UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-24999
LOTUS PACIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of Organization)
52-1947160
(I.R.S. Employer Identification Number)
200 Centennial Avenue, Suite 201, Piscataway, New Jersey 08854
(Address of Principal Executive Offices)
(732) 885-1750
(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 proceeding 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.
(1) Yes X No (2) Yes X No
---- ---- ---- ----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 27, 1999:
Class Number of Shares
Common Stock 63,466,474
Par Value $.001 Per Share
LOTUS PACIFIC, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Balance Sheets as of December 31, 1999
(unaudited) and June 30, 1999 (audited)
b) Condensed Consolidated Statements of Operations (unaudited) for
the Three and Six Months Ended December 31, 1999 and 1998
c) Condensed Consolidated Statements of Cash Flows (unaudited) for
the Six Months Ended December 31, 1999 and 1998
d) Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1999 June 30, 1999
----------------- ---------------
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash ............................... $ 22,155,704 $ 30,779,486
Accounts Receivable ................ 25,972,756 27,655,975
Inventories ........................ 5,301,757 4,972,965
Other current assets ............... 1,811,323 574,985
-------------- ------------
55,241,540 63,983,411
Property and equipment................ 3,563,996 3,104,090
Less: accumulated depreciation ....... (1,480,242) (1,235,567)
-------------- -------------
2,083,754 1,868,523
Other assets:
Intangible assets, net ............... 4,741,926 5,098,604
Goodwill, net......................... 121,421,214 128,157,062
Investment in affiliates.............. 9,254,796 1,453,928
Other................................. 77,055 197,890
------------ -----------
138,961,791 134,907,484
Total Assets ......................... $ 196,,287,085 $ 200,759,418
============== ==============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts Payable and
accrued expenses.................... $ 13,070,862 $ 8,950,281
Loan payable ........................ --- 195,565
Investment deposits ................. 37,800,015 44,695,000
Other current liabilities............. 42,359 ---
-------------- -------------
Total current liabilities............. 50,913,236 53,840,846
Minority interest in equity of
consolidated subsidiaries ........... 8,498,596 8,512,221
Stockholders' Equity:
Preferred Stock, Class A, $.001 par value,
4,300 shares authorized; 4,300 shares issued
and outstanding ..................... 4 4
Common Stock, $.001 par value, 100 million
shares authorized, 63,466,474 shares issued
and outstanding ..................... 63,466 64,344
Stock Warrants ....................... 80,000 80,000
Additional paid-in capital ........... 155,384,298 151,270,418
Translation Adjustment................ 18,347 ---
Accumulated deficit .................. (18,670,862) (13,008,415)
-------------- --------------
136,875,253 138,406,351
Total Liabilities &
Stockholders' Equity ............... $ 196,287,085 $ 200,759,418
============== ==============
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Uaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
----------------------------- --------------------------
1999 1998 1999 1998
-------------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Sales ......................... $ 19,609,595 $ 6,550,818 $ 30,665,361 $ 8,970,818
Cost of Sales................... 14,821,931 6,029,033 23,865,335 7,227,033
------------- ------------- ------------ -----------
Gross profit.................... 4,787,664 521,785 6,800,026 1,743,785
Operating expenses:
Selling, general & admin....... 3,934,503 703,498 6,053,175 1,410,521
Research and development ...... 959,010 483,995 1,899,956 1,049,738
Depreciation and amortization.. 3,688,002 711,600 7,305,851 1,423,398
------------- ------------- ------------ -----------
9,541,559 1,899,1923 15,258,982 3,883,657
Operating Income (Loss)......... (3,793,851) (1,377,407) (8,458,956) (2,139,872)
------------- ------------- ----------- ------------
Other income (expenses):
Interest Income ............... 62,138 4,793 136,809 13,440
Interest expense .............. (960,044) --- (960,044) ---
Other income ................. --- --- 38,784 ---
------------ ------------- ---------- -----------
(897,906) 4,793 (784,451) 13,440
Discontinued operations
Gain on disposal of discontinued LPF --- --- --- 100,000
------------ ------------- ------------ ------------
Net Income before income taxes,
equity in unconsolidated subsidiaries
and minority interests......... (4,691,757) (1,372,614) (9,243,407) (2,026,432)
Earnings in unconsolidated
subsidiary..................... 63,130 --- 655,287 ---
Minority interest in income (loss) of
Consolidated subsidiaries...... (172,909) (74,187) 35,289 (66,836)
------------- ------------ ------------ ------------
Net income (loss)............... $ (4,801,536) $ (1,298,427) $ (8,552,831) $ (1,959,596)
============= ============= ============= ============
Earnings Per Share
Basic ........................ $ (0.07) $ (0.03) $ (0.13) $ (0.04)
Diluted ...................... $ (0.07) $ (0.03) $ (0.13) $ (0.04)
Weighted Average Shares......... 63,466,474 47,499,304 63,466,474 47,488,428
</TABLE>
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, 1999 December 31, 1998
------------------ ------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss ................................. $ (8,552,831) $ (1,959,596)
Adjustments to reconcile net income
to net cash used in operating activities
Depreciation & amortization ............. 7,305,851 1,757,202
Equity in earnings of unconsolidated
subsidiaries ........................... (655,287) ---
Minority interest ....................... (35,289) 498,466
Common Stock issued for service ......... --- 135,000
Change in assets and liabilities
Decrease in accounts receivable.......... 1,683,219 (4,491,258)
Decrease in prepaid expenses............. --- 729,084
(Increase) in inventories .............. (328,792) (13,650)
(Increase) in other current assets ...... (1,236,338) ---
Decrease in other assets ................ 120,835 ---
Increase in accounts payable
and accrued expenses .................... 4,120,581 2,003,815
Increase in notes receivable ............ --- (1,808,000)
Increase (decrease) in
Increase (decrease) in other liabilities . (153,206) ---
------------- -------------
Net cash provided used for operating activities 2,268,743 (3,148,937)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment ................... (530,740) ---
Sales of equipment ...................... --- 1,050
Sale of leasehold improvement ........... --- 74,571
Investment in affiliates ................ (3,466,800) 100,000
------------- -------------
Net Cash provided in investing activities (3,997,540) 175,621
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock ............... --- 675,000
Decrease in Investment deposit .......... (6,894,985) ---
------------ ------------
Net Cash (used) provided by financing activities (6,894,985) 675,000
Net increase in cash ..................... (8,623,782) (2,298,316)
Cash beginning ........................... 30,779,486 3,193,127
--------------- --------------
Cash Ending .............................. $ 22,155,704 $ 894,811
=============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
LOTUS PACIFIC, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (UNAUDITED)
Note 1 Description of Business:
Lotus Pacific, Inc. ("LPFC") is a holding company focused on investing in and
managing, developing and operating a network of subsidiaries. LPFC and its
subsidiaries (the "Company") today are engaged in the development, manufacture
and distribution of devices used in supplying high-speed Internet access,
including cable modem and DSL devices and Internet set-top boxes, and in
providing private label online auction services.
Note 2 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X relating to interim financial statements.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the consolidated financial statements
and notes thereto included in the Annual Report on Form 10-K of Lotus Pacific,
Inc. for the year ended June 30, 1999 ("fiscal 1999").
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the information set forth in the
accompanying condensed consolidated financial statements have been included.
The results reported in these condensed consolidated financial statements for
the three-month and six-month periods ended December 31, 1999 should not be
regarded as necessarily indicative of results that may be expected for the
year ending June 30, 2000 ("fiscal 2000").
The accompanying unaudited condensed consolidated financial statements include
the accounts of LPFC and four majority-owned subsidiaries: Regent Electronics
Corp. (87.3% owned), TurboNet Communications (81%), Arescom Inc. (81%) and
Lotus World, Inc. (94%) (see Note 5 regarding presentation of USS Online,
Inc.). The minority interests in the subsidiaries are reflected as such on the
balance sheet in accordance with generally accepted accounting principles. All
intercompany transactions have been eliminated in consolidation.
Note 3 Basic and Diluted Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average
number of shares of common stock outstanding. Diluted earnings per share is
computed in the same manner except that the weighted average number of shares
outstanding assumes the exercise and conversion of certain stock warrants and
options.
For the three-month and six-month periods ended December 31, 1999, there was
no difference between basic and diluted earnings per share.
Note 4 Joint Venture
On September 1, 1999, LPFC entered into a 50-50 joint venture with TCL Holdings
(BVI) Ltd., to develop, manufacture and market Internet and network products
and services in China. TCL Holdings is a subsidiary of TCL Group, China's fifth
largest electronics manufacturer. LPFC's participation in the joint venture is
currently carried as an investment.
Note 5 Subsequent Events
As of December 31, 1999, LPFC owned 100% of the equity of USS Online, Inc.
("Online"), which had been held for disposition since the fourth quarter of
fiscal 1999 and was therefore carried as an investment. On February 8, 2000,
LPFC disposed of a 72% interest in Online, retaining a 28% minority interest
and recognizing a loss on the disposition of approximately $2,713,000. At
December 31, 1999, and at the time of the disposition of LPFC's common shares
which were carried by LPFC as treasury shares as of December 31, 1999 and will
be treated as outstanding shares as of February 8, 2000.
In the first quarter of 2000, LPFC has arranged sales of portions of its
interest in TurboNet Communications to foreign investors for cash consideration
of up to $80 million. The sales reduce LPFC's ownership of TurboNet to between
65% and 70% of the outstanding capital stock..
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LPFC is a holding company focused on investing in and managing, developing and
operating a network of subsidiaries that develop and provide a wide range of
Internet-related products and services. Since 1997, LPFC has acquired and
currently maintains controlling equity interests in each of Regent Electronics
Corp., TurboNet Communications, Arescom, Inc., and Lotus World, Inc. The
Company's products include cable modem, DSL devices and Internet set-top boxes.
The Company also provides private label online auction services in foreign
markets.
RESULTS OF OPERATIONS
REVENUES
For the quarter ended December 31, 1999, the Company's revenue was $19.6
million, compared with $6.55 million for the same period of the previous year.
Revenue in the first half of fiscal 2000 was $30.67 million, an increase of
244% over the first two quarters of fiscal 1999. The revenue growth in the
three- and six-month periods was primarily due to sales by operations of
TurboNet Communications, acquired by LPFC in March 1999.
On September 1, 1999, LPFC entered into a 50-50 joint venture with TCL
Holdings (BVI) Ltd., to develop, manufacture and market Internet and network
products and services in the People's Republic of China ("PRC"). TCL Holdings
is a subsidiary of TCL Group, PRC's fifth largest electronics manufacturer.
The joint venture is currently in the development stage and has not generated
any revenue.
Lotus World, Inc. officially launched its AuctionLive website on December 18,
1999. AuctionLive is a private label hosted online auction site servicing
international clients. The architecture of AuctionLive is language-independent
allowing businesses to auction their products in almost any language. Lotus
World has eight regional offices in the greater China area with more than fifty
marketing agents. It has formed strategic alliances and partnerships with
several major Chinese players in Internet services, television and personal
computers, and commercial banking services, such as Shanghai Online, TCL
International Inc., and Industrial and Commercial Bank of China. For the
three-month and six-month periods ended December 31, 1999, Lotus World had no
significant impact on revenue.
DISCONTINUED OPERATIONS
In order to concentrate on its Internet-related products and services, on
September 30, 1998, the Company sold all of its textile and apparel business
(LPF International Corp. and Richtime Far East, Ltd.) for an aggregate $2.5
million in cash, realizing a non-recurring gain of $100,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $3.93 million in the second
quarter of fiscal 2000 compared to $704,000 in the corresponding quarter of
the prior year, a 490% increase. For the first two quarters of fiscal 2000,
selling, general and administrative expenses were $6.05 million, compared to
$1.41 million in the first two quarter of fiscal 1999, a 329% of increase. The
increases were attributable almost entirely to the businesses that LPFC
acquired or established during the second half of fiscal 1999.
RESEARCH AND DEVELOPMENT
In the second quarter of fiscal 2000, research and development expenses
increased $0.48 million to $0.96 million, or 98%, from $0.48 million in the
same quarter of fiscal 1999. For the six-month period ended December 31, 1999,
the Company's reaseach and development expenses also nearly doubled compared
to the same period of the last year. The increase was attributable almost
entirely to businesses acquired or established during the second half of
fiscal 1999.
DEPRECIATION & GOODWILL AMORTIZATION
The Company has accumulated approximately $134.7 million of goodwill from
acquisitions of businesses since September 1997. The goodwill is amortized on
a straight-line basis over 10 years. For the six-month period ended December
31, 1999, the Company's depreciation and goodwill amortization expenses were
approximately $7.31 million, compared to $1.76 million for the same period of
the prior year. The increae was attributable to acquisitions during the second
half of fiscal 1999.
NET LOSS AND LOSS PER SHARE
For the second quarter of fiscal 2000, the Company had a net loss of $4.8
million, or $0.07 per share, compared to $1.30 million or $0.03 per share of
net loss for the same period of the prior year. The increase in net loss was
mainly due to the increase in depreciation and goodwill amortization expense
and the operations of businesses acquired or established during the second half
of fiscal 1999. Excluding $3.69 million of depreciation and goodwill
amortization expenses, the net loss would be $1.1 million, or $0.02 per share.
The differences in per share amounts also reflect the issuance of 16,250,670
additional shares of common stock in connection with acquisitions made by LPFC
in the third quarter of fiscal 1999, net of certain treasury shares.
For the six-month period ended December 31, 1999, the Company had a net loss of
$8.55 million, or $0.13 per share, compared to $1.96 million of net loss for
the same period of the prior year. Excluding $7.3 million of depreciation and
goodwill amortization expenses, the net loss would be $1.3 million, or $0.02
per share.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company's liquid assets, consisting of cash and
cash equivalents, totaled $22.2 million, compared with $30.8 million as of
June 30, 1999.
For the six-month period ended December 31, 1999, net cash provided by
operating activities was $2.3 million, compared with $3.1 million used at the
same period of the previous year. The increase in net cash provided by
operating activities was primarily due to the combination of an increase of
depreciation and amortization and an increase in other current assets
($1.2 million) resulting from the activities of businesses acquired or
established during the second half of fiscal 1999.
For the six-month period ended December 31, 1999, net cash used by investing
activities was $4.0 million. The Company purchased $530,740 of equipment and
invested $3.47 million in certain unrelated businesses.
For the six-month period ended December 31, 1998, the Company had cash inflow
of $675,000 from issue of common stock of LPFC. For the same period of 1999,
the Company used $6.9 million from its financing activities, due to return of
part of investment diposits.
In the third quarter of fiscal 2000, LPFC arranged sales of portions of its
interest in TurboNet Communications to unrelated foreign investors for cash
consideration of up to $80 million, reducing the Company's ownership of
TurboNet Communications to between 65% and 70%. The Company expects to use
the proceeds of the sales primarily for possible acquisitions, joint ventures
and investment in its subsidiaries.
The Company has no material long-term debt.
The Company believes that existing cash and cash equivalents together with
funds generated from operations and sales of TurboNet stock will be sufficient
to meet its operating and investment requirements for the next 12 months. The
Company's continuing operating and investing activities may nevertheless make
it necessary or desirable that LPFC obtain additional financing, through loans
or public or private offerings of its securities or securities of its
subsidiaries. There can be no assurance that any additional financing will be
available to the Company on commercially reasonable terms, if at all.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believes that its exposure
to market risk associated with other financial instruments is not material.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults by the Registrant on its Senior Securities
None.
Item 4. Submission of Matters to A Vote of Security Holders
None
Item 5. Other Information
(a) On February 8, 2000, Lotus Pacific ("LPFC") sold a controlling 72%
interest in USS Online, Inc. ("Online") to Travelway International
Limited ("Travelway"). In exchange, LPFC received 732,802 shares of
LPFC's outstanding stock, valued at $9.6313 per share, or a total of
$7,057,835. The value of the LPFC shares received was based on the
average of the closing prices of the LPFC stock in the over the
counter market on the 10 trading days preceding January 18, 2000,
when the terms of the transaction were agreed. The amount of the
consideration was negotiated based on a $10,000,000 valuation for
Online, which the Board of Director of LPFC deemed fair. LPFC will
recognize a loss on the transaction of approximately $2,713,000.
LPFC continues to hold 28% of Online's outstanding stock and has
advanced Online $1,550,000 as a short-term loan to meet capital
requirements. LPFC had previously reported its intention to divest
itself of control of Online.
Online owns all of the outstanding stock of U.S. Securities and
Futures Corporation ("USSF") and Professional Market Brokerage, Inc.
("PMB"). USSF is a securities firm headquartered on Wall Street in
New York City, offering online securities trading and other financial
and brokerage services to individuals and institutions. PMB is a
Chicago-based financial trading firm that provides online trading
services from an advanced Internet-based system. The two companies
were acquired by LPFC in February and March 1999. The assets of
Online at the time of the sale to Travelway included 877,500
previously acquired shares of the Company's common stock, which are
restricted securities within the meaning of Rule 144 under the
Securities Act of 1933. The shares were carried by LPFC as treasury
shares as of December 31, 1999.
Travelway is owned by Huaya Lu Tung who was, until the date of the
sale, the Treasurer of the Company. Concurrently with the sale,
Ms. Tung resigned from all positions with LPFC, and Jeremy Wang, who
is President and a director of the Company, resigned as President of
Online. Mr. Wang continues to serve as a minority director of Online.
Travelway had been the owner of USSF until February 23, 1999, when
it sold USSF to LPFC for consideration consisting of $2.5 million in
cash and 500,000 shares of LPFC's common stock.
As previously reported, shortly after the acquisition of USSF and
PMB, LPFC began to seek methods to divest itself of control and
reduce its investment in these entities. This change resulted from
a determination that these entities would not significantly benefit
from association with the Company's technology and resources, were
subject to significant litigation and regulatory risks and would
require managerial oversight and resources that would be better
devoted to the Company's core businesses. Accordingly, LPFC has
treated these entities as temporary investments since shortly after
the time of their acquisition and has not included their operations
in its consolidated financial statements except for a portion of the
third quarter of fiscal 1999 in which they were acquired.
In June 1999, to facilitate a disposition, ownership of both entities
was transferred to Online which was newly-formed for this purpose. On
July 12, 1999, LPFC reported certain transactions involving Online,
which were intended to effect a disposition of a substantial portion
of LPFC's interest in Online as of June 28, 1999. The proposed
transactions included the issuance of 5,000,000 shares of Online's
common stock to its senior management team and a planned distribution
to LPFC's stockholders of record on August 30, 1999 of options to
purchase 32,272,237 shares of Online's common stock at $.01 per share
for two years after an initial public offering of Online's common
stock.
For various administrative and regulatory reasons, LPFC's management
determined that the proposed transactions were not practicable, and
its prior decisions to carry out these transactions were rescinded.
Accordingly, the options were not granted, LPFC did not declare the
proposed distribution, and shares were not issued to Online's senior
management.
In light of the transactions that were proposed and pending as of
June 30, 1999, the Company's balance sheets as of June 30 and
September 30, 1999 reflected a net investment of $1,453,928 after
charges for the proposed distribution and the issuance of management
shares. These charges have been reversed as of December 31, 1999,
and the investment has been restated at $13,571,250. As of December
31, 1999, the Company continued to carry Online as an investment, in
the expectation that disposition of a controlling interest would be
effected within the next 60 days. In connection with the disposition
of 72% of Online, LPFC sustained a one-time loss of approximately
$2,713,000. The 28% of Online retained by the Company represents an
investment of approximately $3,799,950.
(b) During January and February, 2000, LPFC arranged sales of portions
of its interest in TurboNet Communications to unrelated foreign
investors for cash consideration of up to approximately $80,000,000,
reducing the Company's ownership of TurboNet Communications to
between 65% and 70% of the total outstanding common stock.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
--------- -----------------------------------------------------
2 Stock Purchase Agreement, dated as of January 20, 2000,
between Lotus Pacific, Inc. and Travelway International
Limited, providing for the sale by registrant of 72% of
the outstanding stock of outstanding of USS Online, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LOTUS PACIFIC, INC.
Date: March 28, 2000 By: /S/ Jeremy Wang
---------------------------
Jeremy Wang, President
By: /S/ David Li
--------------------------------
David Li, Chief Financial Officer
EXHIBIT 2
STOCK PURCHASE AGREEMENT
providing for the sale by
LOTUS PACIFIC, INC.
to
TRAVELWAY INTERNATIONAL LIMITED
of
72% of the outstanding shares of capital stock
of
USS ONLINE, INC.
Dated as of January 20, 2000
STOCK PURCHASE AGREEMENT, dated as of January 20, 2000 (this "Agreement"),
between LOTUS PACIFIC, INC., a Delaware corporation ("Seller"), and TRAVELWAY
INTERNATIONAL LIMITED, a British Virgin Islands corporation ("Purchaser").
RECITAL
Seller desires to sell to Purchaser, and Purchaser desires to purchase from
Seller, 78% of the issued and outstanding shares of common stock, $.001 par
value per share, of USS Online, Inc., a Delaware corporation
(the "Corporation").
In consideration of the foregoing recital and the mutual agreements hereinafter
set forth, Purchaser and Seller hereby agree as follows:
ARTICLE 1
CONSTRUCTION
SECTION 1.1. Certain Defined Terms. As used in this Agreement, unless the
context otherwise requires, the terms defined in the preceding paragraphs shall
have the meanings assigned to them in such paragraphs and the following terms
shall have the following meanings:
Action: any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
Affiliate: with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
Business Day: any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by law to be closed in The City of
New York.
Claim: as specified in Section 7.01(d).
Closing: as specified in Section 2.03.
Closing Date: as specified in Section 2.03.
Code: the Internal Revenue Code of 1986, as amended through the date hereof.
Common Stock: the common stock, par value $.001 per share, of the
Corporation.
Control (including the terms Controlled by and under common Control with):
with respect to the relationship between or among two or more Persons, the
possession, directly or indirectly or as trustee or executor, of the power to
direct or cause the direction of the affairs or management of a Person, whether
through the ownership of voting securities, as general partner or manager or
trustee or executor, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such Person.
Corporation: as specified in the recital to this Agreement.
Encumbrance: any security interest, pledge, mortgage, lien (including,
without limitation, environmental and tax liens), charge or encumbrance,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.
Governmental Authority: any United States federal, state or local or any
foreign government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal, or judicial or arbitral body.
Governmental Order: any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority currently applicable to any Person.
Indemnified Party: as specified in Section 7.01(c).
Indemnifying Party: as specified in Section 7.01(c).
Knowledge: with respect to any Person, actual, in fact, personal knowledge
of that Person or a director, employee, agent or representative of such Person,
without any duty or assumption of due diligence or investigation, and does not
include: (i) constructive or implied knowledge or (ii) knowledge imputed to
such Person by virtue of the relationship or employment responsibilities of
such Person or a representative of such Person with either Seller or the
Corporation as an officer, director, manager, employee, agent, shareholder or
otherwise, or by virtue of such Person's access to information relating to a
relevant matter.
Law: any federal, state, local or foreign statute, law, ordinance,
regulation, rule, code, order, other requirement or rule of law.
Liabilities: with respect to any Person, any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable of such Person, including, without
limitation, those arising under any Law, Action or Governmental Order and those
arising under any contract, agreement, arrangement, commitment or undertaking
of such Person.
LPFC Stock: the common stock, par value $.001 per share, of Seller.
Material Adverse Effect: any circumstances, change in, or effect on the
Corporation or any of its Subsidiaries that, individually or in the aggregate
with any other circumstances, changes in, or effects on, the Corporation or
its Subsidiaries has, or would have, a material adverse effect on the business,
operations, assets or Liabilities, employee relationships, customer
relationships, results of operations or the condition (financial or otherwise)
of the Corporation together with its Subsidiaries.
Person: any individual, partnership, limited partnership, limited liability
company, firm, corporation, association, trust, unincorporated organization or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
Purchase Price: as specified in Section 2.02.
Restricted LPFC Stock: the aggregate of 877,500 shares of LPFC Stock held
by the Corporation's Subsidiaries as of the Closing Date and any securities of
LPFC that may be issued by way of distribution on or in exchange for such
shares otherwise than pursuant to registration under the Securities Act.
Securities Act: the United States Securities Act of 1933, as amended.
Seller Losses: as specified in Section 7.01(b).
Shares: 720 shares of Common Stock, constituting 72% of the issued and
outstanding shares of capital stock of the Corporation.
Subsidiary: as to any Person, a corporation, limited liability company,
limited partnership or other Person of which shares or similar securities
having voting power to elect the manager, general partner, a majority of the
board of directors or other governing body are at the time owned, directly
or indirectly, through one or more intermediaries, by such Person.
Tax or Taxes: any and all taxes, fees, levies, duties, tariffs, imposts
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed
by any government or taxing authority, including, without limitation: taxes
or other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding,
ad valorem, stamp, transfer, value added, or gains taxes; license,
registration and documentation fees; and customs duties, tariffs, and similar
charges.
Third Party Claims: as specified in Section 7.01(d).
SECTION 1.2. Interpretation. When the context in which words are used in
this Agreement indicates such intent, singular words shall include the plural
and vice versa and masculine words shall include the feminine and the neuter
genders and vice versa. References herein to Articles, Sections, Exhibits,
Schedules or other subdivisions are to the appropriate subdivisions of this
Agreement, unless the context otherwise requires. The words "herein",
"hereof", and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section, Exhibit,
Schedule or other subdivision. As used herein, the term "including" shall be
construed in each instance as though it were followed by the phrase "without
limitation."
SECTION 1.3. Captions. Captions contained herein have been inserted for
convenience of reference only and in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
ARTICLE 2
PURCHASE AND SALE
SECTION 2.1. Purchase and Sale of the Shares. Upon the terms and subject to
the conditions of this Agreement, at the Closing, Seller shall sell to
Purchaser, and Purchaser shall purchase from Seller, the Shares.
SECTION 2.2. Purchase Price. The aggregate purchase price for the Shares shall
consist of 732,802 shares of LPFC Stock, valued at the price of $9.6313 per
share (being the average of the closing sales prices of the LPFC Stock on the
10 trading days preceding the date hereof), representing an aggregate agreed
value of $7,057,835 (the "Purchase Price"). The Purchase Price is payable as
set forth in Section 2.05.
SECTION 2.3. Closing. The purchase and sale of the Shares shall take place at
a closing (the "Closing") to be held at the offices of Kronish Lieb Weiner &
Hellman LLP at 1114 Avenue of Americas, New York, NY, on February 4, 2000, or
at such other place or at such other time or on such other date as Seller and
Purchaser may agree in writing (the day on which the Closing takes place being
herein referred to as the "Closing Date").
SECTION 2.4. Closing Deliveries by Seller. At the Closing, Seller shall do
the following:
(a) deliver to Purchaser stock certificates evidencing all of the Shares
duly endorsed in blank, or accompanied by stock powers duly executed in blank,
in form satisfactory to Purchaser; and
(b) deliver to Purchaser a receipt for the Purchase Price and the
certificates and other documents required to be delivered pursuant to Section
6.02.
SECTION 2.06. Closing Deliveries by Purchaser. At the Closing, Purchaser shall
do the following:
(a) deliver to Seller stock certificates evidencing all of the shares of
LPFC Stock to be delivered to Seller in payment of the Purchase Price pursuant
to Section 2.02, duly endorsed in blank, or accompanied by stock powers duly
executed in blank, in form satisfactory to Seller; and
(b) deliver to Seller a receipt for the Shares and the certificates and other
documents required to be delivered pursuant to Section 6.01.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement, Seller makes the
following representations and warranties to Purchaser. Purchaser acknowledges
that Seller has made no (and shall have no liability for any) representations
or warranties, express or implied, with respect to the matters that are the
subject of this Agreement except those representations and warranties expressly
set forth herein.
SECTION 3.1. Organization, Authority and Qualification of Seller. Seller
represents that it (a) it is a corporation duly organized, validly existing and
in good standing under the laws of Delaware, (b) has all necessary power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby, and (c) assuming due
authorization, execution and delivery of this Agreement by Purchaser
constitutes Seller's legal, valid and binding obligation enforceable against
Seller in accordance with its terms, 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 (regardless of whether
enforcement is sought in a proceeding at law or in equity).
SECTION 3.2. Organization, Authority and Qualification of the Corporation and
its Subsidiaries. To Seller's Knowledge: (a) the Corporation is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and has all necessary power and authority to own, operate or lease
the properties and assets now owned, operated or leased by it and to carry on
the Business as it is currently conducted by it and as it has been conducted
since its inception; (b) each Subsidiary of the Corporation is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and has all necessary power and authority to own, operate or lease the
properties and assets now owned, operated or leased by it and to carry on the
business of such Subsidiary as it is currently conducted by it; (c) each of
the Corporation and its Subsidiaries is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the properties
owned or leased by it or the operation of its business makes such licensing
or qualification necessary, except for failures to be so licensed or qualified
or in good standing which would not, individually or in the aggregate, have
a Material Adverse Effect; and (d) true and correct copies of the Certificate
of Incorporation and By-laws of the Corporation, as in effect on the date
hereof, have been delivered by Seller to Purchaser.
SECTION 3.3. Capital Stock of the Corporation; Ownership of the Shares;
Subsidiaries.
(a) The authorized capital stock of the Corporation consists
of 50,000,000 shares of Common Stock. As of the date hereof 1,000 shares of
Common Stock are issued and outstanding and such shares are validly issued,
fully paid and nonassessable. None of the issued and outstanding shares of
Common Stock were issued in violation of any preemptive rights. There are no
options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the Shares or
obligating Seller or the Corporation to issue or sell any shares of capital
stock of, or any other interest in, the Corporation. The Shares constitute
72% of the issued and outstanding capital stock of the Corporation and are
owned of record and beneficially by Seller, free and clear of any Encumbrances.
Upon consummation of the Closing, Purchaser will own all of the Shares, free
and clear of any Encumbrances.
(b) Upon consummation of the Closing, the shares of Common Stock held by
Seller will constitute 28% of the outstanding Common Stock.
(c) The sole Subsidiaries of the Corporation are U.S. Securities and Futures
Corp., a New York corporation, and Professional Market Brokerage, Inc., an
Illinois Corporation. The Corporation owns all of the outstanding stock of its
Subsidiaries free and clear of any Encumbrances. To Seller's Knowledge, there
are no options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to securities of the
Corporation's Subsidiaries or obligating Seller or the Corporation to issue or
sell any securities of any of the Corporation's Subsidiaries.
SECTION 3.4. Corporate Books and Records. Complete and accurate copies of the
minute book and of the stock register of the Corporation have been provided by
Seller to Purchaser.
SECTION 3.5. No Conflict. To Seller's Knowledge, except as set forth in
Section 3.05 of the Disclosure Schedule or as may result from actions and
activities of Purchaser, the execution, delivery and performance of this
Agreement by Seller does not and will not (a) violate, conflict with or result
in the breach of any provision of the respective charters or By-laws of the
Corporation.
SECTION 3.6. Litigation. To Seller's Knowledge, there are no Actions by or
against the Corporation pending before any Governmental Authority or
threatened in writing to be brought by or before any Governmental Authority.
To Seller's Knowledge, neither the Corporation nor Seller is subject to any
Governmental Order (and neither Seller nor the Corporation has received notice
that any such Governmental Orders are threatened to be imposed by any
Governmental Authority) other than those that in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.7. Absence of Broker or Finder. To Seller's Knowledge, none of the
negotiations relating to this Agreement and the transactions contemplated
hereby have been carried on with the intervention of any Person acting on
behalf of Seller or the Corporation in such manner as to give rise to any
valid claim against Seller, the Corporation or Purchaser for any broker's
or finder's fee or similar compensation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement, Purchaser hereby
represents and warrants to Seller as follows as of the date hereof and as
of the Closing Date:
SECTION 4.1. Organization and Authority of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the British Virgin Islands and has all necessary legal power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Purchaser, the performance by Purchaser of its
obligations hereunder and the consummation by Purchaser of the transactions
contemplated hereby have been duly authorized by all requisite action on the
part of Purchaser. This Agreement has been duly executed and delivered by
Purchaser, and (assuming due authorization, execution and delivery by Seller)
constitutes a legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms, 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, fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
SECTION 4.2. No Conflict. To Purchaser's Knowledge, except as may result
from any facts or circumstances relating solely to Seller, the execution,
delivery and performance of this Agreement by Purchaser do not and will not
(a) violate, conflict with or result in the breach of any provision of the
certificate of incorporation or other instrument governing the organization
and operation of Purchaser, (b) conflict with or violate any Law or
Governmental Order applicable to Purchaser, the Corporation or any of the
Corporation's Subsidiaries, or (c) conflict with, or result in any breach of,
constitute a default (or event which with the giving of notice or lapse or
time, or both, would become a default) under, or require any consent under,
any note, bond, mortgage or indenture, contract, agreement, lease, sublease,
license, permit, franchise or other instrument or arrangement to which
Purchaser or any of the Corporation's Subsidiaries is a party or by which
the assets or properties of Purchaser or the Corporation's Subsidiaries are
bound or affected which could reasonably be expected to have a material
adverse effect on the ability of Purchaser or Seller to consummate the
transactions contemplated by this Agreement.
SECTION 4.3. Governmental Consents and Approvals. To Purchaser's Knowledge,
the execution, delivery and performance of this Agreement by Seller and
Purchaser do not and will not require any consent, approval, authorization or
other order of, action by, filing with, or notification to, any Governmental
Authority, other than filings to be made with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. and/or the
Commodities Futures Trading Commission to reflect the transfer of the Shares
as contemplated hereby and other changes in ownership and management of the
Corporation and its Subsidiaries to be effected at or after the Closing.
SECTION 4.4. Compliance with Laws; Licenses. Since its organization, Purchaser
has conducted its business in accordance with all Laws and Governmental Orders
applicable to its business, and Purchaser is not in violation of any such Law
or Governmental Order, except for non-compliance that could not reasonably be
expected, individually or in the aggregate, to have a material adverse effect
on the ability of Purchaser to consummate the transactions contemplated by
this Agreement or on the interest of Seller as a minority stockholder of the
Corporation after the Closing.
SECTION 4.5. Corporation's Liabilities. Purchaser is fully familiar with the
rights, obligations, activities and results of operation and the assets and
Liabilities of the Corporation and its Subsidiaries (including any liabilities
for the payment of Taxes arising prior to or as a result of the consummation
of the transactions contemplated by this Agreement and liabilities to repay
advances made by Seller to the Corporation after the date hereof and prior
to the Closing in aggregate amount not exceeding $2,000,000, which may be
evidenced by one or more promissory notes of the Corporation), and Purchaser
is not relying on any representation, warranty or agreement of Seller
whatsoever with respect to the nature or extent of such activities, rights
or obligations, any compliance by the Corporation or its Subsidiaries with Law
or the requirements of any Governmental Authority, or the amount of quality of
such results, assets or Liabilities.
SECTION 4.6. Restricted LPFC Stock Owned by the Corporation's Subsidiaries.
Purchaser is aware that the Corporation's Subsidiaries own the Restricted LPFC
Stock and that such shares and any LPFC securities that may hereafter be issued
in respect of such shares are or will be restricted securities within the
meaning of Rule 144 under the Securities Act and may not be sold by the
Corporation or its Subsidiaries, prior to or after the Closing, except pursuant
to registration under the Securities Act or an opinion of LPFC's counsel that
such registration is not required by reason of an available exemption from
registration. Purchaser understands that so long as such shares remain subject
to restrictions on sale pursuant to Rule 144 under the securities Act, such
shares may not be held of record in nominee or street name and certificates for
such shares must bear a legend to the foregoing effect.
SECTION 4.7. Absence of Broker or Finder. To Purchaser's Knowledge, none of the
negotiations relating to this Agreement and the transactions contemplated
hereby have been carried on with the intervention of any Person acting on
behalf of Purchaser in such manner as to give rise to any valid claim against
Purchaser or Seller for any broker's or finder's fee or similar compensation.
SECTION 4.8. Litigation. There are no Actions by or against Purchaser pending
before any Governmental Authority (or, to the Knowledge of Purchaser,
threatened to be brought by or before any Governmental Authority). Purchaser is
not subject to any Governmental Order and has not received notice that any
such Governmental Order is threatened to be imposed by any Governmental
Authority.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business Prior to the Closing. From the date hereof
to the Closing Date, except with the prior written consent of Purchaser, Seller
will cause each of the Corporation and its Subsidiaries to carry on its
business in the ordinary course in substantially the same manner as heretofore
conducted.
SECTION 5.2. Sale of Restricted LPFC Stock held by Subsidiaries. Purchaser
covenants and agrees that from and after the Closing, Purchaser will not, and
will not cause or permit the Corporation or its Subsidiaries, to dispose of any
or all of the Restricted LPFC Shares except pursuant to an effective
registration statement under the Securities Act or an applicable exemption from
registration under the Securities Act.
SECTION 5.3. Access to Certain Information Following the Closing Date. For a
period of two years after the Closing Date (or longer, as provided below),
Purchaser shall give, and shall cause each of the Corporation and its
Subsidiaries (and their respective successors and assigns) to give, to Seller
and its respective representatives and agents reasonable access during normal
business hours to all books, records, Tax Returns and other information of the
Corporation and its Subsidiaries pertaining to the conduct of the Business
prior to the Closing, as Seller may reasonably request in advance from time to
time for any legitimate purpose not inconsistent with the transactions
contemplated by this Agreement; provided, that the exercise of the rights
afforded Seller under this Section 5.08 shall not unreasonably interfere with
the conduct of business of the Corporation or any of its Subsidiaries; and
provided, further, that Seller shall continue to have such access after the
expiration of such two-year period if and to the extent Seller may reasonably
require such access to enable it to contest any audit of such Tax Returns or
any other proceeding by or before any Governmental Authority relating to Taxes
of the Corporation or any of its Subsidiaries or Seller for periods ended on or
prior to the Closing.
SECTION 5.4. Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do
or cause to be done all things necessary, proper or advisable under applicable
Law, and execute and deliver such documents and other papers, as may be
required to carry out the provisions of this Agreement and consummate and make
effective the transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.1. Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations, Warranties and Covenants. The representations and
warranties of Purchaser contained in this Agreement shall have been true and
correct when made and shall be true and correct in all material respects as of
the Closing, with the same force and effect as if made as of the Closing Date,
the covenants and agreements contained in this Agreement to be complied with
by Purchaser on or before the Closing shall have been complied with in all
material respects, and Seller shall have received a certificate from Purchaser
to such effect signed by a duly authorized officer thereof.
(b) No Proceeding or Litigation. No Action shall have been commenced by or
before any Governmental Authority against either Seller or Purchaser seeking
to restrain or materially and adversely alter the transactions contemplated by
this Agreement, which, in the reasonable, good faith determination of Seller,
is likely to render it impossible or unlawful to consummate such transactions;
provided, however, that the provisions of this Section 6.01(b) shall not apply
if Seller shall have directly or indirectly solicited or encouraged any such
Action.
(c) Payment. Seller shall have received the Purchase Price pursuant to
Section 2.06.
SECTION 6.2. Conditions to Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Representations, Warranties and Covenants. The representations and
warranties of Seller contained in this Agreement shall have been true and
correct when made and shall be true and correct in all material respects as of
the Closing Date with the same force and effect as if made as of the Closing
Date, the covenants and agreements contained in this Agreement to be complied
with by Seller on or before the Closing shall have been complied with in all
material respects, and Purchaser shall have received a certificate of Seller,
signed by an authorized representative of Seller, to the foregoing effect as
to such representations and warranties.
(b) No Proceeding or Litigation. No Action shall have been commenced or
threatened by or before any Governmental Authority against either Seller or
Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated hereby, which in the reasonable, good faith
determination of Purchaser is likely to render it impossible or unlawful to
consummate the transactions contemplated by this Agreement; provided, however,
that the provisions of this Section 6.02(b) shall not apply if Purchaser has
solicited or encouraged any such Action.
(c) Resignations of the Corporation's Directors. Purchaser shall have
received the resignations, effective as of the Closing, of all the directors
of the Corporation, except for such individuals as shall have been designated
in writing prior to the Closing by Purchaser to Seller and shall have
designated to Seller at least two persons who shall be elected as directors
of the Corporation effective as of the Closing.
(d) Organizational Documents. Purchaser shall have received a copy of (i)
the certificates of Incorporation, as amended, of the Corporation, certified by
the secretary of state of the State of Delaware, as of a date not earlier than
ten Business Days prior to the Closing Date and (ii) the By-Laws of the
Corporation, certified by the Secretary or Assistant Secretary of the
Corporation.
(e) Minute Books. Purchaser shall have received a copy of the minute books
and stock register of the Corporation.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1. Indemnification.
(a) Indemnification by Seller. Subject to the procedures set forth in
Section 7.01(c), from and after the Closing, Seller hereby agrees to indemnify
and hold Purchaser and its directors, officers, employees, Affiliates, agents,
successors and assigns harmless from and against any and all losses (including
Tax Losses), liabilities, obligations, damages, deficiencies, costs and
expenses, including, without limitation, reasonable attorneys' fees and
expenses (all of the foregoing collectively, "Purchaser Losses") based upon,
arising out of, attributable to or resulting from the breach or inaccuracy of
any representation, warranty or certification made by Seller in this Agreement
or in any certificate delivered pursuant to this Agreement, or the breach of,
or failure of Seller to comply or cause the Corporation or its Subsidiaries to
comply with, any covenant or agreement of Seller (except to the extent the same
is waived).
(b) Indemnification by Purchaser. Subject to the procedures set forth in
Section 7.01(c), from and after the Closing, Purchaser hereby agrees to
indemnify and hold Seller and its directors, officers, employees, Affiliates,
agents, successors and assigns harmless from and against any and all losses,
liabilities, obligations, damages, deficiencies, costs and expenses, including,
without limitation, reasonable attorneys' fees and expenses (all of the
foregoing collectively, "Seller Losses") based upon, arising out of,
attributable to or resulting from the breach or inaccuracy of any
representation, warranty or certification made by Purchaser in this Agreement
or in any certificate delivered pursuant to this Agreement, or the breach of,
or failure of Purchaser to comply with, any covenant or agreement of Purchaser
(except to the extent the same is waived).
(c) Procedure. An Indemnified Party shall give the Indemnifying Party
notice of any matter which an Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement, within 60
days of such determination, stating the amount of Purchaser Losses or Seller
Losses (as the case may be), if known, and method of computation thereof, and
containing a reference to the provisions of this Agreement in respect of which
such right of indemnification is claimed or arises (each, a "Claim"). The
obligations and Liabilities of the Indemnifying Party under this Article VII
with respect to Purchaser Losses or Seller Losses (as the case may be) arising
from a Claim of any third party which is subject to the indemnification
provided for in this Article VII ("Third Party Claims") shall be governed by
and contingent upon the following additional terms and conditions: if an
Indemnified Party shall receive notice of any Third Party Claim, the
Indemnified Party shall give the Indemnifying Party notice of such Third Party
Claim within 30 days of the receipt by the Indemnified Party of such notice;
provided, however, that the failure to provide such notice shall not release
the Indemnifying Party from any of its obligations under this Article VII
except to the extent the Indemnifying Party is materially prejudiced by such
failure. If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party hereunder against any Purchaser Losses or
Seller Losses (as the case may be) that may result from such Third Party Claim,
then the Indemnifying Party shall be entitled to assume and control the defense
of such Third Party Claim at its expense and through counsel reasonably
satisfactory to the Indemnified Party if the Indemnifying Party gives notice
of its intention to do so to the Indemnified Party within five Business Days of
the receipt of such notice from the Indemnified Party; provided, however, that
if there exists or is reasonably likely to exist a conflict of interest that
would make it inappropriate in the judgment of the Indemnified Party for the
same counsel to represent both the Indemnified Party and the Indemnifying
Party, then the Indemnified Party shall be entitled to retain its own counsel,
at the expense of the Indemnified Party. In the event the Indemnifying Party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying
Party, at the reasonable expense of the Indemnifying Party, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against
any such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the reasonable expense of the Indemnifying Party, all such witnesses,
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No Third Party Claim may be settled by the
Indemnifying Party without the prior written consent of the Indemnified Party,
provided such consent shall not be unreasonably withheld or delayed, provided,
however, that the Indemnified Party's consent to a settlement shall not be
required if such settlement does not result in any liability to, or
restrictions on, the Indemnified Party. In the event the Indemnified Party
is, directly or indirectly, conducting the defense against any such Third Party
Claim, no such Third Party Claim may be settled by the Indemnified Party
without the prior written consent of the Indemnifying Party, provided such
consent shall not be unreasonably withheld or delayed.
ARTICLE 8
TERMINATION AND WAIVER
SECTION 8.1. Termination. This Agreement may be terminated:
(a) at any time prior to the Closing by Purchaser if, between the date
hereof and the time scheduled for the Closing: (i) any representation or
warranty of Seller contained in this Agreement shall not have been true and
correct when made; (ii) Seller shall not have complied with any covenant or
agreement to be complied with by it and contained in this Agreement in any
material respect; or (iii) Seller or any of the Corporation or its Subsidiaries
shall have made a general assignment for the benefit of creditors, or any
proceeding shall have been instituted by or against Seller or any of the
Corporation or its Subsidiaries (other than by Purchaser of any of its
Affiliates) seeking to adjudicate any of them a bankrupt or insolvent, or
seeking liquidation, winding up or reorganization, arrangement, adjustment,
protection, relief or composition of their debts under any Law relating to
bankruptcy, insolvency or reorganization; or
(b) at any time prior to the Closing by Seller if (i) any representation or
warranty of Purchaser contained in this Agreement shall not have been true and
correct when made; (ii) Purchaser shall not have complied with any covenant
or agreement to be complied with by it and contained in this Agreement in any
material respect; or (iii) Purchaser shall have made a general assignment for
the benefit of creditors, or any proceeding shall have been instituted by or
against Purchaser (other than by Seller or any of its Affiliates) seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or composition of
its debts under any Law relating to bankruptcy, insolvency or reorganization;
or
(c) at any time prior to the Closing by either Purchaser or Seller in the
event that any Governmental Authority shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable; or
(d) on the Closing Date, by Purchaser if any closing condition under Section
6.02 has not been fulfilled, or by Seller if any closing condition under
Section 6.01 has not been fulfilled; or
(e) by either Seller or Purchaser if the Closing has not occurred on or
before February 21, 2000.
SECTION 8.2. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in Section 9.02.
SECTION 8.3. Waiver. Either party to this Agreement may (i) extend the time
for the performance of any of the obligations or other acts of the other party
or any of the conditions of its obligations hereunder, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered by the other party pursuant hereto or (iii)
waive compliance with any of the conditions of its obligations hereunder or the
covenants of the other party contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the
party to be bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition, of this
Agreement. The failure of any party to assert any of its rights hereunder
shall not constitute a waiver of any of such rights. Notwithstanding any other
provision of this Agreement, in the event the Closing is consummated, each
party shall be deemed to have waived the satisfaction of each condition of its
obligations under Article VI but not those relating to the accuracy of
representations and warranties of the other party.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1. Survival of Representations and Warranties. The representations
and warranties contained in this Agreement shall survive the Closing,
regardless of any investigation made by or on behalf of Seller or Purchaser.
SECTION 9.2. Expenses. Except as otherwise specified in this Agreement, all
costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Closing shall have
occurred.
SECTION 9.3. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by Federal Express, Airborne Express or any other nationally recognized
overnight courier service, by telecopy receipt acknowledged or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 9.03):
(a) if to Seller:
Lotus Pacific, Inc.
200 Centennial Avenue
Piscataway, New Jersey 08854
Telecopy: (732) 457-0076
Attention: President
with a copy to:
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
Telecopy: (212) 479-6275
Attention: Russell S. Berman, Esq.
(b) if to Purchaser:
Travelway International Limited
100 Wall Street
22nd Floor
New York, NY 10005
Telecopy:
Attention: Chairman
SECTION 9.4. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any Law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 9.5. Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and thereof and
supersede all prior agreements and undertakings, both written and oral, between
Seller and Purchaser with respect to the subject matter hereof and thereof.
SECTION 9.6. Assignment. This Agreement may not be assigned by operation of
law or otherwise without the express written consent of Seller and Purchaser
(which consent may be granted or withheld in the sole discretion of Seller or
Purchaser).
SECTION 9.7. No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 9.8. Amendment. This Agreement may not be amended or modified except
by an instrument in writing signed by or on behalf of Seller and Purchaser.
SECTION 9.9. Governing Law. This Agreement is made under and shall be governed
by, and construed in accordance with the laws of the State of New York,
applicable to contracts executed in and to be performed entirely within that
state.
SECTION 9.10. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LOTUS PACIFIC, INC.
By: /s/ Jeremy Wang
- -------------------------------
Jeremy Wang, President
TRAVELWAY INTERNATIONAL LIMITED
By: /s/ Huaya Lu Tung
- --------------------------------
Huaya Lu Tung, Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF LOTUS PACIFIC, INC. AND ITS SUBSIDIARIES
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1999 AND ARE QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 22,155,704
<SECURITIES> 0
<RECEIVABLES> 25,972,756
<ALLOWANCES> 0
<INVENTORY> 5,301,757
<CURRENT-ASSETS> 55,241,540
<PP&E> 3,563,996
<DEPRECIATION> 1,480,242
<TOTAL-ASSETS> 196,287,085
<CURRENT-LIABILITIES> 50,913,236
<BONDS> 0
0
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<COMMON> 63,466
<OTHER-SE> 80,000
<TOTAL-LIABILITY-AND-EQUITY> 196,287,085
<SALES> 19,609,595
<TOTAL-REVENUES> 19,671,733
<CGS> 14,821,931
<TOTAL-COSTS> 14,821,931
<OTHER-EXPENSES> 9,541,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 960,044
<INCOME-PRETAX> (4,801,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,801,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,801,536)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
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