Company; (f) all agreements that involve an annual payment to a
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Company of more than $15,000 for any one contract or set of related contracts;
and (g) all agreements whereby a Company is entitled to receive or is required
to make any royalty payments. The Sellers have made available to Purchaser
complete and correct copies of all items listed on Schedule 3.9 that are in
writing, and the descriptions contained on Schedule 3.9 of all items listed
therein that are not in writing are complete and correct. Except as disclosed on
Schedule 3.9, neither Company is in default under the terms of any item listed
on Schedule 3.9 and to the knowledge of the Sellers no other party is in default
under the terms of any item listed on Schedule 3.9. To the knowledge of Sellers,
each of the contracts, arrangements, instruments or other agreements listed on
Schedule 3.9 is valid and in full force and effect and no party has notified
Sellers or a Company in writing of its intention to cease to deliver or perform
any material goods or services required to be delivered or performed by it or
withhold any material payment required to be made by it thereunder.
SECTION 3.10 PROPRIETARY RIGHTS.
(a) Schedule 3.10(a) sets forth a list of (i) all United States and
foreign patents and patent applications, all United States, state and foreign
trademarks, service marks and trade names for which registrations have been
issued or applied for, and all other United States, state and foreign
trademarks, service marks and trade names, owned or used by a Company or in
which a Company holds any right, license or interest; (ii) all material
agreements, commitments, contracts, understandings, licenses, assignments and
indemnities relating or pertaining to any asset, property or right of the
character described in the preceding clause to which a Company is a party or
which is related to its Business; (iii) all licenses or agreements pertaining to
know-how, trade secrets, inventions, disclosures or uses of ideas to which a
Company is a party; (iv) all copyrights material to the Businesses; and (v) all
registered assumed or fictitious names under which a Company is conducting
business (each of (i) through (v) describes a "Proprietary Right") specifying as
to each, as applicable: (i) the nature of such Proprietary Right; (ii) the owner
of such Proprietary Right; and (iii) the jurisdictions by or in which such
Proprietary Right has been issued or registered or in which an application for
such issuance or registration has been filed, including the respective
registration or application numbers, if available.
(b) Except as set forth on Schedule 3.10(b), neither Company (i) is
a defendant in any claim, suit, action or proceeding which involves a claim of
infringement of any Proprietary Rights or acting in a fashion which could be the
basis for such an action or the cancellation or termination of any Proprietary
Right, and (ii) has any knowledge of any existing infringement by any other
person of any Proprietary Right. Except as disclosed on Schedule 3.10(b), no
Proprietary Right is subject to any outstanding order, judgment, decree,
stipulation issued as to a Company or agreement to which a Company is a party
restricting the use thereof by such Company or restricting the licensing thereof
by such Company to any person. Except as may be provided in items disclosed on
Schedule 3.10(b), neither Company has entered into any special agreement to
indemnify any other person against any charge of infringement of any patent,
trademark, service mark or copyright of the Businesses. To the knowledge of the
Sellers, as of the date hereof, there will not be any adverse effect on any
Proprietary Right due to Sellers ceasing to beneficially own the Membership
Interests. The operations, activities, products, equipment, machines,
advertisements or processes of the Companies do not infringe the patent, patent
applications, trademarks, service marks, trade names, secrets, inventions,
copyrights or other proprietary rights of any other person.
SECTION 3.11 COMPLIANCE WITH LAWS.
(a) Compliance. To the knowledge of Muirhead and Castle, each
Company is in compliance with all laws, rules, regulations, orders, judgments,
ordinances or decrees of any Governmental Entity applicable to its Business
(collectively, "Laws") the non-compliance with which would have a Material
Adverse Effect. Except as set forth in Schedule 3.11(a), no Company or Seller
has received any notice of any violation or alleged violation of, nor is either
Company or any Seller subject to any liability (whether accrued, absolute,
contingent, direct or indirect) for past or continuing violation of, any Laws in
connection with the Company's Business or operation of its assets which would
have a Material Adverse Effect.
(b) Licenses and Permits.
(i) To the knowledge of Muirhead and Castle, each Company
has all licenses, permits, approvals, authorizations and consents of all
governmental and regulatory authorities and all certification organizations
required for the operation of the Business of such Company as currently
conducted. All such licenses, permits, approvals, authorizations and consents
are described in Schedule 3.11(b)(i), are in full force and effect and,
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except as specifically indicated in Schedule 3.11(b)(i), the continued
effectiveness thereof will not be adversely affected by the consummation of the
transactions contemplated by this Agreement.
(ii) Except as set forth in Schedule 3.11(b)(ii), each
Company has been in compliance with all such permits and licenses, approvals,
authorizations and consents other than any non-compliance that is not reasonably
expected to have a Material Adverse Effect.
SECTION 3.12 LITIGATION.
(a) There are no judicial or administrative actions, proceedings or
investigations pending or, to the knowledge of any Seller or Company,
threatened, that question the validity of this Agreement or any of the other
Acquisition Documents or any action taken or to be taken by the Sellers in
connection herewith or therewith. Except as set forth on Schedule 3.12, there is
no litigation, proceeding or governmental investigation pending or, to the
knowledge of any Seller or Company, threatened, or any order, injunction or
decree outstanding, against a Company or the Sellers that, if adversely
determined, would individually or in the aggregate, adversely effect the
Sellers' ability to perform its obligations under this Agreement or any of the
other Acquisition Documents.
(b) Except as disclosed in Schedule 3.12, these are no judicial or
administrative actions or proceedings pending against either Company or, to the
knowledge of Sellers, threatened in writing against either Company with respect
to the Businesses.
(c) To Sellers' knowledge no claims or actions have been taken by
any person or entity which could reasonably lead to adverse publicity or
otherwise have a Material Adverse Effect on either Company.
SECTION 3.13 LABOR MATTERS.
(a) Schedule 3.13(a) lists the collective bargaining agreements or
other labor union contracts and employee benefit plans applicable to employees
which are employed by the Companies, and each Company is as of the date of this
Agreement in full compliance with the terms and conditions of such agreements
and contracts, except where the failure to be in compliance would not have a
Material Adverse Effect. Except as set forth on Schedule 3.13(a), (i) there are
no charges or allegations of unfair labor practices pending or threatened under
Federal or state labor laws; (ii) there are no pending arbitration matters or
grievance procedures under any of the agreements listed in Schedule 3.13(a);
(iii) there are no facts or conditions existing which upon the giving of notice,
or lapse of time, will result in a breach under any collective bargaining
agreement or under any of the other foregoing agreements, which will have a
Material Adverse Effect; and (iv) there is no pending or threatened, labor
dispute, strike or work stoppage which will have a Material Adverse Effect.
(b) Schedule 3.13(b) contains a complete and accurate list of the
following information for each employee of each Company, including each employee
on leave of absence or layoff status: employee name; job title; current
compensation paid or payable and any change in compensation since January 1,
1999; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under any of the Company's pension, retirement,
profit-sharing, deferred compensation, stock bonus, stock option, cash bonus,
severance pay, insurance, medical, welfare, or vacation plan, other employee
pension benefit plan or employee welfare benefit plan, or any other employee
benefit plan.
SECTION 3.14 EMPLOYEE BENEFIT PLANS AND BENEFIT ARRANGEMENTS.
(a) Definitions.
(i) The term "Employees" shall mean all current employees of
the Companies, including employees on approved leaves of absence (whether family
leave, workers compensation, medical leave or otherwise) and the term "Employee"
shall mean any of the Employees.
(ii) The term "Employee Benefit Plans" shall mean each and
all "employee benefit plans" as defined in Section 3(3) of ERISA, maintained or
contributed to by the Companies or any predecessor or in which a Company or any
predecessor participates or participated and which provides benefits to
Employees
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including (a) any such plans that are "employee welfare benefit plans," as
defined in Section 3(1) of ERISA, including retiree medical and life insurance
plans ("Welfare Plans") and (b) any such plans that are "employee pension
benefit plans" as defined in Section 3(2) of ERISA ("Pension Plans").
(iii) The term "Benefit Arrangements" shall mean any life
and health insurance, hospitalization, savings, bonus, deferred compensation,
incentive compensation, holiday, vacation, termination, severance pay, sick pay,
sick leave, disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit, contracts, collective bargaining
agreements, individual employment, consultancy, termination contracts or
severance contracts and other policies or practices of a Company providing
employee or executive compensation or benefits to Employees, other than Employee
Benefit Plans.
(b) Schedule 3.14(b) lists all Employee Benefit Plans and all
material Benefit Arrangements. With respect to each of the Employee Benefit
Plans and Benefit Arrangements, the Sellers have delivered or made available to
Purchaser, as applicable, copies of any: (i) plans and related trust documents
and amendments thereto; (ii) the most recent summary plan descriptions and the
most recent annual report; (iii) the most recent actuarial valuation; and (iv)
the most recent determination letter received from the Internal Revenue Service.
(c) Except as shown on Schedule 3.14(c), (i) each Company is in
compliance in all material respects with the terms of each Employee Benefit Plan
or Benefit Arrangement and with the requirements prescribed by all applicable
statutes, orders or governmental rules or regulations including, without
limitation, ERISA and the Code; (ii) each Pension Plan intended to qualify under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service with respect to such qualification, or has been
submitted to the Internal Revenue Service requesting such a favorable
determination; its related trust has been determined to be exempt from taxation
under Section 501(a) of the Code; and, to each Seller's knowledge, nothing has
occurred since the date of such letter that would adversely effect such
qualification or exemption; and (iii) there are no material actions or
proceedings (other than routine claims for benefits) pending or, to such
Seller's knowledge, threatened, with respect to any such Employee Benefit Plan
or Benefit Arrangement or against the assets of any such Employee Benefit Plan.
(d) With respect to each Employee Benefit Plan and Benefit
Arrangement (i) full payment has been made of all amounts required under
applicable law or plan terms, due or accrued, to be made as a contribution to or
benefit from such Employee Benefit Plan or Benefit Arrangement; (ii) the
liability of each Company has been fully funded based on reasonable actuarial
assumptions, has been fully insured or has been fully reserved for on its
financial statements; (iii) to each Seller's knowledge, nothing has occurred or
is expected to occur which would cause a material increase in the cost of
providing benefits thereunder.
(e) The consummation of the transactions contemplated under this
Agreement and under any of the other Acquisition Documents will not: (i) entitle
any current or former employee, officer, member or manager of the Companies to
severance pay, unemployment compensation or any similar payment; (ii) accelerate
the time of payment or vesting under any Employee Benefit Plan or Benefit
Arrangement except as provided on Schedule 3.14(e); or (iii) directly or
indirectly cause a Company to transfer or set aside any assets to fund or
provide compensation or benefits out of the ordinary course.
SECTION 3.15 ABSENCE OF CERTAIN LIABILITIES AND CHANGES. Except to the
extent reflected or adjusted for in the Closing Date Balance Sheet, or otherwise
disclosed on Schedules hereto, there are no liabilities or obligations material
to the Businesses, or the Companies as a whole, as of the Closing Date, except
those liabilities and obligations disclosed on Schedule 3.15 hereto.
SECTION 3.16 ENVIRONMENTAL. Except as set forth in Schedule 3.16, to the
knowledge of Muirhead and Castle, the Companies are in compliance with all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws,
except for any non-compliance which is not reasonably expected to have a
Material Adverse Effect. There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, official proceeding, notice
or demand letter pending or, to the knowledge of Muirhead and Castle, threatened
against a Company relating in any way to the Environmental Laws.
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SECTION 3.17 BROKERS' FEES. Neither the Sellers nor the Companies have
incurred any liability for brokerage fees, finders' fees, agents' commissions or
other similar forms of compensation in connection with this Agreement and the
transactions contemplated hereby.
SECTION 3.18 BANK ACCOUNTS, POWERS OF ATTORNEY. Schedule 3.18 sets forth
a true and complete list of (a) the name of each bank in which each Company has
an account or safe deposit box and a brief description thereof and (b) the names
of all persons, if any, having powers of attorney from each Company and a
summary statement of the terms of the power of attorney.
SECTION 3.19 TAX MATTERS.
(a) Definitions.
(i) The term "Tax Returns" shall mean all federal, state,
local or foreign tax returns, tax reports, declarations, claims for refund,
information returns or statements relating to Taxes, and declarations of
estimated tax, including any schedules or attachments thereto and any amendments
thereon.
(ii) The term "Tax" or "Taxes" shall mean all federal,
state, local or foreign income, gross receipts, windfall or excess profits,
severance, property, production, sales, use, license, excise, franchise,
employment, withholding or similar taxes, together with any interest, additions
or penalties with respect thereto and any interest in respect of such additions
or penalties.
(b) Representations and Warranties.
(i) All Tax Returns required to be filed by the Companies
have been duly filed on a timely basis (including extensions) and such Tax
Returns are true, complete and correct in all respects. All Taxes shown to be
payable on the Tax Returns or on subsequent assessments with respect thereto
have been paid in full on a timely basis, and no other Taxes are payable by the
Companies with respect to items or periods covered by such Tax Returns (whether
or not shown on or reportable on such Tax Returns) or with respect to any period
prior to the date of this Agreement. The Companies have withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor, shareholder or other
third party. There are no liens on any of the assets of the Companies with
respect to Taxes, other than liens for Taxes not yet due and payable and Taxes
that the Companies are contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established. As of the time of
filing, the foregoing Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status or other matters of the
Companies or any other information required to be shown thereon. Any extension
of time within which to file any Tax Return has been requested and is pending or
has been granted.
(ii) With respect to all amounts in respect of Taxes imposed
upon the Companies, or for which the Companies are or could be liable, whether
to taxing authorities (as, for example under law) or to other persons with
respect to all taxable periods or portions of periods ending on or before the
Closing Date, to the knowledge of Muirhead and Castle, all applicable Tax laws
and agreements have been fully complied with, and all such amounts required to
be paid by the Companies to taxing authorities or others on or before the date
hereof have been paid.
(iii) No Seller or member, manager or officer (or employee
responsible for Tax matters) of the Companies expects any authority to assess
any additional Taxes for any period for which Tax Returns have been filed. There
is no dispute or claim concerning any Tax Liability of the Companies either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Sellers, members, managers or officers (or employees responsible for Tax
matters) of the Companies have knowledge based upon contact with any agent of
such authority. Except as set forth on Schedule 3.19, the Tax Returns of the
Companies have never been audited by a government or taxing authority, nor is
any such audit in process, pending or threatened (either in writing or verbally,
formally or informally). No Tax deficiencies exist or have been asserted (either
in writing or verbally, formally or informally) or are expected to be asserted
with respect to Taxes of the Companies, and the Companies have not received
notice (either in writing or verbally, orally or informally) and do not expect
to receive notice that they have not filed a Tax Return or
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paid Taxes required to be filed or paid by either of them. Neither Company is a
party to any proceeding for assessment or collection of Taxes, nor has such
event been asserted or threatened (either in writing or verbally, formally or
informally) against either Company or any of its assets.
(iv) The Sellers have furnished Purchaser true and complete
copies of all federal and state income tax or franchise Tax Returns for the
Companies for all periods ending in 1996, 1997 and 1998. Neither Company has
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency, nor has such waiver or
extension been requested from either Company.
SECTION 3.20 INSURANCE. Schedule 3.20 lists all insurance policies
pursuant to which the Companies are insured as of the date of this Agreement.
Each policy listed on Schedule 3.20 is in full force and effect as of the date
hereof. Each Company has maintained adequate insurance for its Business and its
assets with respect to risks normally insured against by similar businesses.
SECTION 3.21 RELATED PARTY TRANSACTIONS. Except as described on Schedule
3.21 or on the Closing Date Balance Sheet, neither Muirhead nor Castle, for
themselves, nor, to the knowledge of Muirhead or Castle, respectively, any
officer, member, manager or employee of the Companies, and none of their
relatives or Affiliates, owns any interest in any direct competitor, lessor,
lessee or customer or supplier of the Companies; and neither Company is a party
to any transaction or arrangement with any of the Seller or with any of its
respective officers, members, managers or employees, or any relative or
affiliate of any of them, which relates to or affects the ownership, lease or
use or disposition of any assets, properties or the operations of the Companies
or the sale, lease or use of goods or services, or the loan of money or any
extension of credit or guaranty, by or to either of the Companies, other than
the payment of wages, salaries and bonuses to employees of the Companies for
services performed in the ordinary course of business. Except as disclosed on
Section 3.21 or on the Closing Date Balance Sheet, none of the assets or
properties of the Companies include any receivables or contract rights from, or
notes payable or evidences of indebtedness of, any of the Sellers or any of the
officers, members, managers or employees of the Companies or any relative or
Affiliate of any of them.
SECTION 3.22 INVENTORY. The Companies have no inventory.
SECTION 3.23 YEAR 2000 COMPLIANCE. Except as set forth on Schedule 3.23,
all software, hardware, databases and devices that run under the control of a
microprocessor used by the Companies, and each of the hardware products of the
Companies are Year 2000 Compliant, except for failures to be Year 2000 Compliant
that would not have a Material Adverse Effect.
SECTION 3.24 INVESTMENT REPRESENTATIONS. Muirhead and Castle represent
that with respect to the shares of Common Stock of Purchaser (the "Shares") it
shall receive hereunder:
(a) They are acquiring the Shares for their own account, not as
nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the 1933 Act.
(b) They understand that (i) the Shares have not been registered
under the 1933 Act and, in the absence of an exemption therefrom, they must be
held by them indefinitely, and that they must therefore bear the economic risk
of such investment indefinitely, unless a subsequent disposition thereof is
registered under the 1933 Act or is exempt from such registration; (ii) each
certificate representing the Shares will be endorsed with the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE
144 OR RULE 144A OR THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR
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HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE 1933 ACT."
and (iii) the Purchaser will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the foregoing
legend are satisfied; provided, however, that no such opinion of counsel shall
be necessary if the sale, transfer or assignment is made pursuant to SEC Rule
144 or Rule 144A and Muirhead or Castle provides the Purchaser with evidence
reasonably satisfactory to the Purchaser and its counsel that the proposed
transaction satisfies the requirements of Rule 144 or Rule 144A. The Purchaser
agrees to remove the foregoing legend from any securities if the requirements of
SEC Rule 144(k) (or any successor rule or regulation) apply with respect to such
securities and the Purchaser and its counsel are provided with reasonably
satisfactory evidence that the requirements of Rule 144(k) apply.
(c) They acknowledge that they are each able to fend for
themselves, can bear the economic risk of their investment and has such
knowledge and experience in financial or business matters that they are capable
of evaluating the merits and risks of the investment in the Shares.
(d) They understand that the Shares they are purchasing are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Purchaser in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act, only in
certain limited circumstances, and they represent that they are familiar with
SEC Rule 144 and Rule 144A, as presently in effect, and understand the resale
limitations imposed thereby and by the 1933 Act.
SECTION 3.25 DISCLOSURE. Neither this Agreement (including the Exhibits
hereto, including without limitation the other Acquisition Documents) nor the
Closing Date Balance Sheet nor any certificate or information furnished by
Sellers under this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements contained herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Sellers as follows:
SECTION 4.1 CORPORATE EXISTENCE. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power to carry on its
business as now being conducted and to own and operate the property and assets
now owned and operated by it, and is duly qualified to transact business and is
in good standing in each jurisdiction where the ownership of its properties or
the conduct of its business requires such qualification and the failure to be so
qualified would have a Material Adverse Effect on the Purchaser.
SECTION 4.2 CORPORATE POWER AND AUTHORITY. The Purchaser has all
requisite corporate power and authority to execute and deliver this Agreement
and the other Acquisition Documents and to consummate the transactions
contemplated hereby and thereby. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and each of the other
Acquisition Documents has been duly taken by the Purchaser. This Agreement has
been, and each of the Acquisition Documents will be at or prior to the Closing,
duly and validly executed and delivered by the Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each of the Acquisition Documents when so
executed and delivered will constitute, legal, valid and binding obligations of
the Purchaser, enforceable against the Purchaser in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
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SECTION 4.3 BROKERS' FEES. The Purchaser has not incurred any liability
for brokerage fees, finders' fees, agents' commissions or other similar forms of
compensation in connection with this Agreement and the transactions
contemplated.
ARTICLE 5
TAX MATTERS
SECTION 5.1 LIABILITY FOR TAXES AND RELATED MATTERS.
(a) Sellers' Indemnification of Buyer. Sellers shall be liable for
and indemnify Purchaser for all Taxes imposed on the Companies or for which the
Companies may otherwise be liable for any taxable year or period that ends on or
before the Closing Date and, with respect to any taxable year or period
beginning before and ending after the Closing Date, the portion of such taxable
year ending on and including the Closing Date; provided, however, that Sellers'
liability under this Section 5.1(a) shall be reduced as to any item to the
extent that such item was reserved for in the Closing Date Balance Sheet.
Sellers shall also indemnify, defend and hold harmless Purchaser from all costs
and expenses incurred by Purchaser (including reasonable attorneys' fees and
expenses) in connection with any liability to, or claim by, any taxing
authority, for Taxes for which Sellers are required to indemnify Purchaser under
this Section 5.
(b) Purchaser's Indemnification of Sellers. Purchaser shall be
liable for and indemnify Sellers for (i) the Taxes of the Companies for any
taxable year or period that begins after the Closing Date and, with respect to
any taxable year or period beginning before and ending after the Closing Date,
the portion of such taxable year beginning after the Closing Date. Purchaser
shall also indemnify, defend and hold harmless Sellers from all costs and
expenses incurred by Sellers (including reasonable attorneys' fees and expenses)
in connection with any liability to, or claim by, any taxing authority, for
Taxes for which Purchaser is required to indemnify Sellers under this Section
5.1(b).
(c) Taxes for Short Taxable Years. For purposes of paragraphs (a)
and (b), whenever it is necessary to determine the liability for Taxes of a
Company for a portion of a taxable year or period that begins before and ends
after the Closing Date, the determination of the Taxes of such Company for the
portion of the year or period ending on, and the portion of the year or period
beginning after, the Closing Date shall be determined by assuming that such
Company had a taxable year or period which ended at the close of the Closing
Date, except that exemptions, allowances or deductions that are calculated on an
annual basis, such as the deduction for depreciation, shall be apportioned on a
time basis. The taxable years of the Companies shall terminate on the Closing
Date. Sellers shall take the responsibility for preparing the final tax returns
of the Companies, which shall be reported on a cash basis of accounting.
SECTION 5.2 ASSISTANCE AND COOPERATION. After the Closing Date, each of
the Sellers and Purchaser shall:
(a) assist (and cause their respective Affiliates to assist) the
other party in preparing any Tax Returns or reports which such other party is
responsible for preparing and filing in accordance with this Section 5;
(b) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Returns of the Companies;
(c) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to Taxes
of the Companies;
(d) provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of the Companies for taxable periods for
which the other may have a liability under this Section 5; and
(e) furnish the other with copies of all correspondence received
from any taxing authority in connection with any tax audit or information
request with respect to any such taxable period.
SECTION 5.3 SURVIVAL OF OBLIGATIONS. The obligations of the parties set
forth in this Article 5 shall be unconditional and absolute and shall remain in
effect for three (3) years from the Closing Date (in the absence of a finding of
fraud with respect to Taxes by a Governmental Entity).
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ARTICLE 6
CLOSING
SECTION 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER TO CLOSE.
The obligation of the Purchaser to purchase the Membership Interests and
otherwise consummate the transactions that are to be consummated at the Closing
is subject to the satisfaction, as of the Closing Date, of the following
conditions (any of which may be waived by the Purchaser in whole or in part):
(a) the representations and warranties of the Sellers set forth in
Article 3 shall be accurate in all material respects at and as of the Closing
Date;
(b) the Sellers shall have performed and complied, in all material
respects, with all of their obligations required to be performed by them on or
before the Closing Date;
(c) the Purchaser shall have received the following documents:
(i) such assignments necessary or appropriate to transfer to
and vest in the Purchaser 100% of the Membership Interest of the Companies owned
by the Sellers;
(ii) the Employment Agreements, duly executed by Muirhead
and Kathryn Lester ("Lester") (each, an "Employment Agreement," together, the
"Employment Agreements"); and
(iii) written consent to the transaction contemplated by
this Agreement, including, but not limited to, the consent from the lessor of
the premises occupied by EMAC, who shall have consented in writing to an
assumption of the lease by Purchaser pursuant to which Muirhead and Castle shall
be released from all future liability;
(d) there shall be (i) no pending or overtly threatened litigation
(other than litigation which is determined by the parties in good faith, after
consulting their respective attorneys, to be without legal or factual substance
or merit), whether brought against a Seller, a Company or the Purchaser, that
seeks to enjoin the consummation of any of the transactions contemplated by this
Agreement, (ii) no order that has been issued by any court or governmental
agency having jurisdiction that restrains or prohibits the consummation of the
purchase and sale of the Membership Interests hereunder and no proceedings
pending which are reasonably likely to result in the issuance of such an order,
and (iii) no pending or overtly threatened litigation, which has had or is
expected to have a Material Adverse Effect; and
(e) all material consents set forth on Schedule 3.3 shall have been
received in form and substance reasonably acceptable to Purchaser.
SECTION 6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS TO CLOSE. The
Sellers obligation to sell their Membership Interests to the Purchaser and
otherwise consummate the transactions that are to be consummated at the Closing
is subject to the satisfaction, as of the Closing Date, of the following
conditions (any of which may be waived by the Sellers in whole or in part):
(a) the representations and warranties of the Purchaser set forth
in Article 4 shall be accurate in all material respects at and as of the Closing
Date;
(b) the Purchaser shall have performed and complied, in all
material respects, with all of its obligations required to be performed by it on
or before the Closing Date;
(c) the Sellers shall have received the following documents:
(i) a copy of the resolutions of the board of directors of
Purchaser authorizing the execution, delivery and performance of this Agreement
by Purchaser, and a certificate of its secretary or assistant secretary, dated
the Closing Date, that such resolutions were duly adopted and are in full force
and effect;
(ii) the Employment Agreements, duly executed by Purchaser;
and
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(iii) written evidence that as of the Closing Date, with
respect to the lessor of the premises occupied by EMAC, Purchaser shall have
assumed such lease and Muirhead and Castle shall be released from all future
liability under such lease.
(d) there shall be (i) no pending or overtly threatened litigation
(other than litigation which is determined by the parties in good faith, after
consulting their respective attorneys, to be without legal or factual substance
or merit), whether brought against a Seller, a Company or the Purchaser, that
seeks to enjoin the consummation of any of the transactions contemplated by this
Agreement, (ii) no order that has been issued by any court or governmental
agency having jurisdiction that restrains or prohibits the consummation of the
purchase and sale of the Membership Interests hereunder and no proceedings
pending which are reasonably likely to result in the issuance of such an order,
and (iii) no pending or overtly threatened litigation, which has had or is
expected to have a Material Adverse Effect;
SECTION 6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER TO PAY THE
Holdback CASH. Payment to the Sellers of the Holdback Cash shall be conditioned
upon the following.
(a) The Sellers shall have provided the Purchaser with evidence
reasonably acceptable to Purchaser that Muirhead has acquired all of the
Membership Interest of ARS owned by Rita Grover and Castle has acquired all of
the Membership Interest of ARS owned by Arlene Briody, such that as of March 15,
2000, the Sellers shall own 100% of the Membership Interest of ARS.
(b) The Sellers shall have provided the Purchaser with evidence
reasonably acceptable to Purchaser that Castle has acquired all of the
Membership Interest of EMAC owned by Castle Holdings, Ltd., a Colorado limited
partnership, and Muirhead and Castle have acquired all of the Membership
Interest of EMAC owned by Lester, such that as of March 15, 2000, the Sellers
shall own 100% of the Membership Interest of EMAC.
(c) Sellers' legal counsel shall have delivered a legal opinion to
the Purchaser as to the due authorization, execution and delivery of this
Agreement, in form and substance reasonably acceptable to the Purchaser.
(d) Sellers shall have delivered to Purchaser stock assignments
separate from certificates, executed in blank, with respect to the Holdback
Shares.
(e) Sellers shall have delivered to Purchaser a funds flow
statement, directing Purchaser, by amount, account and means of delivery, as to
payment of the Holdback Cash to be paid out pursuant to Section 2.3(b).
SECTION 6.4 FAILURE OF CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
TO PAY THE HOLDBACK CASH. In the event the deliveries set forth in Section 6.3
above are not made by March 31, 2000:
(a) this Agreement shall terminate;
(b) the Holdback Cash and the Holdback Shares shall be retained by
the Purchaser;
(c) Purchaser shall execute such instruments as are reasonably
requested by the Sellers to evidence the return of the Membership Interests to
the Sellers in the manner of ownership existing before the Closing Date; and
(d) the Purchaser shall promptly cause to be returned to the
Sellers or the Companies all documents and information obtained in connection
with this Agreement and the transactions contemplated by this Agreement and all
documents and information obtained in connection with the Purchaser's
investigation of the Companies' business, operations and legal affairs,
including any copies of any such documents or information made by the Purchaser
or any of the Purchaser's Associates.
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ARTICLE 7
INDEMNIFICATION AND RELATED MATTERS
SECTION 7.1 INDEMNIFICATION BY THE SELLERS. Subject to the limitations
set forth in this Article 7 and elsewhere in this Agreement, Muirhead and
Castle, severally and not jointly, shall indemnify the Purchaser, each for
themselves, against any and all Damages that the Purchaser actually incurs which
arise from, occur as a result of or in connection with any breach of any of the
representations, warranties or covenants of the Sellers contained in this
Agreement or any of the Acquisition Documents and any failure by the Sellers to
consummate the sale and transfer of the Membership Interests to Purchaser on the
Closing Date in accordance with the terms of this Agreement.
SECTION 7.2 INDEMNIFICATION BY THE PURCHASER. Subject to the limitations
set forth in this Article 7 and elsewhere in this Agreement, the Purchaser shall
indemnify the Sellers against any Damages that the Sellers, or either of them,
actually incurs which arise from, occur as a result of or in connection with any
breach by the Purchaser of any representation, warranty or covenant of the
Purchaser set forth in this Agreement or any of the Acquisition Documents.
SECTION 7.3 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation by Purchaser or Sellers
and shall survive the Closing and continue in full force and effect for three
years thereafter; provided, however, that the representations and warranties of
the Sellers set forth in Section 3.1 shall continue and full force and effect
forever.
SECTION 7.4 ACCOUNTS RECEIVABLE. In the event the Company or the
Purchaser receives any payment that relates to accounts receivable generated
from services rendered by the Businesses prior to the Closing Date, the Company
or Purchaser (as the case may be) shall promptly transmit these funds to the
Sellers. In the event either Seller receives any payment that relates to
accounts receivable generated from services rendered by the Businesses after the
Closing Date, such Seller shall promptly transmit these funds to the Purchaser.
ARTICLE 8
POST-CLOSING COVENANTS
SECTION 8.1 GENERAL; FURTHER DOCUMENTS. In case at any time after the
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement, each of the parties will take such further action
(including the execution and delivery of such further instruments and documents)
as the other party reasonably may request, at the sole cost and expense of the
requesting party (unless the requesting party is entitled to indemnification
therefor under Article 7).
SECTION 8.2 AMERICAN DOCUMENT SERVICES. Purchaser and EMAC agree to
negotiate in good faith an agreement whereby Purchaser will cause, after the
Closing Date, EMAC to receive from American Document Services a ten percent
(10%) fee on premium dollars referred, provided that American Document Services
does not pay a sales representative's commission.
SECTION 8.3 OPINION OF PURCHASER'S COUNSEL. Concurrently with the
delivery of the legal opinion of Sellers' legal counsel pursuant to Section
6.3(c), Purchaser's legal counsel shall deliver a legal opinion to the Sellers
as to the due authorization, execution and delivery of this Agreement, in form
and substance reasonably acceptable to the Sellers.
SECTION 8.4 By no later than March 25, 2000, Purchaser shall have
satisfied in full the obligations of EMAC and the Sellers to Guaranty Bank &
Trust and of ARS to Megabank of Denver/Arapahoe under the three promissory notes
identified in item 5 of Schedule 3.4, Liabilities and Obligations.
SECTION 8.5 Purchaser shall pay and satisfy in the ordinary course of
business all trade payables and accrued liabilities assumed at the Closing Date
when such trade payables or accrued liabilities become due.
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ARTICLE 9
MISCELLANEOUS PROVISIONS
SECTION 9.1 COMPLIANCE WITH LAWS. Each party shall execute such
agreements and other documents, and shall take such other actions, as the other
may reasonably request (prior to, at or after the Closing) for the purpose of
ensuring that the transactions contemplated by this Agreement are carried out in
full compliance with the provisions of all applicable laws and regulations.
SECTION 9.2 TRANSFER TAXES. Any Colorado sales taxes, real property
transfer or gains taxes or any other taxes payable as a result of the sale of
the Membership Interests or any other action contemplated by this Agreement
shall be paid by the Sellers. Any California sales taxes, real property transfer
or gains taxes or any other taxes payable as a result of the sale of the
Membership Interests or any other action contemplated by this Agreement shall be
paid by the Purchaser.
SECTION 9.3 GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflicts of law).
SECTION 9.4 ATTORNEYS FEES. In the event of any controversy, claim or
dispute arising out of or relating to this Agreement, or breach hereof, the
prevailing party shall be entitled to recover from the losing party reasonable
attorneys' fees, expenses and costs.
SECTION 9.5 ARBITRATION; VENUE AND JURISDICTION. Any dispute arising out
of or relating to this Agreement or the breach, termination or the validity
hereof, shall be settled by arbitration in accordance with the End
Dispute-Judicial Arbitration and Mediation Services (JAMS) rules for arbitration
of business disputes by a neutral arbitrator who shall be a former superior
court or appellate court judge or justice with experience in resolving business
disputes. The arbitration shall be governed by the California Code of Civil
Procedure Section 1280 et seq. and the parties intend this procedure to be
specifically enforceable in accordance with such provisions. Judgment upon the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The parties agree that the judgment or decision of the arbitrator shall
be final and binding. The place of arbitration shall be Orange County,
California. The arbitrator shall be required to follow the applicable law as set
forth in the governing law section of this Agreement. The arbitrator shall award
reasonable attorneys fees and costs of arbitration to the prevailing party in
such arbitration.
SECTION 9.6 CONFIDENTIALITY. Each party acknowledges that it may have
access to various items of proprietary and confidential information of the other
in the course of investigations and negotiations prior to Closing. Each party
agrees that any such information received from the other party shall be kept
confidential and shall not be used for any purpose other than to facilitate the
consummation of the transactions contemplated herein. Confidential and
proprietary information shall include any business or other information which is
delivered by one party to the other, unless such information (i) is already
public knowledge or (ii) becomes public knowledge through no fault, action or
inaction of the receiving party or (iii) was known by the receiving party, or
any of its directors, officers, employees, representatives, agents or advisors,
as applicable, prior to the disclosure of such information by the disclosing
party to the receiving party. No party hereto, nor its respective officers,
directors, employees, accountants, attorneys, or agents, as applicable, shall
intentionally disclose the existence or nature of, or any of the terms and
conditions relating to, the transaction referred to herein, to any third person
without the written consent of all other parties.
SECTION 9.7 NOTICES. All notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed to have been
duly given, if delivered in person or mailed, certified, return-receipt
requested, postage prepaid or on confirmation of receipt if delivered by
facsimile transmission (provided that the original thereof is sent by mail in
the manner set forth above within one business day after the original
transmission) to:
16
<PAGE> 17
If to Purchaser, addressed to:
American National Financial, Inc.
17911 Von Karman Avenue, Suite 200
Irvine, California 92614-6253
Attn: M'Liss Kane
With a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660-6441
Attn: C. Craig Carlson, Esq.
Facsimile: (949) 725-4100
If to Sellers, addressed to:
Lawrence E. Castle
C/O Castle, Barrett, Daffin & Frappier
1099 18th Street, Suite #2300
Denver, CO 80202
Facsimile: (303) 299-1808
Angela M. Muirhead
C/O Emerald Mortgagee Assistance Company
1099 18th Street, Suite #1600
Denver, CO 80202
Facsimile: (303) 299-1810
With a copy to:
Parsons & Funnell, L.L.P.
303 East 17th Ave., Suite #700
Denver, CO 80203
Attn: William H. Parsons, Jr.
Facsimile: (303) 837-9271
Any party hereto may from time to time, by written notice to the other party,
designate a different address, which shall be substituted for the one specified
above for such party. If any notice or other document is sent by certified or
registered mail, return receipt requested, postage prepaid, properly addressed
as aforementioned, the same shall be deemed served or delivered on the third
business day following mailing thereof. If any notice is transmitted by
facsimile machine ("fax") to a party, it will be deemed to have been delivered
on the date the fax thereof is actually received, as indicated by an electronic
confirmation of successful transmission, provided that an original or photocopy
of the document sent is also mailed, postage prepaid, to the address then
applicable to such party within twenty-four (24) hours after such transmission.
SECTION 9.8 TABLE OF CONTENTS AND HEADINGS. The table of contents of
this Agreement and the underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
SECTION 9.9 ASSIGNMENT. No party hereto may assign any of its rights or
delegate any of its obligations under this Agreement to any other Person without
the prior written consent of the other party hereto.
SECTION 9.10 PARTIES IN INTEREST. Nothing in this Agreement is intended
to provide any rights or remedies to any Person (including any employee, member,
manager, Affiliate, Associate or creditor of a Seller, the Purchaser or a
Company) other than the parties hereto.
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<PAGE> 18
SECTION 9.11 SEVERABILITY. In the event that any provision of this
Agreement, or the application of such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
SECTION 9.12 ENTIRE AGREEMENT. This Agreement, the other Acquisition
Documents and the Nondisclosure Agreement set forth the entire understanding of
the Parties and supersede all other agreements and understandings among the
Parties relating to the subject matter hereof and thereof.
SECTION 9.13 EXPENSES. Each of the parties shall be responsible for and
pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement.
SECTION 9.14 WAIVER. No failure on the part of any party hereto to
exercise any power, right, privilege or remedy under this Agreement, and no
delay on the part of either party hereto in exercising any power, right,
privilege or remedy under this Agreement, shall operate as a waiver thereof; and
no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
SECTION 9.15 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented except by means of a written instrument executed on
behalf of both the Purchaser and each of the Sellers.
SECTION 9.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be as original and all of which,
when taken together, will be deemed to constitute one and the same.
SECTION 9.17 INTERPRETATION OF AGREEMENT.
(a) Each party hereto acknowledges that it has participated in the
drafting of this Agreement, and any applicable rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in connection with the construction or interpretation of this
Agreement.
(b) Whenever required by the context hereof, the singular number
shall include the plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; and the neuter gender shall include the masculine
and feminine genders.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, and shall
be deemed to be followed by the words "without limitation."
(d) References herein to "Articles," "Sections" and "Exhibits" are
intended to refer to Sections of and Exhibits to this Agreement.
[signature page to follow]
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PURCHASER:
AMERICAN NATIONAL FINANCIAL, INC.
a California corporation
By:
------------------------------------
Its:
-----------------------------------
SELLERS:
---------------------------------------
Angela Muirhead
---------------------------------------
Lawrence E. Castle
19
<PAGE> 20
EXHIBIT A
DEFINED TERMS
For purposes of this Agreement (including the Disclosure Schedule):
"ACQUISITION" means the acquisition by the Purchaser of the Membership
Interests owned by Sellers.
"ACQUISITION TRANSACTION" shall mean any transaction involving:
(a) the sale or other disposition of all or any portion of a
Company's business or assets (other than in the ordinary course of business);
(b) the issuance, sale or other disposition of any Membership
Interests or other Equity Securities of a Company; or
(c) any merger, consolidation, business combination, membership
interest exchange, reorganization or similar transaction involving a Company.
"AFFILIATE" means a Person that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
specified Person. "ASSOCIATES" of a Person shall include:
(a) such Person's Affiliates, stockholders, members, managers,
directors, officers, employees, agents, attorneys, accountants and
representatives; and
(b) all stockholders, members, managers, directors, officers,
employees, agents, attorneys, accountants and representatives of each of such
Person's Affiliates.
"DAMAGES" shall mean out-of-pocket losses and actual damages; provided,
that for purposes of computing the amount of Damages incurred by any Person,
there shall be deducted an amount equal to the amount of any insurance proceeds,
indemnification payments, contribution payments or reimbursements directly or
indirectly received by such Person or any of such Person's Affiliates in
connection with such Damages or the circumstances giving rise thereto; and
provided, further, that in no event shall the Sellers or the Purchasers be
liable to the other for any special, consequential or economic damages.
"DISCLOSURE SCHEDULE" shall mean that certain Disclosure Schedule
delivered together with the Agreement, which shall be arranged in parts to
correspond with the sections and subsections of the Agreement and each
disclosure set forth therein shall be deemed to modify each and every
representation, warranty and covenant of the Sellers set forth in the Agreement
as it pertains to such representation, warranty or covenant. The contents of
each of the contracts and other documents referred to in the Disclosure Schedule
shall be deemed to be incorporated and referred to in the Disclosure Schedule as
though set forth in full therein.
"ENVIRONMENTAL LAWS" means all applicable federal, state and local laws
relating to pollution, storage, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic, hazardous or petroleum-based
substances or wastes ("Waste") into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Waste including, without
limitation, the Clean Water Act, the Clean Air Act, the Resource Conservation
and Recovery Act, the Toxic Substances Control Act and the Comprehensive
Environmental Response Compensation Liability Act ("CERCLA"), as amended, and
their state and local counterparts.
"EQUITY SECURITIES" means any capital stock or other equity interest, or
securities convertible into or exchangeable for capital stock or other equity
interest, or any other rights, warrants or options to acquire any of the
foregoing securities.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau, board,
commission, court,
20
<PAGE> 21
department, official, political subdivision, tribunal or other instrumentality
of any government or any quasi-governmental authority or self-regulatory
organization (such as the New York Stock Exchange, Inc.), whether federal, state
or local.
"KNOWLEDGE," or the term "to the best knowledge of," "to which a Person
is aware," "known to a Person," or any variation of such terms, shall mean the
actual knowledge of such Person without having made independent investigation in
connection with this Agreement.
"MATERIAL ADVERSE EFFECT" shall mean any occurrence, event or condition,
either individually or in the aggregate, having a material adverse effect on the
business operations or financial condition of a Seller, a Company, the Companies
or the Purchaser, as applicable, and the assets and properties of such
entity(ies), taken together as a whole.
"MATTER" shall mean any claim, demand, dispute, action, suit,
examination, audit, proceeding, investigation, inquiry or other similar matter.
"PERMITTED ENCUMBRANCES" shall mean (i) those encumbrances resulting
from taxes that have not yet become due and delinquent, (ii) minor encumbrances
that do not materially detract from the value of the real property interests
subject thereto or materially impair their operations, (iii) zoning laws and
other use restrictions of public record, (iv) encumbrances that arise or have
otherwise arisen in the ordinary course of business, and (v) restrictions
arising under all Laws.
"PERSON" shall mean any individual, corporation, limited liability
company, association, general partnership, limited partnership, joint venture,
trust, association, firm, organization, company, business, entity, union,
society, government (or political subdivision thereof) or governmental agency,
authority or instrumentality.
"YEAR 2000 COMPLIANT" means that systems and products accurately process
date and time data (including, without limitation, calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first centuries, the
years 1999 and 2000, and leap year
21
<PAGE> 1
EXHIBIT 11
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED
EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------- -------
<S> <C> <C>
Net earnings (loss), basic basis $ (332) $ 2,796
======= =======
Weighted average basic shares 7,229 6,007
------- -------
Basic earnings (loss) per share $ (0.05) $ 0.47
======= =======
Diluted net earning (loss), basic basis $ (332) $ 2,796
======= =======
Weighted average shares outstanding
during the period, basic basis 7,229 6,007
Effect of dilutive options -- 132
------- -------
Weighted average shares outstanding
during the period, diluted basis 7,229 6,139
======= =======
Diluted earnings (loss) per share $ (0.05) $ 0.46
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,489
<SECURITIES> 9,921
<RECEIVABLES> 9,662
<ALLOWANCES> 2,116
<INVENTORY> 0
<CURRENT-ASSETS> 15,256
<PP&E> 13,132
<DEPRECIATION> 2,711
<TOTAL-ASSETS> 47,639
<CURRENT-LIABILITIES> 9,795
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 32,066
<TOTAL-LIABILITY-AND-EQUITY> 47,639
<SALES> 17,689
<TOTAL-REVENUES> 17,689
<CGS> 0
<TOTAL-COSTS> 18,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (563)
<INCOME-TAX> (231)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (332)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
