-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FqzAup/Rz+w2yhMA7KeN5tkUldfgq2hf+EA75ZTCck+n3hnNfDLQUGpCqesZJcwn bXgpkH+BzF6vf6TN8remxQ== 0001095811-00-001446.txt : 20000516 0001095811-00-001446.hdr.sgml : 20000516 ACCESSION NUMBER: 0001095811-00-001446 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN NATIONAL FINANCIAL INC CENTRAL INDEX KEY: 0001068843 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 330731548 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24961 FILM NUMBER: 630981 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVENUE SUITE 240 CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 9496224700 MAIL ADDRESS: STREET 1: 17911 VON KARMAN AVENUE SUITE 240 CITY: IRVINE STATE: CA ZIP: 92614 10-Q 1 FORM 10-Q QUARTER ENDED MARCH 31,2000 1 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 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 17911 Von Karman Avenue, Suite 240, Irvine, California 92614 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (949) 622-4700 - -------------------------------------------------------------------------------- (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. 2 FORM 10-Q QUARTERLY REPORT Quarter Ended March 31, 2000 TABLE OF CONTENTS
Page Number ------ 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
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 2 3 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
MARCH 31, DECEMBER 31, 2000 1999 -------- ------------ (UNAUDITED) 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 ======== ========
See accompanying notes to consolidated financial statements 3 4 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ---------------------- 2000 1999 -------- ------- (UNAUDITED) 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 ======== =======
See accompanying notes to consolidated financial statements 4 5 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------ 2000 1999 ----- ------ (UNAUDITED) 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 ===== ======
- ----------------- (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 5 6 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------- 2000 1999 ------- -------- (UNAUDITED) 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 ======= ========
See accompanying notes to consolidated financial statements 6 7 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIRIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------- 2000 1999 ------- ------ (UNAUDITED) 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
See accompanying notes to consolidated financial statements 7 8 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 8 9 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. 9 10 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 10 11 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. 11 12 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. 12 EX-10.16 2 EXHIBIT 10.16 1 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. 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 2 3 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, 3 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, 4 5 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. 5 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. 6 7 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 7 8 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. 8 9 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 9 10 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 10 11 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: 11 12 (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 12 13 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. 13 14 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. 14 15 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. 15 16 (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. 16 17 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] 17 18 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 18 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. 19 20 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 20 21 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 21 22 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 22 23 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. 23 24 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 24 25 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] 25 26 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 ------------------------------------ 26 EX-10.17 3 EXHIBIT 10.17 1 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. 2 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 - ------------ (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. 2 3 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 3 4 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). 4 5 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 5 6 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, 6 7 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 7 8 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. 8 9 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 9 10 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 10 11 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). 11 12 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). 12 13 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 13 14 (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. 14 15 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. 15 16 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 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. 17 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] 18 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 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 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 EX-11 4 EXHIBIT 11 1 EXHIBIT 11 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 2000 1999 ------- ------- 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 ======= =======
EX-27 5 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 2,489 9,921 9,662 2,116 0 15,256 13,132 2,711 47,639 9,795 0 0 0 0 32,066 47,639 17,689 17,689 0 18,252 0 0 0 (563) (231) 0 0 0 0 (332) (.05) (.05)
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