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AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 16, 1999
AMONG
DIEDRICH COFFEE, INC.,
CP ACQUISITION CORP.
AND
COFFEE PEOPLE, INC.
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TABLE OF CONTENTS
PAGE
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TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.2. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.3. Closing of the Merger. . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.4. Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.5. Certificate of Incorporation and Bylaws. . . . . . . . . . . . . .2
SECTION 1.6. Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.7. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.8. Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.9. Payment for Shares and Exchange of Certificates. . . . . . . . . .3
SECTION 1.10. Stock Options and Stock Purchase Plans. . . . . . . . . . . . . .6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY . . . . . . . . . . . . . . . .6
SECTION 2.1. Organization and Qualification; Subsidiaries . . . . . . . . . . .6
SECTION 2.2. Capitalization of Company and its Subsidiaries. . . . . . . . . .7
SECTION 2.3. Authority Relative to this Agreement;
Recommendation . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 2.4. SEC Reports; Financial Statements . . . . . . . . . . . . . . . .8
SECTION 2.5. Information Supplied. . . . . . . . . . . . . . . . . . . . . . .9
SECTION 2.6. Consents and Approvals; No Violations . . . . . . . . . . . . . .9
SECTION 2.7. No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes. . . . . . . . . 10
SECTION 2.9. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.10. Compliance with Applicable Law. . . . . . . . . . . . . . . . . 11
SECTION 2.11. Employee Benefit Plans; Labor Matters . . . . . . . . . . . . . 11
SECTION 2.12. Environmental Laws and Regulations. . . . . . . . . . . . . . . 13
SECTION 2.13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.14. Intellectual Property; Software . . . . . . . . . . . . . . . . 14
SECTION 2.15. Franchise and Area Development Agreements . . . . . . . . . . . 15
SECTION 2.16. Franchise Law Compliance. . . . . . . . . . . . . . . . . . . . 16
SECTION 2.17. Amendment to Offering Circular. . . . . . . . . . . . . . . . . 18
SECTION 2.18. Certain Business Practices. . . . . . . . . . . . . . . . . . . 18
SECTION 2.19. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.20. Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.21. Opinion of Financial Adviser. . . . . . . . . . . . . . . . . . 18
SECTION 2.22. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.23. Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.24. Material Contracts. . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.25. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.26. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
i
SECTION 2.27. Transactions With Affiliates. . . . . . . . . . . . . . . . . . 21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO . . . . . . . . . . 21
SECTION 3.1. Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.2. Capitalization of Parent and its Subsidiaries . . . . . . . . . 22
SECTION 3.3. Authority Relative to this Agreement. . . . . . . . . . . . . . 22
SECTION 3.4. SEC Reports; Financial Statements . . . . . . . . . . . . . . . 23
SECTION 3.5. Information Supplied. . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.6. Consents and Approvals; No Violations . . . . . . . . . . . . . 24
SECTION 3.7. No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.8. No Undisclosed Liabilities; Absence of Changes. . . . . . . . . 24
SECTION 3.9. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.10. Compliance with Applicable Law. . . . . . . . . . . . . . . . . 25
SECTION 3.11. Employee Benefit Plans; Labor Matters . . . . . . . . . . . . . 26
SECTION 3.12. Environmental Laws and Regulations. . . . . . . . . . . . . . . 26
SECTION 3.13. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.14. Opinion of Financial Adviser. . . . . . . . . . . . . . . . . . 26
SECTION 3.15. Evidence of Financing . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.16. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.17. No Prior Activities . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.18. Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.19. Intellectual Property; Software . . . . . . . . . . . . . . . . 27
SECTION 3.20. Franchise and Area Development Agreements . . . . . . . . . . . 28
SECTION 3.21. Franchise Law Compliance. . . . . . . . . . . . . . . . . . . . 29
SECTION 3.22. Certain Business Practices. . . . . . . . . . . . . . . . . . . 30
SECTION 3.23. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.24. Transactions With Affiliates. . . . . . . . . . . . . . . . . . 30
SECTION 3.25. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.26. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.1. Conduct of Business of Company. . . . . . . . . . . . . . . . . 31
SECTION 4.2. Conduct of Business of Parent . . . . . . . . . . . . . . . . . 33
SECTION 4.3. Preparation of Form S-4 and the Proxy Statement . . . . . . . . 34
SECTION 4.4. Preparation of Form S-1; Public Offering. . . . . . . . . . . . 34
SECTION 4.5. Other Potential Acquirers . . . . . . . . . . . . . . . . . . . 34
SECTION 4.6. Comfort Letters . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.7. Meetings of Stockholders. . . . . . . . . . . . . . . . . . . . 36
SECTION 4.8. NASDAQ Listing. . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 4.9. Access to Information; Confidentiality. . . . . . . . . . . . . 37
SECTION 4.10. Additional Agreements; Reasonable Efforts . . . . . . . . . . . 38
SECTION 4.11. Public Announcements. . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.12. Notification of Certain Matters . . . . . . . . . . . . . . . . 38
SECTION 4.13. Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.14. Lock-Up Letter Agreement. . . . . . . . . . . . . . . . . . . . 39
ii
SECTION 4.15. Additions to and Modification of the Company
Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE V CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . . . . . . 39
SECTION 5.1. Conditions to Each Party's Obligations to Effect
the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.2. Conditions to the Obligations of Company. . . . . . . . . . . . 40
SECTION 5.3. Conditions to the Obligations of Parent and Newco . . . . . . . 41
ARTICLE VI TERMINATION; AMENDMENT; WAIVER. . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.3. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.4. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.5. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.1. Survival of Representations and Warranties. . . . . . . . . . . 45
SECTION 7.2. Entire Agreement; Assignment. . . . . . . . . . . . . . . . . . 45
SECTION 7.3. Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.6. Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.7. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.8. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.9. Personal Liability. . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.10. Specific Performance. . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.11. Each Party to Bear Own Expenses . . . . . . . . . . . . . . . . 47
SECTION 7.12. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 47
iii
TABLE OF EXHIBITS
Exhibit A. . . . . . . . . . . Form of Letter Agreement with Company Affiliates
Exhibit B. . . . . . . . . . . . . . . . . . . Form of Lock-Up Letter Agreement
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
Section 2.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . Subsidiaries
Section 2.2(a) . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization
Section 2.2(b) . . . . . . . . . . . . . . . . . . . Ownership of Company Stock
Section 2.6. . . . . . . . . . . . . . . . . . . . . . . .Consents and Approval
Section 2.7. . . . . . . . . . . . . . . . . . . . . . . . . . . . .No Defaults
Section 2.8. . . . . . . . . . . . . . . . . . . . . . .Undisclosed Liabilities
Section 2.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Litigation
Section 2.11(a). . . . . . . . . . . . . . . . . . . . . . . . . Employee Plans
Section 2.11(b). . . . . . . . . . . . . . . .Employment and Related Agreements
Section 2.11(c). . . . . . . . . Employee Benefits Affected by this Transaction
Section 2.11(e). . . . . . . . . . . . . . . . . . . . . . . . Employee Matters
Section 2.12 . . . . . . . . . . . . . . . . . . . . . . . . Environmental Laws
Section 2.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Taxes
Section 2.14 . . . . . . . . . . . . . . . . . . . . . . .Intellectual Property
Section 2.15(a). . . . . . . . . . . . . . . . . . . . . . Franchise Agreements
Section 2.15(c). . . . . . . . . . . . . . .Franchisee Defaults and Termination
Section 2.15 (d) . . . . . . . . . . . . . . . . . . . . . .Franchisee Breaches
Section 2.15(e). . . . . . . . . . . . . . . . . .Franchise Accounts Receivable
Section 2.15(g). . . . . . . . . . . . . .Franchisee Claims of Company Breaches
Section 2.15(h). . . . . . . . . . . . . . . . Franchisee Claims for Rescission
Section 2.15(j). . . . . . . . . . . . . . . . . . .Area Development Agreements
Section 2.15(k). . . . . . . . . . . . . . . . . . . . Nonoperating Franchisees
Section 2.15(l). . . . . . . . . . . . . . . . . . . . . . . .Company Subleases
Section 2.16(a). . . . . . . . . . . . . . . . . .State Franchise Registrations
Section 2.16(b). . . . . . . . . . . . . . . . . . Violations of Franchise Laws
Section 2.16(c). . . . . . . . . . . Pending Claims of Franchise Law Violations
Section 2.16(d). . . . . . . . . . . Conditions on Company's Sale of Franchises
Section 2.16(f). . . . . . . . . . . .Litigation between Franchisee and Company
Section 2.20 . . . . . . . . . . . Affiliates, Directors and Executive Officers
Section 2.23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Year 2000
Section 2.24 . . . . . . . . . . . . . . . . . . . . . . . . Material Contracts
Section 2.25 . . . . . . . . . . . . . . . . . . . . . . . . . . .Real Property
Section 2.26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Insurance
Section 2.27 . . . . . . . . . . . . . . . . . . . Transactions With Affiliates
Section 4.1. . . . . . . . . . . . . . . . . . . .Exceptions to Ordinary Course
iv
TABLE OF DEFINED TERMS
Cross Reference
Term in Agreement Page
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affiliate. . . . . . . . . . . . . . . . . . . .Section 7.8(a) . . . . . . . . . . 49
Agreement. . . . . . . . . . . . . . . . . . . .Preamble . . . . . . . . . . . . . 1
business day . . . . . . . . . . . . . . . . . .Section 7.8(b) . . . . . . . . . . 49
capital stock . . . . . . . . . . . . . . . . .Section 7.8(c) . . . . . . . . . . 49
Certificate of Merger. . . . . . . . . . . . . .Section 1.2 . . . . . . . . . . . 1
Certificates . . . . . . . . . . . . . . . . . .Section 1.9(b) . . . . . . . . . . 4
Closing Date . . . . . . . . . . . . . . . . . .Section 1.3 . . . . . . . . . . . 1
Closing . . . . . . . . . . . . . . . . . . . .Section 1.3 . . . . . . . . . . . 1
Code . . . . . . . . . . . . . . . . . . . . . .Section 2.11(a). . . . . . . . . . 13
Company Affiliates . . . . . . . . . . . . . . .Section 2.20 . . . . . . . . . . . 19
Company Board . . . . . . . . . . . . . . . . .Section 2.3(a) . . . . . . . . . . 8
Company Disclosure Schedule . . . . . . . . . .Section 2.1(a) . . . . . . . . . . 6
Company Financial Adviser . . . . . . . . . . .Section 2.21 . . . . . . . . . . . 19
Company Intellectual Property Rights . . . . . .Section 2.14(a). . . . . . . . . . 15
Company Permits . . . . . . . . . . . . . . . .Section 2.10 . . . . . . . . . . . 12
Company Plans . . . . . . . . . . . . . . . . .Section 1.10(a). . . . . . . . . . 6
Company . . . . . . . . . . . . . . . . . . . .Preamble . . . . . . . . . . . . . 1
Company SEC Reports . . . . . . . . . . . . . .Section 2.4(a) . . . . . . . . . . 9
Company Securities . . . . . . . . . . . . . . .Section 2.2(a) . . . . . . . . . . 7
Company Stock Options and Purchase Rights . . .Section 1.10(a). . . . . . . . . . 6
Confidential Material . . . . . . . . . . . . .Section 4.9(c) . . . . . . . . . . 39
DGCL . . . . . . . . . . . . . . . . . . . . . .Section 1.1 . . . . . . . . . . . 1
Effective Time . . . . . . . . . . . . . . . . .Section 1.2 . . . . . . . . . . . 1
Employee Plans . . . . . . . . . . . . . . . . .Section 2.11(a). . . . . . . . . . 12
Environmental Claim . . . . . . . . . . . . . .Section 2.12(a). . . . . . . . . . 14
Environmental Laws . . . . . . . . . . . . . . .Section 2.12(a). . . . . . . . . . 13
ERISA Affiliate . . . . . . . . . . . . . . . .Section 2.11(a). . . . . . . . . . 12
ERISA . . . . . . . . . . . . . . . . . . . . .Section 2.11(a). . . . . . . . . . 12
Exchange Act . . . . . . . . . . . . . . . . . .Section 2.2(c) . . . . . . . . . . 8
Exchange Agent . . . . . . . . . . . . . . . . .Section 1.9(a) . . . . . . . . . . 3
Fee Real Property . . . . . . . . . . . . . . .Section 2.25 . . . . . . . . . . . 21
Form S-1 . . . . . . . . . . . . . . . . . . . .Section 2.5. . . . . . . . . . . . 9
Form S-4 . . . . . . . . . . . . . . . . . . . .Section 2.5. . . . . . . . . . . . 9
Franchise Agreements . . . . . . . . . . . . . .Section 2.15(a). . . . . . . . . . 16
Franchise Laws . . . . . . . . . . . . . . . . .Section 2.16(a). . . . . . . . . . 18
FTC . . . . . . . . . . . . . . . . . . . . . .Section 2.16(a). . . . . . . . . . 18
Governmental Entity . . . . . . . . . . . . . .Section 2.6 . . . . . . . . . . . 10
HSR Act . . . . . . . . . . . . . . . . . . . .Section 2.6 . . . . . . . . . . . 10
IRS . . . . . . . . . . . . . . . . . . . . . .Section 2.11(a). . . . . . . . . . 12
knowledge or known . . . . . . . . . . . . . . .Section 7.8(d) . . . . . . . . . . 49
v
Leases . . . . . . . . . . . . . . . . . . . . .Section 2.25 . . . . . . . . . . . 21
Lien . . . . . . . . . . . . . . . . . . . . . .Section 2.2(b) . . . . . . . . . . 8
Material Adverse Effect on Company . . . . . . .Section 2.1(b) . . . . . . . . . . 7
Material Adverse Effect on Parent . . . . . . .Section 3.1(b) . . . . . . . . . . 23
Merger . . . . . . . . . . . . . . . . . . . . .Section 1.1 . . . . . . . . . . . 1
Net Offering Proceeds . . . . . . . . . . . . .Section 4.4 . . . . . . . . . . . 36
Newco . . . . . . . . . . . . . . . . . . . . .Preamble . . . . . . . . . . . . . 1
Notice of Superior Proposal . . . . . . . . . .Section 4.5(b) . . . . . . . . . . 37
OBCA . . . . . . . . . . . . . . . . . . . . . .Section 1.1 . . . . . . . . . . . 1
Offering Circulars . . . . . . . . . . . . . . .Section 2.16(g) . . . . . . . . . 18
Offering Shares . . . . . . . . . . . . . . . .Section 1.8(b) . . . . . . . . . . 3
Parent Benefit Plans . . . . . . . . . . . . . .Section 3.11 . . . . . . . . . . . 27
Parent Common Stock . . . . . . . . . . . . . .Section 1.8(a)(ii) . . . . . . . . 3
Parent Financial Adviser . . . . . . . . . . . .Section 3.14 . . . . . . . . . . . 28
Parent Franchise Agreements. . . . . . . . . . .Section 3.20(a) . . . . . . . . . 30
Parent Intellectual Property Rights . . . . . .Section 3.19(a) . . . . . . . . . 29
Parent Offering Circulars . . . . . . . . . . .Section 3.21(g) . . . . . . . . . 31
Parent Permits . . . . . . . . . . . . . . . . .Section 3.10 . . . . . . . . . . . 27
Parent . . . . . . . . . . . . . . . . . . . . .Preamble . . . . . . . . . . . . . 1
Parent SEC Reports . . . . . . . . . . . . . . .Section 3.4(a) . . . . . . . . . . 24
Parent Securities . . . . . . . . . . . . . . .Section 3.2(a) . . . . . . . . . . 23
Payment Fund . . . . . . . . . . . . . . . . . .Section 1.9(a) . . . . . . . . . . 3
Per Share Offering Price . . . . . . . . . . . .Section 4.4 . . . . . . . . . . . 36
Permitted Liens . . . . . . . . . . . . . . . .Section 2.25 . . . . . . . . . . . 21
person . . . . . . . . . . . . . . . . . . . . .Section 7.8(e) . . . . . . . . . . 49
Proxy Statement . . . . . . . . . . . . . . . .Section 2.5 . . . . . . . . . . . 9
Public Offering . . . . . . . . . . . . . . . .Section 4.4 . . . . . . . . . . . 36
Real Property . . . . . . . . . . . . . . . . .Section 2.25 . . . . . . . . . . . 21
SEC . . . . . . . . . . . . . . . . . . . . . .Section 2.4(a) . . . . . . . . . . 9
Second Cup . . . . . . . . . . . . . . . . . . .Section 2.5 . . . . . . . . . . . 10
Securities Act . . . . . . . . . . . . . . . . .Section 2.4(a) . . . . . . . . . . 9
Shares . . . . . . . . . . . . . . . . . . . . .Section 1.8(a) . . . . . . . . . . 2
Sublease . . . . . . . . . . . . . . . . . . . .Section 2.15(l) . . . . . . . . . 17
subsidiary or subsidiaries . . . . . . . . . . .Section 7.8(f) . . . . . . . . . . 49
Subtenant . . . . . . . . . . . . . . . . . . .Section 2.15(l) . . . . . . . . . 17
Superior Proposal . . . . . . . . . . . . . . .Section 4.5(c) . . . . . . . . . . 38
Surviving Corporation . . . . . . . . . . . . .Section 1.1 . . . . . . . . . . . 1
Tax or Taxes . . . . . . . . . . . . . . . . . .Section 2.13(a)(i) . . . . . . . . 14
Tax Return . . . . . . . . . . . . . . . . . . .Section 2.13(a)(ii). . . . . . . . 14
Third Party Acquisition . . . . . . . . . . . .Section 4.5(c) . . . . . . . . . . 37
Third Party . . . . . . . . . . . . . . . . . .Section 4.5(c) . . . . . . . . . . 37
vi
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of March 16,
1999 is by and among Diedrich Coffee, Inc., a Delaware corporation ("PARENT"),
CP Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("NEWCO") and Coffee People, Inc., an Oregon corporation ("COMPANY").
WHEREAS, the Boards of Directors of Parent, Newco and Company have each (i)
determined that the Merger (defined in SECTION 1.1) is fair and in the best
interests of their respective stockholders and (ii) approved the Merger in
accordance with this Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained and intending to be
legally bound Parent, Newco and Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. At the Effective Time (defined in SECTION 1.2)
and upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL") and the Oregon
Business Corporation Act (the "OBCA"), Newco shall be merged with and into
Company (the "MERGER"). Following the Merger, Company shall continue as the
surviving corporation (the "SURVIVING CORPORATION") and the separate corporate
existence of Newco shall cease.
SECTION 1.2 EFFECTIVE TIME. Subject to the terms and conditions set forth
in this Agreement, the Certificate of Merger (the "CERTIFICATE OF MERGER") shall
be duly executed and acknowledged by Newco and Company and thereafter delivered
to the Secretaries of State of the States of Delaware and Oregon for filing
pursuant to the DGCL and the OBCA, respectively, on the Closing Date (defined in
SECTION 1.3). The Merger shall become effective at such time as a properly
executed and certified copy of the Certificate of Merger is duly filed with the
Secretaries of State of the States of Delaware and Oregon in accordance with the
DGCL and the OBCA, respectively, or such later time upon which Parent and
Company may agree and set forth in the Certificate of Merger (the time the
Merger becomes effective being referred to herein as the "EFFECTIVE TIME").
SECTION 1.3 CLOSING OF THE MERGER. The closing of the Merger (the
"CLOSING") will take place at a time and on a date (the "CLOSING DATE") to be
specified by the parties, which shall be no later than the third (3rd) business
day after satisfaction of the latest to occur of the conditions set forth in
ARTICLE V, at the offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Irvine,
California 92614, unless another time, date or place is agreed to in writing by
the parties hereto.
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL and the OBCA. Without limiting the generality of the
foregoing and subject thereto, at the Effective Time, all of the properties,
rights, privileges, powers and franchises of Company and Newco shall vest in the
Surviving Corporation and all debts, liabilities and duties of Company and Newco
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Company in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of Company in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 1.6 DIRECTORS. The directors of Newco at the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
SECTION 1.7 OFFICERS. The officers of Company at the Effective Time shall
be the initial officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
SECTION 1.8 CONVERSION OF SHARES.
(a) At the Effective Time, each share of common stock, no par value per
share, of Company (individually a "SHARE" and collectively the "SHARES") issued
and outstanding immediately prior to the Effective Time (other than (i) Shares
held in Company's treasury or by any of Company's subsidiaries and (ii) Shares
held by Parent, Newco or any other subsidiary of Parent) shall, by virtue of the
Merger and without any action on the part of Newco, Company or the holder
thereof, be converted into the "MERGER CONSIDERATION" as follows:
(i) the right to receive an amount in cash equal to the sum of (x)
the quotient of ten million seven hundred fifty thousand dollars ($10,750,000)
divided by the number of Shares outstanding immediately before the Effective
Time plus (y) the quotient of (1) the lesser of the Net Offering Proceeds (as
defined in SECTION 4.4) or $12,250,000, divided by (2) the number of Shares
outstanding immediately before the Effective Time; and
(ii) the right to receive the number of fully paid and nonassessable
shares of common stock, par value $0.01 per share, of Parent ("PARENT COMMON
STOCK") equal to the sum of (x) the quotient of one million five hundred
thousand (1,500,000) divided by the number of Shares outstanding immediately
before the Effective Time plus (y) the Offering Shares (defined below).
Notwithstanding the foregoing, if between the date of this Agreement and
the Effective Time, the outstanding shares of Parent Common Stock or the
Shares shall have been changed into a different number of shares or a
different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
then the
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Merger Consideration shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares.
(b) The "OFFERING SHARES" shall be that number of shares of Parent Common
Stock equal to the quotient of (i) the quotient of (x) the difference of twelve
million two hundred fifty thousand (12,250,000) minus the Net Offering Proceeds
divided by (y) the Per Share Offering Price (defined in SECTION 4.4), divided by
(ii) the number of Shares outstanding immediately before the Effective Time.
(c) At the Effective Time, each outstanding share of Newco's common stock,
par value $0.01 per share, shall be converted into one share of the Surviving
Corporation's common stock, no par value per share.
(d) At the Effective Time, each Share held in the treasury of Company and
each Share held by Parent, Newco or any subsidiary of Parent, Newco or Company
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of Newco, Company or the holder thereof, be
canceled, retired and cease to exist and no shares of Parent Common Stock shall
be delivered with respect thereto.
SECTION 1.9 PAYMENT FOR SHARES AND EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. From time to time following the Effective Time, as
required by subsections (b) and (c) below, Parent shall cause to be deposited in
trust with ChaseMellon, or such other agent or agents as may be appointed by
Parent (the "EXCHANGE AGENT") the aggregate cash portion of the Merger
Consideration to which holders of Shares shall be entitled at the Effective Time
pursuant to the provisions of SECTION 1.8 (the "PAYMENT FUND").
Parent shall cause the Exchange Agent to make the payments provided for in
SECTION 1.8 out of the Payment Fund. The Exchange Agent shall invest
undistributed portions of the Payment Fund as Parent directs in obligations of
or guaranteed by the United States of America, in commercial paper obligations
receiving the highest investment grade rating from both Moody's Investor
Services, Inc. and Standard & Poor's Corporation, or in certificates of deposit,
bank repurchase agreements or banker's acceptances of commercial banks with
capital exceeding $1 billion (collectively, "PERMITTED INVESTMENTS"); provided,
however, that the maturities of Permitted Investments shall be such as to permit
the Exchange Agent to make prompt payment to former holders of Shares entitled
thereto as contemplated by the provisions of this ARTICLE I. Parent shall cause
the Payment Fund to be promptly replenished to the extent of any losses incurred
as a result of Permitted Investments. All net earnings of Permitted Investments
shall be paid to Parent as and when requested by Parent. If for any reason
(including losses) the Payment Fund is inadequate to pay the amounts to which
holders of Shares shall be entitled under the provisions of this ARTICLE I,
Parent shall in any event be liable for payment thereof.
The Payment Fund shall not be used for any purpose except as expressly
provided in this Agreement. If any Merger Consideration deposited with the
Exchange Agent for purposes of paying for the Shares pursuant to the
provisions of this ARTICLE I remains unclaimed following the expiration of
one year after the Effective Time, such Merger Consideration (together with
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accrued interest) shall be delivered to Parent by the Exchange Agent, and
thereafter, holders of certificates that immediately prior to the Effective
Time represented Shares shall be entitled to look only to the Surviving
Corporation (subject to abandoned property, escheat or similar laws) as
general creditors thereof.
(b) EXCHANGE. As soon as reasonably practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time
represented outstanding Shares (the "CERTIFICATES") whose shares were converted
into the right to receive the Merger Consideration pursuant to the provisions of
SECTION 1.8: (i) a letter of transmittal (which shall specify that delivery
shall be effected and risk of loss and title to the Certificates shall pass only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Parent and Company may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment.
Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (i) a check
representing that amount in cash as determined pursuant to the provisions of
SECTION 1.8 and (ii) a certificate representing that number of whole shares
of Parent Common Stock as determined pursuant to the provisions of SECTION
1.8 and, if applicable, a check representing the cash consideration to which
such holder may be entitled on account of a fractional share of Parent Common
Stock that such holder has the right to receive pursuant to the provisions of
SECTION 1.9(e), and the Certificate so surrendered shall forthwith be
canceled.
No interest will be paid or accrued on the cash payable under the surrender
of the Certificates. If the payment is to be made to a person other than the
person in whose name a Certificate surrendered is registered, it shall be a
condition of payment that (a) the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and (b) the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this SECTION 1.9, each Certificate shall represent for
all purposes whatsoever only the right to receive the Merger Consideration
applicable thereto, without any interest thereon.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
for Shares with respect to the Parent Common Stock represented thereby and no
cash payment in lieu of fractional Shares shall be paid to any such holder
pursuant to the provisions of SECTION 1.9(e) until the surrender of such
Certificate in accordance with the provisions of this SECTION 1.9. Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the certificate representing whole shares
of Parent Common Stock issued in connection therewith, without interest, at the
time of such surrender or as promptly thereafter as practicable, the amount of
any cash payable in lieu of a fractional Share to which such holder is entitled
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pursuant to the provisions of SECTION 1.9(e) and the proportionate amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole Parent Common Stock, and at the
appropriate payment date, the proportionate amount of dividends or other
distributions with a record date after the Effective Time but before such
surrender and a payment date after such surrender payable with respect to
such whole Parent Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN SHARES EXCHANGED. All cash paid and
Parent Common Stock issued upon the surrender for exchange of Shares in
accordance with the provisions of this ARTICLE I shall be deemed to have been
paid and issued in full satisfaction of all rights pertaining to such Shares.
(e) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional Parent Common Stock shall be issued in connection with the Merger,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a stockholder of Parent after the Merger. Notwithstanding
any other provision of this Agreement, each record holder of Shares exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all Shares
delivered by such holder) shall receive, in lieu thereof, a cash payment
(without interest) equal to such fraction multiplied by the Per Share Offering
Price. The parties acknowledge that payment of the cash consideration in lieu
of issuing fractional shares was not separately bargained for consideration, but
merely represents a mechanical rounding off for purposes of simplifying the
corporate and accounting complexities that would otherwise be caused by the
issuance of fractional shares.
(f) NO TRANSFERS. After the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or Parent for any
reason, they shall be canceled and exchanged as provided in this ARTICLE I,
except as otherwise provided by law.
(g) NO LIABILITY. None of Parent, Newco, Company or the Exchange Agent
shall be liable to any person in respect of any Merger Consideration (or
dividends or distributions with respect thereto) from the Payment Fund delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to seven
years after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration payable to the holder of such Certificate
pursuant to the provisions of this ARTICLE I would otherwise escheat to or
become the property of any Governmental Entity (defined in SECTION 2.6)), any
such Merger Consideration shall, to the extent permitted by applicable law,
become the property of Parent, free and clear of all claims or interest of any
person previously entitled thereto.
(h) LOST CERTIFICATE. In the event that any Certificate for Shares shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
therefor, upon the making of an affidavit of that fact by the holder thereof,
such Merger Consideration and cash in lieu of fractional shares, if any, as may
be required pursuant to the provisions of this ARTICLE I; PROVIDED,
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HOWEVER, that Parent or its Exchange Agent may, in its discretion, require
the delivery of a suitable bond or indemnity.
SECTION 1.10 STOCK OPTIONS AND STOCK PURCHASE PLANS.
(a) Company shall waive or accelerate prior to the Effective Time any
vesting provisions on all outstanding options or other rights to purchase
Shares as set forth in SECTION 2.11(a) of the Company Disclosure Schedule
("COMPANY STOCK OPTIONS AND PURCHASE RIGHTS" or individually, a "COMPANY
STOCK OPTION OR PURCHASE RIGHT") issued pursuant to the provisions of any
Company stock or option plan pursuant to which Company Stock Options and
Purchase Rights are issued (each of which are set forth in SECTION 2.11(a) of
the Company Disclosure Schedule). All plans or agreements described above
pursuant to which any Company Stock Option or Purchase Right has been issued
or may be issued are referred to collectively as the "COMPANY PLANS."
Company shall take all action necessary to provide for an exercise period
after the date hereof with respect to all outstanding Company Stock Options
and Purchase Rights and shall terminate prior to the Effective Time any such
period during which holders of Company Stock Options and Purchase Rights have
the right to exercise their Company Stock Options and Purchase Rights.
Thereafter, Company shall take all action necessary to terminate all
unexercised Company Stock Options and Purchase Rights as well as all Company
Plans prior to the Effective Time.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to each of Parent and Newco, as
follows:
SECTION 2.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) SECTION 2.1 of the Disclosure Schedule delivered by Company to
Parent in accordance with SECTION 4.15 (the "COMPANY DISCLOSURE SCHEDULE")
identifies each subsidiary of Company as of the date hereof and its
respective jurisdiction of incorporation or organization, as the case may be.
Each of Company and its subsidiaries is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted.
Company has heretofore delivered to Newco or Parent accurate and complete
copies of the Charter and bylaws (or similar governing documents), as
currently in effect, of Company and its subsidiaries.
(b) Except as set forth in SECTION 2.1 of the Company Disclosure
Schedule, each of Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in
such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a Material Adverse Effect on Company (as
defined below). When used in connection with Company or its subsidiaries,
the term "MATERIAL ADVERSE EFFECT ON COMPANY" means any change or effect (i)
that is or is reasonably likely to be materially adverse to the business,
results
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of operations or financial condition of Company and its subsidiaries, taken
as whole, or (ii) that materially impairs the ability of Company to
consummate the transactions contemplated hereby.
SECTION 2.2. CAPITALIZATION OF COMPANY AND ITS SUBSIDIARIES.
(a) The authorized capital stock of Company consists of 50,000,000 Shares,
of which, as of March 16, 1999, 10,762,757 Shares were issued and outstanding
and 10,000,000 shares of preferred stock, no par value per share, no shares of
which are outstanding. All of the outstanding Shares have been validly issued
and are fully paid, nonassessable and free of preemptive rights. As of March
16, 1999, 1,002,016 Shares were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding Company
Stock Options and Purchase Rights issued pursuant to the Company Plans.
Except as set forth above or in SECTION 2.2(a) of the Company Disclosure
Schedule, as of the date hereof, there are outstanding (i) no shares of
capital stock or other voting securities of Company, (ii) no securities of
Company or its subsidiaries convertible into or exchangeable for shares of
capital stock or voting securities of Company, (iii) no options or other
rights to acquire from Company or its subsidiaries, and, except as described
in Company SEC Reports (defined in SECTION 2.4), no obligations of Company or
its subsidiaries to issue any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Company, and (iv) no equity equivalent interests in the ownership or earnings
of Company or its subsidiaries or other similar rights (collectively "COMPANY
SECURITIES"). As of the date hereof, there are no outstanding obligations of
Company or its subsidiaries to repurchase, redeem or otherwise acquire any
Company Securities. Except as set forth in SECTION 2.2(a) of the Company
Disclosure Schedule, there are no stockholder agreements, voting trusts or
other agreements or understandings to which Company is a party or by which it
is bound relating to the voting or registration of any shares of capital
stock of Company.
(b) Except as set forth in SECTION 2.2(b) of the Company Disclosure
Schedule, all of the outstanding capital stock of Company's subsidiaries is
owned by Company, directly or indirectly, free and clear of any Lien (defined
below) or any other limitation or restriction (including any restriction on
the right to vote or sell the same, except as may be provided as a matter of
law). Except as set forth in SECTION 2.2(b) of the Company Disclosure
Schedule, there are no securities of Company or its subsidiaries convertible
into or exchangeable for, no options or other rights to acquire from Company
or its subsidiaries, and no other contract, understanding, arrangement or
obligation (whether or not contingent) providing for, the issuance or sale,
directly or indirectly, of any capital stock or other ownership interests in
or any other securities of any subsidiary of Company. There are no
outstanding contractual obligations of Company or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital
stock or other ownership interests in any subsidiary of Company. For
purposes of this Agreement, "LIEN" means, with respect to any asset, any
security, mortgage, lien, pledge, charge, security interest, conditional sale
agreements, title retention agreements, claims, charges, easements, licenses,
rights-of-way, covenants, conditions, restrictions, options, adverse or
equitable claims, or encumbrance of any kind in respect of such asset.
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(c) The Shares constitute the only class of equity securities of Company
or its subsidiaries registered or required to be registered under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
SECTION 2.3. AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION.
(a) Company has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Company (the "COMPANY BOARD") and no other corporate
proceedings on the part of Company are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby except the approval and
adoption of this Agreement by the holders of a majority of the outstanding
Shares. This Agreement has been duly and validly executed and delivered by
Company and constitutes a valid, legal and binding agreement of Company
enforceable against Company in accordance with its terms.
(b) The Company Board has unanimously resolved to recommend that the
stockholders of Company approve and adopt this Agreement and vote in favor of
the Merger.
SECTION 2.4. SEC REPORTS; FINANCIAL STATEMENTS.
(a) Company has filed all required forms, reports and documents
(collectively, "COMPANY SEC REPORTS") with the Securities and Exchange
Commission (the "SEC") since May 19, 1998, and, to Company's knowledge, for
the period between January 1, 1997 and May 19, 1998, each of which has
complied in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT") and the Exchange
Act, each as in effect on the dates such forms, reports and documents were
filed. None of such Company SEC Reports, including, without limitation, any
financial statements or schedules included or incorporated by reference
therein, contained (or, in the case of such Company SEC Reports for the
period between January 1, 1997 and May 19, 1998, to Company's knowledge
contained) when filed any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein in light of the
circumstances under which they were made not misleading. The audited
consolidated financial statements of Company included in Company SEC Reports
fairly present, in conformity with generally accepted accounting principles
applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of Company and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended.
(b) Company has heretofore made available or promptly will make available
to Parent a complete and correct copy of any amendments or modifications that
are required to be filed with the SEC, but have not yet been filed with the SEC,
to agreements, documents or other instruments that previously had been filed by
Company with the SEC pursuant to the Exchange Act.
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SECTION 2.5. INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Company for inclusion or incorporation by reference in (a)
the Registration Statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger
(the "FORM S-4") will, at the time the Form S-4 is filed with the SEC and at
the time the Form S-4, as amended or supplemented, becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; (b) the proxy statement relating to
the meetings of Company and Parent stockholders to be held in connection with
the Merger (the "PROXY STATEMENT") will, at the date mailed to stockholders
of Company and Parent, and at the time of the meeting of stockholders of
Company and Parent to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they are made not
misleading and (c) the Registration Statement on Form S-1 (the "FORM S-1") to
be filed with the SEC by Parent with respect to the Public Offering (as
defined in SECTION 4.4) will, at the time the Form S-1 is filed with the SEC
and at the time the Form S-1, as amended or supplemented, becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading based upon information furnished
by or on behalf of Company and Company's majority stockholder, The Second Cup
Ltd., a corporation organized under the laws of Ontario, Canada ("SECOND
CUP"). The Proxy Statement, insofar as it relates to the meeting of
Company's stockholders to vote on the Merger will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder, and the Form S-4 and the Form S-1 (to the extent that
the Form S-1 contains information furnished by or on behalf of Company and
Second Cup) will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder.
SECTION 2.6. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, state securities or blue sky laws, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), and the filing and
recordation of the Certificate of Merger as required by the DGCL and the
OBCA, no filing with or notice to, and no permit, authorization, consent or
approval of, any United States or foreign court or tribunal, or
administrative, governmental or regulatory body, agency or authority (each a
"GOVERNMENTAL ENTITY") is necessary for the execution and delivery of this
Agreement by Company or the consummation of the transactions contemplated
hereby by Company, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on Company.
Neither the execution, delivery and performance of this Agreement by
Company, nor the consummation by Company of the transactions contemplated
hereby, will (a) conflict with or result in any breach of any provision of
the respective Charter or bylaws (or similar governing documents) of Company
or its subsidiaries; (b) except as set forth in SECTION 2.6 of the Company
Disclosure Schedule, result in a violation or breach of or constitute (with
or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation
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or acceleration or Lien) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Company or any of its subsidiaries is
a party or by which any of them or any of their respective properties or
assets may be bound; or (c) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to Company or any of its subsidiaries
or any of their respective properties or assets except, in the case of (b) or
(c), for violations, breaches or defaults which would not have a Material
Adverse Effect on Company.
SECTION 2.7. NO DEFAULT. Except as set forth in SECTION 2.7 of the
Company Disclosure Schedule, none of Company or any of its subsidiaries is in
breach, default or violation (and no event has occurred that, with notice or
the lapse of time or both, would constitute a breach, default or violation)
of any term, condition or provision of (a) its Charter or bylaws (or similar
governing documents), (b) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which
Company or any of its subsidiaries is now a party or by which any of them or
any of their respective properties or assets may be bound or (c) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to
Company or any of its subsidiaries or any of their respective properties or
assets except, in the case of (b) or (c), for violations, breaches or
defaults that would not have a Material Adverse Effect on Company.
SECTION 2.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as
and to the extent publicly disclosed by Company in Company SEC Reports or in
SECTION 2.8 of the Company Disclosure Schedule, none of Company or its
subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required by generally
accepted accounting principles to be reflected on a consolidated balance
sheet of Company (including the notes thereto), other than liabilities
incurred in the ordinary course of business since December 12, 1998, none of
which, individually or in the aggregate, would have a Material Adverse Effect
on Company.
Except as publicly disclosed by Company in Company SEC Reports or as set
forth in SECTION 2.8 of the Company Disclosure Schedule, since December 12,
1998, (a) Company and its subsidiaries have conducted their respective
businesses and operations in the ordinary course of business consistent with
past practice, and (b) there has not occurred (i) any events, changes, or
effects (including the incurrence of any liabilities of any nature, whether
or not accrued, contingent or otherwise) having or, which would be reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on Company and its subsidiaries; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the equity interests of Company or of any of its
subsidiaries, other than dividends paid by wholly-owned subsidiaries; or
(iii) any material change by Company or any of its subsidiaries in accounting
principles or methods, except insofar as may be required by a change in
generally accepted accounting principles.
SECTION 2.9. LITIGATION. Except as set forth in SECTION 2.9 of the
Company Disclosure Schedule or as publicly disclosed by Company in Company
SEC Reports, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of Company, threatened against Company or any of
its subsidiaries or any of their respective properties or
10
assets before any Governmental Entity that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Company or
could reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as publicly disclosed by
Company in Company SEC Reports, none of Company or its subsidiaries is
subject to any outstanding order, writ, injunction or decree that, insofar as
can be reasonably foreseen in the future, could reasonably be expected to
have a Material Adverse Effect on Company or could reasonably be expected to
prevent or delay the consummation of the transactions contemplated hereby.
SECTION 2.10. COMPLIANCE WITH APPLICABLE LAW. Except as publicly
disclosed by Company in Company SEC Reports, Company and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "COMPANY PERMITS") except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals that would not have a
Material Adverse Effect on Company. Except as publicly disclosed by Company in
Company SEC Reports, Company and its subsidiaries are in compliance with the
terms of Company Permits, except where the failure to comply would not have a
Material Adverse Effect on Company. Except as publicly disclosed by Company in
Company SEC Reports, the businesses of Company and its subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except (a) that no representation or warranty is made in
this SECTION 2.10 with respect to Environmental Laws (defined in SECTION 2.12
below) and (b) for violations of any laws, ordinances or regulations that do not
and, insofar as reasonably can be foreseen in the future, will not have a
Material Adverse Effect on Company Except as publicly disclosed by Company in
Company SEC Reports or in SECTION 2.13 of the Company Disclosure Schedule, no
investigation or review by any Governmental Entity with respect to Company or
its subsidiaries is pending or, to the knowledge of Company, threatened nor, to
the knowledge of Company, has any Governmental Entity indicated an intention to
conduct the same, other than such investigations or reviews as would not,
individually or in the aggregate, have a Material Adverse Effect on Company.
SECTION 2.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) SECTION 2.11(a) of the Company Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment or executive compensation or severance
agreements written or otherwise maintained or contributed to for the benefit of
or relating to any employee of Company, any trade or business (whether or not
incorporated) that is a member of a controlled group including Company or that
is under common control with Company within the meaning of Section 414 of the
Code (an "ERISA AFFILIATE"), as well as each plan with respect to which Company
or an ERISA Affiliate could incur liability under Section 4069 (if such plan has
been or were terminated) or Section 4212(c) of ERISA (collectively, the
"EMPLOYEE PLANS"), excluding former agreements under which Company has no
remaining obligations and any of the foregoing that are required to be
maintained by Company under the laws of any foreign
11
jurisdiction. Additionally, SCHEDULE 2.11(a) of the Company Disclosure
Schedule lists all Company Stock Options and Purchase Rights issued and
outstanding under any Company Plan, including the exercise price, vesting
schedule and expiration date of such Company Stock Options and Purchase
Rights. Company has made available to Parent a copy of (i) the most recent
annual report on Form 5500 filed with the Internal Revenue Service (the
"IRS") for each disclosed Employee Plan where such report is required and
(ii) the documents and instruments governing each such Employee Plan (other
than those referred to in Section 4(b)(4) of ERISA). No event has occurred
and, to the knowledge of Company, there currently exists no condition or set
of circumstances in connection with which Company or any of its subsidiaries
could be subject to, any liability under the terms of any Employee Plans,
ERISA, the Internal Revenue Code of 1986, as amended (the "CODE"), or any
other applicable law, including, without limitation, any liability under
Title IV of ERISA, which would have a Material Adverse Effect on Company.
(b) SECTION 2.11(b) of the Company Disclosure Schedule sets forth a list
of (i) all employment agreements with officers of Company; (ii) all agreements
with consultants who are individuals obligating Company to make any remaining
annual cash payments in an amount exceeding $50,000; (iii) all severance
agreements, programs and policies of Company with or relating to its employees,
except programs and policies required to be maintained by law; and (iv) all
plans, programs, agreements and other arrangements of Company with or relating
to its employees that contain change-in-control provisions. Company has made
available to Parent copies (or descriptions in detail reasonably satisfactory to
Parent) of all such agreements, plans, programs and other arrangements.
(c) Except as set forth in SECTION 2.11(c) of the Company Disclosure
Schedule, there will be no payment, accrual of additional benefits, acceleration
of payments or vesting in any benefit under any Employee Plan or any agreement
or arrangement disclosed under this SECTION 2.11 solely by reason of entering
into or in connection with the transactions contemplated by this Agreement.
(d) No Employee Plan that is a welfare benefit plan, within the meaning of
Section 3(1) of ERISA, provides benefits to former employees of Company or its
ERISA Affiliates, other than pursuant to Section 4980B of the Code.
(e) Except as set forth in SECTION 2.11(e) of the Company Disclosure
Schedule, (i) there are no controversies pending or, to the knowledge of
Company, threatened between Company or any of its subsidiaries and any of
their respective employees that have, or may reasonably be expected to have,
a Material Adverse Effect on Company and (ii) neither Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Company or its subsidiaries,
nor does Company know of any activities or proceedings of any labor union to
organize any such employees. Company has no knowledge of any strikes,
slowdowns, work stoppages, lockouts or threats thereof by or with respect to
any employees of Company or any of its subsidiaries.
12
SECTION 2.12. ENVIRONMENTAL LAWS AND REGULATIONS.
(a) Except as publicly disclosed by Company in Company SEC Reports, (i)
each of Company and its subsidiaries is in material compliance with all
applicable federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) (collectively, "ENVIRONMENTAL LAWS"), except for
non-compliance that would not have a Material Adverse Effect on Company,
which compliance includes, but is not limited to, the possession by Company
and its subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws and material
compliance with the terms and conditions thereof; (ii) none of Company or its
subsidiaries has received written notice of or, to the knowledge of Company,
is the subject of any action, cause of action, claim, investigation, demand
or notice by any person or entity alleging liability under or non-compliance
with any Environmental Law (an "ENVIRONMENTAL CLAIM") that could reasonably
be expected to have a Material Adverse Effect on Company; and (iii) to the
knowledge of Company, there are no circumstances that are reasonably likely
to prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by Company in Company SEC Reports and
as set forth in SECTION 2.12 of the Company Disclosure Schedule, there are no
Environmental Claims that could reasonably be expected to have a Material
Adverse Effect on Company that are pending or, to the knowledge of Company,
threatened against Company or its subsidiaries or, to the knowledge of
Company, against any person or entity whose liability for any Environmental
Claim Company or any of its subsidiaries has or may have retained or assumed,
either contractually or by operation of law.
SECTION 2.13. TAXES.
(a) For purposes of this Agreement:
(i) the term "TAX" (including "TAXES") means (A) all federal,
state, local, foreign and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or
other taxes, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
with respect thereto, (B) any liability for payment of amounts described in
clause (A), whether as a result of transferee liability, of being a member of
an affiliated, consolidated, combined or unitary group for any period, or
otherwise through operation of law, and (C) any liability for the payment of
amounts described in clauses (A) or (B) as a result of any tax sharing, tax
indemnity or tax allocation agreement or any other express or implied
agreement to indemnify any other person; and
(ii) the term "TAX RETURN" means any return, declaration, report,
statement, information statement and other document required to be filed with
respect to Taxes.
13
(b) Except as set forth in SECTION 2.13 of the Company Disclosure
Schedule: (i) Company and its subsidiaries have accurately prepared and
timely filed (except where extensions of time to file have been obtained) all
Tax Returns they are required to have filed and (ii) such Tax Returns are
accurate and correct in all material respects and do not contain a disclosure
statement under Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law).
(c) Except as set forth in SECTION 2.13 of the Company Disclosure
Schedule, Company and its subsidiaries have paid or adequately provided for
all Taxes (whether or not shown on any Tax Return) they are required to have
paid or to pay.
(d) Except as set forth in SECTION 2.13 of the Company Disclosure
Schedule, no material claim for assessment or collection of Taxes is
presently being asserted against Company or its subsidiaries, and neither
Company nor any of its subsidiaries is a party to any pending action,
proceeding, or investigation by any governmental taxing authority, nor does
Company have knowledge of any such threatened action, proceeding or
investigation.
(e) Except as set forth in SECTION 2.13 of the Company Disclosure
Schedule, neither Company nor any of its subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a tax assessment or deficiency.
(f) Neither Company nor any of its subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in connection with this Agreement or any
change-of-control of Company or any of its subsidiaries, in the payment of
any "excess parachute payments" within the meaning of Section 28OG of the
Code.
SECTION 2.14. INTELLECTUAL PROPERTY; SOFTWARE.
(a) Except as set forth in SECTION 2.14 of the Company Disclosure
Schedule, each of Company and its subsidiaries owns or possesses adequate
licenses or other valid rights to use all existing United States and foreign
patents, trademarks, trade names, service marks, copyrights, trade secrets
and applications therefor ("COMPANY INTELLECTUAL PROPERTY RIGHTS"), except
where the failure to own or possess valid rights to use Company Intellectual
Property Rights would not have a Material Adverse Effect on Company.
(b) Except as set forth in SECTION 2.9 of the Company Disclosure
Schedule and to the extent that the occurrence of any of the following events
would not reasonably be expected to have a Material Adverse Effect on Company:
(i) the validity of Company Intellectual Property Rights and the
title thereto of Company or any subsidiary, as the case may be, is not being
questioned in any litigation to which Company or any subsidiary is a party,
and
(ii) the conduct of the business of Company and its subsidiaries
as now conducted does not, to the knowledge of Company, infringe any valid
patents, trademarks, trade
14
names, service marks, or copyrights of others. The consummation of the
transactions completed hereby will not result in the loss or impairment of
any Company Intellectual Property Rights.
SECTION 2.15. FRANCHISE AREA AND DEVELOPMENT AGREEMENTS.
(a) SECTION 2.15(a) of the Company Disclosure Schedule lists all
franchise agreements, and all area development agreements (the "FRANCHISE
AGREEMENTS") that are currently valid and enforceable, by name of franchisee,
date of agreement, expiration date, location of store in the case of the
franchise agreements, and exclusive territory or development area, and no
other current contracts, agreements or understandings, whether written, or to
the knowledge of Company, oral, exist between Company or any affiliate and
any third party granting the right, or any option or right of first refusal,
to conduct business under the name "Gloria Jeans, Coffee Plantation or Coffee
People," or any related marks.
(b) The Franchise Agreements represent the material terms and
provisions of all currently valid and enforceable Franchise Agreements with
franchisees, and no written or, to the knowledge of Company, oral
modifications of or supplements to those written agreements have been entered
into.
(c) Except as set forth in SECTION 2.15(c) of the Company Disclosure
Schedule, each of the Franchise Agreements is in full force and effect and is
enforceable in accordance with its terms and provisions in all material
respects, and no notices of default or demands for early termination have
been delivered thereunder by or on behalf of Company and no such notices of
default or demands for early termination have been received from any of the
franchisees.
(d) Except as set forth in SECTION 2.15(d) of the Company Disclosure
Schedule, there are no breaches by any franchisee of any of the Franchise
Agreements, which breaches remain uncured and which breaches, in the
aggregate, would result in a Material Adverse Effect on Company.
(e) Each franchisee is current (no later than 30 days) in his financial
obligations to Company and each affiliate, including without limitation
payments due for royalties and product purchases, except as set forth in
SECTION 2.15(e) of the Company Disclosure Schedule, which identifies all
accounts receivable from franchisees as of December 12, 1998.
(f) There are no breaches by Company or any affiliate of any of the
Franchise Agreements, which breaches remain uncured and which breaches, in
the aggregate, would not result in a Material Adverse Effect on Company.
(g) Except as set forth in SECTION 2.15(g) of the Company Disclosure
Schedule or otherwise disclosed in writing to Parent, there are no unresolved
assertions or claims, whether in writing or, to the knowledge of Company,
oral, by any franchisee of material breaches of any of the Franchise
Agreements by Company or any affiliate which remain uncured.
(h) Except as set forth in SECTION 2.15(h) of the Company Disclosure
Schedule or otherwise disclosed in writing to Parent and to the extent that,
in the aggregate, it would not
15
result in a Material Adverse Effect on Company, there is no basis for any
demand by any franchisee for rescission of any Franchise Agreement, no
franchisee is entitled to any material credit, set off or reduction in any
payment required to be made pursuant to the terms of any Franchise Agreement,
or in any other payment(s) owed to Company, no event has occurred which would
give any franchisee a material defense to its obligation to pay fees, or to
perform its other obligations under its Franchise Agreement, and no
franchisee has any material claims, counterclaims or offsets against Company.
(i) The Merger is not an event requiring the prior consent of or, except
to the extent it has been provided, notice to any franchisee, or granting any
franchisee the right to terminate any Franchise Agreement.
(j) Except as set forth in SECTION 2.15(j) of the Company Disclosure
Schedule, there are no contractual limitations or prohibitions upon Company or
any affiliate from operating "Gloria Jeans, Coffee Plantation or Coffee People"
stores or selling franchises to do so in any geographic area or location except
as expressly set forth in the identified Franchise Agreements or in the Leases.
(k) Except as set forth in SECTION 2.15(k) of the Company Disclosure
Schedule, the franchised stores which are the subject to each of the Franchise
Agreements are presently open to the public and operating, except where the
failure to be open to the public and operating would not, in the aggregate,
result in a Material Adverse Effect on Company.
(l) Except as set forth in SECTION 2.15(l) of the Company Disclosure
Schedule:
Company has sublet each Lease pursuant to a duly executed written
sublease ("SUBLEASE") to a franchisee ("SUBTENANT"). Each such Sublease is in
full force and effect and, except in the event that, in the aggregate, it would
not result in a Material Adverse Effect on Company, Subtenant is currently (i)
in possession of the premises which is the subject of such Lease and (ii) other
than as set forth in SECTION 2.15(l) of the Company Disclosure Schedule,
operating such premises as a "Gloria Jean's" store. The terms of each Sublease
require the Subtenant to comply with all of the terms of the Lease, including
without limitation, the full payment of all rental and other amounts due to the
landlord under the Lease without any subsidy from Company. Except in the event
that, in the aggregate, it would not result in a Material Adverse Effect on
Company, (i) no Subtenant is in default under its respective Sublease and
Company is not in default under any of the Leases and (ii) with respect to each
Sublease, Company has (x) obtained a written consent to such Sublease if the
terms of the applicable Lease require that consent to the Sublease be obtained,
(y) given written notice of such Sublease to any person or entity entitled to
notice of same pursuant to the applicable Lease and (z) obtained a written
waiver of any right of first refusal or similar right with respect to the
premises subject to the Sublease which right arises in connection with the
Sublease of such premises.
SECTION 2.16. FRANCHISE LAW COMPLIANCE.
(a) SECTION 2.16(a) of the Company Disclosure Schedule sets forth each
state in which Company or any affiliate is currently registered, or with whom
Company has filed for an
16
exemption from registration, to sell franchises and the effective date and
expiration date of each such registration. Neither Company nor any affiliate
has voluntarily or involuntarily ceased to be registered to sell franchises
in any state where Company or any affiliate currently operates and, Company
has no knowledge of any fact or circumstance which would preclude or inhibit
Company or any affiliate from filing and receiving approval of an application
to offer and sell franchises in any state in which Company or any affiliate
is not presently registered to do so.
(b) Except to the extent disclosed in SECTION 2.16(b) of the Company
Disclosure Schedule or otherwise disclosed in writing to Parent, neither
Company nor any affiliate has committed any violation of any law, rule or
regulation of the Federal Trade Commission ("FTC") or of any state relating
to the offer, sale assignment, renewal, termination of rights of succession,
of franchises, business opportunities or seller assisted marketing plans
(collectively, the "FRANCHISE LAWS"), except any such violation that would
not, in the aggregate, result in a Material Adverse Effect on Company.
(c) Except as set forth in SECTION 2.16(c) of the Company Disclosure
Schedule or otherwise disclosed in writing to Parent, there is no pending,
unresolved written, or to the knowledge of Company, oral claim or assertion
by any franchisee of any violation by Company or any affiliate of any of the
Franchise Laws, neither Company nor any affiliate has received written, or to
the knowledge of Company, oral notice from any governmental authority or
private party alleging any such violation, and neither Company nor any
affiliate has knowledge of any basis for any such claim of violation.
(d) Except to the extent disclosed in SECTION 2.16(d) of the Company
Disclosure Schedule, there currently exist no escrow or impound conditions or
requirements imposed upon Company's sale of franchises in any jurisdiction.
(e) There are no pending or currently effective stop orders,
administrative proceedings, notices of investigation, injunctions, orders or
restitution, rescission notices, or other order orders, actions or decrees by
any state or federal agency, or by any state or federal court, whether civil
or criminal, against Company or any affiliate.
(f) Except as disclosed in SECTION 2.16(f) of the Company Disclosure
Schedule or the Offering Circulars (as defined in SECTION 2.16(g) below),
there has been no litigation or arbitration between Company or any affiliate
and any franchisee or ex-franchisee since September 1995.
(g) Company shall deliver to Parent within ten (10) days following the
execution hereof, true and accurate copies of all currently effective
offering circulars relating to the sale of franchises ("OFFERING CIRCULARS"),
and represents and warrants that all Offering Circulars comply with the
Franchise Laws of the jurisdiction for which they have been used or are
contemplated for use, and the information therein does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made not misleading, except where such
non-compliance or inaccuracy would not have a Material Adverse Effect on
Company.
17
SECTION 2.17. AMENDMENT TO OFFERING CIRCULAR. Neither Company nor any
affiliate shall offer or sell any franchise unless and until Company's
franchise registrations and offering circulars have been amended to include a
disclosure, in form reasonably acceptable to Parent, disclosing the pendency
of the transaction contemplated hereby, and, in any event, in full compliance
with all applicable laws regulating the offer and sale of franchises.
SECTION 2.18. CERTAIN BUSINESS PRACTICES. None of Company, any of its
subsidiaries or any directors, officers, agents or employees of Company or
any of its subsidiaries has (a) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to political
activity, (b) made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (c) to Company's knowledge, made any other unlawful
payment.
SECTION 2.19. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any
class or series of Company's capital stock necessary to approve and adopt
this Agreement.
SECTION 2.20. AFFILIATES. Except for the directors and executive
officers of Company, each of whom is listed in SECTION 2.20 of the Company
Disclosure Schedule, there are no persons who, to the knowledge of Company,
may be deemed to be affiliates of Company under Rule 145 of the Securities
Act ("COMPANY AFFILIATES"). Concurrently with the execution and delivery of
this Agreement, Company has delivered to Parent an executed letter agreement
substantially in the form of EXHIBIT A hereto from all Company Affiliates.
SECTION 2.21. OPINION OF FINANCIAL ADVISER. BLACK & COMPANY ("COMPANY
FINANCIAL ADVISER") has delivered to the Company Board its written opinion to
the effect that the consideration to be received by the holders of Shares
pursuant to the provisions of this Agreement is fair from a financial point
of view to such holders, a copy of which has been delivered to Parent.
SECTION 2.22. BROKERS. No broker, finder or investment banker (other
than Company Financial Adviser and BancBoston Robertson Stephens, a true and
correct copy of whose engagement agreement has been provided to Parent) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of Company.
SECTION 2.23. YEAR 2000. Except as set forth in SECTION 2.23 of the
Company Disclosure Schedule, all Information Systems and Equipment (defined
below) are in all material respects either Year 2000 Compliant (defined
below) or any reprogramming, remediation, or any other corrective action,
including the internal testing of all such Information Systems and Equipment,
will be completed in all material respects by December 1, 1999 and Company
has taken all actions reasonably necessary to the date hereof to enable such
completion by December 1, 1999. Further, to the extent that such
reprogramming/remediation and testing action is required, the cost thereof,
as well as the cost of the reasonably foreseeable consequences of failure to
become Year 2000 Compliant, to Company and its subsidiaries (including,
without
18
limitation, reprogramming errors and the failure of other systems or
equipment) will not result in a Material Adverse Effect on Company.
"YEAR 2000 COMPLIANT" means that all Information Systems and Equipment
accurately process date data (including, but not limited to, calculating,
comparing and sequencing), before, during and after the year 2000, as well as
same multi-century dates, or between the years 1999 and 2000, taking into
account all leap years, including the fact that the year 2000 is a leap year,
and further, that when used in combination with, or interfacing with, other
Information Systems and Equipment, shall accurately accept, release and
exchange date data, and shall in all material respects continue to function
in the same manner as it performs today and shall not otherwise materially
impair the accuracy or functionality of Information Systems and Equipment.
"INFORMATION SYSTEMS AND EQUIPMENT" means all computer hardware,
firmware and software, as well as other information processing systems, or
any equipment containing embedded microchips, whether directly owned,
licensed, leased, operated or otherwise controlled by Company or any of its
subsidiaries, including through third-party service providers, and which, in
whole or in part, are used, operated, relied upon, or integral to, Company's
or any of its subsidiaries' conduct of their business.
SECTION 2.24. MATERIAL CONTRACTS. Except as set out in SECTION 2.24 of
the Company Disclosure Schedule, neither Company nor any of its subsidiaries
is a party to or bound by any written or, to the knowledge of Company, oral
contract or commitment (other than contracts for insurance or Leases (as
defined in SECTION 2.25) which are material to their respective businesses
(the "MATERIAL CONTRACTS"). For the purposes of this Agreement, any contract
or commitment, (i) the performance of which will extend over a period of one
year or more or (ii) involving the outstanding payment to or from Company or
any of its subsidiaries of more than $100,000 shall be deemed to be a
Material Contract. Except to the extent that, in the aggregate, it will not
result in a Material Adverse Effect on Company, all such Material Contracts
are in good standing and in full force and effect without amendment thereto
and Company or a subsidiary thereto is entitled to all benefits thereunder.
SECTION 2.25. REAL PROPERTY. SECTION 2.25 of the Company Disclosure
Schedule lists: (i) a description of each parcel of real property owned by
Company and any of its subsidiaries (the "FEE REAL PROPERTY"), (ii) a listing
of each lease, written or, to the knowledge of Company, oral and for
operating or nonoperating stores, of real property under which Company or any
of its subsidiaries is a lessee, lessor, sublessee or sublessor, as so
designated therein (the "LEASES" and together with the Fee Real Property, the
"REAL PROPERTY") and (iii) all options to acquire, sell or lease any real
property interests to which Company or any of its subsidiaries is a party.
The Real Property constitutes all of the real property interests owned,
leased or occupied in whole or in part by Company or any of its subsidiaries
and there are no other Leases, licenses or other agreements affecting the
occupancy of the Real Property. Except as set forth in SECTION 2.25 of the
Company Disclosure Schedule:
(a) Company has beneficial ownership of and good and marketable title
in fee simple to the Fee Real Property free and clear of all Liens, except
for liens, if any, for property taxes not
19
yet due and other items which do not and will not impair, in any material
respect, the usefulness to Company, or the value or the marketability, of any
such Fee Real Properties (the "PERMITTED LIENS"), individually, or in the
aggregate;
(b) Except to the extent that, in the aggregate, the occurrence of any
of the following events would not result in a Material Adverse Effect on
Company, all Leases, easements and other real property interests held by
Company or any of its subsidiaries are valid, binding, in full force and
effect, subsisting free and clear of all Liens other than Permitted Liens, no
written notice or default or termination thereunder has been received by
Company or any of its subsidiaries, all rents and other sums and other
charges payable by lessee thereunder are current (or no more than 60 days
past due), there are no written, or to the knowledge of Company, oral
understandings between the parties to the Leases which in any manner vary the
obligations or rights of either party from those set forth in the Leases, no
rent or additional rent under the Leases has been paid for more than 30 days
in advance of its due date and no termination event either conditional or
uncured default on the part of Company or any of its subsidiaries or, to
Company's knowledge, its franchisees exists thereunder. Company has either
delivered to Parent or its representatives or agents true, correct and
complete copies of each of the foregoing documents;
(c) Neither Company nor any of its subsidiaries has received any
written notice or has knowledge that any of the buildings, structures or
other material improvements erected on the Real Property owned or leased by
Company or any of its subsidiaries or the present use thereof, does not
conform in all material respects with all applicable laws (or does not
constitute a legal nonconforming use), ordinances, regulations or other laws
and applicable deed restrictions. As of the Effective Time, the Real Property
will comply with all applicable laws, ordinances, regulations or other law
and applicable deed restrictions, except where the failure to comply would
not have a Material Adverse Effect on Company;
(d) As of the Closing Date, the Real Property will have direct access
to utilities for the operation and/or development of the Real Property,
except where the failure to have such access would not have a Material
Adverse Effect on Company, and Company knows of no fact or condition which
exists, or is threatened on the Effective Date, which would result in the
termination of access to and from the Real Property or the cessation of
utilities necessary for the operation and/or development of the Real
Property, except where the failure to have such access would not have a
Material Adverse Effect on Company;
(e) There are no material encroachments on the Real Property nor any
encroachments by improvements on the Real Property onto any easements or any
adjoining property;
(f) Company is not a "foreign person" as that term is defined in
Section 1445 of the Code and any applicable regulations promulgated
thereunder;
(g) Neither Company nor any of its subsidiaries has received written
or, to the knowledge of Company, oral notice from any municipal body or other
public authority requiring work to be done or improvements to be made upon
any of the Real Property and have no knowledge of the enactment or adoption
of any ordinance or resolution by any such body or
20
authority authorizing work or improvements for which any of the Real Property
may be assessed; and
(h) All of the improvements situated on any of the Real Property are in
good operating condition and are adequate and suitable for the purposes for
which they are presently being used, normal wear and tear excepted.
SECTION 2.26. INSURANCE. Except as set forth in SECTION 2.26 of the
Company Disclosure Schedule, as of the date hereof, Company and each of its
subsidiaries are insured by insurers against such losses and risks and in
such amounts as are customary in the businesses in which they are engaged.
All policies of insurance and fidelity or surety bonds are in full force and
effect. Descriptions of these plans and related liability coverage have been
previously provided to Parent. SECTION 2.26 of Company Disclosure Schedule
contains a listing of all open workers compensation and general liability
claims as of a recent date. These claims, individually or in the aggregate,
would not have a Material Adverse Effect on Company and its subsidiaries,
taken as a whole. To the best knowledge of Company, all necessary
notifications of claims have been made to insurance carriers.
SECTION 2.27. TRANSACTIONS WITH AFFILIATES. Except to the extent
disclosed in Company SEC Documents or in SECTION 2.27 of the Company
Disclosure Schedule, there have been no transactions, agreements,
arrangements or understandings between Company or its subsidiaries, on the
one hand, and Company's affiliates (other than wholly-owned subsidiaries of
Company) or other persons, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND NEWCO
Parent and Newco hereby represent and warrant to Company, except as
otherwise set forth in Parent SEC Reports (as defined in SECTION 3.4 below),
that:
SECTION 3.1. ORGANIZATION.
(a) Parent and Newco are duly organized, validly existing and in good
standing under the laws of the State of Delaware and have all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted. Parent has heretofore delivered to Company
accurate and complete copies of the Certificate of Incorporation and bylaws as
currently in effect of Parent and Newco.
(b) Each of Parent and Newco is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not have
a Material Adverse Effect on Parent (as defined below). When used in connection
with Parent or Newco the term "MATERIAL ADVERSE EFFECT ON PARENT" means any
change or effect that
21
is (i) reasonably likely to be materially adverse to the business, results of
operations or financial condition of Parent and its subsidiaries, taken as a
whole, or (ii) that materially impairs the ability of Parent and/or Newco to
consummate the transactions contemplated hereby.
SECTION 3.2. CAPITALIZATION OF PARENT AND ITS SUBSIDIARIES.
(a) The authorized capital stock of Parent consists of 25,000,000
shares of Parent Common Stock, of which, as of March 8, 1999, 6,173,538
shares of Parent Common Stock were issued and outstanding and 3,000,000
shares of preferred stock, par value $0.01 per share, none of which are
outstanding. All of the outstanding shares of Parent Common Stock have been
validly issued and are fully paid, nonassessable and free of preemptive
rights. As of March 8, 1999, 3,320,000 shares of Parent Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in
connection with the exercise of outstanding options and warrants.
Except as set forth above, as of the date hereof, there are outstanding
(i) no shares of capital stock or other voting securities of Parent; (ii) no
securities of Parent or its subsidiaries convertible into or exchangeable for
shares of capital stock, or voting securities of Parent; (iii) no options or
other rights to acquire from Parent or its subsidiaries and, except as
described in Parent SEC Reports (as defined in SECTION 3.4), no obligations
of Parent or its subsidiaries to issue any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of Parent; and (iv) no equity equivalent interests in the
ownership or earnings of Parent or its subsidiaries or other similar rights
(collectively, "PARENT SECURITIES"). As of the date hereof, there are no
outstanding obligations of Parent or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Parent Securities. Other than as provided
herein, there are no stockholder agreements, voting trusts or other
agreements or understandings to which Parent is a party or by which it is
bound relating to the voting of any shares of capital stock of Parent.
(b) The Parent Common Stock constitutes the only class of equity
securities of Parent or its subsidiaries registered or required to be
registered under the Exchange Act.
SECTION 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Each of Parent and Newco has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the boards of directors of Parent and
Newco and by Parent as the sole stockholder of Newco, and no other corporate
proceedings on the part of Parent or Newco are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby except the
approval and adoption of this Agreement by the holders of a majority of the
outstanding shares of Parent Common Stock. This Agreement has been duly and
validly executed and delivered by each of Parent and Newco and constitutes a
valid, legal and binding agreement of each of Parent and Newco enforceable
against each of Parent and Newco in accordance with its terms.
22
(b) The Board of Directors of Parent has unanimously resolved to
recommend that the stockholders of Parent vote in favor of the issuance of
Parent Common Stock pursuant to the provisions of this Agreement.
SECTION 3.4. SEC REPORTS; FINANCIAL STATEMENTS.
(a) Parent has filed all required forms, reports and documents
(collectively, "PARENT SEC REPORTS") with the SEC since January 1, 1997, each
of which has complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in effect on
the dates such forms, reports and documents were filed. None of such Parent
SEC Reports, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained when filed
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in
order to make the statements therein in light of the circumstances under
which they were made not misleading. The audited consolidated financial
statements of Parent included in the Parent SEC Reports fairly present in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto) the
consolidated financial position of Parent and its consolidated subsidiaries
as of the dates thereof and their consolidated results of operations and
changes in financial position for the periods then ended.
(b) Parent has heretofore made available or promptly will make
available to Company a complete and correct copy of any amendments or
modifications that are required to be filed with the SEC, but have not yet
been filed with the SEC, to agreements documents or other instruments that
previously had been filed by Parent with the SEC pursuant to the Exchange
Act. Except to the extent that, in the aggregate, it will not result in a
Material Adverse Effect on Parent, all material contracts identified as
exhibits to Parent's Form 10-Q for the period ended October 28, 1998 are in
good standing and in full force and effect without amendment thereto and
Parent or a subsidiary thereto is entitled to all benefits thereunder.
SECTION 3.5. INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Parent or Newco for inclusion or incorporation by reference
in (a) the Form S-4 will, at the time the Form S-4 is filed with the SEC and
at the time the Form S-4, as amended or supplemented, becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; (b) the Proxy Statement will, at the
date mailed to stockholders of Company and Parent, and at the times of the
meetings of stockholders of Company and Parent to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein in light of the circumstances under which they are
made not misleading; and (c) the Form S-1 will, at the time the Form S-1 is
filed with the SEC and at the time the Form S-1, as amended or supplemented,
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Proxy Statement, insofar as it relates to the meeting of Parent's
stockholders to vote on the Merger, will comply as
23
to form in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder, and the Form S-4 and the Form S-1 will
comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.
SECTION 3.6. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
filings, permits, authorizations, consents, and approvals as may be required
under and other applicable requirements of the Securities Act, the Exchange
Act, state securities or blue sky laws, the HSR Act and the filing and
recordation of the Certificate of Merger as required by the DGCL and the
OBCA, no filing with or notice to, and no permit authorization consent or
approval of any Governmental Entity is necessary for the execution and
delivery by Parent or Newco of this Agreement or the consummation by Parent
or Newco of the transactions contemplated hereby, except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings or give such notice would not have a Material Adverse Effect on
Parent.
Neither the execution, delivery and performance of this Agreement by
Parent or Newco, nor the consummation by Parent or Newco of the transactions
contemplated hereby, will (a) conflict with or result in any breach of any
provision of each of the Certificate of Incorporation or bylaws (or similar
governing documents) of Parent and Newco or any of Parent's other
subsidiaries, (b) result in a violation or breach of or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or Newco or any of Parent's other subsidiaries is
a party or by which any of them or any of their respective properties or
assets may be bound or (c) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to Parent or Newco or any of Parent's
other subsidiaries or any of their respective properties or assets, except,
in the case of (b) or (c), for violations, breaches or defaults that would
not have a Material Adverse Effect on Parent.
SECTION 3.7. NO DEFAULT. None of Parent or any of its subsidiaries is
in breach, default or violation (and no event has occurred that, with notice
or the lapse of time or both, would constitute a breach, default or
violation) of any term, condition or provision of (a) its Certificate of
Incorporation or bylaws (or similar governing documents), (b) any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument
or obligation to which Parent or any of its subsidiaries is now a party or by
which any of them or any of their respective properties or assets may be
bound or (c) any order, writ, injunction, decree, law, statute, rule or
regulation applicable to Parent or any of its subsidiaries or any of their
respective properties or assets except, in the case of (b) or (c), for
violations, breaches or defaults that would not have a Material Adverse
Effect on Parent.
SECTION 3.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as
and to the extent publicly disclosed by Parent in Parent SEC Reports, none of
Parent or its subsidiaries has any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise that would be required by
generally accepted accounting principles to be reflected on a consolidated
balance sheet of Parent and its consolidated subsidiaries (including the
notes thereto), other than
24
liabilities incurred in the ordinary course of business since October 28,
1998, none of which, individually or in the aggregate, would have a Material
Adverse Effect on Parent.
Except as publicly disclosed by Parent in Parent SEC Reports, since
October 28, 1998, (a) Parent and Newco have conducted their respective
businesses and operations in the ordinary course of business consistent with
past practice, and (b) there has not occurred (i) any events, changes, or
effects (including the incurrence of any liabilities of any nature, whether
or not accrued, contingent or otherwise) having or, which would be reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on Parent; (ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to the
equity interests of Parent, other than dividends paid by wholly-owned
subsidiaries; or (iii) any material change by Parent in accounting principles
or methods, except insofar as may be required by a change in generally
accepted accounting principles.
SECTION 3.9. LITIGATION. Except as publicly disclosed by Parent in
Parent SEC Reports, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Parent threatened, against
Parent or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Parent or
could reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as publicly disclosed by
Parent in Parent SEC Reports, none of Parent or its subsidiaries is subject
to any outstanding order, writ, injunction or decree that, insofar as can be
reasonably foreseen in the future, could reasonably be expected to have a
Material Adverse Effect on Parent or could reasonably be expected to prevent
or delay the consummation of the transactions contemplated hereby.
SECTION 3.10. COMPLIANCE WITH APPLICABLE LAW. Except as publicly
disclosed by Parent in Parent SEC Reports, Parent and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "PARENT PERMITS"), except for failures to hold such permits,
licenses, variances. exemptions, orders and approvals that would not have a
Material Adverse Effect on Parent. Except as publicly disclosed by Parent in
Parent SEC Reports, Parent and its subsidiaries are in compliance with the
terms of the Parent Permits, except where the failure so to comply would not
have a Material Adverse Effect on Parent. Except as publicly disclosed by
Parent in the Parent SEC Reports, the businesses of Parent and its
subsidiaries are not being conducted in violation of any law ordinance or
regulation of any Governmental Entity, except that no representation or
warranty is made in this SECTION 3.10 with respect to Environmental Laws and
except for violations that do not and, insofar as reasonably can be foreseen
in the future, will not have a Material Adverse Effect on Parent. Except as
publicly disclosed by Parent in Parent SEC Reports, no investigation or
review by any Governmental Entity with respect to Parent or its subsidiaries
is pending or, to the knowledge of Parent, threatened nor, to the knowledge
of Parent, has any Governmental Entity indicated an intention to conduct the
same, other than in each case those that Parent reasonably believes will not
have a Material Adverse Effect on Parent.
25
SECTION 3.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS. With respect to
each employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan," as defined in Section 3(3)
of ERISA) maintained or contributed to by Parent or any of its subsidiaries
or with respect to which Parent or any of its subsidiaries could incur
liability under Section 4069, 4212(c) or 4204 of ERISA (collectively, the
"PARENT BENEFIT PLANS") no event has occurred and, to the knowledge of
Parent, there currently exists no condition or set of circumstances in
connection with which Parent or any of its subsidiaries could be subject to
any liability under the terms of the Parent Benefit Plans, ERISA, the Code or
any other applicable law that would have a Material Adverse Effect on Parent.
There is no pending or threatened labor dispute, strike or work stoppage
against Parent or any of its subsidiaries that may reasonably be expected to
have a Material Adverse Effect on Parent.
SECTION 3.12. ENVIRONMENTAL LAWS AND REGULATIONS.
(a) Except as publicly disclosed by Parent in Parent SEC Reports, (i)
each of Parent and its subsidiaries is in material compliance with all
Environmental Laws except for non-compliance that would not have a Material
Adverse Effect on Parent, which compliance includes, but is not limited to,
the possession by Parent and its subsidiaries of all material permits and
other governmental authorizations required under applicable Environmental
Laws and material compliance with the terms and conditions thereof; (ii) none
of Parent or its subsidiaries has received written notice of or, to the
knowledge of Parent, is the subject of any Environmental Claim that could
reasonably be expected to have a Material Adverse Effect on Parent; and (iii)
to the knowledge of Parent, there are no circumstances that are reasonably
likely to prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by Parent in the Parent SEC Reports,
there are no Environmental Claims that could reasonably be expected to have a
Material Adverse Effect on Parent that are pending or, to the knowledge of
Parent, threatened against Parent or any of its subsidiaries or, to the
knowledge of Parent, against any person or entity whose liability for any
Environmental Claim Parent or its subsidiaries has or may have retained or
assumed either contractually or by operation of law.
SECTION 3.13. TAX MATTERS. Except as publicly disclosed by Parent in
Parent SEC Reports, Parent and its subsidiaries have accurately prepared and
duly filed with the appropriate federal, state, local and foreign taxing
authorities all tax returns, information returns and reports required to be
filed with respect to Parent and its subsidiaries and have paid in full or
made adequate provision for the payment of all Taxes. Except as publicly
disclosed by Parent in Parent SEC Reports, no material claim for assessment
or collection of Taxes is presently being asserted against Parent or its
subsidiaries, and neither Parent nor any of its subsidiaries is a party to
any pending action, proceeding, or investigation by any governmental taxing
authority, nor does Parent have knowledge of any such threatened action,
proceeding or investigation.
SECTION 3.14. OPINION OF FINANCIAL ADVISER. First Security Van Kaspar
("PARENT FINANCIAL ADVISER") has delivered to the Board of Directors of
Parent its written opinion to the effect that the issuance of shares of
Parent Common Stock pursuant to the provisions of this
26
Agreement is fair from a financial point of view to the stockholders of
Parent, a copy of which has been delivered to Company.
SECTION 3.15. EVIDENCE OF FINANCING. Parent has delivered to Company
reasonably sufficient evidence of Parent's ability to fund at least $10,750,000
of the Merger Consideration, provided for in SECTION 1.8(a)(i), in cash.
SECTION 3.16. BROKERS. No broker, finder or investment banker (other than
the Parent Financial Adviser) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of Parent or Newco.
SECTION 3.17. NO PRIOR ACTIVITIES. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby, Newco
has neither incurred any obligation or liability nor engaged in any business or
activity of any type or kind whatsoever or entered into any agreement or
arrangement with any person.
SECTION 3.18. YEAR 2000. All Information Systems and Equipment of Parent
are in all material respects either Year 2000 Compliant or any reprogramming,
remediation, or any other corrective action, including the internal testing of
all such Information Systems and Equipment, will be completed in all material
respects by December 1, 1999 and Parent has taken all actions reasonably
necessary to the date hereof to enable such completion by December 1, 1999.
Further, to the extent that such reprogramming/remediation and testing action is
required, the cost thereof, as well as the cost of the reasonably foreseeable
consequences of failure to become Year 2000 Compliant, to the Parent and its
subsidiaries (including, without limitation, reprogramming errors and the
failure of other systems or equipment) will not result in a Material Adverse
Effect on Parent.
SECTION 3.19. INTELLECTUAL PROPERTY; SOFTWARE.
(a) Except as publicly disclosed by Parent in Parent SEC Reports, each of
Parent and its subsidiaries owns or possesses adequate licenses or other valid
rights to use all existing United States and foreign patents, trademarks, trade
names, service marks, copyrights, trade secrets and applications therefor
("PARENT INTELLECTUAL PROPERTY RIGHTS"), except where the failure to own or
possess valid rights to use Parent Intellectual Property Rights would not have a
Material Adverse Effect on Parent.
(b) Except to the extent that the occurrence of any of the following
events would not reasonably be expected to have a Material Adverse Effect on
Parent:
(i) the validity of Parent Intellectual Property Rights and the
title thereto of Parent or any subsidiary, as the case may be, is not being
questioned in any litigation to which Parent or any subsidiary is a party, and
27
(ii) the conduct of the business of Parent and its subsidiaries as
now conducted does not, to the knowledge of Parent, infringe any valid patents,
trademarks, trade names, service marks, or copyrights of others. The
consummation of the transactions completed hereby will not result in the loss or
impairment of any Parent Intellectual Property Rights.
SECTION 3.20. FRANCHISE AREA AND DEVELOPMENT AGREEMENTS.
(a) Parent has two franchise agreements with Rocket Enterprises, Inc.,
dated November 12, 1998, and area development agreements with Coffee
Housepitality LLC, dated September 15, 1998, and Rocket Enterprises, Inc., dated
November 12, 1998 (collectively, the "PARENT FRANCHISE AGREEMENTS"), that are
currently valid and enforceable, and no other current contracts, agreements or
understandings, whether written or, to the knowledge of Parent, oral, exist
between Parent or any affiliate and any third party granting the right, or any
option or right of first refusal, to conduct business under the name "Diedrich
Coffee," or any related marks.
(b) The Parent Franchise Agreements represent the material terms and
provisions of all currently valid and enforceable Parent Franchise Agreements
with franchisees, and no written or, to the knowledge of Parent, oral
modifications of or supplements to those written agreements have been entered
into.
(c) Each of the Parent Franchise Agreements is in full force and effect
and is enforceable in accordance with its terms and provisions in all material
respects, and no notices of default or demands for early termination have been
delivered thereunder by either party.
(d) There are no breaches by any franchisee of any of the Parent Franchise
Agreements, which breaches remain uncured and which breaches, in the aggregate,
would result in a Material Adverse Effect on Parent.
(e) Each franchisee is current (no later than 30 days) in his financial
obligations to Parent and each affiliate, including without limitation payments
due for royalties and product purchases.
(f) There are no breaches by Parent or any affiliate of any of the Parent
Franchise Agreements, which breaches remain uncured and which breaches, in the
aggregate, would result in a Material Adverse Effect on Parent.
(g) There are no unresolved assertions or claims, whether in writing or,
to the knowledge of Parent, oral, or any basis for any claims, by any franchisee
of material breaches of any of the Parent Franchise Agreements by Parent or any
affiliate which remain uncured.
(h) To the extent that, in the aggregate, it would not result in a
Material Adverse Effect on Parent, there is no basis for any demand by any
franchisee for rescission of any Franchise Agreement, no franchisee is
entitled to any material credit, set off or reduction in any payment required
to be made pursuant to the terms of any Franchise Agreement, or in any other
payment(s) owed to Parent, no event has occurred which would give any
franchisee a material
28
defense to its obligation to pay fees, or to perform its other obligations under
its Franchise Agreement, and no franchisee has any material claims,
counterclaims or offsets against Parent.
(i) The Merger is not an event requiring the prior consent of or, except
to the extent that it has been provided, notice to any franchisee, or granting
any franchisee the right to terminate any Franchise Agreement.
(j) There are no contractual limitations or prohibitions upon Parent or
any affiliate from operating "Diedrich Coffee" stores or selling franchises to
do so in any geographic area or location except as expressly set forth in the
identified Parent Franchise Agreements.
SECTION 3.21. FRANCHISE LAW COMPLIANCE.
(a) California and Texas are the only states in which Parent or any
affiliate is currently registered, or with whom Parent has filed for an
exemption from registration, to sell franchises. Neither Parent nor any
affiliate has voluntarily or involuntarily ceased to be registered to sell
franchises in any state where Parent and any affiliate currently operates, and
Parent has no knowledge of any fact or circumstance which would preclude or
inhibit Parent or any affiliate from filing and receiving approval of an
application to offer and sell franchises in any state in which Parent or any
affiliate is not presently registered to do so.
(b) Except as publicly disclosed by Parent in Parent SEC Reports, neither
Parent nor any affiliate has committed any violation of any Franchise Laws,
except any such violation that would not, in the aggregate, result in a Material
Adverse Effect on Parent.
(c) Except as publicly disclosed by Parent in Parent SEC Reports, there is
no pending, unresolved written, or to the knowledge of Parent, oral claim or
assertion by any franchisee of any violation by Parent or any affiliate of any
of the Franchise Laws, neither Parent nor any affiliate has received written, or
to the knowledge of Parent, oral notice from any governmental authority or
private party alleging any such violation, and neither Parent nor any affiliate
has knowledge of any basis for any such claim of violation.
(d) Except as publicly disclosed by Parent in Parent SEC Reports, there
currently exist no escrow or impound conditions or requirements imposed upon
Parent's sale of franchises in any jurisdiction.
(e) Except as publicly disclosed by Parent in Parent SEC Reports, there
are no pending or currently effective stop orders, administrative proceedings,
notices of investigation, injunctions, orders or restitution, rescission
notices, or other order orders, actions or decrees by any state or federal
agency, or by any state or federal court, whether civil or criminal, against
Parent or any affiliate.
(f) Except as publicly disclosed by Parent in Parent SEC Reports or the
Parent Offering Circulars (as defined in SECTION 3.21(g) below), there has been
no litigation or arbitration between Parent or any affiliate and any franchisee
or ex-franchisee during the five (5) years preceding the date hereof.
29
(g) Parent shall deliver to Company within ten (10) days following the
execution hereof, true and accurate copies of all currently effective offering
circulars relating to the sale of franchises ("PARENT OFFERING CIRCULARS"), and
represents and warrants that all Offering Circulars comply with the Franchise
Laws of the jurisdiction for which they have been used or are contemplated for
use, and the information therein does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made not misleading, except where such non-compliance or inaccuracy
would not have a Material Adverse Effect on Parent.
SECTION 3.22. CERTAIN BUSINESS PRACTICES. None of Parent, any of its
subsidiaries or any directors, officers, agents or employees of Parent or any of
its subsidiaries has (a) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to political activity, (b) made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns or violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended, or (c) to Parent's
knowledge, made any other unlawful payment.
SECTION 3.23. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Parent Common Stock is the only vote of
the holders of any class or series of Parent's capital stock necessary to
approve the issuance of Parent Common Stock pursuant to the provisions of this
Agreement.
SECTION 3.24. TRANSACTIONS WITH AFFILIATES. Except to the extent
disclosed in Parent SEC Reports, there have been no transactions, agreements,
arrangements or understandings between Parent or its subsidiaries, on the one
hand, and Parent's affiliates (other than wholly-owned subsidiaries of Parent)
or other persons, on the other hand, that would be required to be disclosed
under Item 404 of Regulation S-K under the Securities Act.
SECTION 3.25. REAL PROPERTY. Except as indicated in Parent SEC Reports
and except to the extent that, in the aggregate, it would not result in a
Material Adverse Effect on Parent, each of the material real property leases to
which Parent or its subsidiaries is a party ("Parent Leases") is valid, binding,
in full force and effect, subsisting free and clear of all liens other than
liens, if any, for property taxes not yet due and other items which do not and
will not impair, in any material respect, the usefulness to the Parent, or the
value or the marketability, of the leasehold interest.
SECTION 3.26. INSURANCE. Except as indicated in Parent SEC Reports, as of
the date hereof, Parent and each of its subsidiaries are insured by insurers
against such losses and risks and in such amounts as are customary in the
businesses in which they are engaged. All material policies of insurance and
fidelity or surety bonds are in full force and effect.
30
ARTICLE IV
COVENANTS
SECTION 4.1. CONDUCT OF BUSINESS OF COMPANY. Except as contemplated by
this Agreement or as described in SECTION 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time, Company
will, and will cause each of its subsidiaries to, conduct its operations in the
ordinary course of business consistent with past practice, and, to the extent
consistent therewith and with no less diligence and effort than would be applied
in the absence of this Agreement, will seek to preserve intact its current
business organizations, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement or as
described in SECTION 4.1 of the Company Disclosure Schedule, prior to the
Effective Time, neither Company nor any of its subsidiaries will, without the
prior written consent of Parent and Newco (which consent shall not be
unreasonably withheld):
(a) amend its Charter or bylaws (or other similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities (except bank loans) or equity equivalents
(including, without limitation, any stock options or stock appreciation rights),
except for the issuance and sale of Shares pursuant to options previously
granted or subsequently granted in the ordinary course and consistent with past
practice under Company Plans or pursuant to previously granted warrants;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, make any
other actual, constructive or deemed distribution in respect of its capital
stock or otherwise make any payments to stockholders in their capacity as such,
or redeem or otherwise acquire any of its securities or any securities of any of
subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
Company or any of its subsidiaries (other than the Merger);
(e) alter, through merger, liquidation, reorganization, restructuring or
any other fashion, the corporate structure of ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any
debt securities, except for borrowings under existing lines of credit in the
ordinary course of business provided that notice is provided to Parent; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
except in the ordinary course of business consistent with past practice and
except for obligations of subsidiaries of Company incurred in the ordinary
course of business provided that notice is
31
provided to Parent; (iii) make any loans, advances or capital contributions
to or investments in any other person (other than to subsidiaries of Company
or customary loans or advances to employees in each case in the ordinary
course of business consistent with past practice); (iv) pledge or otherwise
encumber shares of capital stock of Company or its subsidiaries; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material Lien thereupon (other than tax liens
for Taxes not yet due);
(g) except as set forth in SECTION 4.1 of the Company Disclosure
Schedule or as may be required by law, enter into adopt or amend or terminate
any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); PROVIDED, HOWEVER, that this
paragraph shall not prevent Company or its subsidiaries from entering into
employment agreements, severance agreements or other compensation
arrangements with employees in the ordinary course of business and consistent
with past practice;
(h) except as set forth in SECTION 4.1 of the Company Disclosure
Schedule, acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions having a fair market value in
excess of $50,000 in the aggregate;
(i) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(j) revalue in any material respect any of its assets, including
without limitation writing down the value of inventory or writing-off notes
or accounts receivable other than in the ordinary course of business;
(k) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract
or agreement, other than in the ordinary course of business consistent with
past practice, that would be material to Company and its subsidiaries, taken
as a whole; (iii) authorize any new capital expenditure or expenditures that
individually is in excess of $50,000 or in the aggregate are in excess of
$400,000 PROVIDED that none of the foregoing shall limit any capital
expenditure required pursuant to existing Leases or other existing contracts;
(l) make any tax election or settle or compromise any income tax
liability material to Company and its subsidiaries taken as a whole;
32
(m) settle or compromise any pending or threatened suit, action or claim
that (i) relates to the transactions contemplated hereby or (ii) the settlement
or compromise of which could have a Material Adverse Effect on Company; or
(n) take or agree in writing or otherwise to take any of the actions
described in SECTIONS 4.1(a) through 4.1(m) or any action that would make any of
the representations or warranties of Company contained in this Agreement
materially untrue or incorrect.
SECTION 4.2. CONDUCT OF BUSINESS OF PARENT. Except as contemplated by
this Agreement, during the period from the date hereof to the Effective Time,
Parent will, and will cause each of its subsidiaries to, conduct its operations
in the ordinary course of business consistent with past practice, and, to the
extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve intact its current
business organizations, will keep available the service of its current officers
and employees and preserve its relationships with customers, suppliers and
others having business dealings with it to the end that goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, except as otherwise expressly provided in this
Agreement prior to the Effective Time, neither Parent nor any of its
subsidiaries will, without the prior written consent of Company (which consent
shall not be unreasonably withheld):
(a) knowingly take any action that would result in a failure to maintain
the trading of Parent Common Stock on the NASDAQ National Market;
(b) adopt any amendments to its charter documents;
(c) authorize for issuance, issue, sell, deliver or agree or commit to
issue sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities (except bank loans) or equity equivalents
(including, without limitation, any stock options or stock appreciation rights),
except for the issuance of Parent Common Stock pursuant to the provisions of
this Agreement or pursuant to (i) previously granted stock options or stock
options subsequently granted under plans currently in effect and (ii) previously
granted warrants or not more than 200,000 shares of Parent Common Stock pursuant
to subsequently granted warrants;
(d) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, make any
other actual, constructive or deemed distribution in respect of its capital
stock or otherwise make any payments to stockholders in their capacity as such,
or redeem or otherwise acquire any of its securities or any securities of any of
subsidiaries;
(e) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of Parent
or any of its subsidiaries (other than the Merger);
(f) alter, through merger, liquidation, reorganization, restructuring or
any other fashion, the corporate structure of ownership of any subsidiary;
33
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(h) revalue in any material respect any of its assets, including without
limitation writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary course of business;
(i) make any tax election or settle or compromise any income tax liability
material to Parent and its subsidiaries taken as a whole; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in SECTIONS 4.2(a) through 4.2(i) or any action that would make any of
the representations or warranties of Parent contained in this Agreement
materially untrue or incorrect.
SECTION 4.3. PREPARATION OF FORM S-4 AND THE PROXY STATEMENT. Company
and Parent shall promptly jointly prepare and file with the SEC the Proxy
Statement, and Parent shall promptly prepare and file with the SEC the Form
S-4 in which the Proxy Statement will be included as a prospectus. Each of
Parent and Company shall use its best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such
filing. Parent shall also take any action (other than qualifying to do
business in any jurisdiction in which it is now not so qualified) required to
be taken under any applicable state securities laws in connection with the
issuance of Parent Common Stock in the Merger, and Company shall furnish all
information concerning Company and the holders of Shares as may be reasonably
requested in connection with any such action.
SECTION 4.4. PREPARATION OF FORM S-1; PUBLIC OFFERING. Parent shall
prepare, and Parent shall file with the SEC, the Form S-1 with respect to a
public offering of Parent Common Stock (the "PUBLIC OFFERING") and shall use
its best efforts to have the Form S-1 declared effective under the Securities
Act as promptly as practicable after such filing. The price per share to the
public in the Public Offering shall be referred to as the "PER SHARE OFFERING
PRICE.") The net proceeds received by Parent from the Public Offering (i.e.,
the gross proceeds less discounts, commissions and expenses) to be applied to
the Merger Consideration shall not exceed twelve million two hundred fifty
thousand dollars ($12,250,000) (the "NET OFFERING PROCEEDS"). Parent shall
also take any action required to be taken under any applicable state
securities laws in connection with the Public Offering, and Company shall
furnish all information concerning Company and the holders of Shares as may
be reasonably requested in connection with any such action.
SECTION 4.5. OTHER POTENTIAL ACQUIRERS.
(a) Company, its affiliates and their respective officers, directors,
employees, representatives and agents shall immediately cease any discussions
or negotiations with any parties with respect to any Third Party Acquisition
(defined below). Neither Company nor any of its affiliates shall, nor shall
Company authorize or permit any of its or their respective officers,
directors, employees representatives or agents to, directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations
with or provide any non-public information
34
to any person or group (other than Parent and Newco or any designees of
Parent and Newco) concerning any Third Party Acquisition; PROVIDED, HOWEVER,
that nothing herein shall prevent the Company Board from taking and
disclosing to Company's stockholders a position contemplated by Rules 14d-9
and 14e-2 promulgated under the Exchange Act with regard to any tender offer
or making such disclosures to Company's shareholders as required by law.
Company shall promptly notify Parent in the event it receives any proposal or
inquiry concerning a Third Party Acquisition, including the terms and
conditions thereof and the identity of the party submitting such proposal;
and shall advise Parent from time to time of the status and any material
developments concerning the same.
(b) Except as set forth in this SECTION 4.5(b), the Company Board shall
not withdraw its recommendation of the transactions contemplated hereby or
approve or recommend, or cause Company to enter into any agreement with
respect to, any Third Party Acquisition. Notwithstanding the foregoing, if
the Company Board by a majority vote determines in its good faith judgment,
after consultation with and based upon the advice of legal counsel, that it
is required to do so in order to comply with its fiduciary duties, the
Company Board may withdraw its recommendation of the transactions
contemplated hereby or approve or recommend a Superior Proposal (defined
below), but in each case only (i) after providing reasonable written notice
to Parent (a "NOTICE OF SUPERIOR PROPOSAL"), advising Parent that the Company
Board has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal; and (ii) if Parent does not, within ten (10) business days
of Parent's receipt of the Notice of Superior Proposal, make an offer that
the Company Board by a majority vote determines in its good faith judgment
(based on the advice of a financial adviser of nationally recognized
reputation) to be as favorable to Company's stockholders as such Superior
Proposal; PROVIDED, HOWEVER, that Company shall not be entitled to enter into
any agreement with respect to a Superior Proposal unless and until this
Agreement is terminated by its terms pursuant to SECTION 6.1. Any disclosure
that the Company Board may be compelled to make with respect to the receipt
of a proposal for a Third Party Acquisition in order to comply with its
fiduciary duties or Rule 14d-9 or 14e-2 will not constitute a violation of
this SECTION 4.5(b) PROVIDED that such disclosure states that no action will
be taken by the Company Board with respect to the withdrawal of its
recommendation of the transactions contemplated hereby or the approval or
recommendation of any Third Party Acquisition, except in accordance with this
SECTION 4.5(b).
(c) For the purposes of this Agreement, "THIRD PARTY ACQUISITION" means
the occurrence of any of the following events: (i) the acquisition of Company
by merger or otherwise by any person (which includes a "person" as such term
is defined in Section 13(d)(3) of the Exchange Act) other than Parent, Newco
or any affiliate thereof (a "THIRD PARTY"); (ii) the acquisition by a Third
Party of more than twenty percent (20%) of the total assets of Company and
its subsidiaries taken as a whole; (iii) the acquisition by a Third Party of
twenty percent (20%) or more of the outstanding Shares; (iv) the adoption by
Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; (v) the repurchase by Company or any of its
subsidiaries of more than twenty percent (20%) of the outstanding Shares; or
(vi) the acquisition by Company or any subsidiary by merger, purchase of
stock or assets, joint venture or otherwise of a direct or indirect ownership
interest or investment in any business whose
35
annual revenues, net income or assets is equal or greater than twenty percent
(20%) of the annual revenues, net income or assets of Company. For purposes
of this Agreement, a "SUPERIOR PROPOSAL" means any bona fide proposal to
acquire directly or indirectly for consideration consisting of cash and/or
securities more than twenty percent (20%) of the Shares then outstanding or
all or substantially all the assets of Company and otherwise on terms that
the Company Board by a majority vote determines in its good faith judgment
(based on the written advice of a financial adviser of nationally recognized
reputation) to be more favorable to Company's stockholders than the Merger.
SECTION 4.6. COMFORT LETTERS.
(a) Company shall use commercially reasonable efforts to cause
PricewaterhouseCoopers LLP to deliver letters dated not more than five (5)
days prior to the date on which the Form S-4 and the Form S-1 shall become
effective and addressed to itself and Parent and their respective Boards of
Directors, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for agreed-upon procedures letters delivered
by independent public accountants in connection with registration statements
and proxy statements similar to the Form S-4, the Form S-1 and the Proxy
Statement.
(b) Parent shall use commercially reasonable efforts to cause KPMG LLP
to deliver letters dated not more than five (5) days prior to the date on
which the Form S-4 and the Form S-1 shall become effective and addressed to
itself and Company and their respective Boards of Directors, in form and
substance reasonably satisfactory to Company and customary in scope and
substance for agreed upon procedures letters delivered by independent
accountants in connection with registration statements and proxy statements
similar to the Form S-4, the Form S-1 and the Proxy Statement.
SECTION 4.7. MEETINGS OF STOCKHOLDERS.
(a) Company shall take all action necessary in accordance with the OBCA
and its Charter and bylaws to duly call, give notice of, convene, and hold a
meeting of its stockholders as promptly as practicable to consider and vote
upon the adoption and approval of this Agreement and the transactions
contemplated hereby. The shareholder votes required for the adoption and
approval of the transactions contemplated by this Agreement shall be the vote
required by the OBCA and Company's Certificate of Incorporation and bylaws.
Company will, through its Board of Directors, recommend to its stockholders
approval of such matters subject to the provisions of SECTION 4.5(b) and
their fiduciary duties to shareholders under applicable law.
(b) Parent shall take all action necessary in accordance with the DGCL
and its Certificate of Incorporation to duly call, give notice of, convene,
and hold a meeting of its stockholders as promptly as practicable to consider
and vote upon the approval of the issuance of Parent Common Stock pursuant to
the provisions of this Agreement. The stockholder votes required for the
approval of the issuance of Parent Common Stock pursuant to the provisions of
this Agreement shall be the vote required by the DGCL and Parent's
Certificate of Incorporation and bylaws. Parent will, through its Board of
Directors, recommend to its stockholders approval of such matters subject to
their fiduciary duties to shareholders under applicable law.
36
SECTION 4.8. NASDAQ LISTING. Parent shall use all reasonable efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NASDAQ National Market, subject to official notice
of issuance, prior to the Effective Time.
SECTION 4.9. ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Between the date hereof and the Effective Time, Company will give
Parent and its authorized representatives, and Parent will give Company and its
authorized representatives, reasonable access to all employees, plants, offices,
warehouses, and other facilities and to all books and records of itself and its
subsidiaries; will permit the other party to make such inspections as such party
may reasonably require; and will cause its officers and those of its
subsidiaries to furnish the other party with such financial and operating data
and other information with respect to the business and properties of itself and
its subsidiaries as the other party may from time to time reasonably request.
(b) Between the date hereof and the Effective Time, Company shall furnish
to Parent, and Parent will furnish to Company, within twenty (20) business days
after the end of each fiscal period (commencing with December 1998), in a form
consistent with the form presently prepared by Company and Parent, same store
sales for each operating location and an unaudited balance sheet of the party
furnishing such information as of the end of such period, and the related
statements of earnings and stockholders' equity (deficit); and, within twenty
(20) business days after the end of each quarter, cash flows for the quarter
then ended each, prepared in accordance with generally accepted accounting
principles in conformity with the practices consistently applied by such party
with respect to its monthly financial statements. All the foregoing shall be in
accordance with the books and records of the party furnishing such information
and shall fairly present its financial position (taking into account the
differences between the monthly and quarterly statements prepared by such party
in conformity with its past practices) as of the last day of the period then
ended.
(c) Parent and Company agree that for a period of five years from the date
hereof (regardless of whether the transactions contemplated hereby are
consummated) each will hold, and will cause its directors, officers, employees,
affiliates, consultants and advisers to hold, in confidence all documents and
information furnished to it by or on behalf of the other party in connection
with the transactions contemplated by this Agreement ("CONFIDENTIAL MATERIAL")
. Each party agrees that it will use the Confidential Material solely for the
purpose of the transactions contemplated by this Agreement and it will not use
the Confidential Material in any way detrimental to the other party. In the
event that either party is requested in any proceeding to disclose any
Confidential Material, such party shall give the other party prompt notice of
such request so that the other party may seek an appropriate protective order.
If, in the absence of a protective order, a party is nonetheless compelled to
disclose Confidential Material, such party may disclose such information without
liability hereunder; provided, however, that such party will give the other
party written notice of the information to be disclosed as far in advance of its
disclosure as is practicable and, upon the request of and at the expense of such
other party, such party will use commercially reasonable efforts to obtain
assurances that confidential treatment will be accorded to such information.
The term "Confidential Material" shall not include
37
information which was or becomes generally available on a non-confidential
basis; provided that the source of such information was not bound by a
confidentiality agreement.
SECTION 4.10. ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to
the terms and conditions herein provided, each of the parties hereto agrees
to use all reasonable efforts to take or cause to be taken all action and to
do or cause to be done all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
(i) cooperating in the preparation and filing of the Proxy Statement, the
Form S-4 and the Form S-1, any filings that may be required under the HSR Act
and any amendments to any thereof; (ii) obtaining consents of all third
parties and Governmental Entities necessary, proper or advisable for the
consummation of the transactions contemplated by this Agreement; (iii)
contesting any legal proceeding relating to the Merger and (iv) executing any
additional instruments necessary to consummate the transactions contemplated
hereby. If at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement the proper officers and
directors of each party hereto shall take all such necessary action.
SECTION 4.11. PUBLIC ANNOUNCEMENTS. Parent, Newco and Company, as the
case may be, will use commercially reasonable efforts to consult with and
obtain the approval of one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Merger,
and shall not issue any such press release or make any such public statement
prior to such consultation except as may be required by applicable law or by
obligations pursuant to any listing agreement with the NASDAQ National Market
as determined by Parent, Newco or Company, as the case may be.
SECTION 4.12. NOTIFICATION OF CERTAIN MATTERS. Company shall give
prompt notice to Parent and Newco and Parent and Newco shall give prompt
notice to Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (ii)
any material failure of Company, Parent or Newco, as the case may be, to
comply with or satisfy any covenant condition or agreement to be complied
with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of
any notice pursuant to this SECTION 4.12 shall not cure such breach or
non-compliance or limit or otherwise affect the remedies available hereunder
to the party receiving such notice. Each of Parent, Newco and Company hereby
represent that, other than as previously disclosed to each other (which
disclosures shall not constitute a breach), as of the date hereof they do not
have any actual knowledge of a breach of the representations and warranties
being made by such other party pursuant to this Agreement.
SECTION 4.13. AFFILIATES.
(a) Company shall use all reasonable efforts to obtain from any Company
Affiliate who has not previously executed such letter agreement and from any
person who may be deemed to have become a Company Affiliate after the date of
this Agreement and on or prior to the
38
Effective Time a letter agreement substantially in the form of EXHIBIT A
hereto as soon as practicable.
(b) Parent shall not be required to maintain the effectiveness of the Form
S-4 for the purpose of resale of shares of Parent Common Stock by stockholders
of Company who may be affiliates of Company or Parent pursuant to Rule 145 under
the Securities Act.
SECTION 4.14. LOCK-UP LETTER AGREEMENT. Concurrently with or prior to
the consummation of the transactions contemplated by this Agreement, Second
Cup shall enter into a lock-up letter agreement with Parent, substantially in
the form attached hereto as EXHIBIT B, providing for among other things that
the shares of Parent Common Stock issued to Second Cup in the Merger will not
be sold until the earlier to occur of (i) the first anniversary of the
Closing Date, or (ii) the sale by Parent's officers or directors (including
D.C.H., L.P., a limited partnership which has one of Parent's directors as
its sole general partner) of Parent Common Stock in the aggregate equal to
five percent (5%) of the outstanding shares and options of Parent Common
Stock held by such officers and directors in the aggregate on the date hereof.
SECTION 4.15. ADDITIONS TO AND MODIFICATION OF THE COMPANY DISCLOSURE
SCHEDULE. Concurrently with the execution and delivery of this Agreement,
Company has delivered a Company Disclosure Schedule that includes all of the
information required by the relevant provisions of this Agreement that is
reasonably available to the senior management of Company at the time of such
delivery. Any failure of Company to disclose any information required by the
relevant provisions of this Agreement in any section of the Company
Disclosure Schedule shall not constitute a breach of the applicable
representation or warranty, PROVIDED (i) that the information so omitted does
not have or reflect a Material Adverse Effect on Company and (ii) that
Company shall deliver to Parent and Newco such additions to or modifications
of any sections of the Company Disclosure Schedule necessary to make the
information set forth therein true, accurate and complete not later than five
(5) business days after the date of execution and delivery of this Agreement.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of Company, Parent and Newco;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
39
(c) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired and any other governmental or regulatory notices
or approvals required with respect to the transactions contemplated hereby
shall have been either filed or received;
(d) the Form S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order
and Parent shall have received all state securities laws or "blue sky" permits
and authorizations necessary to issue shares of Parent Common Stock in exchange
for Shares in the Merger; and
(e) the Form S-1 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order,
Parent shall have received all state securities laws or "blue sky" permits and
authorizations necessary for the Public Offering and the Public Offering shall
have been consummated at a Per Share Offering Price of not less than six dollars
($6.00) with Net Offering Proceeds of at least seven million dollars
($7,000,000).
SECTION 5.2. CONDITIONS TO THE OBLIGATIONS OF COMPANY. The obligation of
Company to effect the Merger is subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) the representations of Parent and Newco contained in this Agreement or
in any other document delivered pursuant hereto shall be true and correct
(except to the extent that the breach thereof would not have a Material Adverse
Effect on Parent) at and as of the Effective Time with the same effect as if
made at and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date) and, at the Closing, Parent
and Newco shall have delivered to Company a certificate to that effect;
(b) each of the covenants and obligations of Parent and Newco to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, Parent and Newco shall have delivered to
Company a certificate to that effect;
(c) the shares of Parent Common Stock issuable to Company stockholders
pursuant to this Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing on
the NASDAQ National Market upon official notice of issuance;
(d) Company shall have received the opinion of legal counsel to Parent as
to the matters reasonably agreed upon by the parties;
(e) Parent shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, in the reasonable
opinion of Company, individually or in the aggregate, have a Material Adverse
Effect on Parent;
40
(f) there shall have been no events, changes or effects with respect to
Parent or its subsidiaries having or which could reasonably be expected to have
a Material Adverse Effect on Parent;
(g) With respect to Parent's board of directors, (i) Parent shall have
created a vacant seat on Parent's board of directors to accommodate a director
to be designated by Second Cup, (ii) such designee shall be appointed by
Parent's board to fill such vacancy and (iii) DCH, LP and the directors and
executive officers of Parent shall have executed and delivered to Second Cup a
voting agreement substantially in the form agreed to by the parties which
provides that such parties will vote in favor of electing the designee of Second
Cup to Parent's board at any meeting of Parent's stockholders; and
(h) Parent and Second Cup shall have entered into a registration rights
agreement substantially in the form agreed to between the parties providing for
two demand registration rights and unlimited incidental registration rights.
SECTION 5.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND NEWCO. The
respective obligations of Parent and Newco to effect the Merger are subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) the representations of Company contained in this Agreement or in any
other document delivered pursuant hereto shall be true and correct (except to
the extent that the breach thereof, individually or in the aggregate, would not
(i) materially impair the ability of Company to consummate the transactions
contemplated hereby, (ii) result or be reasonably likely to result in an
expense, cost or loss to the business or results of operations of Company and
its subsidiaries in an amount in excess of one million dollars ($1,000,000);
PROVIDED, HOWEVER, that any individual breach that is aggregated with others to
exceed one million dollars ($1,000,000) must exceed one hundred thousand dollars
($100,000) or (iii) result or be reasonably likely to result in a change or
effect that is materially adverse to the financial condition of Company and its
subsidiaries in an amount in excess of one million dollars ($1,000,000);
PROVIDED, HOWEVER, that any individual breach that is aggregated with others to
exceed one million dollars ($1,000,000) must exceed one hundred thousand dollars
($100,000) at and as of the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date) and, at the Closing, Company
shall have delivered to Parent and Newco a certificate to that effect;
(b) each of the covenants and obligations of Company to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time
and, at the Closing, Company shall have delivered to Parent and Newco a
certificate to that effect;
(c) Parent shall have received from each affiliate of Company referred to
in SECTIONS 2.20 and 4.13(a) an executed copy of the letter substantially in the
form attached hereto as EXHIBIT A;
41
(d) the shares of Parent Common Stock issuable to Company stockholders
pursuant to this Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing on
the NASDAQ National Market upon official notice of issuance;
(e) Parent shall have received the opinion of legal counsel to Company as
to the matters reasonably agreed upon by the parties;
(f) Company shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the succession by
the Surviving Corporation pursuant to the Merger to any obligation right or
interest of Company or any subsidiary of Company under any loan or credit
agreement, note, mortgage, indenture or other agreement or instrument (except
Leases, for which Company shall use its commercially reasonable efforts to
obtain consents), except for those for which failure to obtain such consents and
approvals would not, in the reasonable opinion of Parent, individually or in the
aggregate, have a Material Adverse Effect on Company;
(g) Second Cup shall have entered into, and Parent shall have received, a
lock-up letter agreement substantially in the form attached hereto as EXHIBIT B;
and
(h) there shall have been no events, changes or effects with respect to
Company or its subsidiaries which could or which could reasonably be expected to
(i) materially impair the ability of Company to consummate the transactions
contemplated hereby or (ii) when considered in the aggregate with breaches of
representations as described in SECTION 5.3(a) above, result in an expense,
cost, loss or diminution in value to the business, results of operations or
financial condition of Company and its subsidiaries in an amount in excess of
one million dollars ($1,000,000); PROVIDED, HOWEVER, that any individual event,
change or effect that is aggregated with others or with breaches in SECTION
5.3(a) to exceed one million dollars ($1,000,000) must exceed one hundred
thousand dollars ($100,000).
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
SECTION 6.1. TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time whether before or after
approval and adoption of this Agreement by Company's stockholders:
(a) by mutual written consent of Parent, Newco and Company;
(b) by Parent and Newco or Company if (i) any court of competent
jurisdiction in the United States or other United States Governmental Entity
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable
or (ii) the Merger has not been consummated by July 1, 1999; PROVIDED that no
party may terminate this Agreement pursuant to this clause (ii) without
liability (as provided in Section 6.2 below) if such party's failure to
fulfill any of its material obligations (which shall not include the
42
representations and warranties set forth in ARTICLES II and III) under this
Agreement shall have been the reason that the Effective Time shall not have
occurred on or before said date;
(c) by Company if (i) there shall have been a material breach of any
representation or warranty on the part of Parent or Newco set forth in this
Agreement (and such breach, individually or in the aggregate, has a Material
Adverse Effect on Parent) or if any representation or warranty of Parent or
Newco shall have become materially untrue, and such breach shall not have
been cured or such representation or warranty shall not have been made true
within (20) twenty business days after notice by Company thereof and such
failure to cure or make true results in a Material Adverse Effect on Parent,
PROVIDED that Company has not materially breached any of its obligations
(which shall not include the representations and warranties set forth in
Article II) hereunder; (ii) there shall have been a breach by Parent or Newco
of any of their respective covenants or agreements hereunder having a
Material Adverse Effect on Parent or materially adversely affecting (or
materially delaying) the consummation of the Merger, and Parent or Newco, as
the case may be, has not cured such breach within twenty (20) business days
after notice by Company thereof, PROVIDED that Company has not materially
breached any of its obligations (which shall not include the representations
and warranties set forth in Article II) hereunder; (iii) Company Board has
received a Superior Proposal, has complied with the provisions of SECTION
4.5(b), and concurrently complies with the provisions of SECTION 6.3(a); or
(iv) the Public Offering shall not have been consummated at a Per Share
Offering Price of not less than six dollars ($6.00) with Net Offering
Proceeds of at least seven million dollars ($7,000,000); or
(d) by Parent and Newco if (i) there shall have been a material breach
of any representation or warranty on the part of Company set forth in this
Agreement (and such breach, individually or in the aggregate, would (x)
materially impair the ability of Company to consummate the transactions
contemplated hereby or (y) result or be reasonably likely to result in an
expense, cost, loss or diminution in value to the business, results of
operations or financial condition of Company and its subsidiaries in an
amount in excess of one million dollars ($1,000,000); PROVIDED, HOWEVER, that
any individual breach that is aggregated with other matters to exceed one
million dollars ($1,000,000) must exceed one hundred thousand dollars
($100,000) or if any representation or warranty of Company shall have become
materially untrue, and such breach shall not have been cured or such
representation or warranty shall not have been made true within twenty (20)
business days after notice by Parent or Newco thereof and such failure to
cure or make true would, individually or in the aggregate, (m) materially
impair the ability of Company to consummate the transactions contemplated
hereby or (n) result or be reasonably likely to result in an expense, cost,
loss or diminution in value to the business, results of operations or
financial condition of Company and its subsidiaries in an amount in excess of
one million dollars ($1,000,000); PROVIDED, HOWEVER, that any individual
breach that is aggregated with other matters to exceed one million dollars
($1,000,000) must exceed one hundred thousand dollars ($100,000), PROVIDED
that neither Parent nor Newco has materially breached any of their respective
obligations (which shall not include the representations and warranties set
forth in Article III) hereunder; (ii) there shall have been a breach by
Company of its covenants or agreements hereunder having a Material Adverse
Effect on Company or materially adversely affecting (or materially delaying)
the consummation of the Merger, and Company has not cured
43
such breach within twenty (20) business days after notice by Parent or Newco
thereof, PROVIDED that neither Parent nor Newco has materially breached any
of their respective obligations (which shall not include the representations
and warranties set forth in Article III) hereunder; (iii) Company Board shall
have recommended to Company's stockholders a Superior Proposal; (iv) Company
Board shall have withdrawn or materially weakened its recommendation of this
Agreement or the Merger, PROVIDED that any disclosure that Company Board is
compelled to make with respect to the receipt of a proposal for a Third Party
Acquisition in order to comply with its fiduciary duties or Rule 14d-9 or
14e-2 shall not constitute the withdrawal or material weakening of Company
Board's recommendation, PROVIDED, FURTHER, that such disclosure states that
no action will be taken by Company Board with respect to the withdrawal of
its recommendation of the transactions contemplated hereby or the approval or
recommendation of any Third Party Acquisition except in accordance with
SECTION 4.5(b); (v) the Public Offering shall not have been consummated at a
Per Share Offering Price of not less than six dollars ($6.00) with net
proceeds of at least seven million dollars ($7,000,000).
SECTION 6.2. EFFECT OF TERMINATION. In the event of the termination
and abandonment of this Agreement pursuant to SECTION 6.1, this Agreement
shall forthwith become void and have no effect without any liability on the
part of any party hereto or its affiliates, directors, officers or
stockholders other than the provisions of this SECTION 6.2 and SECTIONS
4.9(c) and 6.3 hereof. Nothing contained in this SECTION 6.2 shall relieve
any party from liability for any breach of this Agreement.
SECTION 6.3. FEES AND EXPENSES.
In the event that this Agreement shall be terminated pursuant to:
(a) SECTION 6.1(d)(iii) or SECTION 6.1(c)(iii), or
(b) SECTION 6.1(d)(iv) and Company Board shall have withdrawn or
materially weakened its recommendation following the receipt of an offer by a
Third Party to consummate a Third Party Acquisition involving the payment of
consideration to stockholders of Company with a value in excess of the Merger
Consideration,
then Parent and Newco would suffer direct and substantial damages. To
compensate Parent and Newco for such damages, Company shall pay to Parent the
amount of Parent's and Newco's aggregate expenses and costs incurred to third
parties in connection with the transactions contemplated by this Agreement;
PROVIDED, HOWEVER, that the amount of damages payable by Company pursuant to
this SECTION 6.3 shall not exceed $1.5 million to be paid immediately upon
the occurrence of the event described in this SECTION 6.3 giving rise to such
damages. It is specifically agreed that the amount to be paid pursuant to
this SECTION 6.3 represents reimbursement for expenses and is not a penalty.
SECTION 6.4. AMENDMENT. This Agreement may be amended by action taken
by Company, Parent and Newco at any time before or after approval of the
Merger by the stockholders of Company but after any such approval no
amendment shall be made which requires the approval of such stockholders
under applicable law without such approval. This
44
Agreement (including, subject to SECTION 4.15, Company Disclosure Schedule)
may be amended only by an instrument in writing signed on behalf of the
parties hereto.
SECTION 6.5. EXTENSION; WAIVER. At any time prior to the Effective
Time, each party hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other party, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or
in any document, certificate or writing delivered pursuant hereto or (c)
waive compliance by the other party with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument, in
writing, signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made herein shall terminate upon the Effective
Time or upon the termination of this Agreement pursuant to Article VI above.
This SECTION 7.1 shall not limit any covenant or agreement of the parties
hereto which by its terms requires performance after the Effective Time.
SECTION 7.2. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including
the Company Disclosure Schedule) (a) constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes
all other prior agreements and understandings both written and oral between
the parties with respect to the subject matter hereof and (b) shall not be
assigned by operation of law or otherwise; PROVIDED, HOWEVER, that Newco may
assign any or all of its rights and obligations under this Agreement to any
subsidiary of Parent, but no such assignment shall relieve Newco of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 7.3. VALIDITY. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and
to such end the provisions of this Agreement are agreed to be severable.
SECTION 7.4. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by commercial overnight delivery service of national reputation or
by registered or certified mail (postage prepaid, return receipt requested)
to each other party as follows:
if to Parent or Newco: Diedrich Coffee, Inc.
2144 Michelson Drive
Irvine, California 92612
Facsimile: (949) 756-1144
Attention: Tim Ryan, President & CEO
45
with a copy to: Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Facsimile: (949) 451-4220
Attention: John M. Williams, Esq.
if to Company to: Coffee People, Inc.
11480 Commercial Parkway
Castroville, California 95012
Facsimile: (831) 633-0644
Attention: Alton McEwen, President &
CEO
with a copy to: Morgan, Lewis & Bockius LLP
300 South Grand Avenue, 22nd fl.
Los Angeles, California 90071
Facsimile: (213) 612-2554
Attention: Richard Maire, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 7.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
regard to the principles of conflicts of law thereof.
SECTION 7.6. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 7.7. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as provided in SECTION 7.2, nothing in this
Agreement express or implied is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 7.8. CERTAIN DEFINITIONS. For the purposes of this Agreement
the term:
(a) "AFFILIATE" means (except as otherwise provided in SECTIONS 2.20
and 4.13) a person that, directly or indirectly, through one or more
intermediaries controls, is controlled by or is under common control with the
first-mentioned person;
(b) "BUSINESS DAY" means any day other than a day on which the NASDAQ
National Market is closed;
46
(c) "CAPITAL STOCK" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "KNOWLEDGE" or "KNOWN" means, with respect to any matter in
question, the actual knowledge of such matter by any executive officer of
Company or Parent, as the case may be;
(e) "PERSON" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(f) "SUBSIDIARY" or "subsidiaries" of Company, Parent, the Surviving
Corporation or any other person means any corporation, partnership, limited
liability company, association, trust, unincorporated association or other
legal entity of which Company, Parent, the Surviving Corporation or any such
other person, as the case may be (either alone or through or together with
any other subsidiary), owns, directly or indirectly, 50% or more of the
capital stock the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 7.9. PERSONAL LIABILITY. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part
of any direct or indirect stockholder of Company or Parent or any officer,
director, employee, agent, representative or investor of any party hereto.
SECTION 7.10. SPECIFIC PERFORMANCE. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of
injunctive relief by any court of competent jurisdiction to compel
performance of such party's obligations and to the granting by any court of
the remedy of specific performance of its obligations hereunder; PROVIDED,
HOWEVER, that if a party hereto is entitled to receive any payment or
reimbursement of expenses pursuant to SECTIONS 6.3(a) or (b) it shall not be
entitled to specific performance to compel the consummation of the Merger.
SECTION 7.11. EACH PARTY TO BEAR OWN EXPENSES. Each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 7.12. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
47
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
DIEDRICH COFFEE, INC., a Delaware corporation
By: /s/ Timothy J. Ryan
--------------------------------------
Name: Timothy J. Ryan
Title: President and Chief Executive Officer
CP ACQUISITION CORP., a Delaware corporation
By: /s/ Timothy J. Ryan
--------------------------------------
Name: Timothy J. Ryan
Title: President
COFFEE PEOPLE, INC., an Oregon corporation
By: /s/ Alton W. McEwen
--------------------------------------
Name: Alton W. McEwen
Title: President and Chief Executive Officer
48
EXHIBIT A
FORM OF LETTER AGREEMENT WITH COMPANY AFFILIATES
_______________, 1999
Diedrich Coffee, Inc.
2144 Michelson Drive
Irvine, California 92612
Ladies and Gentlemen:
Reference is made to the provisions of the Agreement and Plan of Merger,
dated as of ______________, 1999 (together with any amendments thereto, the
"MERGER AGREEMENT"), among Diedrich Coffee, Inc., a Delaware corporation
("PARENT"), CP Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("NEWCO") and Coffee People, Inc., an Oregon corporation
("COMPANY"), pursuant to which Newco will be merged with and into Company, with
Company continuing as the surviving corporation (the "MERGER"). This letter
constitutes the undertakings of the undersigned contemplated by the Merger
Agreement.
I understand that I may be deemed to be an "affiliate" of Company, as such
term is defined for purposes of Rule 145 ("RULE 145") promulgated under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and that the
transferability of the shares of common stock, par value $0.01 per share, of
Parent (the "PARENT COMMON STOCK") which I will receive upon the consummation of
the Merger in exchange for my shares of common stock, no par value per share, of
Company (the "SHARES"), or upon exercise of certain options I hold to purchase
Shares, is restricted. Nothing herein shall be construed as an admission that I
am an affiliate.
I hereby represent, warrant and covenant to Parent that:
(a) I will not transfer, sell or otherwise dispose of any of the
shares of Parent Common Stock except (i) pursuant to an effective registration
statement under the Securities Act, or (ii) as permitted by, and in accordance
with, Rule 145, if applicable, or another applicable exemption under the
Securities Act; and
(b) I will not (i) transfer, sell or otherwise dispose of any
Shares prior to the Effective Time (defined in the Merger Agreement) or (ii)
sell or otherwise reduce my risk (within the meaning of the Securities and
Exchange Commission's Financial Reporting Release No. L, "Codification of
Financial Reporting Policies," Section 201.01 [47 F.R. 210281] (May 17,
1982)) with respect to any shares of Parent Common Stock until after such
time (the "DELIVERY TIME") as financial results reflecting at least 30 days
of post-merger combined operations of Parent and Company have been published
by Parent, except as permitted by Staff Accounting Bulletin No. 76 issued by
the Securities and Exchange Commission; and
A-1
I further understand that, in order to make more effective the
provisions of the foregoing paragraph, Parent may delay delivery to me of
certificates in respect of the shares of Parent Common Stock until the
Delivery Time.
I hereby acknowledge that except as otherwise provided in the Merger
Agreement, Parent is under no obligation to register the sale, transfer,
pledge or other disposition of the shares of Parent Common Stock or to take
any other action necessary for the purpose of making an exemption from
registration available.
I understand that Parent will issue stop transfer instructions to its
transfer agents with respect to the shares of Parent Common Stock and that a
restrictive legend will be placed on the certificates delivered to me
evidencing the shares of Parent Common Stock in substantially the following
form:
"This certificate and the shares represented hereby have been
issued pursuant to a transaction governed by Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold or otherwise disposed of unless
registered under the Securities Act pursuant to a Registration
Statement in effect at the time or unless the proposed sale or
disposition can be made in compliance with Rule 145 or without
registration in reliance on another exemption therefrom. Reference is
made to that certain letter agreement dated _______, 1999 between the
Holder and the Issuer, a copy of which is on file in the principal
office of the Issuer which contains further restrictions on the
transferability of this certificate and the shares represented
hereby."
Parent agrees to cause this legend to be removed from the certificates
delivered to me evidencing the shares of Parent Common Stock promptly after
the restrictions on transferability of the shares of Parent Common Stock are
no longer applicable and after I surrender such certificates to the transfer
agent with a request for such removal.
The term Parent Common Stock as used in this letter shall mean and
include not only the common stock of Parent as presently constituted, but
also any other stock which may be issued in exchange for, in lieu of, or in
addition to, all or any part of such Parent Common Stock.
A-2
I hereby acknowledge that the receipt of this letter by Parent is an
inducement and a condition to Parent's obligation to consummate the Merger under
the Merger Agreement and that I understand the requirements of this letter and
the limitations imposed upon the transfer, sale or other disposition of the
Shares and the shares of Parent Common Stock.
Very truly yours,
[AFFILIATE]
ACKNOWLEDGED AND ACCEPTED:
DIEDRICH COFFEE, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
A-3
EXHIBIT B
Form Of Lock-up Letter Agreement
March __, 1999
Diedrich Coffee, Inc.
2144 Michelson Drive
Irvine, CA 92612
Dear Sirs:
In consideration of the Agreement and Plan of Merger, dated as of
March __, 1999 (together with any amendments thereto, the "MERGER
AGREEMENT"), among Diedrich Coffee, Inc., a Delaware corporation ("PARENT"),
CP Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("NEWCO") and Coffee People, Inc., an Oregon corporation ("COMPANY"),
pursuant to which Newco will be merged with and into Company, with Company
continuing as the surviving corporation (the "MERGER"), The Second Cup Ltd.,
a corporation organized under the laws of Ontario, Canada ("Second Cup")
hereby enters into this lock-up letter agreement ("LOCK-UP AGREEMENT") with
Parent.
The undersigned hereby agrees that it will not (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option to purchase or otherwise
transfer or dispose of any Parent Common Stock issued to Second Cup in the
Merger, or (ii) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of any equity
securities of Company issued to Second Cup in the Merger, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of equity securities of Company, other securities, cash or
otherwise, of which the undersigned is now, or may in the future become, the
beneficial owner within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended.
The undersigned understands that Parent will issue stop transfer
instructions to its transfer agents with respect to the shares of Parent
Common Stock and that a restrictive legend will be placed on the certificates
delivered evidencing the shares of Parent Common Stock in substantially the
following form:
"This certificate and the shares represented hereby have been
issued pursuant to a transaction governed by Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold or otherwise disposed of unless
registered under the Securities Act pursuant to a Registration
Statement in effect at the time or unless the proposed sale or
disposition can be made in compliance with Rule 145 or without
registration in reliance on another exemption therefrom. Reference is
made to that certain letter agreement dated _______, 1999 between the
Holder and the Issuer, a copy of
B-1
which is on file in the principal office of the Issuer which contains
further restrictions on the transferability of this certificate and
the shares represented hereby."
The term of this Lock-Up Agreement shall be until the earlier to
occur of (i) the first anniversary of the Closing Date or (ii) the sale by
Parent's officers or directors of Parent Common Stock in the aggregate equal
to 5% of the outstanding shares and options of Parent Common Stock held by
such officers and directors in the aggregate on the date hereof. Unless
indicated otherwise herein, capitalized terms shall have the defined meanings
given under the Merger Agreement.
Very truly yours,
The Second Cup, Ltd.
By:
---------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACKNOWLEDGED AND ACCEPTED:
DIEDRICH COFFEE, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
B-2