MAY 11, 2000
AGREEMENT AND PLAN OF REORGANIZATION
May 11, 2000
PACIFIC ALLIANCE CORPORATION
a Delaware Corporation
ACQUISITION OF
DR.BENEFITS, INC.
A California Corporation
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS..................................................................1
1.1. Defined Terms....................................................1
1.2. Index of Other Defined Terms.....................................5
ARTICLE II
THE EXCHANGE.................................................................6
2.1. Plan of Reorganization...........................................6
2.2. Exchange of Shares...............................................6
2.3. Delivery of Shares...............................................6
2.4. Reorganization...................................................7
2.5. Treatment of Pacific Debt and Tax Matters........................7
ARTICLE III
POST-CLOSING STRUCTURE OF PACIFIC AND CLOSING................................7
3.1. Articles of Incorporation........................................7
3.2. Directors and Officers of Target.................................7
3.3. Change of Name...................................................8
3.4. Closing Date.....................................................8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS...............................8
4.1. Organization...................................................8
4.2. Capitalization.................................................8
4.3. Authorization of Transaction...................................9
4.4. Noncontravention by Stockholders...............................9
4.5. Authority Relative to this Agreement...........................9
4.6. Approvals and Consents: Noncontravention......................10
4.7. Articles of Incorporation and By-Laws.........................10
4.8. Financial Statements..........................................10
4.9. No Undisclosed Material Liabilities...........................11
4.10. Absence of Certain Changes or Events..........................11
4.11. Litigation and Proceedings....................................13
4.12. Compliance with Laws, Rules and Regulations...................13
4.13. Contracts.....................................................13
4.14. Material Contract Defaults....................................13
4.15. Taxes and Tax Returns.........................................13
4.16. Subsidiaries..................................................14
4.17. Title and Related Matters.....................................14
4.18. Intellectual Property.........................................14
4.19. Real Property Leasholds.......................................15
4.20. Accounts Receivables..........................................15
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4.21. Insurance.....................................................15
4.22. Environmental Matters.........................................15
4.23. Employees.....................................................16
4.24. Certain Payments..............................................17
4.25. Relationships with Related Persons............................17
4.26. Brokers.......................................................17
4.27. Software Matters..............................................17
4.28. Target Schedules..............................................17
ARTICLE V
PRESENTATIONS AND WARRANTIES OF PACIFIC.....................................18
5.1. Organization..................................................18
5.2. Capitalization................................................18
5.3. Authority Relative to this Agreement..........................18
5.4. Approvals and Consents; Noncontravention......................19
5.5. Certificate of Incorporation and Bylaws.......................19
5.6. Financial Statements..........................................19
5.7. Undisclosed Material Liabilities..............................20
5.8. Absence of Certain Changes of Events..........................20
5.9. Litigation and Proceedings....................................22
5.10. Compliance with Laws, Rules and Regulations...................22
5.11. Contracts.....................................................22
5.12. Material Contract Defaults....................................22
5.13. Taxes and Tax Returns.........................................23
5.14. No Subsidiaries...............................................23
5.15. Intellectual Property.........................................24
5.16. Real Property Leaseholds......................................24
5.17. Accounts Receivables..........................................24
5.18. Inventory.....................................................24
5.19. Insurance.....................................................24
5.20. Environmental Matters.........................................24
5.21. Employees.....................................................25
5.22. Certain Payments..............................................25
5.23. Brokers.......................................................25
5.24. Pacific Schedules.............................................25
5.25. Additional Information Available..............................26
ARTICLE VI
CONDUCT PRIOR TO CLOSING....................................................26
6.1. Conduct of Business...........................................26
6.2. Additional Covenants by Target and Pacific....................26
6.3. Access........................................................27
6.4. Confidentiality...............................................27
6.5. Compliance with Blue Sky Law..................................28
6.6. Disclosure Supplements, Etc...................................28
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6.7. Reasonable Efforts............................................28
6.8. Public Announcements..........................................28
ARTICLE VII
CONDITIONS OF STOCKHOLDERS..................................................28
7.1. Representations...............................................28
7.2. Compliance....................................................29
7.3. No Material Adverse Change....................................29
7.4. Certificate of Pacific........................................29
7.5. Resignation of Directors and Officers of Pacific..............29
7.6. Shareholder Approval..........................................29
7.7. Absence of Litigation.........................................29
7.8. Good Standing.................................................29
7.9. Reverse Split.................................................29
7.10. Financial Statements..........................................29
7.11. Completion of Private Placement...............................29
ARTICLE VIII
CONDITIONS OF PACIFIC.......................................................30
8.1. Representations...............................................30
8.2. Compliance....................................................30
8.3. No Material Adverse Change....................................30
8.4. Certificate of Target and Stockholders........................30
8.5. Shareholders' Approval........................................30
8.6. Absence of Litigation.........................................30
8.7. Good Standing.................................................30
8.8. Financial Statements..........................................30
8.9. Non-Public Offering...........................................30
ARTICLE IX
MNIFICATION, SURVIVAL, TERMINATION AND EXPENSES.............................31
9.1. Nature and Survival of Representations........................31
9.2. Indemnification...............................................31
9.3. Arbitration...................................................31
9.4. Exclusive Remedies............................................33
9.5. Termination...................................................33
9.6. Effect of Termination.........................................33
ARTICLE X
MISCELLANEOUS...............................................................34
10.1. Notices.......................................................34
10.2. Entire Agreement..............................................35
10.3. Effect; Assignment............................................35
10.4. Amendments; Waivers...........................................35
10.5. Further Assurances............................................35
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10.6. Schedules and Exhibits.........................................35
10.7. Headings.......................................................35
10.8. Counterparts...................................................35
10.9. Severability...................................................36
10.10. Governing Law..................................................36
10.11. Jurisdiction; Service of Process...............................36
10.12. Legal Fees and Expenses........................................36
10.13. Schedules, Exhibits and Amendments.............................36
Attachments
Exhibit "A" -Dr.Benefits Stockholders
Exhibit "B" - List of Convertible Securities
Exhibit "C" - Treatment of Loans and Taxes
Exhibit "D" - Post- Closing Certificate of Incorporation
Exhibit "E" - Post Closing Officers and Directors of Pacific
Exhibit "F" - Post Closing Capitalization Chart of Pacific
Certificates
Investment Letters
Dr.Benefits' Schedules
Pacific's Schedules
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") is entered into
this 11th day of May, 2000, by and between Pacific Capital Investments, Inc., a
Delaware corporation ("Pacific"); Dr.Benefits, Inc., a California corporation
(hereafter " Target"), and all stockholders of the Target as of the date hereof,
and all Persons who are stockholders of the Target at the Closing Time (as
defined below) ("Stockholders"). Pacific, the Target and the Stockholders are
collectively referred to hereafter as the "Parties". Any Person who becomes a
stockholder of the Target after the date of the execution hereof, shall become a
Party to this Agreement.
Recitals:
Stockholders desire to make a tax-free exchange of their shares in Target
solely for shares of Pacific's capital common stock, no par value, as described
herein (the "Exchange").
The Boards of Directors of Pacific and Target have each determined that it
is advisable and in the best interests of their respective stockholders to enter
into this Agreement and to engage in the transactions contemplated hereby
pursuant to which Pacific shall acquire Target in a stock-for-stock exchange
transaction.
The parties desire that Pacific shall effect a 1-for-10 reverse split of
its issued and outstanding shares of common stock in connection with the
Exchange (the "Reverse Split").
AGREEMENT
In consideration of the mutual agreements, representations, warranties and
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
Article I
Definitions
1.1. Defined Terms. For purposes of this Agreement, the following terms
have the meanings specified or referred to in this Section 1:
"Affiliate": of a Person is a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, such Person.
"Associate": when used to indicate a relationship with any Person, means
(a) a corporation or organization (other than such Person or a majority-owned
subsidiary of such Person) of which such person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten (10) percent or more of any
class of equity securities, (b) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar capacity, and (c) any Affiliate of such Person.
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"Breach": a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been any inaccuracy in or breach of, or any failure to perform or comply with,
such representation, warranty, covenant, obligation, or other provision.
"Contract" : any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Convertible Securities": means all securities of every kind and
description which are exchangeable for or convertible into shares of Pacific
common stock including, without limitation, the Class A Warrants, the Class B
Warrants and any options issued or issuable to Troika Capital, Inc. as
contemplated in that certain letter from Pacific to the Target's Board of
Directors, dated January 24, 2000.
"Employee Benefit Plan": means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multi-employer Plan), (d) Employee
Welfare Benefit Plan, or (e) material fringe benefit or other retirement, bonus,
or incentive plan or program.
"Employee Pension Benefit Plan": has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" : has the meaning set forth in ERISA
Section 3(1).
ERISA : means the Employment Retirement Income Savings Act of 1974,
as the same may be amended from time to time, and any successor legislation
thereto.
"Governmental Authorization": any approval, consent, license, permit,
waiver, or other authorization issued, granted or given by or under the
authority of any Governmental Body or pursuant to any Legal Requirement.
"Governmental Body": any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal); or
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(d) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"IRC": the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS": the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.
"Knowledge": an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual should be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"Legal Requirement": any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Order": any award, decision, injunction, judgment, order, ruling, decree
or verdict entered, issued, made, or rendered by any court, administrative
agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business": an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; and
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority).
"Person": any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
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"Proceeding": any action, arbitration, audit, hearing, investigation (to
the extent known by the Person) , litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"Prospects" : shall be limited to the general business expansion
plan of a Person with respect only to potential new customers, potential new
markets, potential new operations and potential new lines of business which such
Person is currently considering and/or pursuing. The term "Prospects" does not
refer to any financial projections. Prospects are by their very nature
speculative and a Person shall not be deemed to represent, warrant or guarantee
that its Prospects will be ever be realized or that its Prospects will not
change from time to time.
"Related Person": with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director,
officer, partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity);
and
(f) any Related Person of any individual described in clause
(b) or (c).
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For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) the individuals
children or parents, and (iv) any other natural Person who resides with such
individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"Securities Act": the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Securities Exchange Act": the Securities Exchange Act of 1934 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Tax Return": any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened": a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing).
"Transaction": collectively, the Exchange provided for and agreed to herein
and other matters and agreements provided for herein.
1.2 Index of Other Defined Terms. In addition to the terms defined above,
the following terms shall have the respective meanings given thereto in the
sections indicated below:
Defined Term Section
-------------------------------------------------------
AAA 9.3.2
Act 2.3
Agreement Preamble
Arbitrating Parties 9.3.2
Closing, Closing Date and Closing Time 3.4
CPR 9.3.2
Environmental Laws 4.23.3
Environmental Liabilities 4.23.3
Environmental Permits 4.23.1
Exchange Recitals
Filings 5.10.1
Form 10-K 5.10.1
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Form 10-Q 5.10.1
Hazardous Substances 4.23.3
Indemnification Period 9.2
NASD 5.10.1
Pacific Preamble
Pacific Audited Financial Statements 5.6
Pacific Balance Sheet 5.13.1
Pacific Common Stock 2.2
Pacific Filings 5.10.1
Pacific Financial Statements 5.6
Pacific Management Reports 5.6
Pacific Schedules Introduction to Article V
Pacific Shares, Pacific Common Stock Recitals
Parties Preamble
Permitted Liens 4.9
Proprietary Rights Agreement 4.24.2
Stockholders Preamble
Reverse Split Recitals
Schedule Introduction of Article IV
SEC 5.10.1
Stockholders Preamble
Target Preamble
Target Audited Financial Statements 4.8
Target Balance Sheet 4.15.1
Target Financial Statements 4.8
Target Management Reports 4.8
Target Schedules Introduction of Article IV
Target Shares 2.2
Tax, Taxes 4.15.1
Units 4.2
Article II
The Exchange
2.1 Plan of Reorganization. At the time of Closing, the Stockholders will
be the owners of all of the issued and outstanding shares of capital stock of
Target. It is the intention of the Parties that all of the issued and
outstanding shares of capital stock of Target at the time of Closing shall be
acquired by Pacific in exchange solely for Pacific's voting common stock. As the
result of the Exchange, Target shall become a wholly-owned subsidiary of
Pacific.
2.2 Exchange of Shares. The Parties agree that all of the issued and
outstanding shares of capital stock of Target will consist, at the Closing Date,
of 6,750,000 shares of no par value Class A common stock which will be exchanged
with Pacific for 12,000,000 shares of
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common stock of Pacific ("Pacific Common Stock"), calculated after the 1-for-10
Reverse Split. The Class "A" common stock of the Target is hereafter referred to
as the "Target Shares".
2.3 Delivery of Shares. On or before the Closing Date, Stockholders will
deliver certificates representing all of the issued and outstanding Target
Shares, duly endorsed so as to make Pacific the sole holder thereof, free and
clear of all claims and encumbrances. The Target Shares will be appropriately
restricted as to transfer. On the Closing Date, delivery of Pacific Common
Stock, which will be appropriately restricted as to transfer, will be made to
Stockholders as set forth herein. The transaction contemplated herein shall not
close unless all of the issued and outstanding Target Shares are delivered at
Closing and the owners thereof execute this Agreement. A list of the Target
Shares, the owners thereof and shares of Pacific Common Stock to be received by
each Stockholder is attached hereto as Exhibit "A". A list of the Convertible
Securities issued or to be issued under binding agreements, in each case as of
the date hereof, the owners thereof and the number of shares of Pacific common
stock into which such shares are convertible or exchangeable is attached hereto
as Exhibit "B". Each Stockholder shall sign and deliver at the Closing a copy of
this Agreement, evidencing his, her or its intent to be a party to this
Agreement and bound hereby.
Pacific acknowledges that none of the Target's securities of any class
have been registered for public trading by the SEC, or qualified or registered
therefor by any other state or federal Governmental Body. All stock certificates
for Pacific Common Stock issued to the Stockholders at the Closing shall contain
a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES ACT, AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES ACTS; (B) PACIFIC HAS BEEN FURNISHED WITH AN
OPINION OF COUNSEL ACCEPTABLE TO IT TO THE EFFECT THAT NO REGISTRATION IS
LEGALLY REQUIRED FOR SUCH TRANSFER; OR (C) THESE SECURITIES ARE SOLD IN
COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT.
2.4 Reorganization. It is the intent of the Parties that the Exchange will
qualify as a tax-free reorganization under Section 368(a)(1)(B) of the IRC and
will report the Exchange accordingly for federal, state and local income tax
purposes. The Parties acknowledge that no Person has obtained a revenue ruling
from the IRS as to the tax consequences and effect of the Exchange.
2.5 Treatment of Pacific Debt and Tax Matters. Pacific has outstanding
loans and tax liabilities. The Parties agree that such loans and taxes be dealt
with by the parties (and by the President of Pacific and others), as set forth
in Exhibit "C" attached hereto and by this reference made a part hereof.
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ARTICLE III
POST-CLOSING STRUCTURE OF PACIFIC AND CLOSING
3.1 Articles of Incorporation. The Certificate of Incorporation of Pacific
to be in effect immediately following Closing of the Exchange is set forth as
Exhibit "D" attached hereto until amended in accordance with applicable law.
3.2 Directors and Officers of Target. The directors and officers of Pacific
immediately following the Closing of the Exchange shall be those Persons set
forth on Exhibit "E" attached hereto, each of whom shall serve in accordance
with the Bylaws of Pacific until their respective successors have been duly
elected or appointed and qualified.
3.3 Change of Name. If requested by Target, the name of Pacific will be
changed to Dr.Benefits, Inc., or such other name as agreed to by the Parties, in
connection with the Exchange subject to approval by the Pacific shareholders.
3.4 Closing Date. The consummation of the Exchange contemplated by this
Agreement (the "Closing") shall take place at 525 East 000 Xxxxx, Xxxxx Xxxxx,
Xxxx Xxxx Xxxx, XX 00000, at the later of: (i)10:00 a.m. local time, on the
third business day on which the last to be satisfied or waived of the conditions
set forth in Sections 7 and 8 (other than those conditions that by their nature
are to be satisfied at the Closing, but subject to the satisfaction or waiver of
those conditions) shall be satisfied or waived in accordance with this
Agreement; or (ii) such other time and date as the Parties shall agree. The date
and time on which the Closing actually takes place is referred to in this
Agreement as the "Closing Date" and Closing Time respectively.
At the Closing, (i) the Target and the Stockholders will deliver to
Pacific the various certificates, instruments, and documents referred to in
Section 8 below, and (ii) Pacific will deliver to the Target and the
Stockholders the various certificates, instruments, and documents referred to in
Section 7 below.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The Stockholders represent and warrant to Pacific, except as disclosed in
this Agreement or in the case of any representation qualified by its terms to a
particular schedule ("Schedule") of Stockholders attached hereto (collectively,
the "Target Schedules") such specific Target Schedule, that the statements made
in this Article IV will be correct and complete at the Closing Time provided,
however, if there is no Closing Time, then no party shall be liable for any
inaccuracy.
4.1 Organization. Target is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has all
requisite licenses, qualifications, corporate power and authority to own, lease
and operate its assets and to carry on its business as now being conducted,
except where the failure to be so existing and in
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good standing or to have such qualifications, licenses, power and authority
would not in the aggregate have a material adverse effect on the business,
operations or financial condition of Target, taken as a whole. Target is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or jurisdiction which requires such qualification except
where the failure to be in good standing or to have such qualifications would
not in the aggregate have a material adverse effect on the business, operations
or financial condition of Target.
4.2 Capitalization. The entire authorized capital stock of Target consists
of 10,000,000 shares of Class A common stock having no par value and 100,000,000
Shares of Class B common stock having no par value. There are 6,750,000 shares
of Target Class A Common Stock and no shares of Target Class B common Stock
issued and outstanding as of the date of this Agreement, and there will not be
more than 6,750,000 shares of Target Class A Common Stock, no shares of Target
Class B Common Stock, issued and outstanding at the Closing Time. Target is
currently offering, on a private placement basis, units of its securities
consisting of units of unsecured promissory notes and warrants to purchase
shares of Target at Thirty Cents ($.30) per share (the "Units"). At the Closing,
and subject to the approval of the holders of such warrants, the warrants will
be converted into warrants to purchase shares of Pacific at the price of Thirty
Cents $.30 per share, calculated after giving effect to the Reverse Split. A
description of the convertible notes and the warrants offered as part of the
Units is set forth in Schedule 4.2 attached hereto. Except as disclosed in
Schedule 4.2, there are no outstanding convertible securities, warrants,
options, or commitments of any nature which may cause authorized but unissued
shares of Target Common Stock to be issued to any Person.
At the Closing Time, all issued and outstanding shares of Target as at such date
will have been duly authorized, legally issued, fully paid, and non-assessable,
and not issued in violation of the pre-emptive or other right of any Person.
None of the outstanding equity securities or other securities of Target have
been issued in violation of the Securities Act or any other Legal Requirement.
4.3 Authorization of Transaction. Each of the Stockholders has full power
and authority (including, if the Stockholder is a corporation, full corporate
power and authority) to execute and deliver this Agreement and to perform his or
its obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each Stockholder, enforceable in accordance with its terms
and conditions. No Stockholder need give any notice to, make any filing with, or
obtain any authorization, consent, or approval of, any Governmental Body in
order to consummate the transactions contemplated by this Agreement.
4.4 Noncontravention by Stockholders. Neither the execution and the
delivery of this Agreement, nor the consummation of the Exchange, will (A)
violate any judgment, order, decree, ruling, charge, or other restriction of any
Governmental Body to which any Stockholder is subject or, if the Stockholder is
a corporation, any provision of its charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any
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agreement, contract, lease, license, instrument, or other arrangement to which
the Stockholder is a party or by which he or it is bound or to which any of his
or its assets are subject.
4.5 Authority Relative to this Agreement.
Target has full corporate power and authority to execute and deliver this
Agreement and to consummate the Transaction. The execution and delivery of this
Agreement and the consummation of the Transaction have been duly and validly
authorized by its Board of Directors and no other corporate proceedings on the
part of Target are necessary to authorize this Agreement or to consummate the
Transaction. Subject to the laws of bankruptcy, insolvency, general creditor's
rights, and equitable principles, this Agreement has been duly and validly
executed and delivered by Target and constitutes a valid and binding agreement
of Target, enforceable against it in accordance with its terms.
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4.6 Approvals and Consents; Noncontravention.
4.6.1 No consent, approval, or other action by, or notice to or
registration or filing with, any Governmental Body or authority is required or
necessary to be obtained by Target in connection with the execution, delivery or
performance of this Agreement by Target or the consummation of the Transaction.
4.6.2 Except as set forth in Schedule 4.6, no consent, approval,
waiver or other action by any Person under any material contract, agreement,
instrument, or other document, or obligation to which Target is a party or by
which it or any of its assets are bound, is required or necessary for the
execution, delivery, and performance of this Agreement by Target, or the
consummation of the Transaction.
4.6.3 The execution, delivery, or performance of this Agreement by
Target and the consummation of the Transaction will not: (i) violate or conflict
with the charter documents or Bylaws of Target; (ii) violate or conflict with
any law, regulation, order, judgment, award, administrative interpretation,
injunction, writ, or decree applicable to Target or by which it or any of its
assets are bound, or any agreement or understanding between any Governmental
Body, on the one hand, and Target on the other hand; or (iii) violate or
conflict with, result in a Breach of, result in or permit the acceleration or
termination of, or constitute a default under any agreement, instrument or
understanding to which Target is a party or by which it or any of its assets are
bound.
4.7 Articles of Incorporation and By-Laws.
Attached hereto as Schedule 4.7 are true and correct copies of the Articles of
Incorporation and Bylaws of Target. Such Articles of Incorporation and Bylaws
are in full force and effect and no amendments are pending. Target is not in
violation of any provision of its Articles of Incorporation or Bylaws. Schedule
4.7 also contains a list of all Board of Director minutes and resolutions and
all Shareholder minutes and resolutions of Target since its inception.
4.8 Financial Statements. Attached hereto as Schedule 4.8, are
unaudited financial statements (prepared solely by the management of Target,
none of whom is a certified public accountant) of the Target as of March 31,
2000 ("Target Management Reports"), and audited financial statements of Target
for the year ended December 31, 1999, together with the related footnotes and
report thereon of Xxxxx, Xxxxxx & Xxxxx, LLP (the "Target Audited Financial
Statements"). The Target Management Reports are correct and complete in all
material respects and fairly present the financial position of the Target as of
such dates and the results of operations and changes in financial position for
such periods, subject to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse). The
Target Audited Financial Statements are correct and complete in all material
respects and fairly present, in accordance with GAAP, consistently applied, the
financial position of the Target as of such dates and the results of operations
and changes in financial position for such periods. The Target Management
Reports and Target Audited Financial Statements are hereafter collectively
referred to as the "Target Financial Statements".
11
The Parties acknowledge that Pacific is required to file a Form 8-K with
the Securities and Exchange Commission within 15 days after the Closing Date.
Such Form 8-K must contain appropriate financial statements of Target and any
predecessor or subsidiary of Target which meet the requirements of such Form
8-K.
4.8.1 Target (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets of such entity and (ii) maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (A)
transactions are executed in accordance with management's general or specific
authorization, (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain accountability
for assets, (C) access to assets is permitted only in accordance with
management's general or specific authorizations, and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
4.8.2 Neither Target nor any employee, agent, consultant or representative
of Target has made any payment of funds of Target or received or retained any
funds in violation of any applicable law, rule or regulation.
4.9 No Undisclosed Material Liabilities. Target
is not subject to any material liability ($5,000 or more) of any kind whatsoever
(whether accrued, absolute, contingent, or otherwise) that are, individually or
in the aggregate, material to Target taken as a whole, other than:
(a) liabilities disclosed or provided for in the most recent Target
Financial Statements;
(b) liabilities incurred in the ordinary course of business since
the date of the most recent Target Financial Statements consistent with
past practice;
(c) liabilities contemplated by and arising under this Agreement;
and
(d) liabilities described in Schedule 4.9 attached hereto.
To the Knowledge of Stockholders, there is no basis for the imposition of
any other liabilities which could reasonably be expected to have a material
adverse effect on the business, properties, assets or operations of Target taken
as a whole.
4.10 Absence of Certain Changes or Events.
Except (i) as contemplated by this Agreement; or (ii) as disclosed in Schedule
4.10, since the date of the most recent Target Financial Statements, Target has
not:
(a) suffered any change in its business, operations, properties,
condition (financial or otherwise), or Prospects which has had, or to the
Knowledge of Stockholders, could
12
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the business, properties, assets or operations
of Target taken as a whole;
(b) suffered any damage, destruction or loss (whether or not covered
by insurance) with respect to any of its properties or assets which has
had, or to the Knowledge of Stockholders, could reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, properties, assets or operations of Target taken as a whole;
(c) except in the Ordinary Course of Business, incurred any
liability or obligation (absolute, accrued, contingent or otherwise), in
an amount in excess of $5,000;
(d) changed any of its accounting methods, principles or practices;
(e) revalued any asset, other than due to depreciation or
amortization;
(f) paid, discharged or satisfied any claim, liability or obligation
not reflected in the Target Financial Statements in an amount in excess of
$5,000;
(g) except in the Ordinary Course of Business, entered into any
commitment or transaction material to Target taken as a whole in an amount
in excess of $5,000;
(h) declared, set aside or paid any dividend or distribution in
respect of any capital stock, or redeemed, purchased or otherwise acquired
any of these securities or modified its capitalization;
(i) increased or established any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards),
stock purchase or other employee benefit plan, or otherwise changed the
compensation payable or to become payable to any officer or key employees
of Target;
(j) except in the Ordinary Course of Business, canceled or written
off any debts or waived any claims in an amount in excess of $5,000;
(k) except in the Ordinary Course of Business, transferred any
assets in an amount in excess of $15,000 or made capital expenditures and
commitments in an amount in excess of $5,000 in the aggregate;
(l) paid or loaned (other than payment of salaries or benefits or
reimbursement of expenses) any amount to, or sold, transferred or leased
any properties or assets to, or entered into any contract with, any of its
officers or directors, or any Affiliate or Associate of any of its
officers or directors;
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(m) increased its reserves for bad debts, guaranteed any obligation,
except in the Ordinary Course of Business, or indemnified any Person; or
(n) agreed (whether or not in writing) to do any of the foregoing.
4.11 Litigation and Proceedings. Except as set forth
in the Schedule 4.11, there is no claim or Proceeding pending or, to the
Knowledge of Stockholders, Threatened against Target, or any property or asset
of Target, by any Person or any Governmental Authority which (i) is reasonably
likely to have, individually and in the aggregate, a material adverse effect on
the business, assets or operations of Target taken as a whole or (ii) seeks to
delay or prevent the consummation of the Transaction. As of the date hereof,
neither Target nor any property or asset of Target, is subject to any Order. To
the Knowledge of Stockholders, there is no basis for any claim, action or
Proceeding against Target which could reasonably be expected to have a material
adverse effect on the business assets, operations or financial condition of
Target taken as a whole.
4.12 Compliance with Laws, Rules and Regulations. Schedule 4.12 sets forth
all material governmental licenses, permits and other Governmental Authorization
(or requests or applications therefor) pursuant to which Target carries on its
business. To the Knowledge of Stockholders, Target complies with all applicable
federal laws, rules and regulations and all applicable state and local laws,
rules and regulations relating to the operation of its business, except to the
extent that non-compliance would not materially and adversely affect the
business, operations, properties, assets or condition of Target or except to the
extent that non-compliance would not result in the occurrence of any material
liability for Target.
4.13 Contracts. Schedule 4.13 sets forth a complete and correct list of
all material Contracts to which Target is a party or by which any of its
properties or assets are bound. To the Knowledge of the Stockholders, Target is
not a party to any other material Contract. For purposes of this Agreement, a
material Contract is one which calls for the payment of cash or property, or the
provision of products or services, by any party, having an aggregate value in
excess of $5,000. To the Knowledge of Stockholders, and subject to the laws of
bankruptcy, insolvency, general creditor's rights, and equitable principles, all
Contracts to which Target is a party or by which its properties or assets are
bound and which are material to its operations taken as a whole, are valid and
enforceable in all material respects.
4.14 Material Contract Defaults. Except as set forth in
Schedule 4.14, to the Knowledge of Stockholders, Target is not in default under
the terms of any outstanding Contract, license, lease, or other commitment which
is material to the business, operations, assets, or condition of Target, and no
event has occurred or circumstances exist which, with notice or lapse of time or
both, would constitute a default under any such Contract, license, or other
commitment other than any defaults which could not reasonably be expected to
have a material adverse effect on the business, assets, operations or financial
condition of Target taken as a whole.
14
4.15 Taxes and Tax Returns. Target has filed all Tax
Returns required to be filed by it and has paid and discharged all taxes shown
as due thereon and has paid all taxes when due, other than such payments as are
being contested in good faith by appropriate Proceedings and as to which
sufficient reserves have been established. Neither the IRS nor any other taxing
authority or agency, domestic or foreign, is now asserting or, to the Knowledge
of Stockholders, has Threatened to assess against Target, any deficiency or
claim for additional taxes or interest thereon or penalties in connection
therewith. Target has not granted any waiver of any statute of limitations with
respect to, or agreed to any extension of the period for the assessment of, any
tax. Target has properly reported on Form 1099 all amounts paid to consultants
and no consultant or other person to whom a payment has been made by Target
should be classified as an employee under the IRC.
All Tax Returns filed by Target are true, correct and complete in all
material respects and accurately set forth all items to the extent required to
be reflected or included in such returns by applicable law. Target is not a
party to any tax sharing agreement.
Target has not agreed, and is not required, to make any adjustments
pursuant to Section 481(a) of the IRC or any similar provision of state or local
law by reason of a change in accounting method initiated by it or any other
relevant party. To the Knowledge of Stockholders, the IRS has not proposed any
such adjustment or change in accounting method. No application is pending with
any taxing authority requesting permission for any changes in accounting methods
that relate to the business or assets of Target.
4.15.1. The accruals and reserves for taxes reflected in the most
recent balance sheet ("Target Balance Sheet") included in the Target Financial
Statements are adequate to cover all taxes accruable through such date
(including interest and penalties, if any, thereon) in accordance with generally
accepted accounting principles consistently applied. The term "tax" or "taxes"
means federal state, local, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties assessed in connection therewith.
4.16 Subsidiaries. Except as set forth in Schedule 4.16, Target has
no subsidiaries and does not own any capital stock, security, partnership
interest, or other interest of any kind in any corporation, partnership, joint
venture, association, or other entity.
4.17 Title and Related Matters. Target has good and
marketable title to all of its inventory, interests in properties and other
assets which are reflected in the most recent Target Financial Statements or
acquired after that date (except properties, interests in properties, and assets
sold or otherwise disposed of since such date in the ordinary course of
business), free and clear of all mortgages, liens, pledges, charges or
encumbrances, except (i) Permitted Liens; and (ii) such imperfections of title
and easements as do not and will not materially detract from or interfere with
the present or proposed use of the assets or
15
properties subject thereto or affected thereby or otherwise materially impair
present business operations on such properties or in connection with such
assets. The offices and equipment of Target that are necessary or used in the
operations of its business are in good operating condition and repair, normal
wear and tear excepted.
4.18 Intellectual Property. Schedule 4.18 hereto contains a
complete list and description of all Target's United States and foreign (a)
patents and patent applications; (b) trademark registrations and applications
for trademark registrations; (c) copyright registrations and applications for
copyright registrations; and (d) unregistered trademarks, trade names, service
marks and copyrights. Target wholly owns the exclusive rights to all of the
above-described intellectual property and there are no known Threatened claims
of any third party challenging the ownership, scope or validity of any of the
said intellectual property; to the Knowledge of Stockholders, there is no
infringing use by any Person or entity of any of said intellectual property; and
to the Knowledge of Stockholders, there has been no disclosure of any of its
trade secrets to any Person other than Persons who have executed confidentiality
agreements with the Target or are otherwise legally bound to maintain
confidentiality thereof.
4.19 Real Property Leaseholds. Target leases its
facilities pursuant to the leases identified in the attached Schedule 4.19.
Target is not bound by any other real property leases, and Target does not own
any real property.
4.20 Accounts Receivables. To the Knowledge of
Stockholders, all of Target's accounts receivable arose in the Ordinary Course
of Business, are "arms length" and bona fide, and are correctly reflected in
Target's books and records. To the Knowledge of Stockholders, all of Target's
accounts receivable (net of reserves for doubtful accounts set forth on Target's
financial records) are collectible in accordance with their terms. To the
Knowledge of Stockholders, none of Target's accounts receivable or contracts is
subject to any set off, counterclaim or adjustment by reason of any product
liability, breach of warranty, contract, accounting error or other claim.
4.21 Insurance. Target maintains insurance policies as described on the
attached Schedule 4.21.
4.22 Environmental Matters.
4.22.1 Neither Target nor any predecessor of Target (i) has violated
or is violation of any environmental law; (ii) has owned or leased properties
(including but without limitation, soils and surface and ground waters) which
are contaminated with any Hazardous Substance; (iii) to the Knowledge of
Stockholders, is actually or potentially or, allegedly liable for any off-site
contamination; (iv) to the Knowledge of Stockholders, is actually or potentially
or, allegedly liable under any environmental law (including, without limitation,
pending or threatened liens); (v) has failed to obtain all permits, licenses and
other authorization required under any environmental law ("Environmental
Permits"); or (vi) has failed to be in compliance with its Environmental
Permits.
16
4.22.2 To the Knowledge of Stockholders, neither Target nor any of
its predecessors, or their respective subsidiaries or joint ventures, have any
material environmental liabilities, and none of such entities have had within
the five (5) years preceding the date hereof a material release of hazardous
substances into the environment in violation of any environmental law or
Environmental Permit.
4.22.3. For the purposes of this Section 4.22, the following terms
have the following meanings:
"Environmental Laws" shall mean any and all federal, state and local
laws (including case law), regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions relating to
(i) human health, the environment or emissions, discharges or releases of
pollutants, contaminants, Hazardous Substances or wastes into the
environment; (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof; or (3) the pollution of the environment.
"Environmental Liabilities" shall mean all liabilities, whether
vested or unvested, contingent or fixed, which (i) arise under or relate
to Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Closing Time.
"Hazardous Substances" shall mean (1) those substances defined in or
regulated under the following federal statutes and their state
counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act; the
Resources Conservation and Recovery Act; the Comprehensive Environmental
Response, Compensation and Liability Act; the Clean Air Act; the Safe
Drinking Water Act (Clean Water Act); the Atomic Energy Act; the Federal
Insecticide, Fungicide, and Rodenticide Act; and the Substances Control
Act; (2) petroleum and petroleum products including crude oil and any
fractions thereof; (3) natural gas, synthetic gas, natural gas liquids and
any mixtures thereof; (4) radon; (5) any other contaminant; and (6) any
substance with respect to which a Governmental Authority requires
environmental investigation, monitoring, reporting or remediation.
4.23 Employees.
4.23.1 Schedule 4.23 contains a complete and accurate list of the
following information for each employee or director of Target, including each
employee on leave of absence or layoff status; name; job title; current
compensation paid or payable by Target and any change in compensation since its
inception; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under any pension, retirement, profit-sharing,
thrift- savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance,
17
medical, welfare, or vacation plan, other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, or any other employee benefit plan or any
Director Plan.
4.23.2 No employee or director of Target is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other Person ("Proprietary Rights Agreement") that in any way
adversely affects or is likely to adversely affect (i) the performance of his
duties as an employee or director of Target, or (ii) the ability of Target to
conduct its business, including any Proprietary Rights Agreement with Target or
any current Target Shareholder by any such employee or director. To the
Knowledge of Stockholders, no director, officer, or other key employee of Target
intends to terminate his employment with Target.
4.24 Certain Payments. Since its inception, neither Target nor any
director, officer, agent, or employee of Target or any other Person associated
with or acting for or on behalf of Target has directly or indirectly (a) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any Person, private or public, regardless of form, whether in
money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of Target or any affiliate of Target, or (iv) in violation of any
Legal Requirement; or (b) established or maintained any fund or asset that has
not been recorded in the books and records of Target.
4.25 Relationships with Related Persons. Except as set forth in Schedule
4.25, no five percent or greater shareholder of Target nor any officer or
director of Target, has, or since the inception of Target has had, any interest
in any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to Target.
4.26 Brokers. Target has not incurred nor will it incur any brokerage,
finder's, or similar fee in connection with the Exchange or the Transaction.
4.27 Software Matters. To the Knowledge of Stockholders, Target owns, has
a valid license to use or has the right to use the computer software programs
used by Target in carrying on its business except where the failure to own,
validly license or have the right validly to use such software programs,
individually or in the aggregate, would not reasonably be expected to have an
adverse effect on such business.
4.28 Target Schedules. The Target Schedules shall be delivered
within 20 days from the day hereof. The Target Schedules delivered pursuant this
Agreement are qualified in their entirety by reference to specific provisions of
this Agreement, and are not intended to constitute, and shall not be construed
as constituting, independent representations and warranties of the Target or the
Stockholders to any extent. The Target Schedules may include items or
information which the Target or the Stockholders are not required to disclose
under this Agreement; disclosure of such items or information shall not affect
(directly or indirectly) the interpretation of this Agreement or the scope of
the disclosure obligation under this Agreement, including, without limitation,
any assessment of whether any matter arose or any agreement was
18
entered into in the Ordinary Course of Business. Inclusion of information herein
shall not be construed to establish a specific definition or level of what is
material to the business, assets, financial position, operations or results of
operations of the Target other than what is provided in the representations or
warranties themselves.
4.28.1 Prior to the Closing, the Stockholders may provide additional
schedules to qualify one or more of the representations and warranties of the
Stockholders in whole or in part and any such Schedule so delivered shall
constitute a Disclosure Schedule and qualify and limit the representations and
warranties of the Stockholders for all purposes of this Agreement to the same
extent as if such Schedule were referred to in this Agreement.
19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PACIFIC
Pacific represents and warrants to Stockholders, except as disclosed in
this Agreement or in the case of any representation qualified by its terms to a
particular schedule ("Schedule") of Pacific attached hereto ("Pacific Schedule")
such specific Pacific Schedule, that the statements made in this Article V will
be correct and complete at the Closing Time provided, however, if there is no
Closing Time, then no party shall be liable for any inaccuracy.
5.1 Organization. Pacific is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite licenses, qualifications, corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so existing and in good standing or to
have such qualifications, licenses, power and authority would not in the
aggregate have a material adverse effect on the business, operations or
financial condition of Pacific. Pacific is not currently in good standing in the
State of California but will be in good standing California at the time of the
Closing. Pacific is not qualified to do business in any other state.
5.2. Capitalization. The capitalization of Pacific is comprised of (1)
25,000,000 shares of common stock, $.001 par value, of which as of May 9, 2000,
10,509,058 shares were issued and outstanding, and (2) 5,000,000 shares of $.001
par value Preferred Stock of which no shares are issued or outstanding. All
outstanding shares have been duly authorized, validly issued, and fully-paid.
All of the outstanding shares are non-assessable and free of cumulative voting
or pre-emptive rights. There are no outstanding or presently authorized
securities, warrants, options, or related commitments of any nature of Pacific
not disclosed in this Agreement, in the Pacific Financial Statements or in the
Pacific Schedules (Schedule 5.2.) attached hereto. Schedule 5.2 includes, among
other things, a provision for additional shares to be issued to Pacific
Management for services rendered, consistent with prior practices. None of the
outstanding equity securities or other securities of Pacific was issued in
violation of the Securities Act or any other Legal Requirement. Prior to, or in
connection with, the Exchange, Pacific shall effect a 1-for-10 reverse split of
its outstanding shares. The anticipated post-Closing capitalization of Pacific
is set forth on "Exhibit "F" attached hereto.
5.3 Authority Relative to this Agreement.
Pacific has the full corporate power and authority to execute and deliver this
Agreement and, subject to Pacific shareholder approval to consummate the
Transaction. The execution and delivery of this Agreement has been duly and
validly authorized by the Board of Directors of Pacific. Except for the approval
of its shareholders, no other corporate proceedings on the part of Pacific are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. Subject to the laws of bankruptcy, insolvency, general creditor's
rights, and equitable principles, this Agreement has been duly and validly
executed and delivered by Pacific and constitutes a valid and binding agreement
of Pacific, enforceable against it in accordance with its terms.
20
5.4 Approvals and Consents; Noncontravention.
5.4.1 Except for filing an amended Certificate of Incorporation with
the State of Delaware in the form of Exhibit "D" attached hereto, no consent,
approval, or other action by, or notice to or registration or filing with, any
governmental or administrative agency or authority is required or necessary to
be obtained by Pacific in connection with the execution, delivery or performance
of this Agreement by Pacific or the consummation of the Transaction.
5.4.2 No consent, approval, waiver or other action by any Person
under any material contract, agreement, note, indenture, lease, instrument, or
other document, or obligation to which Pacific is a party or to which or by
which any of their properties or assets are bound is required or necessary for
the execution, delivery, and performance of this Agreement by Pacific or the
consummation of the Transaction.
21
5.4.3 The execution, delivery, or performance of this Agreement by
Pacific and the consummation of the Transaction will not (i) violate or conflict
with the charter documents or Bylaws of Pacific; (ii) violate or conflict with
any law, regulation, order, judgment, award, administrative interpretation,
injunction, writ, or decree applicable to Pacific or by which any of its
property or assets are bound, or any agreement or understanding between any
administrative or regulatory authority, on the one hand, and Pacific on the
other hand; or (iii) violate or conflict with, result in a breach of, result in
or permit the acceleration or termination of, or constitute a default under any
agreement, instrument, note, indenture, mortgage, lien, lease, or other
contract, arrangement, or understanding to which Pacific is a party or by which
any of their property or assets are bound.
5.5 Certificate of Incorporation and Bylaws. Attached hereto as Schedule
5.5 are true and correct copies of the Certificate of Incorporation and Bylaws
of Pacific. Such Certificate of Incorporation and Bylaws are in full force and
effect and no amendments are pending. Pacific is not in violation of any
provision of its Certificate of Incorporation or Bylaws. Schedule 5.5 also
contains all Board of Director minutes and resolutions and all Shareholder
minutes and resolutions of Pacific since January 1, 1998.
5.6 Financial Statements. Attached hereto as Schedule 5.6 are unaudited
consolidated financial statements of the Target as of March 31, 2000 ("Pacific
Management Reports") and audited financial statements of Pacific for the year
ended December 31, 1999, together with the related footnotes and report thereon
of Rose, Xxxxxx & Xxxxxx (the "Pacific Audited Financial Statements"). The
Pacific Management Reports are correct and complete in all material respects and
fairly present the financial position of Pacific as of such dates and the
results of operations and changes in financial position for such periods,
subject to normal recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse). The Pacific Audited
Financial Statements are correct and complete in all material respects and
fairly present, in accordance with GAAP, consistently applied, the financial
position of Pacific as of such dates and the results of operations and
22
changes in financial position for such periods. The Pacific Management
Reports and Pacific Audited Financial Statements are hereafter jointly referred
to as the "Pacific Financial Statements".
5.6.1 Pacific (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect (A) the transactions and
dispositions of assets of such entity and (B) the value of inventory calculated
in accordance with GAAP, and (ii) maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(C) access to assets is permitted only in accordance with management's general
or specific authorizations, and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
5.6.2 Neither Pacific nor any employee, agent, consultant or
representative of Pacific has made any payment of funds of Pacific or received
or retained any funds in violation of any applicable law, rule or regulation.
5.7 Undisclosed Material Liabilities. Pacific is not
subject to any material liabilities ($5,000 or more) of any kind whatsoever
(whether accrued, absolute, contingent, or otherwise) that are, individually or
in the aggregate, material to Pacific taken as a whole other than:
(a) liabilities disclosed or provided for in the most recent
Pacific Financial Statements;
(b) liabilities incurred in the ordinary course of business since
the date of the Pacific Financial Statements consistent with past
practice;
(c) liabilities contemplated by and arising under this Agreement;
and
(d) liabilities described in Schedule 5.7 attached hereto.
To the knowledge of Pacific, there is no basis for the imposition of any
other liabilities which could reasonably be expected to have a material adverse
effect on the business, properties, assets or operations of Pacific taken as a
whole.
5.7.1 Certain debt, including tax liabilities of Pacific, will be
dealt with pursuant to the treatment of such debt as set forth in Exhibit "C"
attached hereto,
5.8. Absence of Certain Changes or Events.
Except (i) as contemplated by this Agreement; and (ii) as disclosed in Schedule
5.8 attached hereto, since the most recent Pacific Financial Statements, Pacific
has not:
23
(a) suffered any change in its business, operations, properties,
condition (financial or otherwise), or Prospects which has had, or to
Knowledge of Pacific, could reasonably be expected to have, individually
or in the aggregate, a material adverse effect on the business,
properties, assets or operations of Pacific taken as a whole;
(b) suffered any damage, destruction or loss (whether or not covered
by insurance) with respect to any of its properties or assets which has
had, or to the Knowledge of Pacific, could reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the
business, properties, assets or operations of Pacific taken as a whole;
(c) except in the Ordinary Course of Business, incurred any
liability or obligation (absolute, accrued, contingent or otherwise), in
an amount in excess of $10,000;
(d) changed any of its accounting methods, principles or practices;
(e) revalued any asset, other than due to depreciation or
amortization;
(f) paid, discharged or satisfied any claim, liability or obligation
not reflected in the Pacific Financial Statements in an amount in excess
of $5,000;
(g) except in the Ordinary Course of Business and except for the
costs associated with this Transaction, entered into any commitment or
transaction material to Pacific taken as a whole in an amount in excess of
$5,000;
(h) declared, set aside or paid any dividend or distribution in
respect of any capital stock, or redeemed, purchased or otherwise acquired
any of these securities or modified its capitalization;
(i) increased or established any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards),
stock purchase or other employee benefit plan, or otherwise changed the
compensation payable or to become payable to any officer or key employees
of Pacific;
(j) except in the Ordinary Course of Business, canceled or written
off any debts or waived any claims in an amount in excess of $5,000;
(k) except in the Ordinary Course of Business, transferred any
assets in an amount in excess of $5,000 or made capital expenditures and
commitments in an amount in excess of $5,000 in the aggregate;
24
(l) paid or loaned (other than payment of salaries or benefits or
reimbursement of expenses) any amount to, or sold, transferred or leased
any properties or assets to, or entered into any contract with, any of its
officers or directors, or any Affiliate or Associate of any of its
officers or directors;
(m) increased its reserves for bad debts, guaranteed any obligation,
except in the Ordinary Course of Business, or indemnified any Person; or
(n) agreed (whether or not in writing) to do any of the foregoing.
5.9 Litigation and Proceedings. There is no claim or
Proceeding pending or, to the Knowledge of Pacific, Threatened against Pacific,
or any property or asset of Pacific, by any Person or any Governmental Authority
which (i) is reasonably likely to have, individually or in the aggregate, a
material adverse effect on the business, assets or operations of Pacific taken
as a whole or (ii) seeks to delay or prevent the consummation of the
Transaction. As of the date hereof, neither Pacific nor any property or asset of
Pacific, is subject to any Order. To the Knowledge of Pacific, there is no basis
for any claim, action or Proceeding against Pacific which could reasonably be
expected to have a material adverse effect on the business assets, operations or
financial condition of Pacific taken as a whole. Pacific has not received any
claim, complaint or charge from any current or former shareholder of Pacific
respecting any action taken or not taken by Pacific, or of any officer or
director thereof.
5.10 Compliance with Laws, Rules and Regulations. Pacific has no
governmental licenses or permits. To the Knowledge of Pacific, it complies with
all applicable federal laws, rules and regulations and all applicable state and
local laws, rules and regulations relating to the operation of its business,
except to the extent that non-compliance would not materially and adversely
affect the business, operations, properties, assets or condition of Pacific or
except to the extent that non-compliance would not result in the occurrence of
any material liability for Pacific.
5.10.1 To the Knowledge of Pacific, since January 1, 1998, Pacific
has made all filings with the United States Securities and Exchange Commission
("SEC") that it has been required to make under the Securities Act and the
Securities Exchange Act. The documents (including Pacific Financial Statements
contained therein) filed with the SEC, except as amended, complied in all
material respects with the requirements of the Securities Act and the Securities
Exchange Act and to the Knowledge of Pacific none of such documents contained a
misrepresentation of material fact or omitted to state a material fact required
to be stated therein to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
5.11 Contracts. Schedule 5.11 sets forth a complete and correct list of
all Contracts to which Pacific is a party or by which any of its properties or
assets are bound. To the best of its Knowledge, Pacific is not a party to any
other Contract. To the Knowledge of Pacific, and subject to the laws of
bankruptcy, insolvency, general creditor's rights, and equitable
25
principles, all Contracts to which Pacific is a party or by which its properties
or assets are bound and which are material to its operations taken as a whole,
are valid and enforceable in all material respects.
5.12 Material Contract Defaults. To the Knowledge of
Pacific, it is not in default in any material respect under the terms of any
outstanding contract, agreement, promissory notes, license, lease, or other
commitment which is material to the business, operations, assets, or condition
of Pacific, and there is no event of default or other event which, with notice
or lapse of time or both, would constitute a default in any material respect
under any such contract, agreement, lease, or other commitment in respect of
which Pacific has not taken adequate steps to prevent such a default from
occurring.
5.13 Taxes and Tax Returns. All Tax Returns with respect
to taxes based upon net income filed by Pacific since December 31, 1997 are set
forth in Schedule 5.13 attached hereto. Except as set forth on Schedule 5.13
Pacific has filed all Tax Returns required to be filed by it and has paid and
discharged all taxes shown as due thereon and has paid all taxes when due, other
than such payments as are being contested in good faith by appropriate
Proceedings and as to which sufficient reserves have been established. Except as
described on Schedule 5.13, neither the IRS nor any other taxing authority or
agency, domestic or foreign, is now asserting or, to the Knowledge of Pacific,
has Threatened to assess against Pacific, any deficiency or claim for additional
taxes or interest thereon or penalties in connection therewith. Pacific has not
granted any waiver of any statute of limitations with respect to, or agreed to
any extension of the period for the assessment of, any tax. Pacific has properly
reported on Form 1099 all amounts paid to consultants and no consultant or other
person to whom a payment has been made by Pacific should be classified as an
employee under the IRC.
All Tax Returns filed by Pacific are true, correct and complete in all
material respects and accurately set forth all items to the extent required to
be reflected or included in such returns by applicable law. Pacific is not a
party to any tax sharing agreement.
Pacific has not agreed, and is not required, to make any adjustments
pursuant to Section 481(a) of the IRC or any similar provision of state or local
law by reason of a change in accounting method initiated by it or any other
relevant party. To the Knowledge of Pacific, the IRS has not proposed any such
adjustment or change in accounting method. No application is pending with any
taxing authority requesting permission for any changes in accounting methods
that relate to the business or assets of Pacific.
5.13.1 Except as described in Schedule 5.13, the accruals and
reserves for taxes reflected in the most recent balance sheet ("Pacific Balance
Sheet") included in the Pacific Financial Statements are adequate to cover all
taxes accruable through such date (including interest and penalties, if any,
thereon) in accordance with generally accepted accounting principles
consistently applied. The term "tax" or "taxes" means federal state, local,
foreign, and other taxes, including without limitation, income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes,
value-added taxes, gross receipts taxes, withholding
26
taxes, stamp taxes, transfer taxes, windfall profit taxes, environmental taxes
and property taxes, whether or not measured in whole or in part by net income,
and all deficiencies, or other additions to tax, interest, fines and penalties.
5.13.2 Taxes of Pacific due and owing will be paid pursuant to the
Parties' agreement set forth on Exhibit "C" attached hereto.
5.14 No Subsidiaries. Pacific currently has no subsidiaries and
does not own any capital stock, security, partnership interest, or other
interest of any kind in any corporation, partnership, joint venture,
association, or other entity. Pacific will, prior to the Closing Time, form
Pacific Exchange Sub as a wholly-owned subsidiary solely for the purpose of
effecting the Exchange. Neither Pacific nor Pacific Exchange Sub will have any
other subsidiaries either prior to, or at, the Closing Date.
5.15 Intellectual Property. Pacific has no intellectual
properties.
5.16 Real Property Leaseholds. Pacific has no leasehold
properties or equipment and Pacific does not own any real property.
5.17 Accounts Receivables. Pacific has no accounts
receivable.
5.18 Inventory. Pacific has no inventory.
5.19 Insurance. Pacific maintains no insurance policies.
5.20 Environmental Matters.
5.20.1. Neither Pacific nor any predecessor of Pacific (i) has
violated or is violation of any Environmental Law; (ii) has owned or leased
properties (including but without limitation, soils and surface and ground
waters) which are contaminated with any Hazardous Substance; (iii) is actually
or potentially or, to the Knowledge of Pacific, allegedly liable for any
off-site contamination; (iv) is actually or potentially or, to the Knowledge of
Pacific, allegedly liable under any Environmental Law (including, without
limitation, pending or threatened liens); (v) has failed to obtain all permits,
licenses and other authorization required under any Environmental Law
("Environmental Permits"); or (vi) has failed to be in compliance with its
Environmental permits.
5.20.2 To the Knowledge of Pacific, neither Pacific nor any of its
predecessors, or their respective subsidiaries or joint ventures, have any
material Environmental Liabilities, and none of such entities have had within
the five (5) years preceding the date hereof a material release of Hazardous
Substances into the environment in violation of any Environmental Law or
Environmental Permit.
27
5.20.3 For the purposes of this Section 5.20, the following terms
have the following meanings:
"Environmental Laws" shall mean any and all federal, state and local
laws (including case law), regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions relating to
(i) human health, the environment or emissions, discharges or releases of
pollutants, contaminants, Hazardous Substances or wastes into the
environment; (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof; or (3) the pollution of the environment.
"Environmental Liabilities" shall mean all liabilities, whether
vested or unvested, contingent or fixed, which (i) arise under or relate
to Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Closing Time.
"Hazardous Substances" shall mean (1) those substances defined in or
regulated under the following federal statutes and their state
counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act; the
Resources Conservation and Recovery Act; the Comprehensive Environmental
Response, Compensation and Liability Act; the Clean Air Act; the Safe
Drinking Water Act (Clean Water Act); the Atomic Energy Act; the Federal
Insecticide, Fungicide, and Rodenticide Act; and the Substances Control
Act; (2) petroleum and petroleum products including crude oil and any
fractions thereof; (3) natural gas, synthetic gas, natural gas liquids and
any mixtures thereof; (4) radon; (5) any other contaminant; and (6) any
substance with respect to which a Governmental Authority requires
environmental investigation, monitoring, reporting or remediation.
5.21 Employees. Pacific has no full time employees. Schedule 5.21 sets
forth information about the compensation arrangements with the management of
Pacific.
5.22 Certain Payments. Since its December 31, 1997, neither Pacific nor
any director, officer, agent, or employee of Pacific or any other Person
associated with or acting for or on behalf of Pacific, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of Pacific or any affiliate of Pacific, or (iv) in
violation of any Legal Requirement, (b) established or maintained any fund or
asset that has not been recorded in the books and records of Pacific.
5.23. Brokers. Pacific has not incurred nor will it incur any brokerage,
finder's, or similar fee in connection with the Exchange or the Transaction.
28
5.24 Pacific Schedules. The Pacific Schedules shall be delivered
within 20 days from the date hereof. The Pacific Schedules delivered pursuant to
this Agreement are qualified in their entirety by reference to specific
provisions of this Agreement, and are not intended to constitute, and shall not
be construed as constituting, independent representations and warranties of
Pacific to any extent. The Pacific Schedules may include items or information
which Pacific are not required to disclose under this Agreement; disclosure of
such items or information shall not affect (directly or indirectly) the
interpretation of this Agreement or the scope of the disclosure obligation under
this Agreement, including, without limitation, any assessment of whether any
matter arose or any agreement was entered into in the Ordinary Course of
Business. Inclusion of information herein shall not be construed to establish a
specific definition or level of what is material to the business, assets,
financial position, operations or results of operations of Pacific other than
what is provided in the representations or warranties themselves.
5.24.1 Prior to the Closing, Pacific may provide additional schedules to
qualify one or more of the representations and warranties of Pacific in whole or
in part and any such Schedule so delivered shall constitute a Disclosure
Schedule and qualify and limit the representations and warranties of Pacific for
all purposes of this Agreement to the same extent as if such Schedule were
referred to in this Agreement.
5.25 Additional Information Available. Pacific
will make available to each Stockholder the opportunity to ask questions and
receive answers concerning the acquisition of Pacific Common Stock in the
Exchange, and to obtain any additional information which Pacific possesses or
can acquire without unreasonable effort or expense.
ARTICLE VI
CONDUCT PRIOR TO CLOSING
6.1 Conduct of Business. Except as contemplated as part of
the Transaction, prior to the Closing Date, Target and Pacific shall conduct
their respective businesses only in the ordinary course consistent with past
practice.
6.2 Additional Covenants by Target and Pacific. Between the date hereof
and the Closing Time, except as contemplated by this Agreement or in the
Ordinary Course of Business or with the prior written consent of the other
Parties, which consent shall not unreasonably be withheld, neither Pacific nor
Target shall:
(a) make any change in its Articles of Incorporation or Bylaws;
(b) make any change in the authorized or issued shares except as
contemplated by this Agreement;
29
(c) make any payment or distribution to shareholders (with respect
to their stock) or purchase or redeem any shares of capital stock;
(d) except in the Ordinary Course of Business, mortgage, pledge, or
subject to lien or encumbrance any of its respective assets, tangible or
intangible;
(e) except in the Ordinary Course of Business, cancel any debts or
claims or waive any rights of value;
(f) except in the Ordinary Course of Business or in connection with
this Transaction, incur any indebtedness or guarantees or enter into any
commitment or make any material capital expenditures or investments;
(g) make any loan, accrual or arrangement for or payment of bonuses
or special compensation of any kind or any severance or termination pay
to, any of its present or former officers or employees;
(h) make any material change in its method of management, operation,
or accounting;
(i) enter into any other material transactions;
(j) except in the Ordinary Course of Business, hire any Person as an
employee;
(k) adopt any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment,
or arrangement made to, for, or with its officers, directors, or
employees;
(l) grant or agree to grant any options, warrants, or other rights
for its stocks, bonds, or other corporate securities calling for the
issuance thereof;
(m) except in the Ordinary Course of Business, sell or transfer, or
agree to sell or transfer, any of its assets, property, or rights or
cancel or agree to cancel, any debts or claims;
(n) make or permit any amendment or termination (other than in
accordance with its terms) of any material Contract, agreement, or license
to which it is a party; or
(o) agree to do any of the foregoing.
6.3 Access. During normal business hours, Target shall give access to
Pacific (and its auditors, counsel and other authorized representatives), and
Pacific agrees to give access to Target (and its auditors, counsel and other
authorized representatives) to each of their premises and books and records,
including minute books and stock transfer records, and (ii) all contracts,
30
agreements and documents whether or not listed in the Schedules hereto;
provided, however, that any such investigation shall not affect any of the
representations and warranties hereunder or the right of any party hereto to
rely thereon; and provided further, that any such investigation shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the business of Target and Pacific. In the event of termination of this
Agreement for any reason Pacific, on the one hand, and Target, on the other
hand, will promptly return, or cause to be returned, to the other, all
non-public documents obtained from the other party, and any copies of such
documents.
6.4 Confidentiality. The Parties agree to keep confidential any
information obtained pursuant to their respective inspections under this
Agreement unless (i) such information is ascertainable from public sources or is
or becomes public other than through the inspecting party or its
representatives, or (ii) disclosure of such information is required by
applicable securities or other laws. Moreover, in the event of the termination
of this Agreement, the Parties agree that it will not disclose, utilize or
exploit to its advantage any information obtained from the other pursuant to its
examinations under this Agreement, unless necessary to comply with applicable
law or to enforce its rights hereunder.
The Parties agree that a Breach of the provisions of Section 6.4 of this
Agreement could cause irreparable damage to the other Parties. Consequently,
each agrees that in the event of any Breach of any provision of this Section 6.4
of this Agreement, a non-Breaching party, at its option, in addition to any
other remedies provided by law or otherwise, may apply to any court of competent
jurisdiction for the entry of an immediate order to restrain or enjoin the
Breach of these provisions and to otherwise specifically enforce the provisions
of Section 6.4 of this Agreement. A Party hereby expressly waives the claim or
defense in any such action that the aggrieved Party has an adequate remedy at
law or in damages.
6.5 Compliance with Blue Sky Law. The Parties
shall jointly take such action, make such filings and pay such filing fees as
may be reasonably necessary to comply with all applicable federal and state blue
sky laws, rules and regulations relating to the issuance of securities in the
Exchange.
6.6 Disclosure Supplements, Etc. Each Party will promptly notify each
other Party of any material event or change in the business or operation of
Pacific or Target respectively. From time to time prior to the Closing Time,
each Party will supplement or amend its respective Schedules with respect to any
matter hereafter arising which, if existing or occurring at or prior to the date
of this Agreement would have been required to be set forth or described in a
Schedule or which is necessary to complete or correct any information in a
Schedules or in any representation or warranty of a Party which has been
rendered inaccurate thereby.
6.7 Reasonable Efforts. Subject to the provisions hereof, the Parties
hereto shall use their reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under
31
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
6.8 Public Announcements. Prior to the Closing Time, no announcement or
disclosure of the Transaction will be made by any party without the consent of
all other Parties, which shall not be unreasonably withheld; provided that
Pacific may make an announcement if, on the advice of counsel and after
reasonable notice to Target it is required to do so under relevant securities
laws. In such event, Target shall be given an opportunity to review and comment
on such announcement prior to the time it is distributed publicly.
Article VII
Conditions of Stockholders
The obligation of the Stockholders to consummate the Exchange is subject
to the fulfillment, prior to or as of the Closing Time, of each of the following
conditions, any of which may, at the sole option of Stockholders, be waived:
7.1 Representations. The representations and warranties by or on behalf of
Pacific contained in this Agreement or in any certificate or documents delivered
to Stockholders pursuant to the provisions hereof shall be true in all material
respects at the Closing Time as though such representations and warranties were
made at and as of such time.
7.2 Compliance. Pacific shall have performed and complied with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing Time.
7.3 No Material Adverse Change. There shall not have
occurred (i) any material adverse change since the date of the most recent
Pacific Financial Statements in the business, Prospects, properties, results of
operations or financial condition of Pacific taken as a whole except for costs
associated with the Transaction; or (ii) any loss or damage to any of the
Prospects, properties of or assets of Pacific taken as a whole which could
reasonably be expected to materially adversely affect or impair their ability to
conduct after the Transaction the business now being conducted by them.
7.4 Certificate of Pacific. Pacific shall have delivered to
Stockholders, a certificate of Pacific, dated the Closing Time, and signed by
its President to the effect that (i) each of the representations and warranties
of Pacific contained herein is true in all material respects as of the Closing
Time; and (ii) Pacific has performed, in all material respects, all obligations
and complied with all covenants required by this Agreement to be performed and
complied with by it prior to the Closing Date.
7.5 Resignation of Directors and Officers of Pacific. The current
management of Pacific, shall resign as officers and directors of Pacific.
32
7.6 Shareholder Approval. Pacific's shareholders shall
have approved the Transaction.
7.7 Absence of Litigation. There shall not be any material
litigation, proceeding or governmental investigation pending, Threatened or
reasonably believed by Target or the Stockholders to be in prospect pertaining
to Pacific or the Exchange.
7.8 Good Standing. Pacific will be in good standing in its state of
incorporation at the Closing Time, and shall deliver a Certificate of Good
Standing to Stockholders at the Closing Time.
7.9 Reverse Split. Pacific shall have effected a 1-for-10 reverse split of
its issued and outstanding shares of common stock and have made similar
adjustments in the number of shares issuable upon the exercise of outstanding
options or warrants to purchase shares of Pacific common stock and the purchase
price thereof.
7.10 Financial Statements. The closing of the Exchange is conditioned upon
the availability, at the Closing Time, of such audited and other financial
statements as are required to be included in a Form 8-K required to be filed by
Pacific in connection with the Exchange.
7.11 Completion of Private Placement. Target shall have completed the sale
of at least the minimum number of Units offered in the private placement
described on Schedule 4.2
Article VIII
Conditions of Pacific
The obligation of Pacific to consummate the Exchange is subject to the
fulfillment, prior to or as of the Closing Time, of each of the following
conditions, any of which may, at the sole option of Pacific, be waived:
8.1 Representations. The representations and warranties by or on
behalf of Stockholders contained in this Agreement or in any certificate or
documents delivered pursuant to the provisions hereof shall be true in all
material respects at the Closing Time as though such representations and
warranties were made at and as of such time.
8.2 Compliance. Target and Stockholders shall have performed and complied
with all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing at the Closing Time.
8.3 No Material Adverse Change. There shall not
have occurred (i) any material adverse change since the date of the most recent
Target Financial Statements in the business, properties, results of operations
or financial condition of Target; or (ii) any loss or damage to any of the
properties of or assets of Target which will materially affect or impair its
ability to conduct after the Exchange the business now being conducted by
Target.
33
8.4 Certificate of Target and Stockholders.
Target and Stockholders shall have delivered to Pacific a certificate of Target,
dated the Closing Time, and signed by the President and Secretary of Target and
by each Stockholder to the effect that (i) each of the representations and
warranties of Target and Stockholders respectively contained herein and in
Target Schedules is true, accurate and complete in accordance with the terms
thereof as of the Closing Time; and (ii) Target and Stockholders have materially
performed all obligations and complied with all covenants required by this
Agreement to be performed and complied with by it and them prior to the Closing
Date.
8.5 Shareholders' Approval. The shareholders of Target shall have approved
the Transactions contemplated by this Agreement by the requisite vote.
8.6 Absence of Litigation. There shall not be any litigation,
proceeding or governmental investigation pending, Threatened or reasonably
believed by Pacific to be in prospect pertaining to Target, the Stockholders or
the Exchange except as disclosed in the Target Schedules or in this Agreement.
8.7 Good Standing. Target will be in good standing in its state of
incorporation at the Closing Time, and shall deliver a Certificate of Good
Standing to Pacific at the Closing Time.
8.8 Financial Statements. The closing of the Exchange is conditioned upon
the availability, at the Closing Time, of such audited and other financial
statements as are required to be included in a Form 8-K required to be filed by
Pacific in connection with the Exchange.
8.9 Non-Public Offering. The issuance of Pacific shares to the
Stockholders will not be registered but will be effected only if it can come
within Section 4(2) of the Securities Act of 1933, as a non-public offering, and
under applicable state securities exemptions as a non-public offering.
Article IX
Indemnification, Survival, Termination And Expenses
9.1 Nature and Survival of Representations. All representations,
warranties, and covenants made by any party to this Agreement shall survive the
Closing Date for one (1) year. All of the Parties hereto are executing and
carrying out the provisions of this Agreement in reliance solely on the
representations, warranties, covenants and agreements contained in this
Agreement and not upon any investigation which it might have made or any
representations, warranties, agreements, promises, or information, written or
oral, made by another party or another Person other than as specifically set
forth herein.
34
9.2 Indemnification. Within the period provided in paragraph 9.1 and in
accordance with the terms of that Paragraph, each party to this Agreement shall
indemnify and hold harmless each other Party at all times after the date of this
Agreement against and in respect of any liability, damage, or deficiency, all
actions, suits, proceedings, demands, assessments, judgments, costs, and
expenses which exceed, in the aggregate, $25,000 (exclusive of attorney's fees
incident to any of the foregoing), resulting from any misrepresentations, breach
of covenant or warranty, or nonfulfillment of any agreement on the part of such
party under this Agreement or from any misrepresentation in or omission from any
certificate furnished or to be furnished to a Party hereunder. Subject to such
$25,000 limitation, and the terms of this Agreement, the defaulting party shall
reimburse the other party or Parties on demand, for any reasonable payment made
by said Parties at any time after the Closing, in respect of any liability or
claim to which the foregoing indemnity relates, if such payment is made after
reasonable notice to the other party to defend or satisfy the same and such
party failed to defend or satisfy the same. No liability shall arise against a
party hereof regarding a settlement of any claim unless such settlement was
previously approved by such Party.
9.3 Arbitration.
9.3.1 All disputes arising out of this and any other controversy,
claim or dispute arising out of or relating to this Agreement or the Breach,
termination, enforceability or validity hereof, including the determination of
the scope or applicability of the agreement to arbitrate set forth in this
Agreement, shall be submitted to binding arbitration under this Section 9.3 upon
the written demand of a Party. The law to be applied in such arbitration shall
be as set forth in Section 10.10 of this Agreement.
9.3.2 Stockholders and Pacific (the "Arbitrating Parties") shall
each select one qualified arbitrator within 10 days of the date of the demand
for arbitration. The arbitration shall be governed by the American Arbitration
Association (the "AAA") under its commercial Arbitration Rules and its
Supplementary Procedures for Large, Complex Disputes, provided that persons
eligible to be selected as arbitrators shall be limited to attorneys-at-law who
(a) are on the AAA's Large, Complex Case Panel or a Center for Public Resources
("CPR") Panel of Distinguished Neutrals, or who have professional credentials
similar to the attorneys listed on such AAA and CPR Panels, and (b) who have
practiced law for at least 10 years as an attorney specializing in either
general commercial litigation or general corporate and commercial matters.
The two arbitrators so chosen shall select a neutral arbitrator who
shall reside in (or be employed within) the State of California. If the named
arbitrators cannot agree on a neutral arbitrator, the arbitrators shall make
application to the AAA Office in the State of California with a copy to the
Arbitrating Parties, requesting that the AAA select and appoint the third
arbitrator, who shall not reside or work in the State of California. This
selection shall be final and binding. Immediately upon appointment of the third
arbitrator, the arbitrating Parties shall present in writing to the panel of
three arbitrators (with a copy to the other) their statement of the issues in
dispute. Any questions of whether a dispute should be arbitrated under this
Section shall be decided by the arbitrators. In the event of conflict between
the provisions of this
35
Agreement and the provisions of the commercial arbitration rules of the AAA, the
provisions of this Agreement shall prevail.
The arbitrators, as soon as possible, shall meet, at a time and
place reasonably convenient for the participants, after giving each of the
Arbitrating Parties at least 10 days' notice. The failure of an Arbitrating
Party to appear at a hearing shall not operate as a default, and the attendance
of all arbitrators shall not be required at all hearings. Actions of the
arbitrators shall be by majority vote. After the hearing, the Arbitrating
Parties in regard to the matter in dispute, taking such evidence and making such
other investigation as justice requires and as the arbitrators deem necessary,
they shall decide the issues submitted to them as promptly as possible and serve
a written and signed copy of the award upon each of the Arbitrating Parties. To
assure the Arbitrating Parties that disputes and controversies will be resolved
expeditiously, the final arbitration hearing will occur within 60 days after the
arbitration is initiated and there will be limited discovery (including no more
than two depositions per party) prior to the arbitration hearing. If the
participants in the arbitration settle the dispute in the course of the
arbitration, such settlement shall be approved by the arbitrators on the request
of any of the Arbitrating Parties and become the award.
9.3.3 No provision of, nor the exercise of any rights under, this
Section 9.3, shall limit the right of any party to request and obtain from a
court of competent jurisdiction in the State of California (which shall have
exclusive jurisdiction for purposes of this Agreement before, during or after
the pendency of any arbitration) provisional or ancillary remedies and relief
including, but not limited to, injunctive or mandatory relief or the appointment
of a receiver. The institution and maintenance of an action or judicial
proceeding for, or pursuit of, provisional or ancillary remedies shall not
constitute a waiver of the right of any party, even if it is the plaintiff, to
submit the dispute to arbitration if such party would otherwise have such right.
Each of the parties hereby submits unconditionally to the exclusive jurisdiction
of the state and federal courts located in the State of California for purposes
of this provision, waives objection to the venue of any proceeding in any such
court or that any such court provides an inconvenient forum and consents to the
service of process upon it in connection with any proceeding instituted under
this Section 9.3 in the same manner as provided for the giving of notice
hereunder.
9.3.4 Judgment upon the award rendered may be entered in any court
having jurisdiction. The Arbitrating Parties hereby expressly consent to the
nonexclusive jurisdiction of the state and federal courts situated in the State
of California for this purpose and waive objection to the venue of any
proceeding in such court or that such court provides an inconvenient forum.
9.3.5 The prevailing party in any arbitration shall, subject to the
award of the arbitrators, be entitled to reimbursement of all costs and fees
paid by it in connection with the arbitration (including, without limitation,
reasonable attorney's fees) from the non-prevailing Party, except the
arbitrators shall have the power to apportion the award recovery in such
proportion as may otherwise be determined by the arbitrators.
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9.4. Exclusive Remedies. The indemnification provisions set
forth in this Article IX are the sole and exclusive remedies that any Party may
have for breach of any representation, warranty or covenant.
9.5 Termination. This agreement may be terminated at any time prior to the
Closing Time:
(a) by the mutual consent of Stockholders and Pacific;
(b) by Stockholders or Pacific if the Closing Time has not occurred by
June 30, 2000, or such other date, if any, as the Parties may agree to in
writing; and
(c) by Stockholders or Pacific if any other Party refuses or fails to
perform any covenant or agreement required to be performed by it under this
Agreement or if any representation or warranty of any other party proves to
have been inaccurate or misleading in any material respect at the time it
was made or at the Closing Time and the other party refuses or fails after
notice to correct or make not misleading any such misrepresentation or
warranty.
(d) by Pacific for any reason within twenty (20) days after it has
received all of the Target Schedules.
(e) by Stockholders for any reason within twenty (20) days after it has
received all of the Pacific Schedules.
9.6 Effect of Termination. If this Agreement is terminated as
permitted by Section 9.5. of this Agreement, such termination will be without
liability of any party (or any shareholder, director, officer, employee, agent,
consultant, or representative of such party) to the other Parties to this
Agreement; provided, that if such termination results from the failure of a
party to use its or his best efforts to fulfill a condition to the performance
of the obligations of the other Parties or to perform a covenant of this
Agreement or from a Breach by any party to this Agreement, such party will be
fully liable up to a maximum of $10,000 for any and all damages, costs, and
expenses (including, but not limited to, reasonable counsel fees) sustained or
incurred by the other Parties as a result of such failure or Breach.
Article X
Miscellaneous
10.1 Notices. Any notice provided for by this Agreement and any other
notice, demand, or communication that any party may wish to send another will be
in writing and either delivered in Person, transmitted by telecopier with
receipt appropriately confirmed, or sent by registered or certified United
States mail, first class postage prepaid, return receipt requested, in a
properly sealed envelope, and addressed as follows:
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Pacific
Xxxx X. Xxxxxxxxx
0000 Xxxxxxxx Xxxxxx
Xxxxx, XX 00000
With a copy (which shall not constitute notice) to:
Cohne, Xxxxxxxxx & Xxxxx
525 East 000 Xxxxx, Xxxxx Xxxxx
Xxxx Xxxx Xxxx, XX 00000
Attn: X. X. Xxxxxxx, Xx., Esq.
Target or Stockholders
Dr. Benefits, Inc.
0000 Xxxxxxxxx Xxxxx, Xxxxx 000X
Xxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxxx
With a copy (which shall not constitute notice) to:
Xxxxxxxx, August & Xxxxxxxxx
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxxx X. August, Esq.
The Parties to this Agreement may change their addresses for notice by
notice given in the manner provided above. Any notice, demand, or other
communication will be deemed given and effective as of the date of delivery in
Person or upon receipt as set forth on the return receipt. The inability to
deliver because of changed address of which no notice was given or the rejection
or other refusal to accept any notice, demand, or other communication, will be
deemed to be the receipt of the notice, demand, or other communication as of the
date of such inability to deliver or the rejection or refusal to accept.
10.2 Entire Agreement. This Agreement, together with all
schedules and exhibits attached to this Agreement or referenced herein,
constitutes the entire agreement between the Parties pertaining to the subject
matter of this Agreement and supersedes all prior agreements, understandings,
negotiations, and discussions, whether oral or written, of the Parties,
including but not limited to the Letter of Intent heretofore entered into by the
Parties, and there are no warranties, representations, or other agreements
between the Parties in connection with the subject matter of this Agreement
except as specifically set forth in this Agreement and such Schedules and
Exhibits hereto.
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10.3 Effect; Assignment. This Agreement and all of the
provisions of this Agreement will be binding and inure to the benefit of the
Parties to this Agreement and their respective successors and permitted assigns,
but, except as expressly provided in this Agreement, neither this Agreement nor
any of the rights, interests, or obligations under this Agreement will be
assigned by operation of law or otherwise, by any party to this Agreement
without the prior written consent of the other party. Nothing in this Agreement,
express or implied, is intended to confer upon any Person other than the Parties
to this Agreement and their respective successors and permitted assigns, any
rights, remedies, or obligations under or by reason of this Agreement.
10.4 Amendments; Waivers. No supplement, modification,
or amendment of this Agreement will be binding unless executed in writing by all
Parties to this Agreement. No waiver of any of the provisions of this Agreement
will be deemed or will constitute a waiver of any other provision of this
Agreement (regardless of whether similar), nor will any such waiver constitute a
continuing waiver unless otherwise expressly provided.
10.5 Further Assurances. At any time, and from time to time,
after the Closing Date each party will execute such additional instruments and
take such action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of this Agreement.
10.6 Schedules and Exhibits. Each of the Schedules and Exhibits attached
hereto is hereby incorporated herein by reference as an integral part of this
Agreement, and each reference to this Agreement shall be deemed to refer to the
Agreement together with all Schedules and Exhibits attached hereto.
10.7 Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 Severability. If any part of this Agreement is deemed to be
unenforceable, the balance of the Agreement shall remain in full force and
effect.
10.10. Governing Law. This Agreement shall be governed for all
purposes by the internal laws of the State of California, without giving effect
to the principles of conflicts of law applied thereby.
10.11 Jurisdiction; Service of Process. Subject to compliance with Section
9.3 of this Agreement, any action or proceeding seeking to enforce any provision
of, or based on any right arising out of, this Agreement may be brought against
any of the Parties in the applicable courts
39
of the County of Orange, State of California and each of the Parties consents to
the exclusive jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
10.12 Legal Fees and Expenses. The prevailing party in
any proceeding brought to enforce or interpret any provision of this Agreement
shall be entitled to recover its reasonable attorney's fees, costs and
disbursements incurred in connection with such proceeding, including, but not
limited to the costs of experts, accountants and consultants and all other costs
and services reasonably related to the proceeding, including those incurred in
any bankruptcy or appeal, from the non-prevailing party or Parties.
10.13 Schedules, Exhibits and Amendments. Disclosure in any Schedule of any
allegations with respect to any alleged failure to perform, or breach or default
of a contractual or other duty or obligation shall not be deemed an admission to
any party other than a party hereto that such has in fact occurred, but shall be
effective for the purposes for which such Schedule is intended as if such had in
fact occurred.
10.13.1 Descriptions of agreements, instruments and other matters
herein not required by the Agreement to be included herein are provided for
reference only and are not intended to be complete and are not represented as
such and each party is hereby referred to the actual agreement or instrument for
a description thereof. References to the agreements and instruments herein
include the Schedules, Exhibits and amendments thereto.
10.13.2 Headings have been inserted in the Schedules for convenience
of reference only and shall to no extent have the effect of amending or changing
the express description of the materials to be disclosed thereon as set forth in
the Agreements or other information contained in such Schedules.
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IN WITNESS WHEREOF, the Parties have executed this Agreement the day and
year first above written.
PACIFIC ALLIANCE CORPORATION
a Delaware corporation
Dated: May 14, 2000 By /s/ Xxxx X. Xxxxxxxxx
---------------------------------------
Xxxx X. Xxxxxxxxx, President
DR.BENEFITS, INC.,
a California corporation
Dated: May 14, 2000 By /s/ Xxxxx Xxxxxxxxxx
---------------------------------------
Xxxxx Xxxxxxxxxx, President
THE STOCKHOLDERS:
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[Name] Witness
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[Name] Witness
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[Name] Witness
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[Name] Witness
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[Name] Witness
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[Name] Witness
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[Name] Witness
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[Name] Witness
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[Name] Witness
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[Name] Witness
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