Business Valuation 101

Understanding Business Valuations

What is a “business valuation”?

Business valuation is the process of determining the economic value of a business or company. BizWorth focuses on business valuations of closely held businesses, which refers to a business that is owned by relatively few stockholders (or partners) and is not publicly held. (i.e., not traded on a national or local stock exchange or in the over-the-counter market). Business owners as well as financial and legal professionals will often turn to BizWorth for an objective estimate of the value of the business.

What is a “certified” business valuation report?

As a potential consumer of a business valuation, you need to know that not all business valuations are equally reliable. A “certified” business valuation adheres to professional valuation standards, conducted or reviewed by a business valuator who is certified by a professional, accredited organization, such as the National Association of Certified Valuators and Analysts (NACVA). There are individuals and firms offering business valuations (written or oral) that do not follow professional valuation standards and are not conducted by a business valuator, raising questions of reliability and increased financial risk for your business.

Why is it important to obtain a certified business valuation report?

A business valuation report issued by a firm with certified valuators holds credibility. Whether you are a business owner contemplating the sale of your business, a banker needing a detailed report for an SBA-backed loan or a lawyer needing an expert for a legal case – you will want to obtain a valuation report that is credible and protects you against others from discrediting the valuation.

A business valuation report issued by uncertified valuator exposes you to unnecessary risks – you want to avoid leaving money on the table during the sale of your business, your bank from failing an SBA audit or losing a legal dispute on behalf of your client.

A business valuation report from a firm that adheres to professional business valuation standards and who employs certified, highly educated business valuators will help protect you against these unnecessary risks.

What are the risks of not using a “certified” business valuation?

There are several risks you can avoid by engaging a reputable firm that employs certified valuators.

If you are a banker, CPA, lawyer, business broker, or financial planner, help mitigate the risk of the following situations by engaging with a reputable firm that provides certified valuation experts.

What’s included in a certified business valuation report?

A detailed business valuation report (written or oral) that adheres to the National Association of Certified Valuators and Analysts (NACVA) standard must be coherent, supportable, and understandable. Many reports can fall short of valuation professional standards or if they adhere to standards, the reports are overly technical and hard to read. BizWorth valuation reports are easy to read and understandable. We’ve gone to great lengths to ensure our reports can be read by business owners as well as by financial and legal professionals without sacrificing quality or adherence to professional valuation standards.

Valuation reports from uncertified individuals and firms not adhering to professional valuation standards typically overemphasize financial ratios and market-based valuation approaches. Some of these reports are very flashy and professional-looking, but lack basic analysis and support for the valuation.

A detailed report that adheres to professional valuation standards should include the following sections titled using wording similar in content to that shown below:

  1. Letter of Transmittal
  2. Table of Contents
  3. Introduction, may include:
    1. Identification of the subject being valued
    2. Purpose and use of the valuation
    3. Description of the interest being valued
    4. Ownership size, nature, restrictions and agreements
    5. Valuation date
    6. Report date
    7. Standard of Value and its definition
    8. Identification of the premise of value
    9. Scope limitations
    10. Material matters considered
    11. Hypothetical conditions/assumptions and the reason for their inclusion
    12. Disclosure of subsequent events considered
    13. Reliance on a specialist
    14. Denial of access to essential data
    15. Jurisdictional exceptions and requirements
  4. Sources of information
  5. A description of the fundamental analysis, may include:
    1. Historical financial statement summaries
    2. Adjustments to historical financial statements
    3. Adjusted financial statement summaries
    4. Projected/forecasted financial statements including the underlying assumptions
    5. Non-operating assets and liabilities
    6. Valuation approaches and method(s) considered by the valuator
    7. Valuation approaches and method(s) utilized by the valuator
    8. Other items that influence the valuation
    9. Site visit disclosure
    10. Reconciliation of estimates and conclusion of value
  6. Identification of the assumptions and limiting conditions
  7. Representation of the valuator, may include:
    1. Client identification and limitations on use of report
    2. Disclosure of any contingency fee
    3. A statement of financial interest
    4. Whether or not valuator is obligated to update the report
    5. Responsible valuator signature—the valuator who has primary responsibility for the determination of value must sign or be identified in the report
  8. Qualifications of valuator
  9. Appendices and exhibits

A summary report is an abridged version of the information that would be provided in a detailed report (as outlined above).

Should I use my CPA to certify the value of my business?

It makes logical sense to consider engaging your local CPA to conduct your business valuation since s/he already has access to your financial statements and tax returns. However, if your CPA is not a certified business valuator, then the valuation report will not be as credible and hold the same weight with third-parties, exposing you to unnecessary risks. You want to weigh the pros and cons of working with a local CPA who may only conduct a few valuations per year, if any. These individuals may not be up to speed on changes in professional valuation standards, knowledgeable of applicable case rulings or have access to the same transactional databases as a firm who exclusively focuses on business valuations.

What are some reasons why certified business valuations are needed?

There are many reasons why you may need a business valuation. If you’re a business owner, you may need a business valuation to support a full or partial sale of your business, a buy/sell agreement with a business partner or a potential capital infusion. If you’re a CPA, you may need a business valuation of your client’s business to support a purchase price allocation. If you are an insurer, it’s commonplace that you may need a loss/profit calculation for a claim. Certified financial planners and lawyers also routinely need business valuations to support client work. Below is a list of some common reasons why business valuations are needed by our clients:

What gave rise to the need of business valuations?

Well, we’ll try not to bore you with too many details, but the valuation of closely held businesses (private companies) first became a formal issue during the 1920s when the 18th Amendment instituting prohibition was enacted. Businesses involved in the alcoholic beverage industry were forced to close and found it necessary to value their businesses in order to determine the extent of their losses. Since the 1920s, closely held businesses have been valued for a variety of reasons. The theory and practice of business valuation have evolved significantly over the last 10 to 20 years. There is now much less guesswork and a lot more scrutiny with the growth and diversity within the business valuation profession, including the availability of data, guidance from regulatory bodies and professional and ethical standards from accredited professional organizations. The Internal Revenue Service (IRS) has materially contributed to valuation theory of closely held businesses and has issued numerous rulings and pronouncements on the subject. The Department of Labor (DOL) issues regulations specifically pertaining to business valuations for Employee Stock Ownership Plans (ESOPs). The Financial Accounting Standards Board (FASB) is another body that impacts the valuation profession, along with the International Accounting Standards Board (IASB). In 1990, the idea to establish an accredited professional association to support the needs of business valuation professionals was conceived. The mission of the National Association of Certified Valuators and Analysts (NACVA) is to advance the ethical and professional standards in the field of business valuations.

Who develops guidance and standards for the valuation profession?

The valuation profession looks to the following professional and regulatory bodies for guidance:
  • Internal Revenue Service (IRS)
  • United States Department Of Labor (DOL)
  • U.S. Securities And Exchange Commission (SEC)
  • Financial Accounting Standards Board (FASB)
  • International Accounting Standards Board (IASB)
  • Professional Organizations, including:
    • National Association of Certified Valuators and Analysts (NACVA)
    • Institute Business of Appraisers (IBA)
    • American Institute of Certified Public Accountants (AICPA)
    • American Society of appraisers (ASA)

The IRS has substantially contributed to valuation theory and is regarded by many as a primary scholar in the field of valuation of closely held businesses. The IRS has issued numerous rulings and pronouncements on this subject, and in 2002 the IRS issued new Business Valuation Guidelines, which were updated in 2006.

Revenue Rulings from the IRS do not have the force of law, but they do present the position of the IRS on specific tax matters, such as the valuation of businesses or equity interests. Beginning in the 1920’s, the IRS published Appeals and Revenue Memorandum 34 (ARM 34) in response to the 18th Amendment, which enacted Prohibition laws. Since then, many positions taken by the IRS in Revenue Rulings were rooted in legal disputes. The resolution of these disputes by the courts has established case law precedent.

Any discussion of valuation theory must include an analysis of IRS pronouncements to understand some basic regulatory premises. IRS pronouncements began with the issuance of ARM 34 in 1920 and continue to the present day.

The DOL issues regulations specifically pertaining to business valuations for Employee Stock Ownership Plans (ESOPs). Like the IRS Revenue Rulings, DOL regulations do not have the force of law. The DOL regulations instead represent the DOL’s stance as it relates to certain issues. FASB is the designated organization for establishing standards of financial accounting and the preparation of financial reports for non-governmental entities. The FASB is a private sector, self-regulated organization, but the standards set forth by FASB are officially recognized as authoritative by the SEC and the AICPA.

There are several professional, accredited organizations impacting the professional and ethical standards for business valuation. The National Association of Certified Valuators and Analysts (NACVA) was established in the 1990s. The NACVA’s professional accreditation program is one of the most respected designations in the valuation community and members who meet established criteria may attain the Certified Valuation Analyst (CVA) designation.

What are the different valuation methods?

There are several commonly used methods of valuation. The applicability of a particular method is based on the circumstances involved in each individual case.

For example, if you’re a business owner contemplating a sale of 25% ownership interest and significant revenue growth is forecasted over the next two to three years because of a large cash outlay being made to expand operations, it would be reasonable to use the discounted cash flows method to value the 25% ownership interest. However, if this same business owner is experiencing a divorce with his/her spouse, then a business valuation for his/her current ownership will be needed and generally, estimated future benefits are based on historical economic income. Historical economic income is based on fact and thus considered more reliable than projected economic income. Please note the above example is a generalization and information may differ due to state case law and the appropriate statute in your state.

The certified business valuator is responsible for selecting the most appropriate method(s) based on his or her knowledge of the details of each case. The IRS has provided guidance on a number of valuation methods and techniques which have become generally accepted and which must be considered in each tax-related valuation case.

While there are many valuation methods that can be used, below are some of the most common methods used today (grouped into one of three general approaches):
  • Asset Based Approach
    • Book Value Method
    • Adjusted Net Asset Method
  • Income Approach
    • Capitalization of Earnings/Cash Flows Method
    • Discounted Earnings/Cash Flows Method
  • Market Approach
    • Guideline Public Company Method
    • Comparable Private Transaction Method
    • Dividend Paying Capacity Method
    • Prior Cells of Interest In The Subject Company

Does the approach used to value a publicly traded company differ?

The simple answer is no. The methodology used to value a publicly held company follows very closely to that used to value a closely held company. However, despite the similarity in approaches, a number of practical considerations or distinctions should be considered when valuing a closely held company. Two key distinctions include:

Does the reason for a business valuation affect the certified valuator’s conclusion of value?

Yes, the value of a business can be different because of the reason for the certified valuation.

Some of you may know about or have heard the terms ‘Fair Market Value’ or ‘Strategic Value’ in the past. If you haven’t, don’t worry – we will introduce them. In valuation, these terms are called ‘standards of value’ – which can affect the value of a business. The three standards of value are:

  1. Fair Market Value (FMV)
  2. Fair Value (FV)
  3. Strategic/Investment Value (IV)

The standard of value chosen for your business valuation will be based on the reason for the business valuation. For example, if you are a business owner contemplating a partial-interest sale of your business, Fair Market Value will be the standard of value chosen for your valuation. If you are involved in a legal dispute or marital dissolution, the likely standard of value chosen will be Fair Value. However, if you are looking to purchase a specific company, the standard of value chosen may be Investment Value.

So the reason for your business valuation will determine the standard of value chosen. The same business could potentially have three different values depending on the reason of the valuation and the selected standard of value.

Below is a further explanation of each standard of value for those of you who want to know a little more about when each standard of value may be chosen.

Fair Market Value (FMV) is the most widely recognized and accepted standard of value in the U.S. It is the standard used in all Federal tax matters, whether it is gift taxes, estate taxes, income taxes or inheritance taxes.

The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. -IRS, Revenue Ruling 59-60

Fair Value (FV) can have several meanings, depending on the purpose of the valuation. In most states, fair value is the statutory standard of value applicable in cases of dissenting stockholders’ valuation rights. In these states, if a corporation merges, sells out, or takes certain other major actions, and the owner of a minority interest believes that s/he is being forced to receive less than adequate consideration for a stock, s/he has the right to have a shares appraised and to receive fair value in cash. FV is also the standard of value used by the Financial Accounting Standards Board (FASB) and its pronouncements pertaining to business valuation. FV may also relate to value in a marital dissolution case. Many states have specific definitions of fair value with regard to divorces.

Investment Value (IV) is the value of a specific subject business/interest to a particular investor based on individual investment requirements and expectations. IV is the standard of value used when a client is actively considering the purchase of a specific business/interest and they want to value potential benefits, including shared services, infrastructure, etc.

What is BizWorth’s valuation process?

Defining the valuation engagement is BizWorth’s first step in laying the foundation for our valuation engagement with you. A business valuation, from start to finish, usually takes 3 to 10 business days depending on the complexity of the business. Below is a high-level overview of the steps involved in BizWorth’s valuation process.
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Master Services Agreement

This Master Services Agreement (“Agreement”), effective on the date of Company’s initial payment, has been entered into by and between you as an individual or the business entity or organization indicated in the BizWorth Checkout webpage which you validly represent (“you” or the “Company”) and BizWorth, LLC (“BizWorth”), a Texas limited liability company with its principal office at 1900 Saint James Place, Suite 100, Houston, Texas, 77056 both herein collectively referred as the “Parties” or singularly as a “Party.”

RECITALS

WHEREAS, Company desires to engage BizWorth to provide business valuation services; and

WHEREAS, the Parties desire to create a master service agreement pursuant to which BizWorth shall provide, and Company shall purchase, the services described in one or more Engagement Letters issued henceforth. 

NOW THEREFORE, for good and valuable consideration, the sufficiency of which is acknowledged by both Parties, BizWorth and Company agree as follows:

SECTION 1.  CONTRACTOR.

A.  Independent Contractor. BizWorth and Company acknowledge and agree that BizWorth will serve as an independent contractor in the provision of business valuation services (the “Services”) and that no BizWorth employee or contractor will be an employee of Company. BizWorth will be responsible for all employment rights and benefits of BizWorth employees, including, without limitation, (a) federal, state, and local income and employment taxes and social security contributions; (b) workers’ compensation, health benefits, vacation pay, holiday pay, profit sharing, retirement, pension, disability benefits, and other health and welfare benefits, plans, or programs; and (c) insurance. 

B.  Authority. BizWorth will not have any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of Company, or to bind Company, in any manner, and will not make any contrary representation. 

C.  Subcontracting. BizWorth may subcontract its obligations hereunder without permission of Company. BizWorth shall have full responsibility (a) for the provisions of all services, whether performed by BizWorth or its subcontractors, and for the acts, omissions, or negligence of its subcontractors and of all employees of BizWorth; and (b) for compliance by each of its subcontractors with the requirements of this Agreement, and all applicable laws, rules, and regulations, to the same extent that BizWorth would be responsible if it were performing the services directly. 

 

SECTION 2.  TERM.

A.  Term. This Agreement shall commence when executed by both parties.  This Agreement shall remain in full force and effect for a one (1) year term and shall renew automatically for successive one (1) year terms unless terminated as provided in this Agreement or cancelled within the first 30 days of the trial period.  After the first one (1) year term, the Company may terminate this Agreement by providing BizWorth with thirty (30) days’ written notice of termination, with or without cause. Except for those amounts due and relating to ongoing transition services, Company shall pay BizWorth any amounts owed under this Agreement up to the date of termination.  BizWorth may terminate this Agreement by providing Company with thirty (30) days’ written notice of termination, with or without cause. Cancellations may also be submitted online at https://bizworth.com/cancel.

B.  Effect of Termination and Transition Services. Termination of this Agreement or any Engagement Letter shall not limit either party from pursuing other remedies available to it, including seeking injunctive relief. Neither the termination nor expiration of this Agreement shall relieve a party of any of their obligations under Section 8 (Confidentiality), Section 5 (Representations and Warranties), Section 6 (Indemnification) or any other obligations which, by their nature, relate to matters following termination or expiration of this Agreement. Further, BizWorth shall cooperate with Company for the orderly transition of services to Company or a third-party. Such transition services shall be provided in accordance with the terms and conditions of this Agreement and/or applicable Engagement Letter, including fees. 

 SECTION 3.  FEES AND PAYMENT. 

Company shall pay BizWorth the fees and charges set forth in the applicable Engagement Letter. In addition to the foregoing, Company agrees to pay BizWorth the following fees and charges:

A. Recurring Fee. Company agrees to pay BizWorth either the recurring monthly or recurring annual Valuation Partner Program subscription fee. In exchange for such fee, Company shall receive continued access to the benefits of the Valuation Partner Program, including technology portal, on a month-to-month basis. 

B.  Payment Terms. Unless otherwise set forth in the applicable Engagement Letter, Company shall remit payment for the fees and charges set forth in this Agreement to BizWorth no later than twenty (20) days from the issuance of the invoice from BizWorth to Company. For the purposes of clarity, BizWorth shall receive such payment prior to the commencement of (and the continuation of) any Services, including, but not limited to, the monthly access to the technology portal (i.e. payment for access to the technology portal must be paid a month in advance). BizWorth shall submit invoices for payment in accordance with reasonable procedures prescribed by BizWorth and may distribute via BizWorth’s online portal. BIZWORTH RESERVES THE RIGHT TO DELAY THE COMMENCEMENT OF SERVICES AND STOP ALL OR PARTIAL SERVICES, IN ITS SOLE DISCRETION AND AT ANY TIME DURING THE COURSE OF THE ENGAGEMENT IF PAYMENT IN FULL HAS NOT BEEN RECEIVED IN A TIMELY FASHION.

C.  Disputed Amount. In the event of a disputed amount, Company shall pay all undisputed charges and promptly notify BizWorth in writing of such disputed amount. Company shall provide BizWorth with such documentation as necessary to support the validity of any disputed charge.

D.  Removal.  If Company requests that a BizWorth consultant or personnel be removed for any reason other than lack of suitability to perform the Services, or fraud, or misconduct, then Company shall be responsible for BizWorth’s out-of-pocket costs, including reasonable actual travel expenses or lost work product for replacements made in accordance with this paragraph.

E.  Reassignment. Unless otherwise set forth in the applicable Engagement Letter, BizWorth reserves the right to reassign any BizWorth personnel performing services to Company to perform services for other BizWorth clients; however in such an event, BizWorth will assign a replacement resource to perform services to Company and will use commercially reasonable efforts to maintain consistency of its resources for a particular service and ensure such personnel changes do not have a material adverse effect on the services.

F.  Reimbursable Expenses. Except as otherwise provided for in an Engagement Letter, Company will reimburse BizWorth for reasonable out-of-pocket expenses incurred by BizWorth employees and contractors involved in the provision of the services, provided that Company authorizes each expense. 

SECTION 4.  NON-RECRUITMENT.

A.  Unless parties consent in writing, parties agree not to directly or indirectly employ, engage or contract either party’s personnel for at least 120 days’ after the date this contract is terminated within a forty (40) mile geographic area of parties’ principal place of business utilizing personnel to perform the same or similar scope of activity as covered by this Agreement.  Parties agree and consent that the restrictions placed in this Section 4 are reasonable to protect the parties and do not impose a greater restraint than is necessary to protect the parties’ interests.

B.  Parties understand, agree, and acknowledge that either party would be harmed financially if either party employed, engaged, or contracted either party’s personnel. Therefore, parties agree to pay $25,000.00 for each violation of this Section 4. 

C.  Parties will receive a 15-day notice period in the event either party is determined to have employed, engaged, or contracted any personnel of the other party. If personnel remain employed, engaged, or contracted by the hiring party after the notice period, payment will made to the former employer no later than five (5) days after the notice period expires.

 SECTION 5.  REPRESENTATIONS AND WARRANTIES.

A.  From BizWorth. BizWorth represents and warrants:

i. that all services will be performed in a professional and workmanlike manner; 

ii. that it will comply with applicable laws, rules, policies, and regulations in connection with its performance under this Agreement;

iii. that it is qualified to business in the geographics and jurisdictions in which it will perform, and has obtained all necessary licenses, permits, and satisfied any other legal, regulatory, and administrative requirements necessary to its performance hereunder;

iv. that it will not directly or indirectly pay, offer, authorize, or promise any monies or anything of value to any person or organization, including any Company employee, for the purpose of improperly influencing their acts or decisions;

v. there are no conflicts of interest regarding its relationship with Company;

vi. that all of its personnel providing services in the United States are eligible for employment in the United States in accordance with applicable laws. 

B.  From Each Party. Each Party represents and warrants that it has the full right and authority to enter into, execute, and performs its obligations under this Agreement and that no pending or threatened claim or litigation known to it would have a material adverse impact on its ability to perform as required by this Agreement. 

SECTION 6.  INDEMNIFICATION.

A.  COMPANY AGREES TO DEFEND, PROTECT, INDEMNIFY, AND HOLD HARMLESS BIZWORTH OR ANY BIZWORTH’S DIRECTORS, OFFICERS, OWNERS, MEMBERS, MANAGERS, PARTNERS, EMPLOYEES, CONSULTANTS, CONTRACTORS, SUBCONTRACTORS, OR AFFILIATES FOR ACTS OR OMISSIONS ARISING OUT OF THIS AGREEMENT OR ANY ENGAGEMENT LETTER FROM AND AGAINST ALL LIABILITIES, CLAIMS, SUITS, DAMAGES, LOSSES, CAUSES OF ACTION, INCLUDING BUT NOT LIMITED TO COSTS AND ATTORNEYS’ FEES, FOR BODILY INJURY OR DEATH OR DAMAGE OR DESTRUCTION OF PROPERTY, REAL OR PERSONAL (INCLUDING DATA), INFRINGEMENT OF ANY INTELLECTUAL PROPERTY, SECURITY BREACH, CAUSED BY COMPANY WHETHER SUCH IS CAUSED BY COMPANY PARTIALLY OR WHOLLY AND WHETHER THE COMPANY ACTS NEGLIGENTLY, RECKLESSLY, WILLFULLY, OR INTENTIONALLY.   

B.  BIZWORTH AGREES TO AND SHALL RELEASE, DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS COMPANY FROM AND AGAINST ANY AND ALL CLAIMS FOR (I) ALLEGED UNPAID WAGES, DAMAGES, ATTORNEYS’ FEES, AND COSTS UNDER THE FAIR LABOR STANDARDS ACT (“FLSA”) AND/OR ANY APPLICABLE FEDERAL OR STATE WAGE LAW, AND/OR ANY DISCRIMINATION, HARASSMENT, OR BENEFITS CLAIMS UNDER FEDERAL OR STATE LAW, AND/OR (II) INJURY OR DEATH OF ANY INDIVIDUAL, OR ANY LOSS OR DAMAGE TO REAL OR TANGIBLE PERSONAL PROPERTY CAUSED BY BIZWORTH OR ITS AGENTS, EMPLOYEES, OR CONTRACTORS DURING OR RELATED TO PERFORMANCE PURSUANT TO THIS AGREEMENT, AGAINST COMPANY AND/OR ITS OFFICERS, DIRECTORS, AND EMPLOYEES. NOTWITHSTANDING THE FOREGOING, BIZWORTH SHALL NOT HAVE ANY OBLIGATION TO INDEMNIFY COMPANY FOR CLAIMS ARISING OUT OF INFRINGEMENT OF INTELLECTUAL PROPERTY PROVIDED TO BIZWORTH BY COMPANY, TO INCORPORATE INTO DELIVERABLES, IN ORDER TO FULFILL THE SERVICES UNDER THIS AGREEMENT.

C.  LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, WHETHER THE CLAIM IS BASED IN TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY), OR IN CONTRACT, AT LAW OR IN EQUITY, INCLUDING WITHOUT LIMITATION, LOSS OF PROFIT, EVEN IF ADVISED OF THE POSSIBILITY THEREOF. NOTWITHSTANDING THE FOREGOING, THERE ARE NO LIMITATIONS ON LIABILITY ARISING UNDER SECTION 8 (CONFIDENTIALITY) AND SECTION 6 (INDEMNIFICATION). IN ALL OTHER RESPECTS, THE PARTIES INTEND AND AGREE TO LIMIT THEIR RESPECTIVE LIABILITY TO DIRECT DAMAGES ONLY, TO THE MAXIMUM EXTENT ALLOWED BY LAW.

SECTION 7.  NOTICES. 

The parties contemplate that they will engage in informal communications with respect to the subject matter of this Agreement.  However, any formal notices or other communications (“Notice”) required to be given by one party to the other by this Agreement shall be given in writing addressed to the party to be notified at the address set forth below for such party, (i) by delivering the same in person, (ii) by depositing the same in the United States Mail, certified or registered, return receipt requested, postage prepaid, addressed to the party to be notified, or (iii) by depositing the same with a nationally recognized courier service guaranteeing “next day delivery,” addressed to the party to be notified,(, or (iv) by sending the same by electronic mail with confirmation of delivery by return email.  Notice deposited in the United States mail in the manner herein above described shall be deemed effective from and after the date of such deposit.  Notice given in any other manner shall be effective only if and when received by the party to be notified.  For the purposes of notice, the addresses of the parties, until changed by providing written notice in accordance hereunder, shall be as follows:

All notices and communications under this Agreement shall be sent to BizWorth at the following address:

BizWorth, LLC

Attn: Legal Department

1900 Saint James Place, Suite 100

Houston, Texas, 77056

Fax: 1-800-677-1331

Email: officeadmin@bizworth.com

 

All notices and communications under this Agreement shall be sent to Company at the address identified on the signature page of this Agreement.

SECTION 8.  CONFIDENTIALITY.

A.  As used in this Agreement, the term “Confidential Information” means any and all technical and non-technical information, including trade secrets, know-how and proprietary information, firmware, designs, schematics, techniques, plans, development plans, operational plans and strategies, business methods, consulting and analytical reports, current and planned technology, and plans, processes and practices relating to the sales of any business or ownership interests of any kind, any proposals, strategies, concepts, analyses, surveys, ideas, or research or any other information relating to any research project, work in process, future development, marketing or business plans or financial or personnel matters relating to either Party or its present or future products, sales, suppliers, customers, employees, investors or affiliates and disclosed or otherwise supplied in confidence by either Party to the other Party, acquired in the course of carrying out the tasks hereunder or as a result of access to the premises of a Party (including in the context of a request for information or request for proposal, or related to discussions between the Parties in anticipation of a potential Engagement Letter). Confidential Information includes (i) information disclosed in a written or other tangible form; (ii) information disclosed orally or visually; (iii) any other information which a reasonable person would deem confidential under the context of disclosure or due to the nature of the information; and (iv) in the case of Company, information received from third-parties in confidence or belonging to others and licensed and disclosed to Company in confidence for the performance of defined services.  The list set forth above is not intended by the Company to be a comprehensive list of Confidential Information. All Confidential Information shall be treated as Confidential Information regardless of whether it pertains to the Company, its affiliates, its agents, or its clients and regardless of whether it is stamped as “confidential.”

B.  Each Party acknowledges that the success of each Party depends in large part on the protection of Confidential Information.  BizWorth further acknowledges that in the course of performing services for the Company, BizWorth will become familiar with the Company’s and its client’s Confidential Information. BizWorth recognizes and acknowledges that the Company’s and its client’s Confidential Information is a valuable, special, and unique asset of the Company’s and/or it’s client’s business, access to and knowledge of which are essential to the performance of BizWorth’s services hereunder.  BizWorth acknowledges that use or disclosure of the Confidential Information outside the performance of BizWorth’s services for the Company would cause harm and/or damage to the Company.

C.  Both during or after the term of this Agreement, each Party agrees that it will not, except in the ordinary course of performing services, disclose any Confidential Information to any person, firm, business, company, corporation, association, or any other entity for any reason or purpose whatsoever. Company also agrees that it will not make use of any Confidential Information for its own purposes or for the benefit of any person, firm, business, company, corporation, or any other entity (except the Company) under any circumstances during or after the term of this Agreement.  Company accepts responsibility and shall be directly liable to BizWorth for any breach of this confidentiality provisions by Company or any of Company’s representatives.  Each Party shall consider and treat as confidential all Confidential Information in any way relating to business and affairs, whether created by a Party or otherwise coming into its possession before, during, or after the term of this Agreement. Neither Party shall use or attempt to use any Confidential Information in any manner which has the possibility of injuring or causing loss, whether directly or indirectly, to the other Party or its affiliates.  Each Party shall not, after the termination of this Agreement, use, disclose, or permit to be used or disclosed, any such Confidential Information.

D.  Reverse Engineering. Company shall not attempt to procure any proprietary and confidential information and materials from a BizWorth consultant, reverse engineer any of BizWorth’s portals, reports, Company-generated reports designed by BizWorth, processes, procedures, operations, standards, policies, or methods.  Company shall not disclose, directly or indirectly any of BizWorth’s proprietary or Confidential Information, or use, in any way, such information except as authorized for a BizWorth consultant or consultants.

SECTION 9.  OWNERSHIP. 

A.  Deliverables. BizWorth shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, sui generis database rights and all other rights of any sort throughout the world) relating to any and all invention (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas, materials, reports, data, documentation, deliverables, or other materials or information made or conceived or reduced to practice, in whole or in part, by BizWorth, in connection with the Services or any Confidential Information of BizWorth (collectively, “Deliverables”). The Deliverables are not works for hire, and Company hereby assigns and makes all assignments necessary to accomplish the foregoing ownership. Company shall further assist BizWorth, at Company’s expense, to further evidence, record, and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned. Company hereby irrevocably designates and appoints BizWorth as its agent and attorney-in-fact to act for and in Company’s behalf to execute and file any document and to do all other lawfully permitted acts to further the foregoing with the same legal force and effect as if executed by Company.

B.  No Expectation of Privacy. Company recognizes and agrees that Company has no expectation of privacy with respect to BizWorth’s telecommunications, networking, or information processing systems (including, without limitation, stored computer files, email messages and voice messages) and that Company’s activity, and any files or messages, on or using any of those systems may be monitored at any time without notice.

C.  Grant of License. If any part of the Services, Deliverables or other materials provided by Company to BizWorth is based on, incorporates, or is an improvement or derivative of, or cannot be reasonably and fully made, used, reproduced, distributed, or otherwise exploited without using or violating technology or intellectual property rights owned or licensed by Company and not assigned hereunder, Company hereby grants BizWorth and its successors and assigns a perpetual, irrevocable, worldwide royalty-free, non-exclusive, sublicensable right and license (a) to exploit and exercise all technology and intellectual property rights in support of BizWorth’s exercise or exploitation of the Services, Deliverables, other work performed hereunder, or any licensed or assigned rights (including any modifications, improvements and derivatives of any of them), (b) to allow its subcontractors who are parties to a non-disclosure agreement to exploit and exercise all such technology and intellectual property rights (both on site and in an outsourced environment) in connection with the performance of services for Company, (c) to exploit and exercise such technology and intellectual property rights on behalf of any affiliates, and (d) to allow its affiliates to exercise any of the rights granted herein, in whole or in part.

SECTION 10. MISCELLANEOUS.

A.  Entire Agreement. This Agreement and any Engagement Letter(s) that specifically reference this Master Services Agreement constitutes the entire Agreement between the parties relating to the rights herein granted and the obligations herein assumed.  Any oral or written representations or modifications concerning this Agreement shall be of no force and effect unless such representations or modifications are in writing and signed by both parties. If there is a conflict between this Agreement and any Engagement Letter(s), this Agreement shall control.

B.  Severability. In the event that any provision(s) of this Agreement shall for any reason be held invalid, illegal, or unenforceable, the invalidity, illegality or unenforceability of that provision(s) shall not affect any other provision(s) of this Agreement, and it shall further be construed as if the invalid, illegal, or unenforceable provision(s) had never been a part of this Agreement. 

C.  Assignment. BizWorth may, at any time and for any reason, assign or transfer all or part of this Agreement at its sole discretion. BizWorth shall provide written notice of assignment or transfer to the Company.

D.  No Waiver.  Any failure by either party to enforce any provision or condition of this Agreement shall not be construed or deemed to be a waiver of any such provision or condition of this Agreement, nor a waiver of a subsequent breach of the same provision or condition or any other provision or condition.

E.  No Third-Party Rights. Nothing in this Agreement, express or implied, is intended to or shall confer upon any person or entity (other than the parties hereto) any right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement.

F.  Governing Law and Dispute Resolution.  If a dispute, cause of action, or alleged breach of this Agreement arises, the parties agree to first attempt to resolve such informally before bringing any lawsuit unless such dispute, cause of action, or alleged breach presents an imminent injury or harm in which case, a lawsuit, declaratory judgment, injunction, or other legal action may be initiated immediately by either party. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Texas without regard to conflicts of law principles and venue shall be in Harris County, Texas.

G.  Non-Exclusivity. Company acknowledges that BizWorth may engage in other business activities during the term of this Agreement and may be employed or retained by others. Company acknowledges that BizWorth enters into similar agreements with parties other than Company for services the same as or similar to those Company provides. 

H.  Injunction. Each Party agrees that breach of Section 8 (Confidentiality) or a Party’s violation of data protection requirements would cause the non-breaching party irreparable injury, for which monetary damages would not provide adequate compensation, and that in addition to any other remedy, the injured party will be entitled to injunctive relief against such breach or threatened breach, without proving actual damage or posting a bond or other security.

I.  Return of Property. Upon a disclosing Party’s request or upon termination of an Engagement Letter and subject to BizWorth’s professional requirements as incorporated into BizWorth’s data destruction policy, the receiving Party will return to disclosing Party all property placed in the receiving Party’s possession or control pursuant to this Agreement.

J.  Interpretation. This Agreement will be construed as a whole according to the fair meaning of its language and, regardless of who is responsible for its original drafting, will not be construed for or against either party.

K.  Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument.

L.  Electronic Signatures. Signature pages may be signed manually or electronically and may be transmitted by facsimile or another secure mode of transmission. Electronic signatures and electronically transmitted signatures shall have the same legal effect as an original. 

M.  Data Protection and Security Requirements. Where a Party has (i) access to software or systems collecting, storing, or processing Personal Data (defined herein as any information related to an identified or identifiable living person), on a Party’s networks or hosted externally to a Party’s environment; or (ii) access to data extracted from a Party’s systems, each Party will work in good faith to establish data protection requirements set forth by the other Party.

N.  Publicity. Each Party hereby grants to the other the Party the express right to use BizWorth’s company logo and/or Company’s logo and/or name in its quarterly press releases, investor/customer presentations, social media, and its website to identify Company as a BizWorth customer or for Company to identify BizWorth as its valuation partner. Other than as expressly stated herein, neither Party shall use the other Party’s name and/or logos without the prior written permission of the other Party.

O.  Reports Sold Separately. Because valuation reports are customized to the unique needs of each business, reports are sold separately and are not included with a Valuation Partner Program subscription.