Exhibit 2.1
MERGER AGREEMENT
by and among
XANDO, INCORPORATED,
XANDO MERGER CORP.
and
COSI SANDWICH BAR, INC.
Dated as of October 4, 1999
TABLE OF CONTENTS
Page
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ARTICLE I
THE MERGER
Section 1.1 The Merger .............................................. 1
Section 1.2 The Closing; Effective Time ............................. 2
Section 1.3 Subsequent Actions ...................................... 2
Section 1.4 Surviving Corporation; Certificate of Incorporation;
By-laws; Officers and Directors ........................ 2
ARTICLE II
CAPITAL STOCK
Section 2.1 Treatment of Capital Stock .............................. 3
Section 2.2 Conversion of Cosi Common Stock ......................... 3
Section 2.3 [Intentionally Omitted] ................................. 3
Section 2.4 Conversion of Sub Common Stock .......................... 3
Section 2.5 Exchange Procedures ..................................... 3
Section 2.6 Transfer Books .......................................... 4
Section 2.7 [Intentionally Omitted]. ................................ 5
Section 2.8 Cosi Stock Options and Other Stock Plans ................ 5
Section 2.9 Appraisal Rights ........................................ 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COSI
Section 3.1 Organization and Qualification .......................... 6
Section 3.2 Certificate of Incorporation and By-laws ................ 6
Section 3.3 Capitalization .......................................... 6
Section 3.4 Authorization; Validity ................................. 7
Section 3.5 No Conflict; Required Filings and Consents .............. 7
Section 3.6 Financial Statements .................................... 8
Section 3.7 Absence of Certain Changes .............................. 8
Section 3.8 Litigation; Liabilities ................................. 9
Section 3.9 Compliance with Law ..................................... 9
Section 3.10 Properties. ............................................. 10
Section 3.11 Material Contracts ...................................... 11
Section 3.12 Accounts Receivable ..................................... 13
Section 3.13 Employee Matters; ERISA ................................. 13
Section 3.14 Environmental Matters ................................... 15
Section 3.15 Board Action; Required Vote ............................. 16
Section 3.16 Brokers; Expenses ....................................... 17
Section 3.17 Taxes ................................................... 17
Section 3.18 Intellectual Property ................................... 18
Section 3.19 Insurance ............................................... 19
Section 3.20 Accounting and Other Tax Matters ........................ 20
Section 3.21 Potential Conflicts of Interest ......................... 20
Section 3.22 No Other Agreements to Sell ............................. 20
Section 3.23 Customers ............................................... 20
Section 3.24 Products and Inventories ................................ 20
Section 3.25 Officers, Directors and Key Employees ................... 21
Section 3.26 Year 2000 ............................................... 21
Section 3.27 Cosi Shareholders ....................................... 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF XANDO AND SUB
Section 4.1 Organization and Qualification .......................... 22
Section 4.2 Certificate of Incorporation and By-laws ................ 22
Section 4.3 Capitalization .......................................... 22
Section 4.4 Authorization; Validity ................................. 23
Section 4.5 No Conflict; Required Filings and Consents .............. 24
Section 4.6 Financial Statements .................................... 24
Section 4.7 Absence of Certain Changes .............................. 25
Section 4.8 Litigation; Liabilities ................................. 25
Section 4.9 Compliance with Law ..................................... 26
Section 4.10 Properties. ............................................. 26
Section 4.11 Material Contracts ...................................... 28
Section 4.12 Accounts Receivable ..................................... 29
Section 4.13 Employee Matters; ERISA ................................. 29
Section 4.14 Environmental Matters ................................... 32
Section 4.15 Board Action; Required Vote ............................. 32
Section 4.16 Brokers; Expenses ....................................... 33
Section 4.17 Taxes ................................................... 33
Section 4.18 Intellectual Property ................................... 33
Section 4.19 Insurance ............................................... 34
Section 4.20 Accounting and Other Tax Matters ........................ 35
Section 4.21 Potential Conflicts of Interest ......................... 35
Section 4.22 No Other Agreements to Sell ............................. 36
Section 4.23 Customers ............................................... 36
Section 4.24 Products and Inventories ................................ 36
Section 4.25 Officers, Directors and Key Employees ................... 36
Section 4.26 Year 2000 ............................................... 37
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Section 4.27 Prior Operations of Sub ................................. 37
Section 4.28 Xando Shareholders ...................................... 37
ARTICLE V
CONDUCT PENDING THE MERGER
Section 5.1 Interim Operations of Cosi .............................. 37
Section 5.2 Interim Operations of Xando ............................. 40
Section 5.3 No Solicitation ......................................... 43
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Publicity ............................................... 44
Section 6.2 Further Actions ......................................... 44
Section 6.3 Expenses ................................................ 45
Section 6.4 Notification of Certain Matters ......................... 45
Section 6.5 Review of Information ................................... 45
Section 6.6 Indemnification; Directors' and Officers' Insurance ..... 45
Section 6.7 Amendment of Xando By-Laws .............................. 46
Section 6.8 Pooling-of-Interests .................................... 46
Section 6.9 Tax-Free Reorganization ................................. 46
Section 6.10 [Intentionally Omitted] ................................. 46
Section 6.11 Benefit Plans ........................................... 46
Section 6.12 Service Credit .......................................... 46
Section 6.13 Compensation Contracts .................................. 46
Section 6.14 Confidentiality Agreement ............................... 47
Section 6.15 Cosi Executive Agreements ............................... 47
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.1 Conditions to the Obligations of the Parties to
Consummate the Merger .................................. 49
Section 7.2 Additional Conditions to the Obligations of Xando and Sub 50
Section 7.3 Additional Conditions to the Obligations of Cosi ........ 51
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination ............................................. 52
Section 8.2 Effect of Termination and Abandonment ................... 52
Section 8.3 Amendment ............................................... 53
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ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations, Warranties and Agreements 53
Section 9.2 Notices ................................................. 53
Section 9.3 Certain Definitions; Interpretation ..................... 54
Section 9.4 Headings ................................................ 55
Section 9.5 Severability ............................................ 55
Section 9.6 Entire Agreement; No Third-Party Beneficiaries .......... 55
Section 9.7 Assignment .............................................. 55
Section 9.8 Governing Law ........................................... 55
Section 9.9 Counterparts ............................................ 56
EXHIBITS
Exhibit A Certificate of Incorporation of Surviving Corporation
Exhibit B By-Laws of Surviving Corporation
Exhibit C List of Officers and Directors of Surviving Corporation
Exhibit D Form of Indemnification and Escrow Agreement
Exhibit E Amendments to Xando Certificate of Incorporation
Exhibit F Amendments to Xando By-Laws
Exhibit G Form of Investor Representation Letter
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INDEX OF DEFINED TERMS
Unless otherwise indicated, each of the terms listed below as used
herein shall have the meaning ascribed to such term on the page hereof as
identified opposite such term below.
DEFINED TERM Page No.
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A
Acquisition Proposal .............................................. 44
Acquisition Transaction ........................................... 44
affiliate ......................................................... 54
Agreement ......................................................... 1
C
Certificate ....................................................... 3
Closing ........................................................... 2
Closing Date ...................................................... 2
Code .............................................................. 1
Compensation Contracts ............................................ 47
Confidential Information .......................................... 47
Confidentiality Agreement ......................................... 47
Contracts ......................................................... 11
control ........................................................... 54
Cosi .............................................................. 1, 18
Cosi Accounts Receivable .......................................... 13
Cosi Benefit Plan ................................................. 7
Cosi Common Stock ................................................. 1
Cosi Disclosure Letter ............................................ 6
Cosi Equity Rights ................................................ 6
Cosi Executives ................................................... 47
Cosi Financial Statements ......................................... 8
Cosi Improvements ................................................. 10
Cosi IP Rights .................................................... 18
Cosi Leased Real Property ......................................... 10
Cosi Material Adverse Effect ...................................... 54
Cosi Options ...................................................... 5
Cosi Overlease .................................................... 10
Cosi Permitted Encumbrances ....................................... 10
Cosi Real Property Leases ......................................... 10
Cosi Shares ....................................................... 1
Current Premium ................................................... 45
D
D&O Insurance ..................................................... 45
DGCL .............................................................. 1
Dissenting Shares ................................................. 5
E
Effective Time .................................................... 2
Environmental Claim ............................................... 15, 16
Environmental Laws ................................................ 16
ERISA ............................................................. 54
Escrow Agent ...................................................... 4
Exchange Ratio .................................................... 3
EY ................................................................ 49
G
GAAP .............................................................. 1
Governmental Entity ............................................... 8
H
Hazardous Materials ............................................... 16
I
Indemnification and Escrow Agreement .............................. 4
Indemnified Parties ............................................... 45
IRS ............................................................... 13
K
knowledge ......................................................... 54
M
Merger ............................................................ 1
N
New Certificate of Incorporation .................................. 2
Noncompete Period ................................................. 48
P
Parties ........................................................... 1
Party ............................................................. 1
PCBs .............................................................. 16
Person ............................................................ 54
R
Representative .................................................... 43
S
SEC ............................................................... 1
Stock Disclosure Date ............................................. 6
Sub ............................................................... 1
Sub Common Stock .................................................. 3
Subsidiary ........................................................ 54
Surviving Corporation ............................................. 2
T
Tax ............................................................... 17
Tax Return ........................................................ 17
Taxable ........................................................... 17
Taxes ............................................................. 17
Termination Date .................................................. 52
W
Work Product ...................................................... 47
X
Xando ............................................................. 1
Xando Accounts Receivable ......................................... 29
Xando Amendment Resolution ........................................ 32
Xando Amendments .................................................. 32
Xando Benefit Plan ................................................ 46
Xando Common Stock ................................................ 1
Xando Disclosure Letter ........................................... 22
Xando Equity Rights ............................................... 23
Xando Financial Statements ........................................ 25
Xando Improvements ................................................ 26
Xando IP Rights ................................................... 34
Xando Leased Real Property ........................................ 26
Xando Material Adverse Effect ..................................... 54
Xando Merger Resolutions .......................................... 32
Xando Overlease ................................................... 26
Xando Permitted Encumbrances ...................................... 27
Xando Real Property Leases ........................................ 26
Xando Series A Preferred Stock .................................... 22
Xando Series B Preferred Stock .................................... 22
Xando Series C Preferred Stock .................................... 22
Xando Shares ...................................................... 1
Y
Year 2000 Problem ................................................. 21
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MERGER AGREEMENT
MERGER AGREEMENT, dated as of October 4, 1999 (this "Agreement"), by
and among Xando, Incorporated, a Delaware corporation ("Xando"), Xando Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of Xando ("Sub"),
and Cosi Sandwich Bar Inc., a Delaware corporation ("Cosi"). Each of Xando, Sub
and Cosi is sometimes referred to herein as a "Party," and together they are
sometimes referred to herein as the "Parties."
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Xando, Sub and Cosi
have adopted resolutions approving this Agreement and declaring its
advisability;
WHEREAS, pursuant to this Agreement, Sub will merge with and into
Cosi on the terms and subject to the conditions set forth herein (the "Merger")
and, in connection therewith, each issued and outstanding share of common stock,
par value $.01 per share, of Cosi ("Cosi Common Stock" or "Cosi Shares"), other
than Dissenting Shares, will be converted into shares of common stock, par value
$0.01 per share, of Xando ("Xando Common Stock" or "Xando Shares"), in
accordance with the provisions of Article II of this Agreement;
WHEREAS, it is intended that, for accounting purposes, the Merger
will be accounted for as a pooling-of-interests under United States generally
accepted accounting principles ("GAAP") and applicable rules and regulations of
the United States Securities and Exchange Commission (the "SEC");
WHEREAS, for federal income tax purposes, the Merger is intended to
qualify as a tax-free reorganization under the provisions of Section 368 of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Xando, Sub and Cosi desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the Parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time, subject to the terms
and on the conditions of this Agreement and in accordance with applicable
provisions of the Delaware General Corporation Law, as amended (the "DGCL"), Sub
shall be merged with and into Cosi
and the separate corporate existence of Sub shall cease. Cosi shall continue as
the surviving corporation (the "Surviving Corporation") in the Merger, and as of
the Effective Time shall be a wholly-owned subsidiary of Xando and continue to
exist as a corporation organized under the DGCL. The Merger shall have the
effects specified in Sections 259, 260 and 261 of the DGCL.
Section 1.2 The Closing; Effective Time. (a) The closing of the
Merger (the "Closing") shall take place (i) at the offices of Cleary, Gottlieb,
Steen & Hamilton, One Liberty Plaza, New York, New York, at 12:00 p.m. local
time, on October 7, 1999, subject to satisfaction or waiver of the conditions
set forth in Article VII or (ii) at such other place, time and/or date as Xando
and Cosi shall mutually agree in writing (the "Closing Date").
(b) On the Closing Date, the Surviving Corporation shall file a
certificate of merger in respect of the Merger in accordance with Sections 103
and 251 of the DGCL. The Merger shall become effective upon the filing of the
certificate of merger with the Secretary of State of Delaware, or at such later
date specified in the certificate of merger (as mutually agreed by Xando and
Cosi) not more than 90 days subsequent to the filing of the certificate of
merger with the Secretary of State of Delaware (the "Effective Time").
Section 1.3 Subsequent Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, properties,
privileges, franchises or assets of either of its constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger, or otherwise to carry out the intent of this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Cosi, Sub or the
Surviving Corporation, all such deeds, bills of sale, assignments and assurances
and to take and do, in the name and on behalf of each such corporation, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties, privileges, franchises or assets in the Surviving Corporation or
otherwise to carry out the intent of this Agreement.
Section 1.4 Surviving Corporation; Certificate of Incorporation;
By-laws; Officers and Directors. Unless otherwise agreed by Xando and Cosi prior
to the Closing, at the Effective Time:
(a) the certificate of incorporation of Sub as in effect immediately
prior to the Effective Time (a true and correct copy of which is attached hereto
as Exhibit A) shall be, at and after the Effective Time, the certificate of
incorporation of the Surviving Corporation (the "New Certificate of
Incorporation") until further altered, amended or repealed in accordance with
the New Certificate of Incorporation or applicable law;
(b) the by-laws of Sub as in effect immediately prior to the
Effective Time (a true and correct copy of which is attached hereto as Exhibit
B) shall be, at and after the Effective Time, the by-laws of the Surviving
Corporation until further altered, amended or repealed in accordance with the
New Certificate of Incorporation, such by-laws or applicable law; and
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(c) the officers and directors of the Surviving Corporation from and
after the Effective Time shall be the Persons set forth in Exhibit C attached
hereto, until their successors are elected or appointed and qualified or until
their earlier resignation or removal.
ARTICLE II
CAPITAL STOCK
Section 2.1 Treatment of Capital Stock. The manner and basis of
converting shares of Cosi Common Stock and shares of common stock, par value
$0.01 per share, of Sub ("Sub Common Stock"), by virtue of the Merger and
without any action on the part of Cosi, Sub, Xando or any holder thereof, shall
be as set forth in this Article II.
Section 2.2 Conversion of Cosi Common Stock. (a) At the Effective
Time, each share of Cosi Common Stock issued and outstanding immediately prior
to the Effective Time (excluding Dissenting Shares), and all rights in respect
thereof, shall forthwith cease to exist and shall be converted into the right to
receive, subject to the provisions of Section 2.5(b), 11.237 (the "Exchange
Ratio") shares of validly issued, fully paid and nonassessable shares of Xando
Common Stock.
(b) Except as otherwise provided herein, commencing immediately
after the Effective Time, each certificate (a "Certificate") which, immediately
prior to the Effective Time, represents issued and outstanding shares of Cosi
Common Stock (other than Dissenting Shares) shall evidence the right to receive
shares (whole and/or fractional) of Xando Common Stock on the basis set forth in
paragraph (a) above and dividends or distributions, if any, pursuant to Section
2.5(a) hereof.
Section 2.3 [Intentionally Omitted]
Section 2.4 Conversion of Sub Common Stock. At the Effective Time,
each share of Sub Common Stock issued and outstanding immediately prior to the
Effective Time, and all rights in respect thereof, shall forthwith cease to
exist and shall be converted into one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
Section 2.5 Exchange Procedures. (a) As soon as reasonably
practicable after the Effective Time, Xando shall mail to each record holder of
a Certificate, as of immediately prior to the Effective Time, (i) a letter of
transmittal (which (x) shall specify that delivery of such Certificate shall be
effected, and risk of loss and title to such Certificate shall pass, only upon
delivery thereof to Xando and (y) shall be in such form and have such other
provisions as Xando shall reasonably specify) and (ii) instructions for
effecting the surrender of such Certificate for a certificate representing
shares of Xando Common Stock as provided in this Article II. Commencing
immediately after the Effective Time, upon the surrender to Xando of one or more
Certificates, together with a duly executed and completed letter of transmittal
and all other documents and materials required by Xando to be delivered in
connection therewith, the holder thereof shall be entitled to receive a
certificate or certificates representing the number of shares (whole and/or
fractional) of Xando Common Stock into which the shares of Cosi Common Stock
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which immediately prior to the Effective Time were represented by such
surrendered Certificate or Certificates shall have been converted pursuant to
the provisions of Section 2.2. Unless and until a Certificate is so surrendered,
no dividend or other distribution, if any, payable to the holders of record of
shares of Xando Common Stock as of any date subsequent to the Effective Time
shall be paid to the holder of such Certificate in respect thereof or in respect
of the Xando Common Shares into which such Certificate is exchangeable. Except
as otherwise provided herein, upon the surrender of a Certificate, the record
holder of the certificate or certificates representing shares of Xando Common
Stock issued in exchange therefor shall be entitled to receive (i) at the time
of surrender, the amount of any dividends or other distributions (net of any
applicable tax withholdings) having a record date after the Effective Time and a
payment date prior to the surrender date, and (ii) at the appropriate payment
date, the amount of dividends or other distributions (net of any applicable tax
withholdings) having a record date after the Effective Time and a payment date
subsequent to the surrender date, in each case, payable in respect of such
shares of Xando Common Stock. No interest shall be payable in respect of the
payment of dividends or distributions pursuant to the immediately preceding
sentence.
(b) Notwithstanding anything in this Agreement to the contrary, at
the Effective Time, Xando shall, pursuant to the terms of an Indemnification and
Escrow Agreement substantially in the form of Exhibit D attached hereto (the
"Indemnification and Escrow Agreement") which is to be entered into by and among
Xando, Jonathan M. Wainwright, Jr., as representative for the holders of the
Cosi Common Stock, and a third party reasonably acceptable to Cosi and Xando
(the "Escrow Agent"), deposit into an escrow account maintained with the Escrow
Agent, shares representing ten percent (10%) of the aggregate shares of Xando
Common Stock into which the holders of Cosi Common Stock would otherwise be
entitled to convert their shares, as determined pursuant to this Article II.
Such shares shall be held and disbursed in accordance with the terms and
conditions of the Indemnification and Escrow Agreement.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and the posting by such person
of a bond in a form reasonably satisfactory to Xando as indemnity against any
claim that may be made against Xando with respect to such Certificate, Xando
will issue the certificate or certificates representing shares of Xando Common
Stock and any cash, dividends and other distributions in respect thereof
issuable and/or payable in exchange for such lost, stolen or destroyed
Certificate pursuant to this Article II.
Section 2.6 Transfer Books. The stock transfer books of Cosi shall
be closed at the Effective Time and no transfer of any Cosi Shares will
thereafter be recorded on any of such stock transfer books. In the event of the
transfer of ownership of any Cosi Shares that are not registered in the stock
transfer records of Cosi at the Effective Time, a certificate or certificates
representing the number of shares of Xando Common Stock into which such Cosi
Shares shall have been converted in the Merger shall be issued to the
transferee, and a cash payment in respect of dividends or distributions owing,
if any, in accordance with Section 2.5(a), but in each case, only if the
certificate or certificates which immediately prior to the Effective Time
represented such Cosi Shares are surrendered as provided in Section 2.5,
accompanied by all documents required to evidence and effect such transfer and
by evidence of the prior payment of any applicable stock transfer taxes.
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Section 2.7 [Intentionally Omitted].
Section 2.8 Cosi Stock Options and Other Stock Plans. (a) Prior to
the Effective Time, Cosi shall take all action necessary with respect to each of
the plans or arrangements of Cosi pursuant to which options to purchase Cosi
Shares (the "Cosi Options") shall be outstanding (whether or not then vested or
exercisable) immediately prior to the Effective Time such that, as of and after
the Effective Time, (i) each Cosi Option shall entitle the holder thereof to
purchase such number of shares of Xando Common Stock as is equal to the product
of (A) the number of shares of Cosi Common Stock subject to such Cosi Option
immediately prior to the Effective Time and (B) the Exchange Ratio, and (ii) the
exercise price per share of Xando Common Stock subject to such Cosi Option shall
be equal to the quotient derived by dividing (x) the exercise price per share of
Cosi Common Stock under such Cosi Option immediately prior to the Effective Time
by (y) the Exchange Ratio. Except as may be required by the terms of the Cosi
Options, Cosi shall not cause any Cosi Option, which, pursuant to its terms as
in effect as of the date hereof, would not become vested or exercisable by
reason of the transactions contemplated by this Agreement, to become vested or
exercisable in connection herewith, and nothing contained in this Agreement
shall be interpreted as causing any such Cosi Option to become vested or
exercisable.
(b) Notwithstanding the foregoing, the number of shares of Xando
Common Stock deliverable upon exercise of each Cosi Option at and after the
Effective Time as contemplated by paragraph (a) above shall be rounded, if
necessary, to the nearest whole share, and the exercise price with respect
thereto shall be rounded, if necessary, to the nearest one one-hundredth of a
cent. Other than as provided in paragraph (a) above and in the prior sentence of
this paragraph (b), as of and after the Effective Time, each Cosi Option shall
be subject to the same terms and conditions as in effect immediately prior to
the Effective Time, but giving effect to the Merger. Notwithstanding anything to
the contrary contained herein, the adjustments provided in Sections 2.8(a) and
(b) hereof with respect to any Cosi Options that are "incentive stock options"
(as defined under section 422 of the Code) shall be effected in a manner
consistent with section 424(a) of the Code.
(c) Xando shall take any additional corporate action necessary to
reserve for issuance a sufficient number of shares of Xando Common Stock for
delivery upon exercise of all of the Cosi Options in accordance with this
Section 2.8.
Section 2.9 Appraisal Rights. Holders of Cosi Shares meeting certain
statutory requirements set forth in Section 262 of the DGCL may exercise
appraisal rights with respect to those Shares in connection with the Merger.
Cosi shall give Xando (i) prompt notice of any written demand for payment in
respect of such shares ("Dissenting Shares") received by Cosi pursuant to
Section 262 of the DGCL, and (ii) the opportunity to direct and conduct all
negotiations and proceedings with respect to stockholders' demands to so
exercise their appraisal rights under the DGCL. Cosi shall not, except with the
prior written consent of Xando, (x) make or issue any statement as to the
estimated fair value of Cosi Shares, (y) make any payment with respect to any
Dissenting Shares, or (z) offer to settle, settle or approve the withdrawal of
any demand to exercise appraisal rights with respect to any Cosi Shares.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COSI
Except as set forth in the corresponding sections or subsections of
the disclosure letter, dated as of the date hereof, delivered by Cosi to Xando
(the "Cosi Disclosure Letter"), Cosi hereby represents and warrants, as of the
date hereof and as of the Closing Date, to Xando and Sub as follows:
Section 3.1 Organization and Qualification. Cosi is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, with the requisite corporate or
other organizational power to own, operate or lease its properties and to carry
on its business as it is now being conducted, and is duly qualified and in good
standing as a foreign corporation authorized to do business in each jurisdiction
where the character of its properties owned, operated or leased or the nature of
its business or activities makes such qualification necessary, in each case,
except as would not, individually or in the aggregate, reasonably be expected to
have a Cosi Material Adverse Effect. The Cosi Disclosure Letter lists each
jurisdiction where Cosi is qualified to do business. Cosi does not have any
Subsidiaries.
Section 3.2 Certificate of Incorporation and By-laws. Cosi has
furnished, or otherwise made available, to Xando a complete and correct copy of
its certificate of incorporation and by-laws, as amended. Such certificate of
incorporation and by-laws are in full force and effect. Cosi has not violated
and is not in violation of any of the provisions thereof.
Section 3.3 Capitalization. (a) The authorized capital stock of Cosi
consists of 700,000 shares of Cosi Common Stock. As of October 1, 1999 (the
"Stock Disclosure Date"), 325,338 shares of Cosi Common Stock were issued and
outstanding and no shares of Cosi Common Stock were held by Cosi in its
treasury. The Cosi Disclosure Letter lists the number of shares of Cosi Common
Stock issued and reserved for issuance as of the Stock Disclosure Date under
each of the Cosi Benefit Plans or otherwise. All of the issued and outstanding
shares of Cosi Common Stock are validly issued, fully paid, non-assessable and
free of pre-emptive rights.
(b) Since the Stock Disclosure Date, no shares of Cosi Common Stock
have been issued or reserved for issuance, except in respect of the exercise,
conversion or exchange of Cosi Equity Rights outstanding as of the Stock
Disclosure Date.
(c) At the close of business on the Stock Disclosure Date, there
were outstanding Cosi Equity Rights with respect to 161,246 shares of Cosi
Common Stock and no other Cosi Equity Rights outstanding. The Cosi Disclosure
Letter sets forth (i) the per share exercise price of each of the outstanding
Cosi Equity Rights described in the preceding sentence (on an aggregate basis
for each per share exercise price) and (ii) a description of each Cosi Benefit
Plans pursuant to which each such Cosi Equity Right was granted or issued. For
purposes of this Agreement, (A) "Cosi Equity Rights" shall mean subscriptions,
options, warrants, calls, commitments, agreements, conversion rights or other
rights of any character (contingent or otherwise) to purchase or otherwise
acquire from Cosi at any time, or upon the happening of any stated event, any
shares of the capital stock of Cosi, and (B) "Cosi Benefit
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Plan" means any employee benefit plan, arrangement, practice, contract or
agreement of any type (including but not limited to a plan described in Section
3(3) of ERISA), maintained from time to time by one or more operating unit of
Cosi for any of its employees.
(d) There are no outstanding obligations of Cosi to repurchase,
redeem or otherwise acquire any shares of Cosi Common Stock or any Cosi Equity
Rights, and no shares of Cosi Common Stock have ever been repurchased by Cosi.
(e) No holder of Cosi Shares or Cosi Equity Rights is party to any
voting agreement, voting trust or similar arrangement with respect to Cosi
Shares. To the knowledge of Cosi, there are no irrevocable proxies with respect
to any of the Cosi Shares whether outstanding or issuable upon the exercise of
Cosi Equity Rights.
(f) Cosi does not own any direct or indirect interest or investment
in the equity or debt for borrowed money of any Person or have any obligation or
any commitment to acquire any such interest or make any such investment.
Section 3.4 Authorization; Validity. Cosi has the necessary
corporate power to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby,
except that this Merger Agreement is subject to adoption by Cosi's stockholders,
and to the certification of such adoption by the Secretary or Assistant
Secretary of Cosi, as required by Section 251 of the DGCL. The execution and
delivery of this Agreement by Cosi, the performance by Cosi of its obligations
hereunder and the consummation by Cosi of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action on the part of Cosi,
except that this Merger Agreement is subject to adoption by Cosi's stockholders
and the certification of such adoption by the Secretary or Assistant Secretary
of Cosi, as required by Section 251 of the DGCL. This Agreement has been duly
executed and delivered by Cosi and, assuming the due authorization, execution
and delivery by Xando and Sub hereof, constitutes a valid and binding obligation
of Cosi enforceable against it in accordance with the terms hereof, subject to
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
similar laws of general applicability relating to or affecting creditors' rights
generally (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
Section 3.5 No Conflict; Required Filings and Consents. (a) The
execution and delivery by Cosi of this Agreement does not, and the performance
by Cosi of its obligations hereunder and the consummation by Cosi of the
transactions contemplated hereby, will not, (i) violate or conflict with the
certificate of incorporation or by-laws of Cosi, (ii) subject to obtaining or
making the notices, reports, filings, waivers, consents, approvals or
authorizations referred to in paragraph (b) below, conflict with or violate any
law, regulation, court order, judgment or decree applicable to Cosi or by which
its assets or properties are bound or subject, (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
cancellation, vesting, modification, alteration or acceleration of any
obligation under, or result in the creation of a lien, claim or encumbrance on
any of the properties or assets of Cosi or the Surviving Corporation pursuant
to, or result in the loss of any benefit under (including an increase in the
price paid by, or cost to, Cosi or the Surviving Corporation), or require the
consent of any other
-7-
party to, or result in any obligation on the part of Cosi or the Surviving
Corporation to repurchase (with respect to a bond or a note), any agreement,
contract, instrument, bond, note, indenture, permit, license or franchise to
which Cosi or the Surviving Corporation is a party or by which Cosi, the
Surviving Corporation or any of their respective assets or properties are bound
or subject.
(b) Except for the filing of a certificate of merger with respect to
the Merger as required by the DGCL or any filings required pursuant to any state
securities, "blue sky" or takeover laws, Cosi is not required to submit any
notice, report or other filing with any Governmental Entity in connection with
the execution, delivery, performance or consummation of this Agreement or the
Merger. Except as set forth in the immediately preceding sentence, no waiver,
consent, approval or authorization of any governmental or regulatory authority,
court, agency, commission or other governmental entity or securities exchange or
other self-regulatory body, domestic or foreign ("Governmental Entity"), is
required to be obtained by Cosi in connection with the execution, delivery,
performance or consummation by Cosi of this Agreement or any agreement or,
instrument or other document contemplated hereby or the transactions
contemplated hereby or thereby.
Section 3.6 Financial Statements. (a) The audited balance sheets of
Cosi for the fiscal years ended December 29, 1996, December 28, 1997 and
December 27, 1998 and the related audited statements of operations,
stockholders' equity and cash flows for such fiscal years, reported on by
Wolfson, Milowsky, Melzer, Wiesenthaler & Ackereizen, CPAs, P.C., independent
certified public accountants, have been prepared in accordance with GAAP,
applied on a consistent basis during the periods involved (except as may be
disclosed in the notes thereto) and fairly present in all material respects the
financial position of Cosi as at the dates thereof and the results of its
operations and its cash flows for the periods then ended. The books of account
of Cosi have been prepared and maintained in accordance with Cosi's normal
practice consistent with the accounting principles and policies reflected in the
Cosi financial statements which are referred to in this Section 3.6 (the "Cosi
Financial Statements").
(b) The financial statements, including all related notes and
schedules, contained in the Cosi Financial Statements, fairly present in all
material respects the financial position of Cosi as of the respective dates
thereof and the results of operations, retained earnings and cash flows of Cosi
fairly present in all material respects the position of Cosi for the respective
periods indicated, in each case in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as disclosed in the notes
thereto).
Section 3.7 Absence of Certain Changes. (a) Since December 27, 1998,
Cosi has conducted its business in the ordinary course consistent with past
practice (except in connection with the negotiation, execution and delivery of
this Agreement or as would not, individually or in the aggregate, reasonably be
expected to have a Cosi Material Adverse Effect) and Cosi has not suffered any
change constituting or reasonably likely to constitute a Cosi Material Adverse
Effect.
(b) Since December 27, 1998, there has not been (i) any declaration,
setting aside or payment of any dividend or other distribution in respect of the
capital stock of Cosi, other than regular cash dividends consistent with past
practice; (ii) any change by Cosi to its
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accounting policies, practices or methods except as required or permitted by
GAAP; (iii) any amendment or change to the terms of any indebtedness material to
Cosi; (iv) other than in the ordinary course of business consistent with past
practice, any incurrence or cancellation of any claim, obligation, commitment or
indebtedness material to Cosi; (v) other than in the ordinary course of business
consistent with past practice, any material transfer, lease, license, sale,
mortgage, pledge, encumbrance or other disposition of assets or properties of
Cosi; (vi) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by Cosi, whether or not
covered by insurance; (vii) other than in the ordinary course of business
consistent with past practice, with respect to employees other than executive
officers or directors, or except as required by applicable law, (A) any
execution, adoption or amendment of any agreement or arrangement relating to
severance or any employee benefit plan or employment or consulting agreement
(including, without limitation, the Cosi Benefit Plans) or (B) any grant of any
stock options or other equity related award; or (viii) any agreement or
commitment entered into with respect to any of the foregoing.
Section 3.8 Litigation; Liabilities. (a) There are no civil,
criminal or administrative actions, suits or claims, proceedings (including
condemnation proceedings), hearings or investigations pending or, to the
knowledge of Cosi, threatened against or otherwise adversely affecting, Cosi or
its assets or properties, except for any of the foregoing which would not,
individually or in the aggregate, reasonably be expected to have a Cosi Material
Adverse Effect.
(b) Cosi (i) is not subject to, nor has it received any notice
regarding, any cease and desist or other order, judgment, injunction or decree
issued by, (ii) is not a party to any written agreement, consent agreement or
memorandum of understanding with, (iii) is not a party to any commitment letter
or similar undertaking to, (iv) is not subject to any order or directive by, and
(v) has not adopted any board resolutions at the request of, any Governmental
Entity, that restricts the conduct of business (whether the type of business,
the location thereof or otherwise) except for those which, individually or in
the aggregate, would not reasonably be expected to have a Cosi Material Adverse
Effect, nor, to the knowledge of Cosi, has any Governmental Entity proposed
issuing or requesting any of the foregoing, which, individually or in the
aggregate, would reasonably be expected to have a Cosi Material Adverse Effect.
(c) Cosi does not have any liabilities (absolute, accrued,
contingent or otherwise), except (i) liabilities reflected or fully provided for
in the balance sheet of Cosi (and related notes thereto) contained in the Cosi
Financial Statements for its fiscal year ended December 27, 1998, (ii)
liabilities incurred in Cosi's current fiscal year in the ordinary course of
business consistent with past practice, (iii) liabilities permitted to be
incurred pursuant to Section 5.1 or (iv) liabilities which, individually or in
the aggregate, would not have a Cosi Material Adverse Effect.
Section 3.9 Compliance with Law. The business of Cosi is being
conducted in accordance with all applicable statutes of law, ordinances,
regulations, judgments, orders or decrees of any Governmental Entity, and not in
violation of any permits, franchises, licenses, authorizations or consents
granted by any Governmental Entity except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have a Cosi Material
Adverse Effect, and Cosi has obtained all permits, franchises, licenses,
authorizations or consents
-9-
necessary for the conduct of its business except for such permits, franchises,
licenses, authorizations or consents the failure of which to obtain,
individually or in the aggregate, would not reasonably be expected to have a
Cosi Material Adverse Effect.
Section 3.10 Properties.
(a) Owned Properties. Cosi owns no real property.
(b) Leased Properties. (i) The Cosi Disclosure Letter sets forth a
true, correct and complete list of all leases, subleases, sub-subleases,
licenses, revocable use permits and other agreements (collectively, the "Cosi
Real Property Leases") under which Cosi uses or occupies any real property,
together with the date of and parties to each Cosi Real Property Lease and the
effective and expiration dates of and parties to each lease (a "Cosi Overlease")
under which such real property has been subleased or sub-subleased to Cosi. (The
buildings, structures and other material improvements covered by the Cosi Real
Property Leases are defined as the "Cosi Improvements" and the Cosi Improvements
together with the land covered by such leases are defined as the "Cosi Leased
Real Property"). Cosi has heretofore made available to Xando and its counsel
true, correct and complete copies of all Cosi Real Property Leases (including
all modifications thereof and all amendments and supplements thereto), and
promptly after the execution hereof, Cosi shall have delivered to counsel for
Xando such copies of the Cosi Real Property Leases. No written notice of default
or termination is outstanding with respect to any Cosi Real Property Lease, and
all rent and other sums and charges due and payable by Cosi under each Cosi Real
Property Lease are current. Each Cosi Real Property Lease is valid, binding and
in full force and effect and with respect to each Cosi Real Property Lease,
neither the landlord nor Cosi is in default in its obligations, and no event has
occurred nor does any condition exist which, with the giving of notice or the
lapse of time or both, would constitute a default under any Cosi Real Property
Lease. Cosi holds the leasehold estate under and interest in each Cosi Real
Property Lease free and clear of all Encumbrances except (1) Encumbrances listed
in the Cosi Disclosure Letter with respect to which, to Cosi's knowledge, no
default (or event that, with the giving of notice or lapse of time or both,
would constitute a default) exists, (2) Encumbrances securing taxes,
assessments, governmental charges or levies, or the claims of materialmen,
carriers, landlords and like persons, all of which are not yet due and payable,
(3) restrictions on use contained in Cosi Real Property Leases that do not
restrict the property subject thereto from being used as such property is
currently used or (4) imperfections of title and other Encumbrances that do not
materially detract from the value or impair the use of the assets subject
thereto or impair the operations of Cosi (collectively, the Encumbrances
described in clauses (1), (2), (3) and (4) shall be referred to as "Cosi
Permitted Encumbrances"). Neither Cosi nor any holder of more than 10% of the
Cosi Common Stock has any material ownership, financial or other interest in the
landlord or the overtenant, as applicable, under any Real Property Lease. To
Cosi's knowledge, none of the Cosi Real Property Leases is in material violation
of any terms, covenants or conditions of any applicable Cosi Overlease or any
encumbrance upon such Cosi Real Property Lease.
(ii) Cosi is not aware of any fact or circumstance that would
prevent any landlord under any of the Cosi Real Property Leases from granting
any consents, waivers, approvals, releases or authorizations required to be
sought by Cosi pursuant to Section 5.1(d) hereof.
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(c) Certain Actions and Rights Affecting Real Property Leases. Cosi
has taken no action and has suffered no action to occur which would materially
adversely affect the interest of Cosi in the Cosi Leased Real Property. Cosi
does not own or hold, and is not obligated under or a party to, any option,
right of first refusal or other contractual right to purchase, acquire, sell or
dispose of the Cosi Leased Real Property or any portion thereof or interest
therein, except as provided in the Cosi Real Property Leases.
(d) Personal Property. Cosi has good title to all of the material
assets reflected in the balance sheet contained in the Cosi Financial Statements
for the fiscal year that ended December 27, 1998 and all assets purchased or
otherwise acquired by Cosi in the current fiscal year, in each case, free and
clear of any Encumbrances, except for Cosi Permitted Encumbrances.
(e) Condemnation. To the knowledge of Cosi, there is no threatened
or contemplated condemnation proceeding affecting the Cosi Leased Real Property
or any part thereof or, during the term of any Cosi Real Property Lease, any
threatened or contemplated sale or other disposition of the Cosi Leased Real
Property or any part thereof in lieu of condemnation.
(f) Casualty. No portion of the Cosi Leased Real Property has
suffered any material damage by fire or other casualty during the term of the
Cosi Real Property Lease therefor which has not heretofore been substantially
repaired and restored to its original condition.
(g) Space Leases. Cosi has not entered into any lease, sublease,
sub-sublease, license or other agreement granting to any person other than Cosi
any right to the possession, use, occupancy or enjoyment of the Cosi Leased Real
Property or any portion thereof.
Section 3.11 Material Contracts. (a) Set forth in the Cosi
Disclosure Letter is a list of all of the following agreements, contracts,
instruments, guaranties, powers of attorney and other documents, whether written
or oral ("Contracts"), other than purchase orders in the ordinary course of
business to which Cosi is a party or by which or to which Cosi's assets or
properties are bound or subject:
(1) Contracts with any current or former officer, director, employee
or consultant (other than at will employment arrangements);
(2) Contracts with any labor union or association representing any
employee of Cosi;
(3) Contracts for the purchase or sale of materials, supplies,
equipment or merchandise, or the furnishings or receipt of services, which
are not cancelable upon notice of one year or less and which involve
consideration in excess of $25,000;
(4) Contracts for the sale of any material assets or properties of
Cosi other than in the ordinary course of business;
(5) Joint venture or partnership agreements;
-11-
(6) Franchise, distribution or sales agency agreements or Contracts
with any food brokers;
(7) Contracts under which Cosi agrees to indemnify any party (other
than leases and supply and service agreements in the ordinary course of
business);
(8) Contracts with customers or suppliers for the sharing of fees,
the rebating of charges or other similar arrangements;
(9) Contracts containing obligations or liabilities of any kind to
holders of Cosi's securities as such;
(10) Contracts containing covenants not to compete in any line of
business or with any Person in any geographical area or covenants of any
other Person not to compete with Cosi in any line of business or in any
geographical area;
(11) Contracts relating to the acquisition by Cosi of any operating
business or the capital stock of any other Person;
(12) Options for the purchase of any asset (tangible or intangible)
for an aggregate purchase price of more than $25,000;
(13) Contracts requiring the payment to any person of any override
or similar commission or fee;
(14) Contracts for the borrowing of money;
(15) Any other Contract not made in the ordinary course of business
that is material to Cosi; or
(16) Any agreement or undertaking to enter into any of the
foregoing.
(b) Cosi has made available to Xando a correct and complete copy of
each written Contract listed in the Cosi Disclosure Letter. With respect to each
such Contract:
(1) The Contract is legal, valid, binding and enforceable against
Cosi and, to Cosi's knowledge, the other party or parties thereto, subject
to applicable bankruptcy, insolvency and similar laws in effect from time
to time relating to or affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law) and, to
Cosi's knowledge, is in full force and effect;
(2) Neither Cosi nor, to the knowledge of Cosi, any other party to
the Contract, is in material breach or default, and no event has occurred
which, with the giving of notice or lapse of time would constitute a
material breach or default by Cosi, or, to the knowledge of Cosi, by any
other party, or permit termination or acceleration of the term thereof or
amounts payable by Cosi or any other such party thereunder; and
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(3) Cosi has not repudiated in writing any material provision of the
Contract.
Section 3.12 Accounts Receivable. All accounts receivable of Cosi
that are reflected on the Cosi Financial Statements for the fiscal year ended
December 27, 1998 (collectively, the "Cosi Accounts Receivable") represent, as
of the date recorded, valid obligations arising from sales actually made or
services actually performed in the ordinary course of business. Except as set
forth in the Cosi Disclosure Letter, to the knowledge of Cosi, there is no
contest, claim, or right of setoff, other than returns in the ordinary course of
business, contained in any agreement with the maker or makers of any Cosi
Accounts Receivable in excess of $1,000 which contests, claims or rights of
setoff relate to the amount or validity of such Accounts Receivable.
Section 3.13 Employee Matters; ERISA. (a) Cosi does not maintain or
contribute to, or have any obligation to contribute to or have any liability
(including a liability arising out of an indemnification, guarantee, hold
harmless or similar agreement) with respect to any plan, program, arrangement,
agreement or commitment which is an employment, consulting or deferred
compensation agreement, or an executive compensation, incentive bonus or other
bonus, employee pension, profit-sharing, savings, retirement, stock option,
stock purchase, stock appreciation rights, severance pay, life, health,
disability or accident insurance plan, or other employee benefit plan, program,
arrangement, agreement or commitment, including any "employee benefit plan" as
defined in Section 3(3) of ERISA (individually, a "Plan," or collectively, the
"Plans"). Each such Plan is identified in the Cosi Disclosure Letter to the
extent applicable, as one or more of the following: an "employee pension plan"
(as defined in Section 3(2) of ERISA) or an "employee welfare plan" (as defined
in Section 3(1) of ERISA). With respect to each Plan, true and complete copies
of the following have been provided to Xando: the plan document or agreement or,
with respect to any Plan that is not in writing, a written description of the
terms thereof; the trust agreement, insurance contract or other documentation of
any related funding arrangement; the summary plan description; the most recent
required Internal Revenue Service ("IRS") Form 5500, including all schedules
thereto; the most recent actuarial valuation report, financial statements and
trust report; any communication to or from any Governmental Entity, including a
written description of any oral communication; any individual award agreement;
and all amendments or modifications to any such document. Cosi has no plan or
commitment, whether legally binding or not, to create any additional Plans or to
amend or modify any existing Plan in a manner that would increase the benefits
provided to any employee or former employee, consultant or director of Cosi.
With respect to each Plan for which financial statements are required by ERISA,
there has been no material adverse change in the financial status of such Plan
since the date of the most recent such statements.
(b) Cosi has not incurred and will not incur, either directly or
indirectly (including as a result of an indemnification obligation) any
liability under or pursuant to any provision of Title I or IV of ERISA, the
penalty, excise tax or joint and several liability provisions of the Code and,
to the knowledge of Cosi, no event, transaction or condition has occurred,
exists or is expected to occur which could reasonably be expected to result in
any liability to Cosi.
-13-
(c) Each Plan has been operated and administered and is in
compliance with all applicable law except for any failures that, individually or
in the aggregate, would not reasonably be expected to result in any liability to
Cosi.
(d) No Plan is subject to Section 302 of ERISA or Section 412 of the
Code. The Cosi Disclosure Letter identifies each Plan that is a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA and, with respect to
each such Plan, if Cosi were to withdraw completely from each such Plan as of
the Closing Date, no liability would be incurred by such persons as a result of
such withdrawal pursuant to Section 4201 and 4203 of ERISA.
(e) With respect to each Plan, (i) all payments due from Cosi to
date have been timely made; (ii) each such Plan which is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and intended to qualify
under Section 401 of the Code has received a favorable determination letter from
the IRS with respect to such qualification, its related trust has been
determined to be exempt from taxation under Section 501(a) of the Code, and, to
the knowledge of Cosi, nothing has occurred since the date of such letter that
has adversely affected or is likely to adversely affect such qualification or
exemption; (iii) there are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of Cosi, threatened with
respect to such Plan or against the assets of such Plan and (iv) Cosi has
complied with, and such Plan conforms in form and operation to, all applicable
laws and regulations, including ERISA and the Code, in all material respects.
(f) The consummation of the transactions contemplated by this
Agreement (alone or together with any other event) will not (i) accelerate the
time of payment or vesting, or increase the amount, of any compensation due from
Cosi to any Person under any Plan or otherwise, (ii) entitle any Person to any
benefit under any Plan or otherwise or (iii) result in the payment or series of
payments by Cosi to any person of any "excess parachute payment" within the
meaning of Section 280G of the Code, or any other payment which would not be
deductible for federal income tax purposes under the Code, determined without
regard to the exclusion for reasonable compensation for services rendered. No
payment made to any employee or former employee of Cosi will be nondeductible by
reason of Section 162(m) of the Code.
(g) Cosi has no liability with respect to an obligation to provide
benefits, including death or medical benefits (whether or not insured), with
respect to any Person beyond his or her retirement or other termination of
service other than (i) coverage mandated by Part 6 of Title I of ERISA or
Section 4980B of the Code, (ii) retirement or death benefits under any employee
pension plan, (iii) disability benefits under any employee welfare plan that
have been fully provided for by insurance or otherwise, (iv) deferred
compensation benefits accrued as liabilities on the books of Cosi, or (v)
benefits in the nature of severance pay.
(h) Cosi is not a party to any collective bargaining agreements.
There are no labor unions or other organizations representing, purporting to
represent or attempting to represent, any employee of Cosi.
(i) No unfair labor practice charge or complaint, work stoppage,
slowdown, lockout or labor strike against Cosi by Cosi employees is pending or,
to the knowledge of Cosi, threatened.
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(j) Cosi is not involved in or, to its knowledge, threatened with
any labor dispute, grievance, arbitration or union organizing activity involving
any Cosi employee.
(k) There are no complaints, charges or claims against Cosi pending,
or to the knowledge of Cosi threatened, based on, arising out of, in connection
with or otherwise relating to the employment (or termination of employment) of
any individual, including any claim relating to employment discrimination, equal
pay, employee safety and health, wages and hours or workers' compensation.
(l) Cosi has not violated any statute, law, ordinance, rule or
regulation, or any order, ruling, decree, judgment or arbitration award of any
court, arbitrator or governmental agency regarding the terms and conditions of
employment of employees, former employees or prospective employees or other
labor-related matters, including laws, rules, regulations, orders, rulings,
decrees, judgments and awards relating to discrimination, employee/independent
contractor classification, fair labor standards and occupational health and
safety (including, without limitation the Fair Labor Standards Act of 1938, as
amended), wrongful discharge or violation of the personal rights of employees,
former employees or prospective employees such that the foregoing, when taken
alone or together with any other violation or violations, could reasonably be
expected to result in any liability to Cosi.
(m) Cosi has no material liability, whether absolute or contingent,
including any obligation under any employee benefit plans with respect to any
misclassification of a person as an independent contractor rather than as an
employee and no individual has been treated by Cosi or any Subsidiary of Cosi as
a "leased employee" (within the meaning of Section 414(n) of the Code).
Section 3.14 Environmental Matters. (a) Except for those matters
that would not, individually or in the aggregate, reasonably be expected to have
a Cosi Material Adverse Effect:
(1) Cosi is in compliance with all applicable Environmental Laws.
(2) There is no Environmental Claim pending or, to the knowledge of
Cosi, threatened (A) against Cosi or (B) against any Person whose
liability for any Environmental Claim has been retained or assumed
contractually by Cosi.
(3) None of the properties, presently or previously owned, leased,
subleased, sub-subleased or operated by Cosi or any predecessor thereof
are listed on the National Priorities List promulgated under the
Comprehensive Environmental Response, Compensation, and Liability Act, or
any state or federal list of properties that have been identified for
investigation or remediation under any Environmental Law.
(b) For purposes of this Agreement:
(1) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
investigations, proceedings or notices of noncompliance or violation by
any Person (including any Governmental Entity) alleging (A) personal
injury, property damage, or damage to natural resources
-15-
(whether based on negligent acts or omissions, statutory liability, or
strict liability without fault or otherwise), arising or alleged to arise
under any Environmental Law; (B) potential liability arising out of, based
on or resulting from the presence, or release or threatened release into
the environment, of any Hazardous Materials at any location, whether or
not owned, operated, leased or managed by the representing party or any of
its Subsidiaries; (C) circumstances forming the basis of any violation or
alleged violation of any Environmental Law. "Environmental Claim" includes
any request for information or claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from the presence or release of any Hazardous Materials.
(2) "Environmental Laws" means all applicable foreign, federal,
state and local laws, rules, requirements and regulations relating to
pollution, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), natural
resources, and occupational health and safety or protection of human
health as it relates to the environment including, without limitation,
laws and regulations relating to releases of Hazardous Materials, or
otherwise relating to the distribution, use, labeling, generation,
treatment, storage, disposal, transport or management of Hazardous
Materials or relating to management of asbestos or lead paint in
buildings.
(3) "Hazardous Materials" means (A) any petroleum or any by-products
or fractions thereof, asbestos or asbestos-containing materials, urea
formaldehyde foam insulation, any form of natural gas, explosives,
polychlorinated biphenyls ("PCBs"), radioactive materials, ionizing
radiation, electromagnetic field radiation or microwave transmissions; (B)
any chemicals, materials or substances which are defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous substances," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "pollutants,"
"contaminants," or words of similar import under any Environmental Law;
and (C) any other chemical, material or substance regulated, classified or
forming the basis of liability under any Environmental Law.
Section 3.15 Board Action; Required Vote. (a) Cosi's Board of
Directors has unanimously adopted (and not withdrawn) a resolution (the "Cosi
Merger Resolution") approving this Agreement and the transactions contemplated
hereby, declaring their advisability and recommending to the stockholders of
Cosi that they vote in favor of approving this Agreement.
(b) The Board of Directors of Cosi has duly adopted (and not
withdrawn) a resolution rescinding any authorization previously granted
permitting Cosi to repurchase shares of Cosi Common Stock. In connection with
each Cosi Benefit Plan under which a holder of an option granted pursuant
thereto would be entitled, in respect of such option, to receive cash upon a
change of control, the Board of Directors (or the appropriate Committee thereof)
has taken all necessary action so that, in connection with the Merger, such
holder would be entitled to exercise such option solely for shares of Cosi
Common Stock or, following the Merger, Xando Common Stock, in each case as
disclosed in the Cosi Disclosure Letter.
-16-
(c) The affirmative vote of the holders of a majority of the shares
of Cosi Common Stock entitled to vote on the approval of this Agreement is the
only vote of the holders of any class or series of Cosi's capital stock required
to approve this Agreement and the transactions contemplated hereby.
Section 3.16 Brokers; Expenses. There is no broker, finder or
investment banker or other Person entitled to any brokerage, finder's,
investment banking or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Cosi.
Section 3.17 Taxes. (a) All Tax Returns required to be filed by Cosi
on or prior to the Effective Time or with respect to taxable periods ending on
or prior to the Effective Time have been or will be prepared in good faith and
timely filed with the appropriate Governmental Entity on or prior to the
Effective Time or by the due date thereof including extensions.
(b) All Taxes that are required to be paid have been or will be (i)
fully paid (except with respect to matters contested in good faith as set forth
in the Cosi Disclosure Letter) or (ii) as of January 1, 1999 adequately
reflected as a liability on Cosi's books and records (without taking into
account any deferred Tax liabilities), and all Taxes required to be collected or
withheld from third parties have been collected or withheld.
(c) Cosi has not waived any statute of limitations with respect to
federal income Taxes or agreed to any extension of time with respect to federal
income or state Tax assessment or deficiency.
(d) As of the date hereof, there are not pending or, to the
knowledge of Cosi, threatened any audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters that (i) were raised by any
Taxing authority in a written communication to Cosi and (ii) would, if
determined adversely to Cosi, individually or in the aggregate, reasonably be
expected to have a Cosi Material Adverse Effect after taking into account any
reserves for Taxes set forth in the Cosi Financial Statement.
(e) Cosi has made available to Xando true and correct copies of the
United States federal income and all material state income or franchise Tax
Returns filed by Cosi for each of its fiscal years ended December 29, 1996,
December 28, 1997 and December 27, 1998.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") includes all federal,
state, local and foreign income, profits, franchise, gross receipts, license,
premium, environmental (including taxes under Section 59A of the Code), capital
stock, severance, stamp, payroll, sales, employment, unemployment, disability,
use, transfer, property, withholding, excise, production, occupation, windfall
profits, customs duties, social security (or similar), registration, value
added, alternative or add-on minimum, estimated, occupancy and other taxes,
duties or governmental assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions, and (ii) the term "Tax
Return" includes all returns and reports (including elections, declarations,
disclosures, schedules, estimates and information returns) required to be
supplied to a Tax authority relating to Taxes.
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Section 3.18 Intellectual Property. (a) The Cosi Disclosure Letter
sets forth:
(1) All United States and foreign trademark, service mark and trade
name registrations and pending applications for registration therefor
filed by or on behalf of Cosi;
(2) All United States and foreign patents issued to and/or owned by
Cosi and all pending patent applications filed by or on behalf of Cosi
throughout the world;
(3) All proprietary computer software applications, including
databases and algorithms, and indicating those applications that have been
registered for copyright protection;
(4) All United States and foreign copyright registrations (other
than those listed in Section 3.18(a)(3)) issued to Cosi and all pending
applications for copyright registrations filed by or on behalf of Cosi;
(5) All existing agreements or arrangements pursuant to which Cosi
has licensed any IP Rights (as defined below) used or held for use by Cosi
(the "Cosi IP Rights") to any other Person;
(6) All existing agreements or arrangements pursuant to which Cosi
is granted a license to use IP Rights owned by any other Person;
"IP" Rights" means all proprietary and other rights in and to: (i) trademarks,
service marks, brand names, certification marks, trade dress, assumed names,
trade names and other indications of origin; (ii) patents, inventors'
certificates and invention disclosures; (iii) trade secrets and other
confidential or non-public business information, including ideas, compositions,
inventions, discoveries and improvements, know-how, manufacturing and production
processes and techniques, formulae, recipes, process sheets, mixing instructions
and research and development information (whether patentable or not); drawings,
specifications, designs, plans, proposals and technical data; and financial,
marketing and business data, pricing and cost information, business and
marketing plans and customer and supplier lists and information; (iv) writings
and other works of authorship, whether copyrightable or not, including computer
programs, data bases, including any moral rights or design rights; (v) computer
software applications, including programs, source code, object code, databases,
algorithms and all documentation therefor; (vi) rights to limit the use or
disclosure of confidential information by any person; (vii) registrations of,
and applications to register, any of the foregoing with any governmental
authority and any renewals or extensions thereof; (viii) licenses to use any of
the foregoing right owned by third parties; (ix) the goodwill associated with
each of the foregoing and (x) any claims or causes of action arising out of or
related to any infringement or misappropriation of any of the foregoing; in each
case in any jurisdiction.
(b) (1) Cosi owns or is licensed to use all of the IP Rights used in
its business as presently and heretofore conducted (including, without
limitation, the U.S.-registered trademark "Cosi");
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(2) Cosi has not licensed or made any other arrangement to allow any
other Person to use or otherwise exploit any Cosi IP Rights, including any
trade secrets used in the Cosi Business;
(3) To Cosi's knowledge, the Cosi IP Rights are owned by Cosi free
and clear of any and all Encumbrances whether written, oral or implied in
fact or law, except for any Encumbrances that would not have a Cosi
Material Adverse Effect;
(4) The Cosi IP Rights are valid and enforceable, and to Cosi's
knowledge, no Person has asserted a claim that any of the Cosi IP Rights
are invalid or unenforceable, or challenging Cosi's ownership of the Cosi
IP Rights;
(5) To Cosi's knowledge, no Person is making unauthorized use or is
otherwise infringing or misappropriating the Cosi IP Rights; and
(6) To Cosi's knowledge, no claim has been made that the Cosi IP
Rights or any product or service of Cosi infringes or violates the IP
Rights of any other Person.
Section 3.19 Insurance. The Cosi Disclosure Letter sets forth a list
of all property and casualty insurance policies or binders or other insurance
held by or on behalf of Cosi including those required in connection with the
leasing, use, occupancy or operation of the Cosi Leased Real Property as
currently used, occupied and operated, directors' and officers' insurance and
worker's compensation insurance, and with respect to each such policy or binder,
the name of the insurer, the type of insurance, the period of coverage, the
amount of coverage (both initially and as presently available), the principal
terms, the policy number, the name of the policyholder and of each insured and
loss payee, the premium payable and the name, address and telephone number of
the agent. Cosi is not party to, or bound by, any Contract requiring Cosi to
name a third party as loss payee under any insurance policy or binder held by or
on behalf of Cosi or otherwise requiring Cosi to obtain insurance for or on
behalf of any third party. The Cosi Disclosure Letter sets forth by year for the
current policy year and the preceding policy year:
(a) A summary of the loss experience under such policy;
(b) A statement describing each claim under an insurance policy for
an amount in excess of $25,000; and
(c) A statement describing the loss experience for claims in excess
of $25,000 that were self-insured, including the number and aggregate cost of
such claims. The Cosi Disclosure Letter describes all obligations of Cosi to
provide insurance coverage to third parties (such as, for example, under service
agreements) other than pursuant to Cosi Real Property Leases and identifies the
policy under which such coverage is provided. The Cosi Disclosure Letter
describes any self-insurance arrangement by or affecting Cosi, including any
reserves established thereunder.
Cosi will deliver, within ten days of the date hereof, true and complete copies
of all policies of insurance to which Cosi is a party or under which Cosi is
covered and true and complete copies of all applications for policies of
insurance. All policies to which Cosi is a party or that provide
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coverage to Cosi are in full force and effect, and to the knowledge of Cosi, are
sufficient for substantial compliance with all Contracts and all applicable laws
and regulations of any Governmental Entity to which Cosi is a party or by which
Cosi is bound, as applicable. Cosi has paid all premiums due and has otherwise
performed all of its respective obligations under each policy listed or required
to be listed on the Cosi Disclosure Letter, except such as will not adversely
affect Cosi's coverage thereunder.
Section 3.20 Accounting and Other Tax Matters. (a) Neither Cosi nor
any of its affiliates has taken or agreed to take any action, nor does Cosi have
any knowledge of any fact or circumstance with respect to Cosi, which would
prevent the Merger from qualifying as a "reorganization" within the meaning of
Section 368 of the Code.
(b) Cosi has not taken or failed to take any action which action or
failure (without giving effect to any actions or failures to act by Xando or any
of its Subsidiaries) would prevent the treatment of the Merger as a
pooling-of-interests for accounting purposes.
Section 3.21 Potential Conflicts of Interest. To the knowledge of
Cosi, no officer, director or stockholder of Cosi and no entity known by Cosi to
be controlled by any such officer, director, or stockholder (i) is directly or
indirectly engaged in or (ii) owns, directly or indirectly, any interest in
(excepting no more than 5% stockholdings for investment purposes in securities
of publicly held and traded companies), or is an officer, director, employee or
consultant of, any Person which is directly or indirectly engaged in the
business of Cosi as a customer whose purchases accounted for more than 5% of
Cosi's net revenues during the fiscal year ended December 27, 1998, or is a
supplier from whom Cosi purchased in excess of $300,000 worth of products during
the fiscal year ended December 27, 1998.
Section 3.22 No Other Agreements to Sell. Except pursuant to this
Agreement, Cosi has no obligation, absolute or contingent, legally binding or
otherwise, to any other Person to sell any portion of the assets of Cosi, to
sell any portion of the capital stock or other ownership interests of Cosi or to
effect any merger, consolidation or other reorganization of Cosi or to enter
into any agreement with respect thereto.
Section 3.23 Customers. The Cosi Disclosure Letter sets forth for
the fiscal year ended December 27, 1998 (i) each customer of Cosi whose
purchases accounted for more than 5% of Cosi's net revenues during such fiscal
year and (ii) each supplier from whom Cosi purchased in excess of $300,000 worth
of products during such fiscal year. Except as set forth in the Cosi Disclosure
Letter, no such supplier or customer of Cosi has notified Cosi that it has
canceled or otherwise terminated, or has threatened in writing to cancel or
otherwise terminate, its relationship with Cosi.
Section 3.24 Products and Inventories. The values of the inventories
of Cosi reflected on the Cosi Financial Statements and carried on the books of
account of Cosi reflect the normal inventory valuation policies of Cosi and are
carried in accordance with GAAP, consistently applied. Except as reflected in
the Cosi Financial Statements for the fiscal year ended December 27, 1998, such
inventories do not include any material amount of obsolete or defective
materials or any material amount of excess stock items (assuming the
continuation of operations as currently conducted at their current levels).
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Section 3.25 Officers, Directors and Key Employees. The Cosi
Disclosure Letter lists:
(a) The names, positions held and total compensation of each
salaried employee and each director, consultant or agent of Cosi as of December
27, 1998;
(b) All wage and salary increases or bonuses received by the Persons
referred to in paragraph (a) during the fiscal year ended December 27, 1998 and
any amounts received during the current fiscal year and any accrual for or
commitment or agreement by Cosi to pay wage or salary increases or bonuses
thereto (it being understood that none of such Persons has given a written
threat to Cosi to cancel or otherwise terminate such Person's relationship with
Cosi);
(c) The names, positions held and total compensation of all Persons
hired by Cosi since December 27, 1998 who have annual salaries or expected total
annual compensation in excess of $50,000; and
(d) Any arrangement or obligation of Cosi to make any payment to any
of the Persons referred to in paragraph (a) or (c) as a result of, or
conditioned on, the consummation of the Merger.
Section 3.26 Year 2000. (a) To the knowledge of Cosi, the failure of
Cosi or of any of its material suppliers or customers or of any other Persons
with which Cosi conducts business to identify and resolve any Year 2000 Problem
relating to the business of Cosi, such material suppliers or customers or such
other Persons will not have a Cosi Material Adverse Effect.
(b) As used herein, "Year 2000 Problem" means the inability of a
software application or computer-based system to provide the following functions
before, on and after January 1, 2000:
(i)consistently handle and process calendar dates falling on or
after January 1, 2000 in the same manner and with the same functionality
as with respect to calendar dates falling on or before December 31, 1999,
including but not limited to accepting date input, providing date output,
and performing calculations based on dates or portions of dates;
(ii) function accurately and without interruption before, during and
after January 1, 2000 without requiring any change in operations
associated with the advent of the new century;
(iii) where appropriate, respond to two-digit date input in a way
that resolves any ambiguity as to century in a disclosed, defined and
predetermined manner; and/or
(iv) store, process and provide output of date information in ways
that are unambiguous as to century.
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Section 3.27 Cosi Shareholders. The Cosi Disclosure Letter contains
a complete and accurate list setting forth the following information with
respect to each Person who is a holder of any Cosi Shares or Cosi Equity Rights:
(a) such Person's name; (b) the number of Cosi Shares or Cosi Equity Rights held
by such Person; (c) such Person's place of residence; and (d) whether such
person is an "accredited investor" as defined in Rule 501 under the United
States Securities Act of 1933, as amended.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF XANDO AND SUB
Except as set forth in the corresponding sections or subsections of
the disclosure letter, dated as of the date hereof, delivered by Xando to Cosi
(the "Xando Disclosure Letter"), Xando and Sub hereby represent and warrant as
of the date hereof and as of the Closing Date, to Cosi, as follows:
Section 4.1 Organization and Qualification. Xando and each of its
Subsidiaries is a corporation or other business entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, with all requisite corporate or other
organizational power to own, operate or lease its properties and to carry on its
business as it is now being conducted, and is duly qualified and in good
standing as a foreign corporation authorized to do business in each jurisdiction
where the character of its properties owned, operated or leased or the nature of
its business or activities makes such qualification necessary, in each case,
except as would not, individually or in the aggregate, reasonably be expected to
have a Xando Material Adverse Effect. The Xando Disclosure Letter lists each
jurisdiction where Xando and each of its Subsidiaries is qualified to do
business.
Section 4.2 Certificate of Incorporation and By-laws. Xando has
furnished, or otherwise made available, to Cosi a complete and correct copy of
the certificate of incorporation and by-laws of Xando and each of its
Subsidiaries. Each such certificate of incorporation and by-laws are in full
force and effect, and, as applicable, neither Xando nor any of its Subsidiaries
has violated and is in violation of any of the provisions thereof.
Section 4.3 Capitalization. (a) The authorized capital stock of
Xando consists of 10,000,000 shares of Xando Common Stock, par value $0.01 per
share, 2,007,000 shares of Series A Convertible Preferred Stock, par value $.01
per share ("Xando Series A Preferred Stock"), 457,662 shares of Series B
Convertible Preferred Stock, par value $.01 per share ("Xando Series B Preferred
Stock") and 2,352,950 shares of Series C Convertible Preferred Stock, par value
$.01 per share ("Xando Series C Preferred Stock"). At the close of business on
the Stock Disclosure Date, (i) 3,638,218 shares of Xando Common Stock, 2,005,862
shares of Xando Series A Preferred Stock, 457,662 shares of Xando Series B
Preferred Stock and 2,351,420 shares of Xando Series C Preferred Stock were
issued and outstanding and (ii) no shares of Xando Common Stock, Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock were held
by Xando in its treasury. The Xando Disclosure Letter lists the number of shares
of Xando Common Stock issued and reserved for issuance as of the Stock
Disclosure Date under each of the Xando Benefit Plans or otherwise. All of the
issued and
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outstanding shares of Xando Common Stock are validly issued, fully paid,
non-assessable and free of pre-emptive rights.
(b) Since the Stock Disclosure Date no shares of Xando Common Stock
or Xando Series A, Series B or Series C Preferred Stock have been issued, or
reserved for issuance, except in respect of the exercise, conversion or exchange
of Xando Equity Rights outstanding as of the Stock Disclosure Date.
(c) At the close of business on the Stock Disclosure Date, there
were outstanding Xando Equity Rights with respect to 5,610,175 shares of Xando
Common Stock and no other Xando Equity Rights outstanding. The Xando Disclosure
Letter sets forth (i) the per share exercise price of each of the outstanding
Xando Equity Rights described in the preceding sentence (on an aggregate basis
for each per share exercise price) and (ii) a description of each of the Xando
Benefit Plans pursuant to which each such Xando Equity Right was granted or
issued. For purposes of this Agreement, "Xando Equity Rights" shall mean
subscriptions, options, warrants, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) to purchase or
otherwise acquire from Xando or any of its Subsidiaries at any time, or upon the
happening of any stated event, any shares of the capital stock of Xando.
(d) There are no outstanding obligations of Xando to repurchase,
redeem or otherwise acquire any shares of Xando Common Stock, Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock or any Xando Equity
Rights.
(e) No holder of Xando Shares or Xando Equity Rights is party to any
voting agreement, voting trust or similar arrangement with respect to Xando
Shares. To the knowledge of Xando, there are no irrevocable proxies with respect
to any of the Xando Shares whether outstanding or issuable upon the exercise of
Xando Equity Rights.
(f) All of the outstanding shares of capital stock and other equity
securities of each Subsidiary of Xando have been validly issued and are fully
paid and nonassessable, and are owned by Xando, free and clear of all liens,
claims, security interests, pledges or encumbrances. There are no subscriptions,
options, warrants, calls, commitments, agreements, conversion rights or other
rights of any character (contingent or otherwise) entitling any Person to
purchase or otherwise acquire from Xando or any of its Subsidiaries at any time,
or upon the happening of any stated event, any shares or other equity securities
of any Subsidiaries of Xando.
(g) Xando does not own any direct or indirect interest or investment
in the equity or debt for borrowed money of any Person or have any obligation or
any commitment to acquire any such interest or make any such investment.
Section 4.4 Authorization; Validity. Each of Xando and Sub has the
necessary corporate power to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery by Xando and Sub of this Agreement, the performance
by Xando and Sub of their respective obligations hereunder and the consummation
by Xando and Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Xando and Sub,
respectively. This Agreement has been duly executed and delivered by Xando and
Sub and,
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assuming the due authorization, execution and delivery by Cosi hereof,
constitutes a valid and binding obligation of Xando and Sub enforceable against
each in accordance with the terms hereof, subject to bankruptcy, insolvency,
fraudulent transfer, moratorium, reorganization and similar laws of general
applicability relating to or affecting creditors' rights generally (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
Section 4.5 No Conflict; Required Filings and Consents. (a) The
execution and delivery by Xando and Sub of this Agreement does not, and the
performance by Xando and Sub of their respective obligations hereunder and the
consummation by Xando and Sub of the transactions contemplated hereby will not,
(i) violate or conflict with the certificate of incorporation or by-laws of
Xando or any of its Subsidiaries, (ii) subject to obtaining or making the
notices, reports, filings, waivers, consents, approvals or authorizations
referred to in paragraph (b) below, conflict with or violate any law,
regulation, court order, judgment or decree applicable to Xando or any of its
Subsidiaries or by which any of their respective assets or property is bound or
subject, (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, cancellation, vesting, modification,
alteration or acceleration of any obligation under, or result in the creation of
a lien, claim or encumbrance on any of the properties or assets of Xando or any
of its Subsidiaries pursuant to, or result in the loss of any benefit under
(including an increase in the price paid by, or cost to, Xando or any of its
Subsidiaries), or require the consent of any other party to, or result in any
obligation on the part of Xando or any of its Subsidiaries to repurchase (with
respect to a bond or a note), any agreement, contract, instrument, bond, note,
indenture, permit, license or franchise to which Xando or any of its
Subsidiaries is a party or by which Xando, any of its Subsidiaries or any of
their respective assets or properties are bound or subject.
(b) Except for the filing of a certificate of merger with respect to
the Merger as required by the DGCL, or any filings required pursuant to any
state securities, "blue sky" or takeover laws, neither Xando nor any of its
Subsidiaries is required to submit any notice, report or other filing with any
Governmental Entity in connection with the execution, delivery, performance or
consummation of this Agreement or the Merger. Except as set forth in the
immediately preceding sentence, no waiver, consent, approval or authorization of
any Governmental Entity is required to be obtained by Xando or any of its
Subsidiaries in connection with the execution, delivery, performance or
consummation by it of this Agreement or any agreement or instrument or other
document contemplated hereby or the transactions contemplated hereby or thereby.
Section 4.6 Financial Statements. (a) The audited consolidated
balance sheets of Xando and its Subsidiaries for the fiscal years ended December
28, 1997 and December 28, 1998 and the related audited statements of operations,
stockholders' equity and cash flows for such fiscal years, reported on by EY,
independent certified public accountants, have been prepared in accordance with
GAAP, applied on a consistent basis during the periods involved (except as may
be disclosed in the notes thereto) and fairly present in all material respects
the consolidated financial position of Xando and its Subsidiaries as at the
dates thereof and the consolidated results of operations and cash flows for the
periods then ended. The books of account of Xando and its Subsidiaries have been
prepared and maintained in accordance with Xando's normal practice consistent
with the accounting principles and policies reflected in the
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Xando consolidated financial statements which are referred to in this Section
4.6 (the "Xando Financial Statements").
(b) The financial statements, including all related notes and
schedules, contained in the Xando Financial Statements, fairly present in all
material respects the consolidated financial position of Xando and its
Subsidiaries as of the respective dates thereof and the consolidated results of
operations, retained earnings and cash flows of Xando and its Subsidiaries
fairly present in all material respects the financial position of Xando and its
Subsidiaries for the respective periods indicated, in each case in accordance
with GAAP applied on a consistent basis throughout the periods involved (except
as disclosed in the notes thereto).
Section 4.7 Absence of Certain Changes. (a) Since December 28, 1998,
each of Xando and its Subsidiaries has conducted its business in the ordinary
course of its business consistent with past practice (except in connection with
the negotiation, execution and delivery of this Agreement or as would not,
individually or in the aggregate, reasonably be expected to have a Xando
Material Adverse Effect) and neither Xando nor any of its Subsidiaries have
suffered any change constituting or reasonably likely to constitute a Xando
Material Adverse Effect.
(b) Since the end of Xando's fiscal year ended December 28, 1998,
there has not been (i) any declaration, setting aside or payment of any dividend
or other distribution in respect of the capital stock of Xando or any of its
Subsidiaries, other than regular cash dividends consistent with past practice,
(ii) any change by Xando or any of its Subsidiaries to its accounting policies
practices or methods except as permitted or required by GAAP, (iii) any
amendment or change to the terms of any indebtedness material to Xando or any of
its Subsidiaries; (iv) other than in the ordinary course of business consistent
with past practice, any incurrence or cancellation of any claim, obligation,
commitment or indebtedness material to Xando or any of its Subsidiaries; (v)
other than in the ordinary course of business consistent with past practice, any
material transfer, lease, license, sale, mortgage, pledge, encumbrance or other
disposition of assets or properties of Xando or any of its Subsidiaries; (vi)
any damage, destruction or other casualty loss with respect to any asset or
property owned, leased or otherwise used by Xando or any of its Subsidiaries,
whether or not covered by insurance; (vii) other than in the ordinary course of
business consistent with past practice, with respect to employees other than
executive officers or directors, or except as required by applicable law, (A)
any execution, adoption or amendment of any agreement or arrangement relating to
severance or any employee benefit plan or employment or consulting agreement
(including, without limitation, the Xando Benefit Plans) or (B) any grant of any
stock options or other equity related award; or (viii) any agreement or
commitment entered into with respect to any of the foregoing.
Section 4.8 Litigation; Liabilities. (a) There are no civil,
criminal or administrative actions, suits or claims, proceedings (including
condemnation proceedings), hearings or investigations, pending or, to the
knowledge of Xando, threatened against or otherwise adversely affecting Xando or
any of its Subsidiaries or any of their respective assets or properties, except
for any of the foregoing and which would not, individually or in the aggregate,
reasonably be expected to have a Xando Material Adverse Effect.
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(b) Neither Xando nor any of its Subsidiaries (i) is subject to, nor
has it received any notice regarding, any cease and desist or other order,
judgment, injunction or decree issued by, (ii) is party to any written
agreement, consent agreement or memorandum of understanding with, (iii) is a
party to any commitment letter or similar undertaking to, (iv) is subject to any
order or directive by, or (v) has adopted any board resolutions at the request
of, any Governmental Entity, that restricts the conduct of its business (whether
the type of business, the location thereof or otherwise) except for those which,
individually or in the aggregate, would not reasonably be expected to have a
Xando Material Adverse Effect, nor, to the knowledge of the Xando, has any
Governmental Entity proposed issuing or requesting any of the foregoing, and
which, individually or in the aggregate, would reasonably be expected to have a
Xando Material Adverse Effect.
(c) Neither Xando nor any of its Subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise), except (i) liabilities reflected
or fully provided for in the consolidated balance sheet of Xando and its
Subsidiaries (and related notes thereto) contained in the Xando Financial
Statements for its fiscal year ended December 27, 1998, (ii) liabilities
incurred in Xando's current fiscal year in the ordinary course of business
consistent with past practice, (iii) liabilities permitted to be incurred
pursuant to Section 5.1 or (iv) liabilities which, individually or in the
aggregate, would not have a Xando Material Adverse Effect.
Section 4.9 Compliance with Law. The business of Xando and each of
its Subsidiaries is being conducted in accordance with all applicable statutes
of law, ordinances, regulations, judgments, orders or decrees of any
Governmental Entity, and not in violation of any permits, franchises, licenses,
authorizations or consents granted by any Governmental Entity, except, in each
case, as would not, individually or in the aggregate, reasonably be expected to
have a Xando Material Adverse Effect, and each of the Xando and its Subsidiaries
has obtained all permits, franchises, licenses, authorizations or consents
necessary for the conduct of its business, except for such permits, franchises,
licenses, authorizations or consents the failure of which to obtain,
individually or in the aggregate, would not reasonably be expected to have a
Xando Material Adverse Effect.
Section 4.10 Properties.
(a) Owned Properties. Neither Xando nor its Subsidiaries own any
real property.
(b) Leased Properties. The Xando Disclosure Letter sets forth a
true, correct and complete list of all leases, subleases, sub-subleases,
licenses, revocable use permits and other agreements (collectively, the "Xando
Real Property Leases") under which Xando or any Subsidiary thereof uses or
occupies any real property, together with the effective and expiration dates of
and parties to each Xando Real Property Lease and the parties to each lease (an
"Xando Overlease") under which such real property has been subleased or
sub-subleased to Xando or any Subsidiary thereof. (The buildings, structures and
other material improvements covered by the Xando Real Property Leases are
defined as the "Xando Improvements" and the Xando Improvements together with the
land covered by such leases are defined as the "Xando Leased Real Property").
Xando has heretofore made available to Cosi and its counsel true, correct and
complete copies of all Xando Real Property Leases (including all modifications
thereof and all
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amendments and supplements thereto), and promptly after the execution hereof,
Xando shall have delivered to counsel for Cosi such copies of the Xando Real
Property Leases. No written notice of default or termination is outstanding with
respect to any Xando Real Property Lease, and all rent and other sums and
charges due and payable by Xando or any Subsidiary thereof under each Xando Real
Property Lease are current. Each Xando Real Property Lease is valid, binding and
in full force and effect and with respect to each Xando Real Property Lease,
neither the landlord nor Xando nor any Subsidiary thereof is in default in its
obligations, and no event has occurred nor does any condition exist which, with
the giving of notice or the lapse of time or both, would constitute a default
under any Xando Real Property Lease. Xando or a Subsidiary thereof holds the
leasehold estate under and interest in each Xando Real Property Lease free and
clear of all Encumbrances except (1) Encumbrances listed in the Xando Disclosure
Letter with respect to which, to Xando's knowledge, no default (or event that,
with the giving of notice or lapse of time or both, would constitute a default)
exists, (2) Encumbrances securing taxes, assessments, governmental charges or
levies, or the claims of materialmen, carriers, landlords and like persons, all
of which are not yet due and payable, (3) restrictions on use contained in Xando
Real Property Leases that do not restrict the property subject thereto from
being used as such property is currently used or (4) imperfections of title and
other Encumbrances that do not materially detract from the value or impair the
use of the assets subject thereto or impair the operations of Xando or its
Subsidiaries (collectively, the Encumbrances described in clauses (1), (2), (3)
and (4) shall be referred to as "Xando Permitted Encumbrances"). Neither Xando
nor any Subsidiary thereof nor any holder of more than 10% of the Xando Common
Stock has any material ownership, financial or other interest in the landlord or
overtenant, as applicable, under any Xando Real Property Lease. To Xando's
knowledge, none of the Xando Real Property Leases is in material violation of
any terms, covenants or conditions of any applicable Xando Overlease or any
encumbrance upon such Xando Real Property Lease.
(c) Certain Actions and Rights Affecting Real Property Leases.
Except as set forth in the Xando Disclosure Letter, neither Xando nor any
Subsidiary thereof has taken any action and has suffered no action to occur
which would materially adversely affect the interest of Xando or any Subsidiary
thereof in the Xando Leased Real Property. Neither Xando nor any Subsidiary
thereof owns or holds, or is obligated under or a party to, any option, right of
first refusal or other contractual right to purchase, acquire, sell or dispose
of the Xando Leased Real Property or any portion thereof or interest therein,
except as provided in the Xando Real Property Leases.
(d) Personal Property. Xando or a Subsidiary thereof has good title
to all of the material assets reflected in the balance sheet contained in the
Xando Financial Statements for the fiscal year ended December 27, 1998 and all
assets purchased or otherwise acquired by Xando or a Subsidiary thereof in the
current fiscal year, in each case, free and clear of any Encumbrances, except
for Xando Permitted Encumbrances.
(e) Condemnation. To the knowledge of Xando, there is no threatened
or contemplated condemnation proceeding affecting the Xando Leased Real Property
or any part thereof or, during the term of any Xando Real Property Lease, any
threatened or contemplated sale or other disposition of the Xando Leased Real
Property or any part thereof in lieu of condemnation.
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(f) Casualty. No portion of the Xando Leased Real Property has
suffered any material damage by fire or other casualty during the term of the
Xando Real Property Lease therefor which has not heretofore been substantially
repaired and restored to its original condition.
(g) Space Leases. Neither Xando nor any Subsidiary thereof has
entered into any lease, sublease, sub-sublease, license or other agreement
granting to any person other than Xando or a Subsidiary thereof any right to the
possession, use, occupancy or enjoyment of the Xando Leased Real Property or any
portion thereof.
Section 4.11 Material Contracts. (a) Set forth in the Xando
Disclosure Letter is a list of all of the following Contracts, other than
purchase orders in the ordinary course of business to which Xando or a
Subsidiary thereof is a party or by which or to which Xando's or one of its
Subsidiary's assets or properties are bound or subject:
(1) Contracts with any current or former officer, director, employee
or consultant (other than at will employment arrangements);
(2) Contracts with any labor union or association representing any
employee of Xando or Subsidiary thereof;
(3) Contracts for the purchase or sale of materials, supplies,
equipment or merchandise, or the furnishings or receipt of services, which
are not cancelable upon notice of one year or less and which involve
consideration in excess of $25,000;
(4) Contracts for the sale of any material assets or properties of
Xando or a Subsidiary thereof other than in the ordinary course of
business;
(5) Joint venture or partnership agreements;
(6) Franchise, distribution or sales agency agreements or
Contracts with any food brokers;
(7) Contracts under which Xando or a Subsidiary thereof agrees to
indemnify any party (other than leases and supply and service agreements
in the ordinary course of business);
(8) Contracts with customers or suppliers for the sharing of fees,
the rebating of charges or other similar arrangements;
(9) Contracts containing obligations or liabilities of any kind to
holders of Xando's or any of its Subsidiaries' securities as such;
(10) Contracts containing covenants not to compete in any line of
business or with any Person in any geographical area or covenants of any
other Person not to compete with Xando or any Subsidiary thereof in any
line of business or in any geographical area;
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(11) Contracts relating to the acquisition by Xando or any
Subsidiary thereof of any operating business or the capital stock of any
other Person;
(12) Options for the purchase of any asset (tangible or intangible),
for an aggregate purchase price of more than $25,000;
(13) Contracts requiring the payment to any person of any override
or similar commission or fee;
(14) Contracts for the borrowing of money;
(15) Any other Contact not made in the ordinary course of business
that is material to Xando and its Subsidiaries taken as a whole; or
(16) Any agreement or undertaking to enter into any of the
foregoing.
(b) Xando has made available to Cosi a correct and complete copy of
each written Contract listed in the Xando Disclosure Letter. With respect to
each such Contract:
(1) The Contract is legal, valid, binding and enforceable against
Xando or its Subsidiary that is party thereto and, to Xando's knowledge,
the other party or parties thereto, subject to applicable bankruptcy,
insolvency and similar laws in effect from time to time relating to or
affecting creditors' rights generally and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and, to Xando's knowledge, is
in full force and effect;
(2) Neither Xando nor any of its Subsidiaries nor, to the knowledge
of Xando, any other party to the Contact, is in material breach or
default, and no event has occurred which, with the giving of notice or
lapse of time would constitute a material breach or default by Xando or
any of its Subsidiaries, or, to the knowledge of Xando, by any other
party, or permit termination or acceleration of the term thereof or
amounts payable by Xando or any of its Subsidiaries or any other such
party thereunder; and
(3) Neither Xando nor any of its Subsidiaries has repudiated in
writing any material provision of the Contract.
Section 4.12 Accounts Receivable. All accounts receivable of Xando
or any Subsidiary thereof that are reflected on the Xando Financial Statements
for the fiscal year ended December 27, 1998 (collectively, the "Xando Accounts
Receivable") represent, as of the date recorded, valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business. Except as set forth in the Xando Disclosure Letter, to the knowledge
of Xando, there is no contest, claim, or right of setoff, other than returns in
the ordinary course of business, contained in any agreement with the maker or
makers of any Xando Accounts Receivable in excess of $1,000 which contests,
claims or rights of setoff relate to the amount or validity of such Xando
Accounts Receivable.
Section 4.13 Employee Matters; ERISA. (a) Neither Xando nor any
Subsidiary thereof maintains or contributes to, or has any obligation to
contribute to or has any liability
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(including a liability arising out of an indemnification, guarantee, hold
harmless or similar agreement) with respect to any Plan. Each such Plan is
identified in the Xando Disclosure Letter to the extent applicable, as one or
more of the following: an "employee pension plan" (as defined in Section 3(2) of
ERISA) or an "employee welfare plan" (as defined in Section 3(1) of ERISA). With
respect to each Plan, true and complete copies of the following have been
provided to Cosi: the plan document or agreement or, with respect to any Plan
that is not in writing, a written description of the terms thereof; the trust
agreement, insurance contract or other documentation of any related funding
arrangement; the summary plan description; the most recent required IRS Form
5500, including all schedules thereto; the most recent actuarial valuation
report, financial statements and trust report; any communication to or from any
Governmental Entity, including a written description of any oral communication;
any individual award agreement; and all amendments or modifications to any such
document. Neither Xando nor any Subsidiary thereof has made any plan or
commitment, whether legally binding or not, to create any additional Plans or to
amend or modify any existing Plan in a manner that would increase the benefits
provided to any employee or former employee, consultant or director of Xando or
any Subsidiary thereof. With respect to each Plan for which financial statements
are required by ERISA, there has been no material adverse change in the
financial status of such Plan since the date of the most recent such statements.
(b) Neither Xando nor any Subsidiary thereof has incurred or will
incur, either directly or indirectly (including as a result of an
indemnification obligation) any liability under or pursuant to any provision of
Title I or IV of ERISA, the penalty, excise tax or joint and several liability
provisions of the Code and, to the knowledge of Xando, no event, transaction or
condition has occurred, exists or is expected to occur which could reasonably be
expected to result in any liability to Xando or any Subsidiary thereof.
(c) Each Plan has been operated and administered and is in
compliance with all applicable law except for any failures that, individually or
in the aggregate, would not reasonably be expected to result in any liability to
Xando or any Subsidiary thereof.
(d) No Plan is subject to Section 302 of ERISA or Section 412 of the
Code. The Xando Disclosure Letter identifies each Plan that is a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA and, with respect to
each such Plan, if Xando or (to the extent applicable) one of its Subsidiaries
were to withdraw completely from each such Plan as of the Closing Date, no
liability would be incurred by such persons as a result of such withdrawal
pursuant to Section 4201 and 4203 of ERISA.
(e) With respect to each Plan, (i) all payments due from Xando or
any Subsidiary thereof to date have been timely made; (ii) each such Plan which
is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) and
intended to qualify under Section 401 of the Code has received a favorable
determination letter from the IRS with respect to such qualification, its
related trust has been determined to be exempt from taxation under Section
501(a) of the Code, and, to the knowledge of Xando, nothing has occurred since
the date of such letter that has adversely affected or is likely to adversely
affect such qualification or exemption; (iii) there are no actions, suits or
claims pending (other than routine claims for benefits) or, to the knowledge of
Xando, threatened with respect to such Plan or against the assets of such Plan
and (iv) Xando or, if applicable, its Subsidiary has complied with, and such
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Plan conforms in form and operation to, all applicable laws and regulations,
including ERISA and the Code, in all material respects.
(f) The consummation of the transactions contemplated by this
Agreement (alone or together with any other event) will not (i) accelerate the
time of payment or vesting, or increase the amount, of any compensation due from
Xando or one of its Subsidiaries to any Person under any Plan or otherwise, (ii)
entitle any Person to any benefit under any Plan or otherwise or (iii) result in
the payment or series of payments by Xando or any Subsidiary thereof to any
person of any "excess parachute payment" within the meaning of Section 280G of
the Code, or any other payment which would not be deductible for federal income
tax purposes under the Code, determined without regard to the exclusion for
reasonable compensation for services rendered. No payment made to any employee
or former employee of Xando or any Subsidiary thereof will be nondeductible by
reason of Section 162(m) of the Code.
(g) Neither Xando nor any Subsidiary thereof has any liability with
respect to an obligation to provide benefits, including death or medical
benefits (whether or not insured). with respect to any Person beyond his or her
retirement or other termination of service other than (i) coverage mandated by
Part 6 of Title I of ERISA or Section 4980B of the Code, (ii) retirement or
death benefits under any employee pension plan, (iii) disability benefits under
any employee welfare plan that have been fully provided for by insurance or
otherwise, (iv) deferred compensation benefits accrued as liabilities on the
books of Xando or any Subsidiary thereof, or (v) benefits in the nature of
severance pay.
(h) Neither Xando nor any Subsidiary thereof is a party to any
collective bargaining agreements. There are no labor unions or other
organizations representing, purporting to represent or attempting to represent,
any employee of Xando or any Subsidiary thereof.
(i) No unfair labor practice charge or complaint, work stoppage,
slowdown, lockout or labor strike against Xando or any Subsidiary thereof by its
respective employees is pending or, to the knowledge of Xando, threatened.
(j) Neither Xando nor any of its Subsidiaries is involved in or, to
Xando's knowledge, threatened with any labor dispute, grievance, arbitration or
union organizing activity involving any employee of Xando or any Subsidiary
thereof.
(k) There are no complaints, charges or claims against Xando or any
Subsidiary thereof pending, or to the knowledge of Xando threatened, based on,
arising out of, in connection with or otherwise relating to the employment (or
termination of employment) of any individual, including any claim relating to
employment discrimination, equal pay, employee safety and health, wages and
hours or workers' compensation.
(l) Neither Xando nor any Subsidiary thereof has violated any
statute, law, ordinance, rule or regulation, or any order, ruling, decree,
judgment or arbitration award of any court, arbitrator or governmental agency
regarding the terms and conditions of employment of employees, former employees
or prospective employees or other labor-related matters, including laws, rules,
regulations, orders, rulings, decrees, judgments and awards relating to
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discrimination, employee/independent contractor classification, fair labor
standards and occupational health and safety (including, without limitation the
Fair Labor Standards Act of 1938, as amended), wrongful discharge or violation
of the personal rights of employees, former employees or prospective employees
such that the foregoing, when taken alone or together with any other violation
or violations, could reasonably be expected to result in any liability to Xando
or any Subsidiary thereof.
(m) Neither Xando nor any Subsidiary thereof has any material
liability, whether absolute or contingent, including any obligation under any
employee benefit plans with respect to any misclassification of a person as an
independent contractor rather than as an employee and no individual has been
treated by Xando or any Subsidiary of Xando as a "leased employee" (within the
meaning of Section 414(n) of the Code).
Section 4.14 Environmental Matters. Except for those matters that
would not, individually or in the aggregate, reasonably be expected to have a
Xando Material Adverse Effect:
(a) Xando and its Subsidiaries are in compliance with all
applicable Environmental Laws.
(b) There is no Environmental Claim pending or, to the knowledge of
Xando threatened (A) against Xando or any of its Subsidiaries or (B) against any
Person whose liability for any Environmental Claim has been retained or assumed
contractually by Xando or any of its Subsidiaries.
(c) None of the properties, presently or previously owned, leased,
subleased, sub-subleased or operated by Xando or any of its Subsidiaries or any
predecessor thereof are listed on the National Priorities List promulgated under
the Comprehensive Environmental Response, Compensation, and Liability Act, or
any state or federal list of properties that have been identified for
investigation or remediation under any Environmental Law.
Section 4.15 Board Action; Required Vote. (a) Each of Xando's and
Sub's Board of Directors has unanimously adopted (and not withdrawn) a
resolution (together, the "Xando Merger Resolutions") approving this Agreement,
and the transactions contemplated hereby, declaring their advisability and
recommending to the stockholders of Sub that they vote in favor of approving
this Agreement.
(b) Xando, acting as the sole stockholder of Sub by unanimous
written consent, has voted all of the outstanding shares of Sub Common Stock in
favor of approving this Agreement, and the Secretary of Xando has certified such
approval in accordance with Section 251 of the DGCL.
(c) Xando's Board of Directors has adopted the resolution (the
"Xando Amendment Resolution") set forth in Exhibit E, (A) proposing the
amendments to the Xando certificate of incorporation set forth therein (the
"Xando Amendments"), (B) declaring their advisability, (C) calling for their
adoption and (D) recommending that all Xando stockholders entitled to vote on
their adoption (including those stockholders entitled to vote thereon as a
class) vote in favor of such amendments.
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(d) The votes taken by Xando referred to in paragraph (b) and to be
taken by Xando's stockholders referred to in paragraph (c) are the only votes
required by holders of any class or series of Xando or Sub capital stock
required to approve this Agreement and the transactions contemplated hereby.
Section 4.16 Brokers; Expenses. There is no broker, finder or
investment banker or other Person entitled to any brokerage, finder's,
investment banking or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Xando or any Subsidiary thereof.
Section 4.17 Taxes. (a) All Tax Returns required to be filed by
Xando or its Subsidiaries on or prior to the Effective Time or with respect to
taxable periods ending on or prior to the Effective Time have been or will be
prepared in good faith and timely filed with the appropriate Governmental Entity
on or prior to the Effective Time or by the due date thereof including
extensions.
(b) All Taxes that are required to be paid have been or will be (i)
fully paid (except with respect to matters contested in good faith as set forth
in the Xando Disclosure Letter) or (ii) as of January 1, 1999 adequately
reflected as a liability on Xando's or its Subsidiaries' books and records
(without taking into account any deferred Tax liabilities), and all Taxes
required to be collected or withheld from third parties have been collected or
withheld.
(c) Neither Xando nor any of its Subsidiaries have waived any
statute of limitations with respect to federal income Taxes or agreed to any
extension of time with respect to federal income or state Tax assessment or
deficiency.
(d) As of the date hereof, there are not pending or, to the
knowledge of Xando, threatened any audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters that (i) were raised by any
Taxing authority in a written communication to Xando or any Subsidiary thereof
and (ii) would, if determined adversely to Xando or any Subsidiary thereof,
individually or in the aggregate, reasonably be expected to have a Xando
Material Adverse Effect after taking into account any reserves for Taxes set
forth in the Xando Financial Statement.
(e) Xando has made available to Cosi true and correct copies of the
United States federal income and all material state income or franchise Tax
Returns filed by Xando and its Subsidiaries for each of its fiscal years ended
December 29, 1996, December 28, 1997 and December 28, 1998.
Section 4.18 Intellectual Property. (a) The Xando Disclosure Letter
sets forth:
(1) All United States and foreign trademark, service mark and trade
name registrations and pending applications for registration therefor
filed by or on behalf of Xando or any of its Subsidiaries;
(2) All United States and foreign patents issued to and/or owned by
Xando or any of its Subsidiaries and all pending patent applications filed
by or on behalf of Xando or any of its Subsidiaries throughout the world;
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(3) All proprietary computer software applications, including
databases and algorithms, of Xando or any of its Subsidiaries and
indicating those applications that have been registered for copyright
protection;
(4) All United States and foreign copyright registrations (other
than those listed in Section 4.18(a)(3)) issued to Xando or any of its
Subsidiaries and all pending applications for copyright registrations
filed by or on behalf of Xando or any of its Subsidiaries:
(5) All existing agreements or arrangements pursuant to which Xando
or any of its Subsidiaries have licensed any IP Rights (as defined below)
used or held for use by Xando or any of its Subsidiaries (the "Xando IP
Rights") to any other Person;
(6) All existing agreements or arrangements pursuant to which Xando
or any of its Subsidiaries are granted a license to use IP Rights owned by
any other Person;
(b) (1) Xando or one of its Subsidiaries owns or is licensed to use
all of the IP Rights used in its business as presently and heretofore conducted;
(2) Neither Xando nor any of its Subsidiaries has licensed or made
any other arrangement to allow any other Person to use or otherwise
exploit any Xando IP Rights, including any trade secrets used in the Xando
Business;
(3) To Xando's knowledge, the Xando IP Rights are owned by Xando or
one of its Subsidiaries free and clear of any and all Encumbrances whether
written, oral or implied in fact or law, except for any Encumbrances that
would not have a Xando Material Adverse Effect;
(4) The Xando IP Rights are valid and enforceable, and to Xando's
knowledge, no Person has asserted a claim that any of the Xando IP Rights
are invalid or unenforceable, or challenging the ownership of the Xando IP
Rights by Xando or one of its Subsidiaries;
(5) To Xando's knowledge, no Person is making unauthorized use or is
otherwise infringing or misappropriating the Xando IP Rights; and
(6) To Xando's knowledge, no claim has been made that the Xando IP
Rights or any product or service of Xando or any of its Subsidiaries
infringes or violates the IP Rights of any other Person.
Section 4.19 Insurance. The Xando Disclosure Letter sets forth a
list of all property and casualty insurance policies or binders or other
insurance held by or on behalf of Xando or any of its Subsidiaries including
those required in connection with the leasing, use, occupancy or operation of
the Xando Leased Real Property as currently used, occupied and operated,
directors' and officers' insurance and worker's compensation insurance, and with
respect to each such policy or binder, the name of the insurer, the type of
insurance, the period of coverage, the amount of coverage (both initially and as
presently available), the principal terms, the policy number, the name of the
policyholder and of each insured and loss payee, the premium
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payable and the name, address and telephone number of the agent. Neither Xando
nor any of its Subsidiaries is party to, or bound by, any Contract requiring
Xando or any of its Subsidiaries to name a third party as loss payee under any
insurance policy or binder held by or on behalf of Xando or any of its
Subsidiaries otherwise requiring Xando or any of its Subsidiaries to obtain
insurance for or on behalf of any third party. The Xando Disclosure Letter sets
forth by year for the current policy year and the preceding policy year:
(a) A summary of the loss experience under such policy;
(b) A statement describing each claim under an insurance policy for
an amount in excess of $25,000; and
(c) A statement describing the loss experience for claims in excess
of $25,000 that were self-insured, including the number and aggregate cost of
such claims. The Xando Disclosure Letter describes all obligations of Xando or
any of its Subsidiaries to provide insurance coverage to third parties (such as,
for example, under service agreements) other than pursuant to Xando Real
Property Leases and identifies the policy under which such coverage is provided.
The Xando Disclosure Letter describes any self-insurance arrangement by or
affecting Xando or any of its Subsidiaries, including any reserves established
thereunder.
Xando will deliver, within ten days of the date hereof, true and complete copies
of all policies of insurance to which Xando or any of its Subsidiaries is a
party or under which Xando or any of its Subsidiaries is covered and true and
complete copies of all applications for policies of insurance. All policies to
which Xando or any of its Subsidiaries is a party or that provide coverage to
Xando or any of its Subsidiaries are in full force and effect, and to the
knowledge of Xando, are sufficient for substantial compliance with all Contracts
and all applicable laws and regulations of any Governmental Entity to which
Xando or any of its Subsidiaries is a party or by which Xando or any of its
Subsidiaries is bound, as applicable. Xando and its Subsidiaries have paid all
premiums due and has otherwise performed all of its respective obligations under
each policy listed or required to be listed on the Xando Disclosure Letter,
except such as will not adversely affect Xando's and its Subsidiaries' coverage
thereunder.
Section 4.20 Accounting and Other Tax Matters. (a) Neither Xando nor
any of its affiliates has taken or agreed to take any action, nor does Xando
have any knowledge of any fact or circumstance with respect to Xando, which
would prevent the Merger from qualifying as a "reorganization" within the
meaning of Section 368 of the Code.
(b) Neither Xando nor any of its Subsidiaries has taken or failed to
take any action which action or failure (without giving effect to any actions or
failures to act by Cosi or any of its Subsidiaries) would prevent the treatment
of the Merger as a pooling-of-interests for accounting purposes.
Section 4.21 Potential Conflicts of Interest. To the knowledge of
Xando, no officer, director or stockholder of Xando or any Subsidiary thereof
and no entity known by Xando to be controlled by any such officer, director, or
stockholder (i) is directly or indirectly engaged in or (ii) owns, directly or
indirectly, any interest in (excepting no more than 5% stockholdings for
investment purposes in securities of publicly held and traded companies), or is
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an officer, director, employee or consultant of, any Person which is directly or
indirectly engaged in the business of Xando or any of its Subsidiaries as a
customer whose purchases accounted for more than 5% of Xando's consolidated net
revenues during the fiscal year ended December 27, 1998, or is a supplier from
whom Xando or any Subsidiary thereof purchased in excess of $300,000 worth of
products during the fiscal year ended December 27, 1998.
Section 4.22 No Other Agreements to Sell. Except pursuant to this
Agreement, neither Xando nor any Subsidiary thereof has any obligation, absolute
or contingent, legally binding or otherwise to any other Person to sell any
portion of its assets, to sell any material portion of its capital stock or
other ownership interests or to effect any merger, consolidation or other
reorganization of itself or to enter into any agreement with respect thereto.
Section 4.23 Customers. The Xando Disclosure Letter sets forth for
the fiscal year ended December 27, 1998 (i) each customer of Xando or any
Subsidiary whose purchases accounted for more than 5% of Xando's consolidated
net revenues during such fiscal year and (ii) each supplier from whom Xando or
any Subsidiary purchased in excess of $300,000 worth of products during such
fiscal year. Except as set forth in the Xando Disclosure Letter, no such
supplier or customer of Xando or any of its Subsidiaries has notified Xando or
any of its Subsidiaries that it has canceled or otherwise terminated, or has
threatened in writing to cancel or otherwise terminate, its relationship with
Xando or one of its Subsidiaries.
Section 4.24 Products and Inventories. The values of the inventories
of Xando and its Subsidiaries reflected on the Xando Financial Statements and
carried on the books of account of Xando and its Subsidiaries reflect the normal
inventory valuation policies of Xando and are carried in accordance with GAAP,
consistently applied. Except as reflected in the Xando Financial Statements for
the fiscal year ended December 27, 1998, such inventories do not include any
material amount of obsolete or defective materials or any material amount of
excess stock items (assuming the continuation of operations as currently
conducted at their current levels).
Section 4.25 Officers, Directors and Key Employees. The Xando
Disclosure Letter lists:
(a) The names, positions held and total compensation of each
salaried employee and each director, consultant or agent of Xando as of December
28, 1998;
(b) All wage and salary increases or bonuses received by the Persons
referred to in paragraph (a) during the fiscal year ended December 28, 1998, and
any amounts received during the current fiscal year and any accrual for or
commitment or agreement by Xando or any of its Subsidiaries to pay wage or
salary increases or bonuses thereto (it being understood that none of such
Persons has given a written threat to Xando or any of its Subsidiaries to cancel
or otherwise terminate such Person's relationship with Xando or its Subsidiary);
(c) The names, positions held and total compensation of all Persons
hired by Xando or any of its Subsidiaries since December 28, 1999 who have
annual salaries or expected total annual compensation in excess of $50,000; and
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(d) Any arrangement or obligation of Xando or any of its
Subsidiaries to make any payment to any of the Persons referred to in paragraph
(a) or (c) as a result of, or conditioned on, the consummation of the Merger.
Section 4.26 Year 2000. To the knowledge of Xando, the failure of
Xando or any its Subsidiaries or of any of their respective material suppliers
or customers or of any other Persons with which either Xando or any of its
Subsidiaries conducts business to identify and resolve any Year 2000 Problem
relating to the business of Xando, such Subsidiaries, such material suppliers or
customers or such other Persons will not have a Xando Material Adverse Effect.
Section 4.27 Prior Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby and has not engaged
in any business activities or conducted any operations other than in connection
with the transactions contemplated hereby.
Section 4.28 Xando Shareholders. The Xando Disclosure Letter
contains a complete and accurate list setting forth the following information
with respect to each Person who is a holder of any Xando Shares or Xando Equity
Rights: (a) such Person's name; and (b) the number of Xando Shares or Xando
Equity Rights held by such Person.
ARTICLE V
CONDUCT PENDING THE MERGER
Section 5.1 Interim Operations of Cosi. (a) Cosi covenants that,
after the date hereof and prior to the Effective Time (unless Xando shall
otherwise approve in writing, or unless as otherwise expressly contemplated by
this Agreement or disclosed in the Cosi Disclosure Letter or required by
applicable law):
(i)its Business shall be conducted in all material respects in the
ordinary course consistent with past practice and, to the extent
consistent therewith, it shall use its best efforts to preserve its
business organization intact, to keep available the services of its
officers and employees and to maintain its existing relations and goodwill
with customers, suppliers, regulators, distributors, creditors, lessors
and others having material business relationships with Cosi;
(ii) it shall not (A) amend its certificate of incorporation or
by-laws, or adopt any stockholders' rights plan or enter into any
agreement with any of its stockholders in their capacity as such; (B)
split, combine, subdivide or reclassify its outstanding shares of capital
stock; (C) declare, set aside, make or pay any dividend or distribution
payable in cash, stock or property in respect of any of capital stock of
itself; or (D) repurchase, redeem or otherwise acquire any Cosi Shares or
Cosi Equity Rights (it being understood that this provision shall not
prohibit the exercise of options);
(iii) Cosi shall not take or fail to take any action that would (A)
prevent the business combination to be effected pursuant to this Agreement
from qualifying for "pooling of interests" accounting treatment under GAAP
and the rules and regulations of
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the SEC, (B) prevent the Merger from qualifying as a "reorganization"
within the meaning of Section 368 of the Code or (C) cause any of its
representations and warranties herein to become inaccurate or misleading
in any material respect;
(iv) except as required by applicable law, pursuant to contractual
obligations in effect on the date hereof, required in order to maintain
tax qualified status or as requested by the IRS in order to receive a
determination letter for such employee benefit plan, Cosi shall not (A)
other than in the ordinary course of business consistent with past
practice, enter into, adopt or amend any agreement or arrangement relating
to severance, (B) other than in the ordinary course of business consistent
with past practice, enter into, adopt or amend any employee benefit plan
or employment or consulting agreement (including the Cosi Benefit Plans);
(C) grant any stock options or other equity related awards or (D) other
than in the ordinary course of business consistent with past practice,
make any wage or salary increase or bonus, or increase in any other direct
or indirect compensation for or to any employee, officer, director,
consultant or agent;
(v)except for (A) borrowings under agreements existing as of the
date hereof and (B) new indebtedness in aggregate not to exceed $15,000
incurred in the ordinary course of business consistent in all material
respects with past practice, Cosi shall not issue or incur, or amend the
terms of, any indebtedness for borrowed money or guarantee any such
indebtedness;
(vi) Cosi shall not make any capital expenditures after the date
hereof outside the ordinary course of business;
(vii) other than in the ordinary course of business consistent with
past practice, Cosi shall not transfer, lease, sublease, sub-sublease,
license, sell, mortgage, pledge, encumber or otherwise dispose of any
material property or material assets;
(viii) Cosi shall not issue, deliver, sell or encumber shares of any
class of its capital stock or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, except any such
shares issued pursuant to options and other awards outstanding on the date
hereof under the Cosi Benefit Plans;
(ix) Cosi shall not acquire or make any investment in any business
or other Person, whether by merger, consolidation, purchase of property or
assets or otherwise, other than investments in the ordinary course of
business consistent with past practice;
(x) Cosi shall not change its accounting policies, practices or
methods except as required by GAAP,
(xi) Cosi shall not enter into any material agreement or grant any
release or relinquishment of any material agreement or material Contract
right or fail to renew any material Contract;
(xii) Cosi shall not change or, other than in the ordinary course of
business consistent with past practice, make any material Tax election;
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(xiii) Cosi shall not make any loans, advances or capital
contributions to, or investments in, any Person, except in the ordinary
course of its business consistent with past practice;
(xiv) Cosi shall not enter into, amend or extend any material
collective bargaining or other labor agreement or employment agreement for
any current employee whose annual compensation (including bonuses and
commissions) exceeds $50,000, except as required by law and except in the
ordinary course of its business consistent in all material respects with
past practice;
(xv) except in the ordinary course of business consistent with past
practice, neither Cosi nor any other Person on behalf of Cosi will enter
into or become a party to or become obligated under any Contract or other
arrangement (oral or written) relating to the payment of any brokerage
fees, finder's fees or commissions or other similar compensation in
connection with or relating to business between Cosi and any of its
customers;
(xvi) Cosi shall not materially change any of its business policies
or practices, including, without limitation, advertising, marketing,
franchising, pricing, purchasing, personnel, sales or returns, except in
the ordinary course of business consistent with past practice;
(xvii) Cosi shall not fail to perform any of its material
obligations, or suffer or permit any material default by Cosi to exist,
under any material Contract;
(xviii) Cosi shall not reduce its cash or short-term investments or
their equivalent, other than to meet cash needs arising in the ordinary
course of business consistent with past practice;
(xix) Cosi shall not pay, directly or indirectly, any of its
material liabilities before the same become due in accordance with their
terms or otherwise, except in the ordinary course of business consistent
with past practice;
(xx) Cosi shall not suffer or incur any damage, destruction or loss,
whether or not covered by insurance, which will have a Cosi Material
Adverse Effect;
(xxi) Cosi shall not enter into a lease with respect to a new store
to be owned and operated by Cosi or a franchisee, enter into any sublease,
sub-sublease or license with respect to any of the Cosi Leased Real
Property (except as set forth in the Cosi Disclosure Letter) or, without
the prior written consent of Xando (which consent shall not be
unreasonably withheld), make any payment or amend any material term of any
lease in order to obtain the transaction consent of the lessor with
respect to such lease;
(xxii) Cosi shall not enter into any commitments or agreements to do
any of the foregoing; and
(xxiii) Cosi shall not alter in any way the number or class of the
outstanding shares of Cosi Common Stock by reason of any (A) distribution,
(B) reclassification,
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(C) stock split, (D) combination of shares, (E) dividend declaration which
is payable in stock thereon and which has a record date subsequent to the
date hereof and prior to the Effective Time, or (F) other transaction
which is similar to the foregoing.
(b) From the date hereof through the Closing Date, Cosi shall
promptly notify Xando of any investigations of which Cosi has knowledge or any
claims which, after the date hereof, are commenced or threatened against Cosi or
any of the properties or assets of Cosi or any officer, director or employee of
Cosi, arising out of or relating to the affairs or conduct of the business of
Cosi or that would be required to be listed in the Cosi Disclosure Letter.
(c) Xando and its employees, independent accountants, attorneys,
agents and authorized representatives shall have reasonable opportunity and
access during normal business hours to the plants, properties, documents, files,
books and records of Cosi, and shall be provided with such information as to the
business, properties and assets of Cosi as Xando may from time to time
reasonably request to update Xando with respect to events occurring after the
date hereof.
(d) Cosi shall give any and all notices, make any and all reports or
filings and use its commercially reasonable efforts to obtain any and all
consents, waivers, approvals, releases or authorizations required to be given,
made or obtained, as applicable, by Cosi pursuant to the Cosi Real Property
Leases in connection with the transactions contemplated hereunder.
(e) Cosi shall call a meeting of its stockholders to be held no
later than October 1, 1999 for the purpose of voting upon this Agreement and
related matters. Cosi will, through its Board of Directors, recommend to its
stockholders approval of such matters.
Section 5.2 Interim Operations of Xando. (a) Xando covenants as to
itself and its Subsidiaries, that, after the date hereof and prior to the
Effective Time (unless Cosi shall otherwise approve in writing, or unless as
otherwise expressly contemplated by this Agreement or disclosed in the Xando
Disclosure Letter or required by applicable law):
(i) its Business shall be conducted in all material respects in the
ordinary course consistent with past practice and, to the extent
consistent therewith, each of Cosi and its Subsidiaries shall use its best
efforts to preserve its business organization intact, to keep available
the services of its officers and employees and to maintain its existing
relations and goodwill with customers, suppliers, regulators,
distributors, creditors, lessors and others having material business
relationships with Xando and/or its Subsidiaries;
(ii) except as contemplated in Section 7.1(d) hereof, it shall not
(A) amend its certificate of incorporation or by-laws, or adopt any
stockholders' rights plan or enter into any agreement with any of its
stockholders in their capacity as such; (B) split, combine, subdivide or
reclassify its outstanding shares of capital stock of Xando or its
Subsidiaries; (C) declare, set aside, make or pay any dividend or
distribution payable in cash, stock or property in respect of any of
capital stock of Xando or its Subsidiaries; or (D) repurchase, redeem or
otherwise acquire or permit any of its Subsidiaries to purchase, redeem or
otherwise acquire, any shares of capital stock of Xando or Xando Equity
Rights (it being understood that this provision shall not prohibit the
exercise of options);
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(iii) neither Xando nor any of its Subsidiaries shall take or fail
to take any action that would (A) prevent the business combination to be
effected pursuant to this Agreement from qualifying for "pooling of
interests" accounting treatment under GAAP and the rules and regulations
of the SEC, (B) prevent the Merger from qualifying as a "reorganization"
within the meaning of Section 368 of the Code or (C) cause any of its
representations and warranties herein to become inaccurate or misleading
in any material respect;
(iv) except as required by applicable law, pursuant to contractual
obligations in effect on the date hereof required in order to maintain tax
qualified status or as requested by the IRS in order to receive a
determination letter for such employee benefit plan, Xando shall not, and
shall not permit its Subsidiaries to, (A) other than in the ordinary
course of business consistent with past practice, enter into, adopt or
amend any agreement or arrangement relating to severance, (B) other than
in the ordinary course of business consistent with past practice, enter
into, adopt or amend any employee benefit plan, or employment or
consulting agreement (including the Xando Benefit Plans); (C) grant any
stock options or other equity related awards or (D) other than in the
ordinary course of business consistent with past practice, make any wage
or salary increase or bonus, or increase in any other direct or indirect
compensation for or to any employee, officer, director, consultant or
agent;
(v) except for (A) borrowings under agreements existing as of the
date hereof and (B) new indebtedness in aggregate not to exceed $15,000
incurred in the ordinary course of business consistent in all material
respects with past practice, neither Xando nor any of its Subsidiaries
shall issue or incur, or amend the terms of, any indebtedness for borrowed
money or guarantee any such indebtedness;
(vi) neither Xando nor any of its Subsidiaries shall make any
capital expenditures after the date hereof outside the ordinary course of
business;
(vii) other than in the ordinary course of business consistent with
past practice, neither Xando nor any of its Subsidiaries shall transfer,
lease, sublease, sub-sublease, license, sell, mortgage, pledge, encumber
or otherwise dispose of any material property or material assets of Xando
and its Subsidiaries taken as a whole;
(viii) except as contemplated by Section 7.1(d) hereof, neither
Xando nor any of its Subsidiaries shall issue, deliver, sell or encumber
shares of any class of its capital stock or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
except any such shares issued pursuant to options and other awards
outstanding on the date hereof under the Xando Benefit Plans;
(ix) neither Xando nor any of its Subsidiaries shall acquire or make
any investment in any business or other Person, whether by merger,
consolidation, purchase of property or assets or otherwise, other than
investments in the ordinary course of business consistent with past
practice;
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(x)Xando shall not change its accounting policies, practices or
methods except as required by GAAP;
(xi) Xando shall not, and shall not permit any of its Subsidiaries,
to enter into any agreement that is material to Xando and its Subsidiaries
taken as a whole, or grant any release or relinquishment of any agreement
or Contract right or fail to renew any Contract, in each case if such
action or omission to act is material to Xando and its Subsidiaries taken
as a whole;
(xii) Xando shall not change or, other than in the ordinary course
of business consistent with past practice, make any material Tax election;
(xiii) neither Xando nor any of its Subsidiaries shall make any
loans, advances or capital contributions to, or investments in, any
Person, except in the ordinary course of its business consistent with past
practice;
(xiv) neither Xando nor any of its Subsidiaries shall enter into,
amend or extend any material collective bargaining or other labor
agreement or employment agreement for any current employee whose annual
compensation (including bonuses and commissions) exceeds $50,000, except
as required by law and except in the ordinary course of its business
consistent in all material respects with past practice;
(xv) except in the ordinary course of business consistent with past
practice, neither Xando, nor any of its Subsidiaries, nor any other Person
on behalf of Xando or any of its Subsidiaries, will enter into or become a
party to or become obligated under any Contract or other arrangement (oral
or written) relating to the payment of any brokerage fees, finder's fees
or commissions or other similar compensation in connection with or
relating to business between Xando or any of its Subsidiaries on the one
hand and any of their customers, on the other;
(xvi) neither Xando nor any of its Subsidiaries shall materially
change any of its business policies or practices, including, without
limitation, advertising, marketing, franchising, pricing, purchasing,
personnel, sales or returns, except in the ordinary course of business
consistent with past practice;
(xvii) neither Xando nor any of its Subsidiaries shall fail to
perform any of its material obligations, or suffer or permit any material
default by Xando to exist, under any material Contract;
(xviii) neither Xando nor any of its Subsidiaries shall reduce its
cash or short-term investments or their equivalent, other than to meet
cash needs arising in the ordinary course of business consistent with past
practice;
(xix) neither Xando nor any of its Subsidiaries shall pay, directly
or indirectly, any of its material liabilities before the same became due
in accordance with their terms or otherwise, except in the ordinary course
of business consistent with past practice;
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(xx) neither Xando nor any of its Subsidiaries shall suffer or incur
any damage, destruction or loss, whether or not covered by insurance,
which will have a Xando Material Adverse Effect;
(xxi) neither Xando nor any of its Subsidiaries shall enter into a
lease with respect to a new store to be owned and operated by Xando or any
Subsidiary or, in either case, franchisee thereof, enter into any
sublease, sub-sublease or license with respect to any of the Xando Leased
Real Property (except as set forth in the Xando Disclosure Letter) or,
without the prior written consent of Cosi (which consent shall not be
unreasonably withheld), make any payment or amend any material term of any
lease in order to obtain the transaction consent of the lessor with
respect to such lease;
(xxii) neither Xando nor any of its Subsidiaries shall enter into
any commitments or agreements to do any of the foregoing; and
(xxiii) except as contemplated in Section 7.1(d) hereof, Xando shall
not alter in any way the number or class of the outstanding shares of
Xando Common Stock by reason of any (A) distribution, (B)
reclassification, (C) stock split, (D) combination of shares, (E) dividend
declaration which is payable in stock thereon and which has a record date
subsequent to the date hereof and prior to the Effective Time, or (F)
other transaction which is similar to the foregoing.
(b) From the date hereof through the Closing Date, Xando shall
promptly notify Cosi of any investigations of which Xando has knowledge or any
claims which, after the date hereof, are commenced or threatened against Xando,
any Subsidiary thereof or any of the properties or assets of Xando, any of its
Subsidiaries or any officer, director or employee of Xando or any of its
Subsidiaries, arising out of or relating to the affairs or conduct of the
business of Xando or any of its Subsidiaries or that would be required to be
listed in the Xando Disclosure Letter.
(c) Cosi and its employees, independent accountants, attorneys,
agents and authorized representatives shall have reasonable opportunity and
access during normal business hours to the plants, properties, documents, files,
books and records of Xando, and shall be provided with such information as to
the business, properties and assets of Xando as Cosi may from time to time
reasonably request to update Cosi with respect to events occurring after the
date hereof.
(d) Xando's Board of Directors shall adopt the Xando Amendment
Resolution.
Section 5.3 No Solicitation. (a) Cosi shall immediately cease and
terminate any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any Persons conducted by it or any of its
Representatives with respect to any proposed, potential or contemplated
Acquisition Transaction.
(b) From and after the date hereof, without the prior written
consent of Xando, Cosi will not authorize or permit any of its officers,
directors, employees, financial advisors, agents or representatives (each a
"Representative") directly or indirectly to solicit, initiate or
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encourage (including by way of furnishing information) or take any other action
to facilitate any inquiries or the making of any proposal which constitutes or
may reasonably be expected to lead to an Acquisition Proposal from any Person
(other than from Xando or Sub), or engage in any discussion or negotiations
relating thereto.
(c) Neither the Board of Directors of Xando nor the Board of
Directors of Cosi shall withdraw, amend or modify in a manner adverse to the
other Party (for which purposes Xando and Sub shall be treated as a single
Parry) its recommendation referred to in Sections 5.1(e) and 5.2(e).
(d) For purposes of this Agreement, except as set forth in Section
8.2(i) and other than with respect to any transaction to which exclusively Xando
and/or any of its Subsidiaries on the one hand and exclusively Cosi on the other
hand is a party, "Acquisition Proposal" shall mean, with respect to Cosi or
Xando, any inquiry, proposal or offer from any Person (other than Xando or any
of its Subsidiaries) relating to any (i) direct or indirect acquisition or
purchase of a business thereof, that contributes 10% or more of the consolidated
net revenues, net income or assets thereof, (ii) direct or indirect acquisition
or purchase of 10% or more of any class of equity securities thereof, or of any
Subsidiary thereof the business of which contributes 10% or more of the
consolidated net revenues, net income or assets thereof, (iii) tender offer or
exchange offer that if consummated would result in any Person beneficially
owning 10% or more of any class or series of capital stock thereof, or (iv)
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction with respect thereto or any Subsidiary
thereof the business of which contributes 15% or more of the consolidated net
revenues, net income or assets thereof. Each of the transactions referred to in
clauses (i) through (iv) of the definition of Acquisition Proposal, is referred
to herein as an "Acquisition Transaction".
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Publicity. No Party shall issue any press release or
otherwise make any public statements with respect to the Merger without the
prior consent of the other Party (for which purpose Xando and Sub shall be
considered a single Party).
Section 6.2 Further Actions. Each of the Parties shall, subject to
the fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, use its reasonable best
efforts (a) to perform such further acts and execute such documents as may be
reasonably required to (i) effect the transactions contemplated hereby, (ii)
obtain in a timely manner all necessary waivers, consents and approvals
(including, without limitation, any such waivers, consents and approvals
required, either prior to or subsequent to the Effective Time, with respect to
the Cosi Real Property Leases as a result of the Merger) and (iii) effect all
necessary registrations and filings, and (b) to take, or cause to be taken, all
other actions and to do, or cause to be done, all other things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
Merger.
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Section 6.3 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, shall be paid by the Party incurring such
expenses.
Section 6.4 Notification of Certain Matters. Each Party shall give
prompt notice to the other Party of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence or
nonoccurrence is reasonably expected to cause not to be satisfied any of the
conditions precedent set forth in Article VII; and
(b) the status of matters relating to the completion of the Merger,
including promptly furnishing the other Party with copies of notices or other
communications received by such notifying Party or any of its Subsidiaries from
any third party and/or Governmental Entity with respect to this Agreement or the
transactions contemplated hereby, including the Merger.
Section 6.5 Review of Information. Subject to applicable laws
relating to the exchange of information, each Party shall have the right to
review in advance, and to the extent practicable, each will consult with the
other about all information relating to it or any of its Subsidiaries that
appears in any filing made with, or written materials submitted to, any third
party and/or any Governmental Entity in connection with the Merger. In
exercising the foregoing right, each of the Parties shall act reasonably and as
promptly as practicable.
Section 6.6 Indemnification; Directors' and Officers' Insurance. (a)
From and after the Effective Time, Xando shall, or shall cause the Surviving
Corporation to, indemnify and hold harmless each present and former director and
officer of Cosi (to the extent such Person is or was acting in such capacity)
(the "Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, for
acts or omissions existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under the DGCL or other applicable law.
(b) Xando shall maintain, or cause the Surviving Corporation to
maintain, a policy of officers' and directors' liability insurance for acts and
omissions occurring prior to the Effective Time ("D&O Insurance") with coverage
in amount and scope at least as favorable as Surviving Corporation's directors'
and officers' liability insurance coverage existing immediately prior to the
Effective Time for a period of six years after the Effective Time; provided,
however, that if the existing D&O Insurance expires, is terminated or canceled
by the insurer, or if the annual premium therefor is increased to an amount in
excess of 150% of the annualized amount of the last premium paid prior to this
date (the "Current Premium"), in each case during such six year period, Xando
shall, or shall cause the Surviving Corporation to, obtain D&O Insurance in an
amount and scope as great as can be obtained for the remainder of such period
for a premium not in excess (on an annualized basis) of 150% of the Current
Premium.
(c) If Xando or the Surviving Corporation or any of their respective
successors or assigns (i) shall consolidate with or merge into any other
corporation or other
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entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) shall transfer all or substantially all of
its properties and assets to any individual, corporation or other entity, then
and in each such case, proper provisions shall be made so that the successors
and assigns of Xando or the Surviving Corporation shall assume all of the
obligations set forth in this Section 6.6.
(d) The provisions of this Section 6.6 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
Section 6.7 Amendment of Xando By-Laws. The parties hereby agree
that, immediately after the Effective Time, Xando's Board of Directors shall
adopt the resolutions set forth in Exhibit F, amending the Xando by-laws.
Section 6.8 Pooling-of-Interests. Each of the Parties will use its
reasonable best efforts to cause the Merger to be accounted for as a
pooling-of-interests in accordance with GAAP and the rules and regulations of
the SEC.
Section 6.9 Tax-Free Reorganization. Each of the Parties will use
its reasonable best efforts to cause the Merger to qualify as a tax-free
"reorganization" under Section 368 of the Code.
Section 6.10 [Intentionally Omitted]
Section 6.11 Benefit Plans. As of the Closing Date, Xando shall (or
shall cause the Surviving Corporation to) either continue the existing Cosi
Benefit Plans or provide, or cause the Surviving Corporation to provide benefits
to employees of Cosi that are no less favorable in the aggregate to such
employees (considered as a group) than those provided under the Xando Benefit
Plans (as they may be amended from time to time) to similarly situated employees
of one or more operating unit of Xando or its Subsidiaries. For purposes hereof,
"Xando Benefit Plan" means any employee benefit plan, arrangement, practice,
contract or agreement of any type (including but not limited to a plan described
in Section 3(3) of ERISA), maintained from time to time by one or more operating
unit of Xando or its Subsidiaries for its employees generally.
Section 6.12 Service Credit. With respect to any Xando Benefit Plan
which is an "employee benefit plan" as defined in Section 3(3) of ERISA, for
purposes of determining eligibility to participate, vesting, and entitlement to
benefits, including for severance benefits, vacation entitlement and service
awards (but excluding benefit accrual under any defined benefit pension plan or
similar arrangement), service with Cosi shall be treated as service with Xando
or its Subsidiaries; provided, however, that such service shall not be
recognized to the extent that such recognition would result in a duplication of
benefits. Such service also shall apply for purposes of satisfying any waiting
periods, evidence of insurability requirements, and the application of any
preexisting condition limitations. Cosi employees shall be given credit for
amounts paid under a corresponding benefit plan during the same period for
purposes of applying deductibles, co-payments and out-of-pocket maximums as
though such amounts had been paid in accordance with the terms and conditions of
the Xando Benefit Plan.
Section 6.13 Compensation Contracts. Xando shall, or shall cause the
Surviving Corporation to, assume and honor the obligations of Cosi under all
employment,
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severance, consulting and other compensation contracts, arrangements,
commitments or understandings ("Compensation Contracts"), in accordance with
their terms, as disclosed in the Cosi Disclosure Letter.
Section 6.14 Confidentiality Agreement. Xando and Cosi acknowledge
and confirm that each has entered into a Confidentiality Agreement, dated April
9, 1999 (the "Confidentiality Agreement"), that information provided by each
Party to the other Parties pursuant to this Agreement is subject to the terms of
the Confidentiality Agreement and shall be treated as "Confidential Information"
thereunder and that the Confidentiality Agreement shall remain in full force and
effect in accordance with its terms.
Section 6.15 Cosi Executive Agreements. Each of Jonathan M.
Wainwright, Jr. and Andrew S. Wainwright (the "Cosi Executives") hereby agrees
and acknowledges that, unless otherwise expressly agreed hereafter in writing by
each of the Cosi Executives and Xando:
(a) the information, observations and data obtained by him while
employed by Xando, the Surviving Corporation or any of its affiliates concerning
the business or affairs of Xando, the Surviving Corporation or any of its
affiliates ("Confidential Information") are the property of Xando, the Surviving
Corporation or such affiliate. Therefore, each Cosi Executive agrees that he
shall not disclose to any unauthorized person or use for his own purposes any
Confidential Information without the prior written consent of the Board of
Directors of Xando, unless and to the extent that the aforementioned matters
become generally known to and available for use by the public other than as a
result of Cosi Executive's acts or omissions or as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation (it being understood that, to the extent practicable, Cosi Executive
shall provide Xando with prompt notice of any such event and cooperate in good
faith to enable Xando, the Surviving Corporation or such affiliate to
participate to protect its interests in such confidential information). Each
Cosi Executive shall deliver to Xando, the Surviving Corporation or any of its
affiliates as of the date of each such Cosi Executives termination of
employment, or at any other time Xando, the Surviving Corporation or any of its
affiliates may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Confidential Information, Work Product (as defined below) or the
business of Xando, the Surviving Corporation or any of its affiliates which he
may then possess or have under his control;
(b) all inventions, innovations, improvements, developments,
methods, designs, analyses, drawings, reports and all similar or related
information (whether or not patentable) which relate to Xando, the Surviving
Corporation or any of its affiliates' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by Cosi Executive while employed by Xando, the
Surviving Corporation or any of its affiliates ("Work Product") belong to Xando,
the Surviving Corporation or any such affiliate. Cosi Executive shall promptly
disclose such Work Product to the Board of Directors of Xando and perform all
actions reasonably requested by the Board (whether during or after Cosi
Executive's employment with Xando, the Surviving Corporation or any of its
affiliates) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments);
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(c) during his employment with Xando, the Surviving Corporation or
any of its affiliates he has become familiar, and he will continue to become
familiar, with Xando, the Surviving Corporation or any of its affiliates' trade
secrets and with other Confidential Information concerning Xando, the Surviving
Corporation or any of its affiliates and that his services have been and shall
be of special, unique and extraordinary value to Xando, the Surviving
Corporation or any of its affiliates. Therefore, each Cosi Executive agrees
that, during the period of his employment with Xando, the Surviving Corporation
or any of its affiliates and for eighteen months thereafter (the "Noncompete
Period") he shall not, directly or indirectly, either for himself or for any
other person, partnership, corporation or company, permit his name to be used by
or participate in any (x) business similar to the businesses of Xando, the
Surviving Corporation, or any of its affiliates, as such businesses exist or are
in process on the date of such Cosi Executive's termination of employment or (y)
restaurant, bar, sandwich shop, coffee shop or other food service establishment,
within the United States of America or Canada or any other country in which
Xando, the Surviving Corporation or its affiliates engage or plan to engage in
such businesses. For purposes of this Agreement, the term "participate" includes
any direct or indirect interest in any enterprise, whether as an officer,
director, employee, partner, sole proprietor, agent, representative, independent
contractor, consultant, franchisor, franchisee, creditor, owner or otherwise;
provided that the term "participate" shall not include ownership of less than 5%
of the stock of a publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market. Each Cosi Executive
acknowledges and agrees that the covenant contained in this paragraph 6.15(c) is
reasonable with respect to its duration, geographical area and scope;
(d) during the Noncompete Period, Cosi Executive shall not directly
or indirectly (i) induce or attempt to induce any employee of Xando, the
Surviving Corporation or any affiliate to leave the employ of Xando, the
Surviving Corporation or such affiliate, or in any way interfere with the
relationship between Xando, the Surviving Corporation or any affiliate and any
employee thereof, (ii) hire any person who was an employee of Xando, the
Surviving Corporation or any affiliate at any time during Cosi Executive's
period of employment with Xando, the Surviving Corporation or any affiliates or
for 180 days thereafter or (iii) induce or attempt to induce any customer,
supplier, licensee, licensor, franchisee or other business relation of Xando,
the Surviving Corporation or any affiliate to cease doing business with Xando,
the Surviving Corporation or such affiliate, or in any way interfere with the
relationship between any such customer, supplier, licensee, licensor, franchisee
or business relation and Xando, the Surviving Corporation or any affiliate
(including, without limitation, making any negative statements or communications
about Xando, the Surviving Corporation or any of its affiliates);
(e) if, at the time of enforcement of any of the paragraphs of
Section 6.15 of this Agreement, a court holds that the restrictions stated
herein are unreasonable under circumstances then existing, the parties hereto
agree that the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area. Because
Cosi Executive's services are unique and because Cosi Executive has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would not be an adequate remedy for any breach of any of the paragraphs
of Section 6.15 of this Agreement. Therefore, in the event a breach or
threatened breach of any of the paragraphs of Section 6.15 of this Agreement,
Xando, the Surviving Corporation or any affiliate or their successors or assigns
may, in addition to other rights and remedies existing in their favor,
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apply to any court of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce, or prevent any violations of,
the provisions hereof (without posting a bond or other security). In addition,
in the event of an alleged breach or violation by a Cosi Executive of Section
6.15(c) of this Agreement, the Noncompete Period shall be tolled until such
breach or violation has been duly cured.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.1 Conditions to the Obligations of the Parties to
Consummate the Merger. The respective obligation of each Party to consummate the
Merger shall be subject to the satisfaction of each of the following conditions:
(a) Stockholder Adoption/Approval. (i) The requisite holders of the
stock of Cosi shall have voted to adopt this Agreement in accordance with the
DGCL and such adoption shall have been certified by the Secretary or Assistant
Secretary of Cosi in accordance with Section 251 of the DGCL, (ii) the requisite
holders of the stock (common or otherwise) of Xando required or entitled to
vote, individually and, as applicable, as a series, on the Xando Amendments
shall have voted in favor of the adoption of such Amendments, and such adoption
shall have been duly certified in accordance with Section 242 of the DGCL, and
(iii) the requisite holders of the stock (common or otherwise) of Xando shall
have granted, individually and, as applicable, as a series, any and all consents
to the transactions contemplated hereby required pursuant to Xando's
organizational documents or any agreement between any such holders and Xando.
(b) Legality. No order, decree or injunction shall have been entered
or issued by any Governmental Entity which shall be in effect and shall have the
effect of making the Merger illegal or otherwise prohibiting consummation of the
Merger. Each Party agrees that, in the event that any such order, decree or
injunction shall be entered or issued, it shall use its reasonable best efforts
to cause the same to be lifted or vacated.
(c) Accountant's Letter. Ernst & Young LLP ("EY") shall have
delivered a letter, dated as of the date hereof, regarding the appropriateness,
assuming the Merger is closed and consummated in accordance with this Agreement,
of accounting for the Merger as a pooling-of-interests under Accounting
Principles Board Opinion No. 16.
(d) Conversion of Certain Xando Shares. (i) Each of Andrew Stenzler,
Nicholas Marsh and David Kaufman shall have converted all of the shares of Xando
Series B Preferred Stock owned by him into the number of shares of Xando Common
Stock into which the same are permitted to be converted pursuant to the terms of
Xando's Certificate of Incorporation.
(ii) Ziff Asset Management, L.P. shall have converted no fewer than
130,703 shares of Xando Series C Preferred Stock owned by it into the
number of shares of Xando Common Stock into which the same are permitted
to be converted pursuant to the terms of Xando' s Certificate of
Incorporation.
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Section 7.2 Additional Conditions to the Obligations of Xando and
Sub. The obligations of Xando and Sub to consummate the Merger shall also be
subject to the satisfaction or waiver of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Cosi contained in this Agreement (without giving effect in any
such representation or warranty to any materiality or the Cosi Material Adverse
Effect standard, qualification or exception contained therein) shall be true at
and as of the Closing with the same effect as though made at and as of such time
(except for representations and warranties which speak as of a different date,
which shall be true as of such date).
(b) Agreements and Covenants. Cosi shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or before the Effective
Time.
(c) Certificate. Xando shall have received a certificate of an
executive officer of Cosi that the conditions set forth in paragraphs (a) and
(b) of this Section 7.2 have been satisfied.
(d) Consents. Cosi shall have obtained all consents, approvals,
releases or authorizations from, and Cosi shall have made all filings and
registrations to or with, any Person, including without limitation any
Governmental Entity, necessary to be obtained or made by Cosi in order for Xando
and Sub to consummate the Merger or issue shares of Xando Common Stock pursuant
hereto, as applicable, unless the failure to obtain any of such consents,
approvals, releases or authorizations or make any such filings or registrations
would not, individually or in the aggregate, reasonably be expected to have a
Cosi Material Adverse Effect.
(e) Indemnification and Escrow Agreement. Jonathan M. Wainwright,
Jr., as representative for the holders of Cosi Common Stock, Xando and the
Escrow Agent shall have entered into the Indemnification and Escrow Agreement
with Xando.
(f) No Material Adverse Change. Since the date of this Agreement, no
change or circumstance resulting in a Cosi Material Adverse Effect shall have
occurred.
(g) No Change In Cosi Common Stock. Since the date of this Agreement
and, except as expressly contemplated by the terms hereof, Cosi shall not have
altered in any way the number or class of the outstanding shares of Cosi Common
Stock by reason of any (A) distribution, (B) reclassification, (C) stock split,
(D) combination of shares, (E) dividend declaration which is payable in stock
thereon and which has a record date subsequent to the date hereof and prior to
the Effective Time, or (F) other transaction which is similar to the foregoing.
(h) FIRPTA Affidavit. Xando shall have received an affidavit of an
executive officer of Cosi, sworn to under penalty of perjury, setting forth
Cosi's name, address and federal tax identification number and stating that Cosi
is not a "U.S. real property holding corporation" within the meaning of Section
897(c)(2) of the Code and has not been a "U.S. real property holding
corporation" at any time during the five years preceding the Closing (or such
shorter period as may be specified by Section 897(c)(l)(A)(ii) of the Code).
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(i) Investor Representation Letters. Xando shall have received a
signed agreement from each holder of Cosi Common Stock in form and substance
substantially similar to Exhibit G attached hereto.
Section 7.3 Additional Conditions to the Obligations of Cosi. The
obligations of Cosi to consummate the Merger shall also be subject to the
satisfaction or waiver of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Xando and Sub contained in this Agreement (without giving effect
in any such representation or warranty to any materiality or Xando Material
Adverse Effect standard, qualification or exception contained therein) shall be
true at and as of the Closing with the same effect as though made at and as of
such time (except for representations and warranties which speak as of a
different date, which shall be true as of such date).
(b) Agreements and Covenants. Each of Xando and Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or before
the Effective Time.
(c) Certificate. Cosi shall have received a certificate of an
executive officer of each of Xando and Sub that the conditions set forth in
paragraphs (a) and (b) above have been satisfied.
(d) Consents. Xando shall have obtained all consents, approvals,
releases or authorizations from, and Xando shall have made all filings and
registrations to or with, any Person, including without limitation any
Governmental Entity, necessary to be obtained or made by Xando in order for Cosi
to consummate the Merger, unless the failure to obtain any such consents,
approvals, releases or authorizations or make any such filings or registrations
would not, individually or in the aggregate, be reasonably expected to have a
Xando Material Adverse Effect.
(e) [Intentionally Omitted]
(f) No Material Adverse Change. Since the date of this Agreement, no
change or circumstance resulting in Xando Material Adverse Effect shall have
occurred.
(g) No Change In Xando Common Stock. Since the date of this
Agreement, except as specifically contemplated by the terms hereof, Xando shall
not have altered in any way the number or class of the outstanding shares of
Xando Common Stock by reason of any (A) distribution, (B) reclassification, (C)
stock split, (D) combination of shares, (E) dividend declaration which is
payable in stock thereon and which has a record date subsequent to the date
hereof and prior to the Effective Time, or (F) other transaction which is
similar to the foregoing.
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ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any
time before the Effective Time (except as otherwise provided) as follows:
(a) by mutual written consent of Xando and Cosi;
(b) by either Xando or Cosi, if the Effective Time shall not have
occurred on or before October 31, 1999 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 8.1(b)
shall not be available to any Party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) by either Xando or Cosi, if a Governmental Entity shall have
issued an order, decree or injunction having the effect of making the Merger
illegal or permanently prohibiting the consummation of the Merger, and such
order, decree or injunction shall have become final and non-appealable (but only
if such Party shall have used its reasonable best efforts to cause such order,
decree or injunction to be lifted or vacated);
(d) by either Xando or Cosi, if (x) there shall have been a material
breach by the other Party of any of its representations, warranties, covenants
or agreements contained in this Agreement, which breach would result in the
failure to satisfy one or more of the conditions set forth in Section 7.2(a) or
(b) (in the case of a breach by Cosi) or Section 7.3(a) or (b) (in the case of a
breach by Xando), and (y) such breach shall be incapable of being cured or, if
capable of being cured, shall not have been cured immediately upon the receipt
by the Party alleged to be in breach of written notice thereof;
(e) (1) by Xando, (i) if Cosi has violated Section 5.3 or (ii) if
the Board of Directors of Cosi or any committee of the Board of Directors of
Cosi (A) shall have withdrawn, modified or amended in any manner adverse to
Xando, the Cosi Merger Resolution, (B) shall have approved or recommended any
Acquisition Proposal or Acquisition Transaction or (C) shall have resolved to
take any of the actions specified in clauses (l)(ii)(A) or (l)(ii)(B) of this
Section 8.1(e), or (2) by Cosi (i) if Xando has violated Section 5.3 or (ii) if
the Board of Directors of Xando or any committee of the Board of Directors of
Xando (A) shall have withdrawn, modified or amended in any manner adverse to
Xando, the Xando Amendment Resolution or Xando Merger Resolution, (B) shall have
approved or recommended any Acquisition Proposal or Acquisition Transaction or
(C) shall have resolved to take any of the actions specified in clauses
(2)(ii)(A) or (2)(ii)(B) of this Section 8.1(e); and
(f) by Xando, if more than 5% of the outstanding shares of Cosi
Common Stock are Dissenting Shares.
Section 8.2 Effect of Termination and Abandonment. In the event of
the termination of this Agreement pursuant to this Article VIII, this Agreement
shall become void and of no effect with no liability on the part of any Party
(or of any of its Representatives); provided, however, that (i) no such
termination shall relieve any Party from any liability for
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damages resulting from any willful and intentional breach of this Agreement, and
(ii) this Article VIII, Sections 6.3 and 6.14, and Article IX shall survive such
termination.
Section 8.3 Amendment. This Agreement may be amended at any time
before the Effective Time but only pursuant to a writing executed and delivered
by Xando, Sub and Cosi.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties, covenants and agreements shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that this Section 9.1 shall
not limit any covenant or agreement contained in this Agreement which by its
terms contemplates performance after the Effective Time (including, without
limitation, Section 6.15 hereof) or the provisions of the Escrow and
Indemnification Agreement.
Section 9.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date of receipt and shall be delivered personally or
mailed by registered or certified mail (postage prepaid, return receipt
requested), sent by overnight courier or sent by telecopy, to the applicable
Party at the following addresses or telecopy numbers (or at such other address
or telecopy number for a Party as shall be specified by like notice):
(a) if to Cosi:
242 West 36th Street, 12th Floor
New York, New York 10018
Attention: Jay Wainwright
Telecopy No.: (212) 653-1666
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Jonathan M. Wainwright
Telecopy No.: (212) 504-6533
(b) if to Xando or Sub:
860 Canal Street
Stamford, Connecticut 06902
Attention: Andrew Stenzler
Telecopy No.: (203) 602-2215
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with a copy to:
Cleary, Gottlieb, Steen & Hamilton
1 Liberty Plaza
New York, New York 10006
Attention: Michael A. Gerstenzang
Telecopy No.: (212) 225-3999
Section 9.3 Certain Definitions; Interpretation. (a) For purposes of
this Agreement, the following terms shall have the following meanings:
(i)"Cosi Material Adverse Effect" means any material adverse change
in or material adverse effect (x) on the business, results of operations,
financial condition or prospects of Cosi (or its successor), or (y) that
will prevent or materially impair Cosi's ability to consummate the Merger;
provided, however, that a Cosi Material Adverse Effect shall not include
changes or effects (1) relating to macroeconomic conditions or financial
markets in general or (2) resulting from actions required to be taken by
the terms of this Agreement.
(ii) "Xando Material Adverse Effect" means any material adverse
change in or material adverse effect (x) on the business, results of
operations, financial condition or prospectus of Xando and its
Subsidiaries taken as a whole, or (y) that will prevent or materially
impair Xando's or Sub's ability to consummate the Merger or the issuance
by Xando of shares of Xando Common Stock in accordance with the terms
hereof; provided, however, that a Xando Material Adverse Effect shall not
include changes or effects (1) relating to macroeconomic conditions or
financial markets in general or (2) resulting from actions required to be
taken by the terms of this Agreement.
(iii) "affiliate" of a Person means a Person that directly or
indirectly, controls, is controlled by, or is under common control with,
the first mentioned Person.
(iv) "control" (including the terms "controlled by" and "under
common control with") means the possession of the power to direct or cause
the direction of the management and policies of a Person, whether directly
or indirectly, through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise.
(v)"ERISA" means the Employee Retirement Income Security Act of
1974, as amended and the rules and regulations promulgated thereunder.
(vi) "knowledge" of any Party means the actual knowledge of the
executive officers of that Party as of the date of determination.
(vii) "Person" means an individual, corporation, partnership, joint
venture, limited liability company, association, trust, unincorporated
organization, entity or group (as defined in the Securities Exchange Act
of 1934, as amended).
(viii) "Subsidiary" of a Person means any corporation or other legal
entity (A) which is directly or indirectly owned or controlled by such
Person (either alone or
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through or together with any other Subsidiary or Subsidiaries), and (B) of
which such Person (either alone or through or together with any other
Subsidiary or Subsidiaries) (x) is the general partner or managing entity
or (y) controls, directly or indirectly, at least a majority of the stock
or other equity interests which are generally entitled to be voted by the
holders thereof for the election of the board of directors (or others
performing similar functions of such corporation or other legal entity).
(b) When a reference is made in this Agreement to Articles,
Sections, Disclosure Letters or Exhibits, such reference is to an Article or a
Section of, or a Disclosure Letter or an Exhibit to, this Agreement, unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or including" are used in this Agreement, they shall be understood to
be followed by the words "without limitation."
Section 9.4 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. Upon a determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible such that the transactions
contemplated hereby are fulfilled to the maximum extent possible.
Section 9.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, together with the Confidentiality Agreement and the Escrow and
indemnification Agreement, constitutes the entire agreement and supersedes any
and all other prior agreements and undertakings, both written and oral, among
the Parties, or any of them, with respect to the subject matter hereof and,
except for Section 6.6 (Indemnification; Directors' and Officers' Insurance)
does not, and is not intended to, confer upon any Person other than the parties
hereto any rights of remedies hereunder.
Section 9.7 Assignment. This Agreement shall not be assigned by any
Party by operation of law or otherwise without the express written consent of
each of the other Parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
Section 9.8 Governing Law. (a) THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
LAWS RELATING TO THE VALIDITY, INTERPRETATION AND EFFECT OF THIS AGREEMENT,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT THAT THE
LAWS OF
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THE STATE OF DELAWARE SHALL SPECIFICALLY AND MANDATORILY APPLY TO THE MERGER AND
THE RIGHTS OF STOCKHOLDERS INCIDENT THERETO.
(b) EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY
CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATES OF
NEW YORK AND DELAWARE AND THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN
THE STATES OF NEW YORK AND DELAWARE FOR ANY LITIGATION ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE MERGER OR ANY OF THE OTHER TRANSACTION
CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING HERETO
EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS,
NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH
IN SECTION 9.2 SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT
AGAINST IT IN ANY SUCH COURT. EACH OF THE PARTIES HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE IN ANY LITIGATION
ARISING OUT OF THIS AGREEMENT OR THE MERGER OR ANY OF THE OTHER TRANSACTIONS
CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR DELAWARE OR THE
COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE STATES OF NEW YORK OR
DELAWARE AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE MERGER OR ANY OF THE OTHER
TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.9 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different Parties in separate counterparts, each
of which when executed shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
COSI SANDWICH BAR, INC.
By:____________________________________
Name:
Title:
XANDO, INCORPORATED
By:____________________________________
Name:
Title:
XANDO MERGER CORP.
By:____________________________________
Name:
Title:
Agreed, acknowledged and executed as
of the date first written above, only as
to Section 6.15 and Section 9.1 hereof
_________________________________
Jonathan M. Wainwright, Jr.
_________________________________
Andrew S. Wainwright
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
COSI SANDWICH BAR, INC.
By:/s/ Jonathan Wainwright, Jr
------------------------------
Name:
Title:
XANDO, INCORPORATED
By:/s/ Andrew M. Stenzler
-----------------------------
Name:
Title:
XANDO MERGER CORP.
By:/s/ Andrew M. Stenzler
------------------------------
Name:
Title:
Agreed, acknowledged and executed as
of the date first written above, only as
to Section 6.15 and Section 9.1 hereof
/s/ Jonathan M. Wainwright, Jr.
- -------------------------------
Jonathan M. Wainwright, Jr.
/s/Andrew S. Wainwright
- ---------------------------------
Andrew S. Wainwright