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AGREEMENT
AND
PLAN OF MERGER
- between -
THE SECOND CUP INC.
- and -
COFFEE PEOPLE, INC.
February 19, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
Table of Contents
ARTICLE I - INTREPRETATION.....................................................2
1.1 Definitions......................................................2
1.2 Construction.....................................................7
1.3 Accounting Principles............................................7
1.4 Schedules........................................................8
1.5 Acquisition Agreement Superseded.................................9
ARTICLE II - THE MERGER, EFFECT OF MERGER, MERGER CONSIDERATION................9
2.1 The Merger.......................................................9
2.2 Effective Time...................................................9
2.3 Certificate of Incorporation; Bylaws; Directors..................9
2.4 Merger Consideration............................................10
2.5 Purchase Price Adjustment.......................................10
ARTICLE III - CLOSING ARRANGEMENTS............................................11
3.1 Place of Closing................................................11
3.2 Delivery of Certificates........................................11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE VENDOR.....................11
4.1 Organization, Etc...............................................11
4.2 Subsidiaries....................................................12
4.3 Capitalization...................................................12
4.4 Authorization...................................................12
4.5 No Violation....................................................13
4.6 Approvals.......................................................13
4.7 Financial Statements and Other Information......................13
4.8 No Undisclosed Liabilities......................................14
4.9 Events Subsequent to June 28, 1997..............................14
4.10 Taxes..........................................................15
4.11 Litigation.....................................................16
4.12 Compliance with Laws...........................................16
4.13 Franchise Law Compliance.......................................17
4.14 Customers, Suppliers, Franchisees, and Brokers.................17
4.15 Title to and Condition of Property.............................17
4.16 Environmental Matters..........................................17
4.17 Material Contracts.............................................18
4.18 Employment Contracts...........................................18
4.19 Employee Plans.................................................18
4.20 Brokerage Fees.................................................19
4.21 Intellectual Property..........................................19
4.22 Licenses.......................................................20
4.23 Competition....................................................20
4.24 Contracts with Non-Arm's Length Persons........................20
<PAGE>
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................20
5.1 Organization, Etc...............................................20
5.2 Subsidiaries....................................................21
5.3 Capitalization..................................................21
5.4 Authorization...................................................21
5.5 No Violation....................................................21
5.6 Approvals.......................................................22
5.7 Financial Statements and Other Information......................22
5.8 Compliance with Laws............................................23
5.9 No Undisclosed Liabilities......................................23
5.10 Events Subsequent to December 31, 1996.........................23
5.11 Taxes..........................................................24
5.12 Litigation.....................................................25
5.13 Title to and Condition of Property.............................25
5.14 Environmental Matters..........................................25
5.15 CPI Material Contracts.........................................26
5.16 Employment Contracts...........................................26
5.17 Employee Plans.................................................27
5.18 Intellectual Property..........................................27
5.19 Licenses.......................................................28
5.20 Competition....................................................28
5.21 Brokerage Fees.................................................28
5.22 Outstanding Options............................................28
5.23 Contracts with Non-Arm's Length Persons........................28
5.24 Provision for Store Closures...................................28
5.25 Coffee Plantation Acquisition..................................28
ARTICLE VI - COVENANTS OF THE VENDOR..........................................29
6.1 Conduct of the Corporation and its Subsidiaries.................29
6.2 Shareholder Meeting.............................................30
6.3 Compliance with Obligations.....................................30
6.4 Maintenance of Cash in Account..................................30
6.5 Loan to purchaser...............................................30
6.6 Exclusivity Obligations.........................................31
6.7 Maintenance of Nasdaq Listing...................................31
ARTICLE VII - COVENANTS OF THE PURCHASER......................................31
7.1 Conduct of the Purchaser........................................31
7.2 Compliance with Obligations.....................................32
7.3 Orders and Rulings..............................................33
7.4 Shareholder Meeting.............................................33
7.5 Proxy Statement; Registration Statement.........................33
7.6 Store Closings..................................................33
7.7 Delivery of Audited Financial Statements........................33
7.8 Exclusivity Obligations.........................................33
7.9 Coffee Bean International, Inc..................................34
7.10 Nasdaq Listing.................................................34
<PAGE>
ARTICLE VIII - COVENANTS OF THE PURCHASER AND THE VENDOR......................34
8.1 Access to Information; Confidentiality..........................34
8.2 Notification of Certain Matters.................................35
8.3 Regulatory Approvals............................................35
8.4 Actions Contrary to Stated Intent...............................35
8.5 Certain Filings.................................................35
8.6 Public Announcements............................................36
8.7 Satisfaction of Conditions Precedent............................36
8.8 Brothers Escrow Agreement.......................................36
8.9 Number of Directors.............................................36
8.10 Tax Cooperation................................................36
8.11 Cash/Working Capital Adjustment................................37
8.12 Lease Consents.................................................37
8.13 Coffee Supply..................................................37
ARTICLE IX - CONDITIONS OF CLOSING............................................38
9.1 Conditions to All Parties' Obligations..........................38
9.2 Conditions to the Obligations of the Purchaser to Effect the
Merger..........................................................38
9.3 Conditions to the Obligations of the Vendor to Effect the Merger40
ARTICLE X - TERMINATION, AMENDMENTS, AND WAIVERS..............................42
10.1 Termination....................................................42
10.2 Effect of Termination..........................................42
10.3 Expenses.......................................................42
10.4 Termination Fee................................................43
10.5 Alternate Transaction Fee......................................43
10.6 Maximum Payment by Purchaser...................................44
ARTICEL XI - PROJECTIONS......................................................44
11.1 Vendor's Acknowledgment........................................44
11.2 Representation and Warranty of Purchaser.......................44
ARTICLE XII - GENERAL PROVISIONS..............................................44
12.1 Taking of Necessary Action.....................................44
12.2 Employment Terms...............................................44
12.3 Effect of Due Diligence........................................44
12.4 Successors and Assigns.........................................45
12.5 Non-Survival of Representations and Warranties.................45
12.6 Entire Agreement...............................................45
12.7 Notices........................................................45
12.8 Applicable Law.................................................46
12.9 Consent to Jurisdiction; Receipt of Process....................46
12.10 Counterparts..................................................46
12.11 Headings......................................................46
12.12 Amendment.....................................................46
12.13 Waiver........................................................46
<PAGE>
AGREEMENT AND
PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER is made this 19th day of February, 1998,
B E T W E E N:
THE SECOND CUP INC.,
a corporation incorporated under the laws of the State of Delaware
(the "Vendor")
- and -
COFFEE PEOPLE, INC.,
a corporation incorporated under the laws of the State of Oregon
(the "Purchaser")
WHEREAS the Vendor owns all of the issued and outstanding shares of
Gloria Jean's Inc., a Delaware corporation (the "Corporation");
AND WHEREAS the Vendor and the Purchaser previously entered into an
Acquisition Agreement, dated November 13, 1997 (the "Acquisition Agreement"),
pursuant to which the Purchaser agreed to purchase, and the Vendor agreed to
sell to Purchaser, all of the issued and outstanding shares in the capital of
Gloria Jean's Inc., a Delaware corporation (the "Corporation");
AND WHEREAS the Acquisition Agreement contemplated in Section 2.3
thereof that the transactions contemplated thereby might to effected as a
statutory merger qualifying as a reorganisation under Section 368(a) of the
Internal Revenue Code of 1986, as amended;
AND WHEREAS the parties by this Agreement agree to amend and restate
the Acquisition Agreement for purposes of effecting the transactions
contemplated therein as a statutory merger, and to set forth the terms and
conditions of such merger;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
foregoing and the respective representations, warranties, covenants and
agreements set forth herein, the parties hereto agree as follows:
<PAGE>
ARTICLE I
INTERPRETATION
1.1 Definitions. In this Agreement and in all amendments and Schedules
hereto, the following words and phrases shall have the meanings hereinafter
set forth:
"Affiliate" or "affiliate" shall mean, with respect to any Person, any
other Person that, directly or indirectly, controls or is controlled by or is
under common control with such Person. As used in this definition of
"Affiliate," the term "control" and any derivatives thereof mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract, or otherwise.
"Agreement" shall mean this agreement, as amended, revised or
supplemented from time to time, and includes all Schedules;
"Alternate Transaction" shall have the meaning given such term in
Section 10.5 hereof.
"Audited Financial Statements" shall have the meaning given such term
in Section 4.7 hereof.
"Brothers Escrow Agreement" means the escrow agreement dated as of
November 9, 1995 by and among Brothers Retail Corp., the Corporation and Norwest
Bank Colorado, N.A.
"Brothers Stock Purchase Agreement" means the stock purchase agreement
between Brothers Retail Corp. and The Second Cup Ltd. dated as of October 16,
1995, which agreement was assigned by The Second Cup Ltd. to the Corporation on
November 8, 1995.
"Business Day" shall mean any day, other than a Saturday, Sunday or
legal holiday under the Federal laws of the United States.
"CBI Agreement" shall have the meaning given such term in Section 7.9
hereof.
"Closing" shall mean the completion of the transactions contemplated by
this Agreement, subject only to the filing of a certificate of merger with the
Delaware Secretary of State in accordance with the DGCL.
"Closing Date" shall mean the date that is seven Business Days after
the CPI Meeting, or such other date as may be agreed to by the parties, provided
that in no event shall the Closing Date be later than April 15, 1998, or such
later date as may be agreed to by the parties.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" shall mean the agreement dated October 17,
1997 between the Vendor and the Purchaser.
"Contaminated Site List" shall mean any list, registry or other
compilation established by any Governmental Entity of sites where there is a
suspected or confirmed Release of a Hazardous Material or that require or
potentially require investigation, removal actions, remedial actions or any
other response under any Environmental Laws or treaty covering environmental
matters, as the result of a Release or threatened Release of any Hazardous
Materials.
<PAGE>
"Corporate Reorganization" means any internal corporate reorganization
undertaken by the Vendor or the Corporation that does not adversely impact the
Purchaser among any of the Vendor, CP Old, Inc., a Subsidiary of the Vendor, or
a Subsidiary of the Vendor created for the purposes of facilitating the
Corporate Reorganization.
"Corporation Certificates" shall have the meaning given such term in
Section 3.2 hereof.
"Corporation Shares" shall mean all the issued and outstanding shares
in the common stock of the Corporation.
"CPI Common Stock" shall mean shares in the common stock of the
Purchaser.
"CPI Employee Plans" shall have the meaning given such term in Section
5.17 hereof.
"CPI Intellectual Property" shall have the meaning given such term in
Section 5.18 hereof.
"CPI Leases" shall have the meaning given such term in Section 5.13
hereof.
"CPI Licences" shall have the meaning given such term in Section 5.19
hereof.
"CPI Material Contracts" shall have the meaning given such term in
Section 5.15 hereof.
"CPI Meeting" shall mean the special meeting of the shareholders of the
Purchaser to be held to consider and, if deemed advisable, approve this
Agreement and the transactions contemplated hereby.
"CPI 10-KSB" shall have the meaning given such term in Section 5.7
hereof.
"CPI 10-QSB" shall have the meaning given such term in Section 5.7
hereof.
"DGCL" shall mean the Delaware General Corporation Law, as it now
exists and is hereafter amended.
"Disclosure Letter" means the letter dated November 11, 1997 from the
Purchaser to the Vendor.
"EBITDA" shall mean earnings before interest income or expense, income
taxes, depreciation and amortization, calculated in accordance with generally
accepted accounting principles and before giving effect to any expenses incurred
in connection with the transactions contemplated by this Agreement, which
expenses shall be no greater than $1,250,000.
"Effective Time" shall have the meaning given such term in Section 2.2
hereof.
"Employee Plan" shall have the meaning given such term in Section 4.19
hereof.
"Environmental Conditions" shall mean any pollution, contamination,
degradation, damage or injury caused by, related to, arising from or in
connection with the generation, handling, use, treatment, storage,
transportation or Release of any Hazardous Materials.
"Environmental Laws" shall mean all applicable Federal, provincial,
state, local and foreign environmental laws, rules, statutes, regulations,
ordinances, decrees or orders of Canada or
<PAGE>
the United States or of any federal, provincial, state, municipality or other
subdivision of any thereof that imposes Environmental Liabilities for the
Release of Hazardous Materials to the environment, including but not limited to
the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et. seq.; the
Superfund Amendments and Reauthorization Act, 42 U.S.C. ss.11011 et. seq.; the
Clean Air Act, 42 U.S.C. ss.7401 et. seq.; the Federal Water Pollution Control
Act, 33 U.S.C. ss.1251 et. seq.; the Toxic Substances Control Act, 15 U.S.C.
ss.2601 et. seq.; the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. ss.9601 et. seq.; and all applicable published rules,
regulations, directives, guidances and policies of the EPA and of all similar
state and local agency requirements.
"Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, cleanup, investigative and/or monitoring costs and any
other related costs and expenses, including without limitation Environmental
Remediation Costs), other causes of action, damages, settlements, expenses,
charges, assessments, liens, penalties, fines, pre-judgment and post-judgment
interest, attorney fees and other legal fees (a) pursuant to any agreement,
order, notice, directive (including directives embodied in Environmental Laws),
injunction, judgment or similar documents (including settlements), or (b)
pursuant to any claim by a governmental entity or other person for personal
injury, property damage, damage to natural resources, remediation or similar
costs or expenses incurred or asserted by such governmental entity or person
pursuant to common law or statute.
"Environmental Remediation Costs" shall mean all costs and expenses of
actions or activities to (a) clean-up or remove Hazardous Materials from the
environment, (b) prevent or minimize the movement, leaching or migration of
Hazardous Materials into the environment (c) prevent, minimize or mitigate the
Release or threatened Release of Hazardous Materials into the environment, or
injury or damage from such Release, and (d) comply with the requirements of any
Environmental Laws. Environmental Remediation Costs include, without limitation,
costs and expenses payable in connection with the foregoing for legal,
engineering or other consultant services, for investigation, testing, sampling
and monitoring, for boring, excavation and construction, for removal,
modification or replacement of equipment or facilities, for labour and material,
and for proper storage, treatment and disposal of Hazardous Materials.
"EPA" shall mean the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
it now exists and is hereafter amended.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.
"Filings with the U.S. Commission" shall mean the filings made by the
Purchaser with the U.S. Commission listed on Schedule 1.1.
"Financial Statements" shall have the meaning given such term in
Section 4.7 hereof.
"Generally accepted accounting principles" shall mean generally
accepted accounting principles in the United States.
"Governmental Entity" shall mean any United States, Canadian or foreign
court, administrative agency or commission or other federal, state, provincial
or local government or governmental authority or instrumentality.
<PAGE>
"Hazardous Materials" shall mean oil, petroleum, other hydrocarbons,
asbestos, other hazardous, toxic, contaminated or polluting materials,
substances, chemicals, or wastes, including without limitation, "hazardous
substances," "hazardous pollutants," "hazardous wastes," "toxic substances," or
similar materials under any Environmental Laws.
"Intellectual Property" shall have the meaning given such term in
Section 4.21 hereof.
"Interim Financial Statements" shall have the meaning given such term
in Section 4.7 hereof.
"IRS" shall mean the United States Internal Revenue Service.
"Leases" shall have the meaning given such term in Section 4.15 hereof.
"License" shall have the meaning given such term in Section 4.22
hereof.
"Liens" shall mean all liens, charges, security interests, pledges,
rights or claims of others, restraints on transfer or other encumbrances.
"Material Adverse Change" shall mean, with respect to any Person, a
change or a development involving a prospective change which, alone or together
with any other such change or development, has, or would reasonably be expected
to have a material adverse effect on the value of the assets or the financial
condition, which includes the earnings and cash flow streams, of the Person
taken as a whole with its Subsidiaries.
"Material Contracts" shall have the meaning given such term in Section
4.17 hereof.
"Merger" shall have the meaning given such term in Section 2.1 hereof.
"Merger Corp." shall mean Gloria Jean's Merger Corp., a corporation to
be formed by Purchaser as its wholly owned subsidiary under the laws of the
state of Delaware, solely for purposes of effecting the transactions
contemplated by this Agreement.
"Nasdaq National Market" shall mean the Nasdaq National Market System.
"Nasdaq Stock Market" shall mean either the Nasdaq National Market or
the Nasdaq SmallCap Market.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Plan" shall mean the plan of merger substantially in the form of
Exhibit 2.1 hereto, which pursuant to the terms and conditions of this Agreement
shall be adopted by the Corporation and Merger Corp., in accordance with the
DGCL.
"Proxy Statement" means the proxy statement and all amendments and
supplements thereto to be prepared in connection with the solicitation of
proxies by the management of the Purchaser for the CPI Meeting.
<PAGE>
"Purchase Price" shall have the meaning given such term in Section 2.4
hereof, subject to the adjustments provided for in Section 2.5 hereof.
"Purchaser's Adjustment Factor" shall mean the percentage adjustment
factor to be applied in accordance with Section 2.5 hereof.
"Purchaser's Counsel" shall mean the law firm Tonkon Torp LLP, located
at 1600 Pioneer Tower, 888 S.W. Fifth Avenue, Portland, Oregon, 97212.
"Purchaser's EBITDA" shall mean actual EBITDA for the Purchaser for the
period between July 1, 1997 and December 31, 1997, accounted for on a basis
consistent with past practice.
"Purchaser's Financial Period End" shall mean any month period end.
"Purchaser's Nominees" shall have the meaning given such term in
Section 8.9 hereof.
"Registration Statement" shall have the meaning given such term in
Section 7.5 hereof.
"Regulatory Authority" shall mean the Nasdaq National Market, the
United States Department of Justice and Federal Trade Commission, and any
foreign, Canadian or United States federal or state government or governmental
authority the approval of which, or filing with, is legally required or
permitted for consummation of the transactions contemplated by this Agreement.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"Requisite Regulatory Approvals" shall have the meaning given such term
in Section 9.1(c) hereof.
"Subsidiary" means, with respect to any entity, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are directly or indirectly (through a Subsidiary or otherwise) owned by such
entity.
"Tax" and "Taxes" shall have the meaning given such terms in Section
4.10 hereof.
"Tax Return(s)" shall have the meaning given such term in Section 4.10
hereof.
"Time of Closing" shall mean 10:00 a.m. (Portland time) on the Closing
Date or such other time as the Purchaser and Vendor shall agree.
"U.S. Commission" shall mean the Securities and Exchange Commission of
the United States.
"U.S. Securities Act" shall mean the United States Securities Act of
1933, as amended, and the rules and regulations thereunder.
"Vendor's Adjustment Factor" shall mean the percentage adjustment
factor to be applied in accordance with Section 2.5 hereof.
<PAGE>
"Vendor's Counsel" shall mean either the law firm Goodman Phillips &
Vineberg, located at 250 Yonge Street, Suite 2400, Toronto, Ontario, M5B 2M6 or
Heller Ehrman White & McAuliffe located at 525 University Avenue, Palo Alto,
California 94301-1900.
"Vendor's EBITDA" shall mean the actual EBITDA for the Vendor for the
period between June 29, 1997 and December 13, 1997, accounted for on a basis
consistent with past practice.
"Vendor's Financial Period End" shall mean a four week period end for
which the Vendor prepares financial information relating to its business.
"Vendor's Nominees" shall have the meaning given such term in Section
8.9 hereof.
1.2 Construction. In this Agreement:
(a) words denoting the singular include the plural and vice versa
and words denoting any gender include all genders;
(b) the word "including" shall mean "including without
limitation";
(c) any reference to a statute shall mean the statute in force as
at the date hereof and any regulation in force thereunder, unless otherwise
expressly provided;
(d) the use of headings is for convenience of reference only and
shall not affect the construction or interpretation of this Agreement;
(e) when calculating the period of time within which or following
which any act is to be done or step taken, the date which is the reference day
in calculating such period shall be excluded. If the last day of such period is
not a Business Day, the period shall end on the next Business Day;
(f) all dollar amounts are expressed in United States dollars
unless otherwise stipulated; and
(g) facts or information within the "knowledge" of the Vendor or
Purchaser or "to the best knowledge" of the Vendor or the Purchaser, or any
equivalent phrase as used in this Agreement, shall mean facts known, or which
should have been known after due inquiry, in the case of the Purchaser, by any
of the directors, officers, or senior operations personnel of the Purchaser and,
in the case of the Vendor, by any of the directors, officers or senior
operations personnel of the Vendor, the Corporation, any of the Subsidiaries of
the Corporation or The Second Cup Ltd.
(h) notwithstanding any indication to the contrary contained
elsewhere herein, all representations, warranties and covenants made in this
Agreement shall be deemed to have been made as of November 13, 1997, the date of
the Acquisition Agreement, and not as of the date hereof, and no breach of any
representation, warranty, or covenant contained in the Acquisition Agreement
shall be deemed to be waived by the non-breaching party by execution of this
Agreement.
1.3 Accounting Principles. Wherever in this Agreement reference is made to
generally accepted accounting principles, such reference shall be deemed to be
the United States generally accepted accounting principles from time to time
approved by the Financial Accounting Standards Board, or any successor
institute, applicable as at the date on which such calculation is made or
required to be made in accordance with generally accepted accounting principles.
<PAGE>
1.4 Schedules. The following are the Schedules and Exhibits incorporated by
reference herein and deemed to be an integral part of this Agreement:
Schedules relating to the Vendor:
Schedule 4.2 - Subsidiaries, etc.
Schedule 4.3 - Capitalization
Schedule 4.6 - Required Consents
Schedule 4.8 - Liabilities
Schedule 4.9 - Undisclosed Liabilities
Schedule 4.10 - Taxes
Schedule 4.11 - Litigation
Schedule 4.12 - Compliance with Laws
Schedule 4.13 - Franchise Law Compliance
Schedule 4.14 - Customers, Suppliers,
Franchisees and Brokers
Schedule 4.15 - Real Property and Leases
Schedule 4.16 - Environmental Matters
Schedule 4.17 - Contracts
Schedule 4.18 - Employment Contracts
Schedule 4.19 - Employee Plans
Schedule 4.21 - Intellectual Property
Schedule 4.23 - Competition
Schedule 4.24 - Contracts with Non-Arm's
Length Persons
Schedules relating to the Purchaser:
Schedule 1.1 - Filings with U.S. Commission
Schedule 2.5 - Adjustments to Purchase Price
Schedule 5.2 - Subsidiaries, etc.
Schedule 5.3 - Capitalization
Schedule 5.6 - Required Consents
Schedule 5.9 - Liabilities
Schedule 5.10 - Undisclosed Liabilities
Schedule 5.11 - Taxes
Schedule 5.12 - Litigation
Schedule 5.13 - Real Property and Leases
Schedule 5.14 - Environmental Matters
Schedule 5.15 - CPI Contracts
Schedule 5.16 - Employment Contracts
Schedule 5.17 - CPI Employee Plans
Schedule 5.18 - Intellectual Property
Schedule 5.20 - Competition
Schedule 5.22 - Outstanding Options
Schedule 5.23 - Contracts with Non-Arm's
Length Persons
Schedule 7.6 - Store Closings
Schedule 9.3(h) - Lease Consents
<PAGE>
Exhibits
Exhibit 2.1 - Plan of Merger
Exhibit 9.2(d) - Form of Opinion of Vendor's
Counsel
Exhibit 9.3(d) - Form of Opinion of Purchaser's
Counsel
Exhibit 9.3(i) - Voting Agreement
Exhibit 12.2 - Terms of Employment for Taylor
H. Devine
- Terms of Employment for
Kenneth B. Ross
1.5 Acquisition Agreement Superseded. This Agreement amends and restates in
its entirety the Acquisition Agreement for the purpose of consummating the
transactions contemplated therein as a statutory merger qualifying as a
reorganization under Section 368(a)(1)(A) of the Code.
ARTICLE II
THE MERGER, EFFECT OF MERGER,
MERGER CONSIDERATION
2.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, Purchaser and Vendor shall on the Closing Date cause the
Corporation and Merger Corp. to adopt the Plan. Pursuant to the Plan, at the
Effective Time (as defined in Section 2.2 below), Merger Corp. shall be merged
with and into the Corporation (the "Merger"). The Corporation shall be (and is
hereinafter sometimes referred to as) the "Surviving Corporation." The corporate
existence of the Corporation with all its rights, privileges, powers and
franchises shall continue unaffected and unimpaired by the Merger, and as the
Surviving Corporation it shall be governed by the laws of the State of Delaware
and succeed to all rights, privileges, powers, franchises, assets, liabilities
and obligations of Merger Corp. in accordance with the DGCL. The separate
existence and corporate organization of Merger Corp. shall cease at the
Effective Time and thereupon the Corporation and Merger Corp. shall be a single
corporation. Pursuant to the Plan, the Merger shall have the effects specified
in the DGCL.
2.2 Effective Time. Pursuant to the Plan, the Merger shall become effective
at the time (the "Effective Time") of filing with the Secretary of State of the
State of Delaware a properly executed certificate of merger, together with any
other documents required by law to effectuate the Merger, or at such later time
as may be specified in the certificate of merger. The parties shall cause the
certificate of merger to be filed with the Secretary of State of the state of
Delaware as soon as practicable after the Closing.
2.3 Certificate Of Incorporation; Bylaws; Directors. Pursuant to the Plan,
the Certificate of Incorporation and Bylaws of the Corporation as they exist as
of the date of this Agreement shall remain in place immediately following the
Effective Time and shall be the Certificate of Incorporation and Bylaws of the
Surviving Corporation. The Board of Directors of the Corporation immediately
following the Merger shall consist of Alton McEwen, Kathy A. Welsh and Taylor H.
Devine until their respective successors are duly elected or appointed, or until
their earlier death, resignation or removal in accordance with the Certificate
of Incorporation and Bylaws of the Corporation.
<PAGE>
2.4 Merger Consideration. Subject to the adjustments provided for in
Section 2.5 of this Agreement, at the Effective Time, by virtue of the Merger
and without any action by the Vendor, the Purchaser, the Corporation, or the
respective stockholders thereof:
(a) All the Corporation Shares held in the aggregate by Vendor
immediately prior to the Effective Time shall be converted into that number of
shares of CPI Common Stock which will represent 69.5% of the issued and
outstanding shares of CPI Common Stock at the Effective Time after giving effect
to the transactions contemplated by this Agreement, rounded down to the nearest
whole share (the "Purchase Price"). Shares of the Corporation's capital stock
held by any person other than the Vendor, if any, shall be cancelled without
conversion and without entitlement to any consideration. By way of illustration,
if the number of issued and outstanding shares of CPI Common Stock immediately
prior to the Effective Time is equal to 3,261,085 shares, then the Purchase
Price shall be equal to 7,430,996 shares of CPI Common Stock.
(b) Each share of Merger Corp. capital stock issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation, with the effect that immediately
after the Effective Time, the Surviving Corporation shall be the wholly owned
subsidiary of the Purchaser.
2.5 Purchase Price Adjustment. The parties acknowledge that the Purchase
Price set out in Section 2.4 is based on relative projected EBITDA contributions
which includes the Purchaser's EBITDA and Vendor's EBITDA as projected at the
time of negotiations between the parties. Accordingly, in order to accommodate
certain negative variances to the Purchaser's EBITDA or the Vendor's EBITDA, the
Purchase Price shall be adjusted according to the following formula immediately
prior to the Effective Time:
Y x (0.695 + Adjustment Factor) = Adjusted Purchase Price
---------------------------------------------
(0.305 - Adjustment Factor)
For the purposes of this Section 2.5, (i) "Y" shall mean the number of
shares of CPI Common Stock issued and outstanding immediately prior to the
Effective Time, before giving effect to the transactions contemplated by this
Agreement, and (ii) the "Adjustment Factor" shall mean the Purchaser's
Adjustment Factor less the Vendor's Adjustment Factor. The Adjustment Factor
will be a negative number in circumstances where the Vendor's Adjustment Factor
is greater than the Purchaser's Adjustment Factor. The Purchaser's Adjustment
Factor shall be calculated as follows:
If the Purchaser's EBITDA is greater than $650,000, the Purchaser's
Adjustment Factor shall be equal to zero.
If the Purchaser's EBITDA is greater than $600,000 and less than or
equal to $650,000, the Purchaser's Adjustment Factor shall be equal to
0.01.
If the Purchaser's EBITDA is greater than $550,000 and less than or
equal to $600,000, the Purchaser's Adjustment Factor shall be equal to
0.02.
If the Purchaser's EBITDA is greater than $500,000 and less than or
equal to $550,000, the Purchaser's Adjustment Factor shall be equal to
0.03.
<PAGE>
The Vendor's Adjustment Factor shall be calculated as follows:
If the Vendor's EBITDA is greater than $2,325,000, the Vendor's
Adjustment Factor shall be equal to zero.
If the Vendor's EBITDA is greater than $2,150,000 and less than or
equal to $2,325,000, the Vendor's Adjustment Factor shall be equal to
0.01.
If the Vendor's EBITDA is greater than $1,975,000 and less than or
equal to $2,150,000, the Vendor's Adjustment Factor shall be equal to
0.02.
If the Vendor's EBITDA is greater than $1,800,000 and less than or
equal to $1,975,000, the Vendor's Adjustment Factor shall be equal to
0.03.
Schedule 2.5 provides illustrative examples of the operation of the
Purchase Price adjustment hereunder.
ARTICLE III
CLOSING ARRANGEMENTS
3.1 Place of Closing. The Closing shall take place at the Time of Closing
at the offices of the Purchaser's Counsel in Portland, Oregon, or at such other
location as may be agreed upon by the Purchaser and the Vendor.
3.2 Delivery of Certificates.
(a) At the Effective Time, all the Corporation Shares shall cease to be
outstanding, shall be cancelled and retired and shall cease to exist. The Vendor
shall surrender to the Purchaser at the Closing one or more certificates that
represent immediately prior to the Effective Time all the Corporation Shares
("Corporation Certificates").
(b) The CPI Common Stock into which the Corporation Shares shall have
been converted, pursuant to Section 2.4 hereof, shall be deemed to have been
issued and outstanding immediately after the Effective Time. At the Closing,
upon delivery of all Corporation Certificates, the Purchaser shall issue to the
Vendor certificates representing the CPI Common Stock to be held by Vendor
immediately after the Effective Time, under Section 2.4 hereof.
(c) At the Closing, the Surviving Corporation shall issue certificates
to the Purchaser representing the common stock of the Surviving Corporation to
be held by the Purchaser immediately after the Effective Time, under Section 2.4
hereof, which shares shall be deemed to have been issued and outstanding
immediately after the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
The Vendor represents and warrants to the Purchaser (and acknowledges
that the Purchaser is relying on the representations and warranties in
completing the transactions herein) as follows:
4.1 Organization, Etc. The Corporation is a corporation duly organized and
validly existing and in good standing under the laws of the State of Delaware
<PAGE>
and has all necessary corporate power, authority and capacity to conduct its
business as it is now being conducted and to own, operate or lease the
properties and assets it currently owns, operates or holds under lease. The
Corporation is duly qualified or licensed to do business and is in good standing
as a foreign corporation in each jurisdiction where the character of its
business or the nature of its properties makes such qualification or licensing
necessary, except where the failure to so qualify or be licensed would not
result in a Material Adverse Change.
4.2 Subsidiaries. Schedule 4.2 contains a list of all Subsidiaries,
partnerships, joint ventures and other entities in which the Corporation has,
directly or indirectly, any legal or beneficial interest or any right to acquire
a legal or beneficial interest and indicates for each such Subsidiary,
partnership, joint venture or other entity: (i) the percentage and type of
equity securities of or other interest owned or controlled by the Corporation;
(ii) the jurisdiction of incorporation or organization; (iii) each jurisdiction
in which it is qualified or licensed to conduct its business; and (iv) in the
case of any joint venture, the identity of each other joint venture partner. The
Corporation is the direct owner, beneficially and of record, of all such equity
securities or other interests listed as being owned by it, free and clear of all
Liens.
4.3 Capitalization. The authorized, issued and outstanding capital stock of
the Corporation is as set forth on Schedule 4.3. The Corporation does not hold
any shares in its own capital. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Corporation are as set forth in the
Corporation's articles of incorporation, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. All
outstanding shares of capital stock of the Corporation have been duly authorized
and validly issued as fully paid and non-assessable. Except as set forth in
Schedule 4.3, there are no outstanding options, warrants, convertible
securities, calls, rights, commitments, pre-emptive rights or agreements or
instruments or understandings of any character to which the Corporation or any
of its Subsidiaries is a party or by which the Corporation or any of its
Subsidiaries is bound, obligating the Corporation or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, contingently
or otherwise, additional shares of its capital stock or the capital stock of any
of its or their Subsidiaries or any securities or obligations convertible into
or exchangeable for such shares or to grant, extend or enter into any such
option, warrant, convertible security, call, right, commitment, pre-emptive
right or agreement. There are no outstanding obligations, contingent or other,
of the Corporation or any of its Subsidiaries to purchase, redeem or otherwise
acquire any shares of its capital stock. Except as set forth in Schedule 4.3,
there are no voting trust agreements or other contracts, agreements,
arrangements, commitments, plans or understandings restricting or otherwise
relating to voting, dividend or other rights with respect to any of the capital
stock of the Corporation or any of its Subsidiaries. The Corporation Shares
constitute all of the issued and outstanding shares in the capital of the
Corporation.
4.4 Authorization. The Vendor has all necessary corporate power, authority
and capacity to enter into this Agreement and each of the other agreements
contemplated hereby, to carry out its obligations under this Agreement and each
of the other agreements contemplated hereby and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the performance by the
Vendor of its obligations hereunder have been duly authorized by all necessary
corporate action on the part of the Vendor, subject to required regulatory
approvals, to the extent any shall be required to effect the transactions
contemplated by this Agreement. This Agreement has been duly executed and
delivered by the Vendor and constitutes a legal, valid and binding obligation of
the Vendor enforceable against the Vendor in accordance with its terms (except
as the enforceability thereof may be limited by any applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally or by general
principles of equity, regardless of whether enforceability is considered in
equity or at law).
<PAGE>
4.5 Violation. The execution and delivery of this Agreement by the Vendor
does not, and the consummation by the Vendor of the transactions contemplated
hereby and compliance with the terms hereof will not, (a) conflict with, or
result in any breach of any provision of the articles of incorporation or
by-laws of the Vendor or the Corporation or any of its Subsidiaries; (b)
conflict with, or result in any material violation of or default or loss of any
benefit under, any License, grant, statute, law, rule or regulation, or any
judgment, decree or order of any court or other governmental agency or
instrumentality to which the Vendor, the Corporation or any of its Subsidiaries
is a party or to which any of their respective property is subject; (c) conflict
with, or result in a breach or material violation of or default or loss of any
benefit under, or accelerate the performance required by, the terms of any
material agreement, contract, indenture or other instrument (other than, with
respect to the Leases, where such breaches, violations or defaults would not
result in a Material Adverse Change) which the Vendor, the Corporation or any of
its Subsidiaries is a party or to which any of their respective property is
subject, or constitute a default or loss of any right thereunder which, with the
lapse of time or notice or both, might result in a default or loss of a right
thereunder or the creation of any Lien upon any of the assets or properties of
the Vendor, the Corporation or any of its Subsidiaries; or (d) result in any
suspension, revocation, impairment, forfeiture or non-renewal of any License.
4.6 Approvals. The execution and delivery of this Agreement by the Vendor
and the consummation of the transactions contemplated hereby will not require
the consent, approval, order or authorization of any Governmental Entity or
Regulatory Authority or any other Person under any statute, law, rule,
regulation, permit, license, agreement, indenture or other instrument to which
the Vendor or the Corporation or any of its Subsidiaries is a party or to which
any of their respective properties are subject and no declaration, filing or
registration with any Governmental Entity or Regulatory Authority is required by
the Vendor, the Corporation or any of its Subsidiaries in connection with the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby, or the performance by the Vendor of its obligations
hereunder, other than (a) as set out on Schedule 4.6. or (b) in connection with
the Leases.
The Vendor further represents and warrants to the Purchaser (and
acknowledges that the Purchaser is relying on the representations and warranties
in completing the transactions herein) that, to the best of its knowledge:
4.7 Financial Statements and Other Information.
(a) The Vendor has delivered to the Purchaser (i) true, correct and
complete copies of the Corporation's audited consolidated balance sheets as of
June 28, 1997 and June 29, 1996 and the related audited consolidated statements
of income and retained earnings and cash flows (together with the auditors'
reports thereon) for each of the year ended June 28, 1997 and the nine month
period from September 30, 1995 to June 29, 1996, together with notes to such
financial statements (the "Audited Financial Statements"), and (ii) true,
correct and complete copies of the Corporation's unaudited balance sheets for
the months of July 1997, August 1997 and September 20, 1997 and the related
unaudited consolidated statements of income and retained earnings and cash flows
for the months of July 1997, August 1997 and September 20, 1997 (the "Interim
Financial Statements"). The Audited Financial Statements and Interim Financial
Statements are herein collectively referred to as the "Financial Statements".
(b) The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods covered thereby and the balance sheets included therein present fairly,
<PAGE>
in all material respects, as of their respective dates the financial condition
of the Corporation (subject, in the case of Interim Financial Statements, to
year-end adjustments that may be required upon audit, which adjustments will not
result in a Material Adverse Change on such financial statements). All material
liabilities and obligations, whether absolute, accrued, contingent or otherwise,
whether direct or indirect, and whether due or to become due, which existed at
the date of such Financial Statements have been disclosed in the balance sheets
included in the Financial Statements or in notes to the Financial Statements to
the extent such liabilities were required, under generally accepted accounting
principles, to be so disclosed.
4.8 No Undisclosed Liabilities.
(a) Except as set forth on Schedule 4.8, the Corporation has no
liability or obligations of any nature (contingent or otherwise), other than
those disclosed or reflected in the Financial Statements or incurred in the
ordinary course of business consistent with past practice since the date of the
last Interim Financial Statements.
(b) Since June 28, 1997, no Material Adverse Change in the Corporation
and its Subsidiaries taken as a whole has occurred, except as disclosed in
Schedule 4.8 or as set forth in the Interim Financial Statements.
4.9 Events Subsequent to June 28, 1997. Since June 28, 1997, neither the
Corporation nor any of its Subsidiaries has:
(a) except as disclosed in Schedule 4.9, transferred, assigned,
sold or otherwise disposed of any of the assets shown in the
Audited Financial Statements or cancelled any debts or claims
except in each case in the ordinary and normal course of
business, consistent with past practice (which ordinary and
normal course of business includes the operation of stores
owned by the Corporation or any of its Subsidiaries);
(b) incurred or assumed any obligation or liability (direct or
indirect, absolute or contingent), except those listed in
Schedule 4.8 hereto and except unsecured current obligations
and liabilities incurred in the ordinary and normal course of
business consistent with past practice;
(c) except as disclosed in Schedule 4.9, or in connection with a
Corporate Reorganization, issued or sold any shares in its
capital or any warrants, bonds, debentures or other corporate
securities or issued, granted or delivered any right, option
or other commitment for the issuance of any such other
securities;
(d) except as disclosed in Schedule 4.9, or in connection with a
Corporate Reorganization, declared or made any payment of any
dividend or other distribution in respect of any shares in its
capital or purchased or redeemed any such shares thereof or
effected any subdivision, consolidation or reclassification of
any such shares or repaid in full or in part any shareholder
loans;
(e) suffered any extraordinary loss, or waived any rights of
substantial value, or entered into any commitment or
transaction not in the ordinary and normal course of business
where such loss, rights, commitment or transaction is or would
be material in relation to the Corporation and its
Subsidiaries, taken as whole;
<PAGE>
(f) except as disclosed in Schedule 4.9, amended or changed or
taken any action to amend or change its constating documents
or by-laws;
(g) except as disclosed in Schedule 4.9, made any general wage or
salary, or fee increases in respect of personnel it employs or
consultants it retains other than regularly scheduled
increases in the ordinary course of business, consistent with
past practice;
(h) except as disclosed in Schedule 4.9 hereto, mortgaged,
pledged, subjected to lien, granted a security interest in or
otherwise encumbered any of its assets or property, whether
tangible or intangible;
(i) except as disclosed in Schedule 4.9, loaned or agreed to lend
money to any Person including a shareholder;
(j) except for inventory, equipment or assets acquired in the
ordinary course of business consistent with past practice,
made any acquisition of all or any part of the assets,
properties, capital stock or business of any other Person; and
(k) authorized or agreed or otherwise become committed to any of
the foregoing.
4.10 Taxes. Except for matters that would not result in a Material Adverse
Change:
(a) all tax returns (including, without limitation, income, profit,
franchise, sales and use, excise, severance, occupation, property, gross
receipts, payroll and withholding tax returns and information returns), deposits
and reports (all such returns, deposits and reports herein referred to
collectively as "Tax Returns" or singularly as a "Tax Return") of or relating to
any Canadian or United States federal, state, provincial, local or foreign or
other governmental tax (all, together with any penalties, additions to tax,
fines and interest thereon or related thereto, herein referred to collectively
as "Taxes" or singularly as a "Tax") that are required to be filed or deposited
for, by, on behalf of or with respect to the Corporation or its Subsidiaries,
including, but not limited to, those relating to the income, business,
operations or property of the Corporation and its Subsidiaries and those which
include or should include the Corporation and its Subsidiaries, have been filed
or deposited duly and on a timely basis and all Taxes and filing fees shown to
be due and payable on such Tax Returns have been paid in full and all
instalments, assessments and charges of which the Corporation or its
Subsidiaries is aware or has received notice and which are due and payable by
the Corporation or its Subsidiaries have been paid in full. Schedule 4.10 sets
forth all the jurisdictions in which Tax Returns have been filed;
(b) all such Tax Returns and the information and data contained therein
have been properly and accurately compiled and completed, fairly present the
information purported to be shown therein and reflect all liabilities for Taxes
for the periods covered by such Tax Returns;
(c) no such Tax Return or designation contains any misstatement or
omits any statement that should have been included therein;
(d) except as disclosed on Schedule 4.10, none of such Tax Returns are
now under audit or examination by any Canadian or United States federal, state,
provincial, local or foreign or other Governmental Entity and there are no
agreements, waivers or other arrangements providing for an extension of time
with respect to the assessment or collection of any Tax or deficiency of any
nature against the Corporation of its Subsidiaries or with respect to any such
Tax Return or any suits or other judicial or administrative actions,
proceedings, investigations or claims now pending or threatened against the
<PAGE>
Corporation or any of its Subsidiaries with respect to any Tax, governmental
charge or assessment;
(e) all Taxes imposed on the Corporation or its Subsidiaries (or for
which the Corporation or any of its Subsidiaries is or could be liable, whether
to any Governmental Entity or to other Persons (as, for example, under tax
allocation agreements)), which are due and payable on or before the Closing
Date, have been or will be paid when due and the latest balance sheet included
in the Financial Statements reflects and includes adequate provisions for the
payment in full of any and all Taxes for which the Corporation or any of its
Subsidiaries is or could be liable, whether to any Governmental Entity or to
other Persons (as, for example, under tax allocation agreements), not yet due
for any and all periods up to and including the date of such balance sheet;
(f) all Taxes for which the Corporation or any of its Subsidiaries is
or could be liable, whether to any Governmental Entity or to other Persons (as,
for example, under tax allocation agreements), for periods beginning after
September 30, 1995 through the Closing Date have been, or will be, paid when due
or adequately reserved against on the books of the Corporation or any of its
Subsidiaries on or prior to the Closing Date and an amount of cash equal to the
amount of such reserve will have been set aside for payment of such Taxes;
(g) the Corporation and its Subsidiaries have withheld and remitted all
amounts required to be withheld and have paid such amounts due to the
appropriate authority on a timely basis and in the form required under the
appropriate legislation; and
(h) there is no tax Lien, whether imposed by any Canadian or United
States federal, state, provincial, county, local or foreign taxing authority,
outstanding and filed against the assets, properties or business of the
Corporation or any of its Subsidiaries. Except as disclosed in Schedule 4.10,
neither the Corporation nor any of its Subsidiaries has agreed to make nor is
required to make any adjustment under Section 481(a) of the Code, by reason of a
change in accounting method or otherwise. Neither the Corporation nor any of its
Subsidiaries is a party to any agreement, contract, arrangement or plan that has
resulted, or as a consequence of the transactions contemplated hereby will
result, separately or in the aggregate, in the payment of any excess parachute
payments within the meaning of Section 28OG of the Code.
4.11 Litigation. Except as set forth in Schedule 4.11, there is no action,
suit, investigation, arbitration or proceeding in progress, pending or
threatened against or affecting the Corporation or any of its Subsidiaries or
any of their respective properties or rights (including no charge of patent,
copyright and/or trademark infringement) and, no circumstances have occurred
which would give rise to any such action, suit, investigation, arbitration or
proceeding. Except as set forth in Schedule 4.11, there is not presently
outstanding against the Corporation or any of its Subsidiaries any judgment,
decree, injunction, award or order of any court, commission, agency or
arbitrator.
4.12 Compliance with Laws. Except as disclosed in Schedule 4.12, the
Corporation and its Subsidiaries have complied in all material respects with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges thereunder) of any Governmental
Entity relating to or affecting the operation, conduct or ownership of their
respective properties or business. No investigation or review by any
Governmental Entity (including without limitation any audit or similar review by
any federal, foreign, state, provincial or local taxing authority) with respect
to the Corporation or a Subsidiary thereto is pending or threatened. Neither the
Corporation nor any of its Subsidiaries is in default with respect to any order,
writ, injunction or decree known to or served upon the Corporation or any of its
Subsidiaries of any Governmental Entity, which default would result in a
Material Adverse Change.
<PAGE>
4.13 Franchise Law Compliance. Except as disclosed in Schedule 4.13, the
Corporation or its Subsidiaries have made all filings under all federal, state
and foreign franchise laws and regulations as required by reason of the business
conducted by the Corporation and its Subsidiaries, in order to offer, sell and
maintain franchises and have all licenses, authorizations and approvals
necessary to offer, sell and maintain franchises in the jurisdictions in which
they have offered or sold franchises. The offering circulars and disclosure
statements filed and distributed by the Corporation or its Subsidiaries (the
most recent of which has been supplied to the Purchaser) comply in all material
respects with applicable federal, state and foreign laws and regulations and
neither the Corporation nor any of its Subsidiaries or Affiliates has received
any notice that such offering circulars or disclosure statements are not in
compliance with any such applicable laws and regulations.
4.14 Customers, Suppliers, Franchisees and Brokers. Except as set forth in
Schedule 4.14, (i) the relationships of the Corporation and its Subsidiaries
with their respective customers, suppliers, franchisees and brokers have been
entered into and are conducted at arms length in the ordinary course of business
and (ii) since June 30, 1997, no material customer, franchisee, broker or
material supplier of the Corporation or any of its Subsidiaries has cancelled or
otherwise terminated, or threatened in writing to cancel or otherwise terminate,
its relationships with the Corporation or such Subsidiary. Except as set forth
in Schedule 4.14, none of the franchisees of the Corporation or its Subsidiaries
have formed or organized any association relating to the franchisees'
relationship with the Corporation or its Subsidiaries. No association or group
listed on Schedule 4.14 has commenced, or has threatened to commence, any
action, suit, proceeding, claims or legal, administrative or arbitral
proceedings or investigations against the Corporation or any of its Subsidiaries
or Affiliates, or alleged that any offering circular or disclosure statement
issued by the Corporation or such Subsidiaries is false or misleading.
4.15 Title to and Condition of Property. Neither the Corporation nor any of
its Subsidiaries owns any real property. Except as set forth on Schedule 4.15,
all leases, subleases, licences and other agreements (both verbal and written),
under which the Corporation, any Subsidiary thereof or any franchisee occupies
real property (collectively, the "Leases") are valid, binding and in full force
and effect, no written notice of default or termination thereunder has been
received by the Vendor, Corporation, any Subsidiary or any franchisee, all rents
and other sums and other charges payable by the lessee thereunder are current
(or no more than 60 days past due) and no termination event either conditional
or uncured default on the part of the Corporation or any Subsidiary or any
franchisee exists thereunder.
4.16 Environmental Matters. Except as disclosed on Schedule 4.16:
(a) the Corporation and each of its Subsidiaries have been in the past
and are now in compliance with all Environmental Laws and all material
requirements of applicable permits, licenses, approvals and other authorizations
under applicable Environmental Laws;
(b) neither the Corporation nor any of its Subsidiaries is, or has
received any notification that it may be subject to any material claim, action,
obligation, proceeding, investigation or evaluation directly or indirectly
relating to any of their current or past operations, or those of any
predecessor, or any by-product thereof, of any of their current or formerly
owned, leased or operated properties, or those of any predecessor that could
directly or indirectly result in the incurrence of any material Environmental
Liabilities and Costs by the Corporation or any of its Subsidiaries;
(c) neither the Corporation nor any of its Subsidiaries has entered
into any agreement with any Governmental Entity or other Person by which
responsibility was assumed for, either directly or indirectly, the conduct of
<PAGE>
any Remedial Action or the incurrence of any other Environmental Liabilities;
provided, however, that the representation and warranty in this subsection (c)
does not limit or otherwise modify any other representations and warranties in
this Agreement, including without limitation, the representation and warranty in
Section 4.16(b) concerning the existence of any claims, actions, obligations,
proceedings, investigations or evaluations in connection with any such leases;
(d) the Corporation and its Subsidiaries have all permits, orders or
approvals as required by the Environmental Laws that are necessary for the
conduct of its business as now conducted, all of which are listed on Schedule
4.16 ("Environmental Permits"). All Environmental Permits are listed on Schedule
4.16 and are in full force and effect;
(e) no portion of the real property leased by the Corporation or any of
its Subsidiaries with respect to its business is listed or proposed for listing
on any Contaminated Site List;
(f) there has been no Release of any Hazardous Materials on or
underlying any real property owned or leased by the Corporation or any of its
Subsidiaries;
(g) no asbestos-containing materials or polychlorinated biphenyls
("PCBs") are present on or underlying a real property owned or leased by the
Corporation or any of its Subsidiaries;
(h) there are no underground storage tanks for Hazardous Materials,
active or abandoned, at any property now owned or leased by the Corporation and
its Subsidiaries; and
(i) neither the Corporation nor any of its Subsidiaries is aware of any
Environmental Remediation Costs which are required in connection with the
operation of their respective businesses.
4.17 Material Contracts. Except as set out in Schedule 4.17 and any other
Schedules to this Agreement and except as otherwise disclosed in the Financial
Statements, neither the Corporation nor any of its Subsidiaries is a party to or
bound by any contract or commitment either now or in the future, whether oral or
written (other than contracts for insurance or Leases) 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 payment to or from the
Corporation or any of its Subsidiaries of more than $100,000 shall be deemed to
be a Material Contract. All such Material Contracts are in good standing and in
full force and effect without amendment thereto and the Corporation or a
Subsidiary thereto is entitled to all benefits thereunder. Neither the execution
nor delivery of, nor consummation of the transactions contemplated under this
Agreement shall constitute a breach or default under, or give rise to a right of
cancellation by any party to any of the Material Contracts.
4.18 Employment Contracts. Except as set out in Schedule 4.18, there are no
contracts of employment entered into with any employee employed by the
Corporation or any of its Subsidiaries. Neither the Corporation nor any of its
Subsidiaries has entered into any agreements with its employees with respect to
the payment of any amounts resulting from a termination of employment. The
transactions contemplated by this Agreement will not give rise to any severance
or other payments to any employee, consultant, director, officer or agent of the
Corporation or any of its Subsidiaries. Except as set out in Schedule 4.18,
neither the Corporation nor any of its Subsidiaries is subject to any collective
bargaining agreement and there are no efforts to unionize any employees employed
by the Corporation or its Subsidiaries.
4.19 Employee Plans. Schedule 4.19 sets out all the employee benefit plans,
<PAGE>
programs and arrangements maintained or contributed to by The Second Cup Ltd.,
the Vendor, the Corporation or any of its Subsidiaries for the benefit of any
current or former employee, officer or director of the Corporation or any of its
Subsidiaries (the "Employee Plans"). Except as set forth in Schedule 4.19 and
except as would not, individually or in the aggregate, have a Material Adverse
Effect:
(i) none of the Employee Plans is a multi-employer plan
within the meaning of ERISA;
(ii) none of the Employee Plans promises or provides
retiree medical or life insurance benefits to any
person;
(iii) each Employee Plan intended to be qualified under
Section 401(a) of the United States Internal Revenue
Code of 1986, as amended (the "Code") has received a
favourable determination letter from the IRS that it
is so qualified and nothing has occurred since the
date of such letter that could reasonably be expected
to affect the qualified status of such Employee Plan;
(iv) each Employee Plan has been operated in all material
respects in accordance with its terms and the
requirements of applicable law;
(v) neither the Corporation nor any Subsidiary has
incurred any direct or indirect liability arising out
of, by operation of Title IV of ERISA in connection
with the termination of, or withdrawal from any
Employee Plan, or other retirement plan or
arrangement, and no fact or event exist that could
reasonably be expected to give rise to any such
liability; and
(vi) the Corporation and the Subsidiaries have not
incurred any liability under, and have complied in
all respects with, the Worker Adjustment Retraining
Notification Act ("WARN") and no fact exist that
could give rise to liability under such Act. Except
as set forth in Schedule 4.19, the aggregate
accumulated benefit obligations of each Employee Plan
subject to Title IV of ERISA (as at the date of the
most recent actuarial valuation prepared for such
Employee Plan) do not exceed the fair market value of
the assets of such Employee Plan (as at the date of
such valuation).
4.20 Brokerage Fees. No broker, finder or investment banker (other than
First Marathon Securities Limited whose fees are paid by the Vendor) is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Vendor.
4.21 Intellectual Property. Schedule 4.21 contains an accurate and complete
list of all material domestic and foreign patents, patent applications, trade
names, trademarks, trade secrets, copyrights, service marks, trademark
registrations and applications, service mark registrations and applications, and
copyright registrations and applications owned (in whole or in part), licensed
to any extent or used or anticipated to be used by the Corporation and its
Subsidiaries in the conduct of their business, other than "shrink wrap" licenses
to commonly available software (collectively, the "Intellectual Property"). The
Corporation and its Subsidiaries either own all right, title and interest in and
to, or possess the exclusive right to use, the Intellectual Property used in the
conduct of their business (including, without limitation, the exclusive right to
use and license the same (in the jurisdiction(s) where registered in the case of
trademarks, service marks and copyrights)) and each item constituting part of
the Intellectual Property in which the Corporation and its Subsidiaries has an
<PAGE>
ownership or license interest has been, to the extent indicated on Schedule
4.21, duly registered with, filed in or issued by, as the case may be, the
United States Patent and Trademark Office or such other Governmental Entities as
are indicated on Schedule 4.21 and such registrations, filings and issuances
remain in full force and effect. No claim of infringement or misappropriation of
patents, trademarks, trade names, service marks, copyrights or trade secrets of
any other Person has been made nor threatened against the Corporation or its
Subsidiaries and neither the Corporation nor any of its Subsidiaries is
infringing or misappropriating any patents, trademarks, trade names, service
marks, copyrights or trade secrets of any other Person.
4.22 Licenses. The Corporation and its Subsidiaries have all licenses,
permits, consents and other governmental certificates, authorizations and
approvals required by every federal, state, provincial, local and foreign
Governmental Entity for the conduct of its business and the use of its
properties as presently conducted or used including, without limitation, all
licenses required under Environmental Laws and any federal, state, local or
foreign law relating to public health and safety, or employee health and safety
(collectively, "Licenses"). All of the Licenses are in full force and effect and
no action or claim is pending nor is threatened to revoke or terminate any
License or declare any License invalid in any material respect. The Corporation
and its Subsidiaries have taken all necessary action to maintain such Licenses.
4.23 Competition. Except as set out in Schedule 4.23, and other than
restrictions which may exist under any of the Leases, neither the Corporation
nor any of its Subsidiaries is a party to any agreement which restricts the
freedom of the Corporation or such Subsidiary to carry on its business as
currently being carried on, including, without limitation, any contract or
agreement which contains a covenant by the Corporation or any Subsidiary thereto
not to compete in any line of business with any other Person.
4.24 Contracts with Non-Arm's Length Persons. Except as set forth in
Schedule 4.24, there are no existing contracts or arrangements to which the
Corporation or any of its Subsidiaries is a party in which the Vendor, any
Affiliate of the Vendor, any director or officer of the Vendor, the Corporation
or any of its Subsidiaries, or any other Person not dealing at arm's length (as
that term is defined in the Code) with the Vendor, the Corporation, any of its
Subsidiaries, or any director or officer of the Corporation or any of its
Subsidiaries, or any of them, has an interest, whether directly or indirectly,
other than such contracts or arrangements with terms based on fair market value
in the ordinary course of business which are not material to the business of the
Corporation or its Subsidiaries.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Vendor (and acknowledges
that the Vendor is relying on the representations and warranties in completing
the transactions herein) as follows:
5.1 Organization, Etc. The Purchaser is a corporation duly organized and
validly existing under the laws of the State of Oregon and has all necessary
corporate power, authority and capacity to conduct its business as it is now
being conducted and to own, operate or lease the properties and assets it
currently owns, operates or holds under lease. The Purchaser is duly qualified
or licensed to do business and is in good standing as a foreign corporation in
each jurisdiction where the character of its business or the nature of its
properties makes such qualification or licensing necessary, except where the
failure to so qualify or be licensed would not result in a Material Adverse
Change
5.2 Subsidiaries. Schedule 5.2 contains a list of all Subsidiaries,
partnerships, joint ventures and other entities in which the Purchaser has,
directly or indirectly, any legal or beneficial interest or any right to acquire
a legal or beneficial interest and indicates for each such Subsidiary,
partnership, joint venture or other entity: (i) the percentage and type of
equity securities of or other interest owned or controlled by the Purchaser;
(ii) the jurisdiction of incorporation or organization; (iii) each jurisdiction
in which it is qualified or licensed to conduct its business; and (iv) in the
case of any joint venture, the identity of each other joint venture partner. The
Purchaser is the direct owner, beneficially and of record, of all such equity
securities or other interests listed as being owned by it, free and clear of all
Liens.
5.3 Capitalization. The authorized, issued and outstanding capital stock of
the Corporation is as set forth on Schedule 5.3. The Corporation does not hold
any shares in its own capital. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Corporation are as set forth in the
Corporation's articles of incorporation, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. All
outstanding shares of capital stock of the Corporation have been duly authorized
and validly issued as fully paid and non-assessable. Except as set forth in
Schedule 5.3, there are no outstanding options, warrants, convertible
securities, calls, rights, commitments, pre-emptive rights or agreements or
instruments or understandings of any character to which the Corporation is a
party or by which the Corporation is bound, obligating the Corporation to issue,
deliver or sell, or cause to be issued, delivered or sold, contingently or
otherwise, additional shares of its capital stock or any securities or
obligations convertible into or exchangeable for such shares or to grant, extend
or enter into any such option, warrant, convertible security, call, right,
commitment, pre-emptive right or agreement. There are no outstanding
obligations, contingent or other, of the Corporation to purchase, redeem or
otherwise acquire any shares of its capital stock. Except as set forth in
Schedule 5.3, there are no voting trust agreements or other contracts,
agreements, arrangements, commitments, plans or understandings restricting or
otherwise relating to voting, dividend or other rights with respect to any of
the capital stock of the Corporation. The shares of CPI Common Stock to be
issued pursuant to Section 2.4 of this Agreement at the Effective Time will be
duly authorized, and when issued pursuant to the Merger, will be validly issued
as fully paid and nonassessable and will not have been issued in violation of
any pre-emptive rights or of any federal or state law.
5.4 Authorization. The Purchaser has all necessary corporate power,
authority and capacity to enter into this Agreement and each of the other
agreements contemplated hereby, and to carry out its obligations under this
Agreement and each of the other agreements contemplated hereby. The execution
and delivery by the Purchaser of this Agreement, the consummation of the
transactions contemplated hereby and the performance by the Purchaser of its
obligations hereunder have been duly authorized by all necessary corporate
action on the part of the Purchaser, subject to required regulatory approvals,
to the extent any shall be required to effect the transactions contemplated by
this Agreement, and the approval of the shareholders of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
a legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms (except as the enforceability thereof may
be limited by any applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law). This Agreement
and the transactions contemplated hereby have been unanimously approved by the
board of directors of the Purchaser.
5.5 No Violation. The execution and delivery of this Agreement by the
Purchaser does not, and the consummation by the Purchaser of the transactions
contemplated hereby and compliance with the terms hereof will not, (a) conflict
with, or result in any breach of any provision of the Purchaser's articles of
<PAGE>
incorporation or by-laws; (b) conflict with, or result in any material violation
of or default or loss of any benefit under, any CPI License, grant, statute,
law, rule or regulation, or any judgment, decree or order of any court or other
governmental agency or instrumentality to which the Purchaser is a party or
which any of their respective property is subject; (c) conflict with, or result
in a breach or material violation of or default or loss of any benefit under, or
accelerate the performance required by, the terms of any material agreement,
contract, indenture or other instrument (other than, with respect to the CPI
Leases, where such breaches, violations or defaults would not result in a
Material Adverse Change) to which the Purchaser is a party or to which any of
their respective property is subject, or constitute a default or loss of any
right thereunder which, with the lapse of time or notice or both, might result
in a default or loss of a right thereunder or the creation of any Lien upon any
of the assets or properties of the Purchaser; or (d) result in any suspension,
revocation, impairment, forfeiture or non-renewal of any CPI License.
5.6 Approvals. The execution and delivery of this Agreement by the Purchaser and
the consummation of the transactions contemplated hereby will not require the
consent, approval, order or authorization of any Governmental Entity or
Regulatory Authority or any other Person under any statute, law, rule,
regulation, permit, license, agreement, indenture or other instrument to which
the Purchaser is a party or to which any of its property is subject, and no
declaration, filing or registration with any Governmental Entity or Regulatory
Authority is required by the Purchaser in connection with the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby, or the performance by the Purchaser of its obligations hereunder, other
than (a) the filing of the Nasdaq National Market System Notification Form for
Listing of Additional Shares, (b) compliance with any applicable requirements
under the Exchange Act, the U.S. Securities Act and foreign and state securities
and "blue sky" laws, and the securities laws, regulations and policies of the
provinces of Canada, as applicable, and (c) as set out on Schedule 5.6.
The Purchaser further represents and warrants to the Vendor (and
acknowledges that the Vendor is relying on the representations and warranties in
completing the transactions herein) that, to the best of its knowledge:
5.7 Financial Statements and Other Information.
(a) The audited balance sheet and any related notes and schedules
included in the Purchaser's Annual Report on Form 10-KSB for the fiscal years
ended December 31, 1996 and December 31, 1995 (the "CPI 10-KSBs") and the
unaudited balance sheet and any related notes and schedules included in the
Purchaser's Quarterly Report on Form 10-QSB for the quarters ended March 31,
1997 and June 30, 1997 (the "CPI 10-QSBs") each presents fairly the consolidated
financial position of the Purchaser as of its respective date and the other
financial statements included in the CPI 10-KSBs and the CPI 10-QSBs present
fairly the results of operations or other information included therein of the
Purchaser for the respective periods or as of the respective dates therein set
forth, subject, where appropriate, to normal year end adjustments which are not
material in amount or effect, in each case in accordance with generally accepted
accounting principles consisting applied during the periods involved (except as
otherwise stated therein).
(b) Except as disclosed in Schedule 5.9, since December 31, 1996 (i)
there has been no Material Adverse Change of or to the Purchaser, whether as a
result of any legislative or regulatory change, revocation of any license or
right to do business, fire, explosion, accident, casualty, labour trouble,
flood, drought, riot, storm, condemnation or act of God or otherwise, and (ii)
no fact or condition exists or is threatened in writing which could reasonably
be anticipated to cause a Material Adverse Change in the future.
<PAGE>
5.8 Compliance with Laws. The Purchaser has complied in all material
respects with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of any
Governmental Entity relating to or affecting the operation, conduct or ownership
of its properties or business. No investigation or review by any Governmental
Entity (including without limitation any audit or similar review by any federal,
foreign, state, provincial or local taxing authority) with respect to the
Corporation or a Subsidiary is pending or, to the best knowledge of the
Purchaser, threatened. The Purchaser is not in default with respect to any
order, writ, injunction or decree known to or served upon the Purchaser of any
Governmental Entity, which default would result in a Material Adverse Change.
5.9 No Undisclosed Liabilities.
(a) Except as set forth on Schedule 5.9, the Purchaser has no liability
or obligations of any nature (contingent or otherwise), other than those
disclosed or reflected in the financial statements included in the CPI 10-QSBs
or incurred in the ordinary course of business consistent with past practice
since the date of the most recent 10-KSB filed with the U.S. Commission.
(b) Since December 31, 1996, no Material Adverse Change of the
Purchaser has occurred, other than those disclosed or reflected in the financial
statements included in the CPI 10-QSBs or as disclosed in Schedule 5.9.
5.10 Events Subsequent to December 31, 1996. Since December 31, 1996, the
Purchaser has not:
(a) except as disclosed in Schedule 5.10, transferred, assigned,
sold or otherwise disposed of any of the assets shown in the
Audited Financial Statement or cancelled any debts or claims
except in each case in the ordinary and normal course of
business consistent with past practice;
(b) incurred or assumed any obligation or liability (direct or
contingent), except those listed in Schedule 5.9 hereto and
except unsecured current obligations and liabilities incurred
in the ordinary and normal course of business consistent with
past practice;
(c) except as disclosed in Schedule 5.10, issued or sold any
shares in its capital or any warrants, bonds, debentures or
other corporate securities or issued, granted or delivered any
right, option or other commitment for the issuance of any such
other securities;
(d) except as disclosed in Schedule 5.10, declared or made any
payment of any dividend or other distribution in respect of
any shares in its capital or purchased or redeemed any such
shares thereof or effected any subdivision, consolidation or
reclassification of any such shares or repaid in full or in
part any shareholder loans;
(e) suffered any extraordinary loss, or waived any rights of
substantial value, or entered into any commitment or
transaction not in the ordinary and normal course of business
where such loss, rights, commitment or transaction is or would
be material in relation to the Purchaser, taken as whole;
(f) except as disclosed in Schedule 5.10, amended or changed or
taken any action to amend or change its constating documents
or by-laws;
<PAGE>
(g) except as disclosed in Schedule 5.10, made any general wage or
salary or fee increases in respect of personnel which it
employs or consultants it retains other than regularly
scheduled increases in the ordinary course of business,
consistent with past practice;
(h) except as disclosed in Schedule 5.10 hereto, mortgaged,
pledged, subjected to lien, granted a security interest in or
otherwise encumbered any of its assets or property, whether
tangible or intangible;
(i) except as disclosed in Schedule 5.10, loaned or agreed to lend
money to any Person including a shareholder;
(j) except for inventory, equipment or assets acquired in the
ordinary course of business consistent with past practice and
except as disclosed in Schedule 5.10, made any acquisition of
all or any part of the assets, properties, capital stock or
business of any other Person; and
(k) authorized or agreed or otherwise become committed to any of
the foregoing.
5.11 Taxes. Except for matters that would not result in a Material Adverse
Change:
(a) all tax returns (including, without limitation, income, profit,
franchise, sales and use, excise, severance, occupation, property, gross
receipts, payroll and withholding tax returns and information returns), deposits
and reports (all such returns, deposits and reports herein referred to
collectively as "Tax Returns" or singularly as a "Tax Return") of or relating to
any Canadian or United States federal, state, provincial, local or foreign or
other governmental tax (all, together with any penalties, additions to tax,
fines and interest thereon or related thereto, herein referred to collectively
as "Taxes" or singularly as a "Tax") that are required to be filed or deposited
for, by, on behalf of or with respect to the Purchaser including, but not
limited to, those relating to the income, business, operations or property of
the Purchaser and those which include or should include the Purchaser, have been
filed or deposited duly and on a timely basis and all Taxes and filing fees
shown to be due and payable on such Tax Returns have been paid in full and all
instalments, assessments and charges of which the Purchaser is aware or has
received notice and which are due and payable by the Purchaser have been paid in
full. Schedule 5.11 sets forth all the jurisdictions in which Tax Returns have
been filed;
(b) all such Tax Returns and the information and data contained therein
have been properly and accurately compiled and completed, fairly present the
information purported to be shown therein and reflect all liabilities for Taxes
for the periods covered by such Tax Returns;
(c) no such Tax Return or designation contains any misstatement or
omits any statement that should have been included therein;
(d) except as disclosed on Schedule 5.11, none of such Tax Returns are
now under audit or examination by any Canadian or United States federal, state,
provincial, local or foreign or other Governmental Entity and there are no
agreements, waivers or other arrangements providing for an extension of time
with respect to the assessment or collection of any Tax or deficiency of any
nature against the Purchaser or with respect to any such Tax Return or any suits
or other judicial or administrative actions, proceedings, investigations or
claims now pending or threatened against the Purchaser with respect to any Tax,
governmental charge or assessment;
<PAGE>
(e) all Taxes imposed on the Purchaser (or for which the Purchaser is
or could be liable, whether to any Governmental Entity or to other Persons (as,
for example, under tax allocation agreements)), which are due and payable on or
before the Closing Date, have been or will be paid when due and the latest
balance sheet included in the Financial Statements reflects and includes
adequate provisions for the payment in full of any and all Taxes for which the
Purchaser is or could be liable, whether to any Governmental Entity or to other
Persons (as, for example, under tax allocation agreements), not yet due for any
and all periods up to and including the date of such balance sheet;
(f) all Taxes for which the Purchaser is or could be liable, whether to
any Governmental Entity or to other Persons (as, for example, under tax
allocation agreements), for periods beginning after December 31, 1995 through
the Closing Date have been, or will be, paid when due or adequately reserved
against on the books of the Purchaser on or prior to the Closing Date and an
amount of cash equal to the amount of such reserve will have been set aside for
payment of such Taxes;
(g) the Purchaser has withheld and remitted all amounts required to be
withheld and have paid such amounts due to the appropriate authority on a timely
basis and in the form required under the appropriate legislation; and
(h) there is no tax Lien, whether imposed by any Canadian or United
States federal, state, provincial, county, local or foreign taxing authority,
outstanding and filed against the assets, properties or business of the
Purchaser. Except as disclosed in Schedule 5.11, the Purchaser has not agreed to
make nor is required to make any adjustment under Section 481(a) of the Code, by
reason of a change in accounting method or otherwise. The Purchaser is not a
party to any agreement, contract, arrangement or plan that has resulted, or as a
consequence of the transactions contemplated hereby will result, separately or
in the aggregate, in the payment of any excess parachute payments within the
meaning of Section 28OG of the Code.
5.12 Litigation. Except as set forth in Schedule 5.12, there is no action,
suit, investigation, arbitration or proceeding in progress, pending or
threatened against or affecting the Purchaser or any of its properties or rights
(including no charge of patent, copyright and/or trademark infringement) and no
circumstances have occurred which would give rise to any such action, suit,
investigation, arbitration or proceeding. Except as set forth in Schedule 5.12,
there is not presently outstanding against the Purchaser any judgment, decree,
injunction, award or order of any court, commission, agency or arbitrator.
5.13 Title to and Condition of Property. Except as set out in Schedule 5.13,
the Purchaser does not own any real property. The Purchaser has good and
marketable title to such owned real property. Except as set forth on Schedule
5.13, all leases, subleases, licences and other agreements (both verbal and
written) under which the Purchaser occupies real property (collectively, the
"CPI Leases") are valid, binding and in full force and effect, no written notice
of default or termination thereunder has been received by the Purchaser, all
rents and other sums and other charges payable by the lessee thereunder are
current (or no more than 60 days past due) and no termination event either
conditional or uncured default on the part of the Purchaser, exists thereunder.
5.14 Environmental Matters. Except as disclosed on Schedule 5.14:
(a) the Purchaser has been in the past and is now in compliance with
all Environmental Laws and all material requirements of applicable permits,
licenses, approvals and other authorizations under applicable Environmental
Laws;
<PAGE>
(b) the Purchaser is not, and has not received any notification that it
may be subject to any material claim, action, obligation, proceeding,
investigation or evaluation directly or indirectly relating to any of their
current or past operations, or those of any predecessor, or any by-product
thereof, of any of their current or formerly owned, leased or operated
properties, or those of any predecessor that could directly or indirectly result
in the incurrence of any material Environmental Liabilities and Costs by the
Purchaser;
(c) the Purchaser has not entered into any agreement with any
Governmental Entity or other Person by which responsibility was assumed for,
either directly or indirectly, the conduct of any Remedial Action or the
incurrence of any other Environmental Liabilities; provided, however, that the
representation and warranty in this subsection (c) does not limit or otherwise
modify any other representations and warranties in this Agreement, including
without limitation, the representation and warranty in Section 5.14(b)
concerning the existence of any claims, actions, obligations, proceedings,
investigations or evaluations in connection with any such leases;
(d) the Purchaser has all Environmental Permits required by the
Environmental Laws that are necessary for the conduct of its business as now
conducted, all of which are listed on Schedule 5.14. All Environmental Permits
are listed on Schedule 5.14 and are in full force and effect;
(e) no portion of the real property owned or leased by the Purchaser
with respect to its business is listed or proposed for listing on any
Contaminated Site List;
(f) there has been no Release of any Hazardous Materials on or
underlying any real property owned or leased by the Purchaser;
(g) no asbestos-containing materials or PCBs are present on or
underlying a real property owned or leased by the Purchaser;
(h) there are no underground storage tanks for Hazardous Materials,
active or abandoned, at any property now owned or leased by the Purchaser; and
(i) the Purchaser is not aware of any Environmental Remediation Costs
which are required in connection with the operation of their respective
businesses.
5.15 CPI Material Contracts. Except as set out in Schedule 5.15 and any
other Schedules to this Agreement, the Purchaser is not a party to or bound by
any contract or commitment either now or in the future, whether oral or written
(other than contracts for insurance or CPI Leases) which are material to its
business (the "CPI 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 payment to or from the Purchaser of
more than $50,000, shall be deemed to be a CPI Material Contract. All such CPI
Material Contracts are in good standing and in full force and effect without
amendment thereto and the Purchaser is entitled to all benefits thereunder.
Neither the execution nor delivery of, nor consummation of the transactions
contemplated under this Agreement shall constitute a breach or default or give
rise to a right of cancellation by any party to any of the CPI Material
Contracts.
5.16 Employment Contracts. Except as set out in Schedule 5.16, there are no
contracts of employment entered into with any employee employed by the
Purchaser. The Purchaser has not entered into any agreements with its employees
with respect to the payment of any amounts resulting from a termination of
employment. The transactions contemplated by this Agreement will not give rise
<PAGE>
to any severance or other payments to any employee, consultant, director,
officer or agent of the Corporation or any of its Subsidiaries. Except as set
out in Schedule 5.16, the Purchaser is not subject to any collective bargaining
agreement and there are no efforts to unionize any employees employed by the
Purchaser.
5.17 Employee Plans. Schedule 5.17 sets out all the employee benefit plans,
programs and arrangements maintained or contributed to by the Purchaser for the
benefit of any current or former employee, officer or director of the Purchaser
(the "CPI Employee Plans"). Except as set forth in Schedule 5.17 and except as
would not, individually or in the aggregate, result in a Material Adverse
Change:
(i) none of the CPI Employee Plans is a multi-employer
plan within the meaning of ERISA;
(ii) none of the CPI Employee Plans promises or provides
retiree medical or life insurance benefits to any
person;
(iii) each CPI Employee Plan intended to be qualified under
Section 401(a) of the United States Internal Revenue
Code of 1986, as amended (the "Code") has received a
favourable determination letter from the IRS that it
is so qualified and nothing has occurred since the
date of such letter that could reasonably be expected
to affect the qualified status of such Employee Plan;
(iv) each CPI Employee Plan has been operated in all
material respects in accordance with its terms and
the requirements of applicable law;
(v) the Purchaser has not incurred any direct or indirect
liability arising out of, by operation of Title IV of
ERISA in connection with the termination of, or
withdrawal from any CPI Employee Plan, or other
retirement plan or arrangement, and no fact or event
exist that could reasonably be expected to give rise
to any such liability; and
(vi) the Purchaser has not incurred any liability under,
and has complied in all respects with, the Worker
Adjustment Retraining Notification Act ("WARN") and
no fact exist that could give rise to liability under
such Act. Except as set forth in Schedule 5.17, the
aggregate accumulated benefit obligations of each CPI
Employee Plan subject to Title IV of ERISA (as at the
date of the most recent actuarial valuation prepared
for such CPI Employee Plan) do not exceed the fair
market value of the assets of such CPI Employee Plan
(as at the date of such valuation).
5.18 Intellectual Property. Schedule 5.18 contains an accurate and complete
list of all material domestic and foreign patents, patent applications, trade
names, trademarks, trade secrets, copyrights, service marks, trademark
registrations and applications, service mark registrations and applications, and
copyright registrations and applications owned (in whole or in part), licensed
to any extent or used or anticipated to be used by the Purchaser in the conduct
of his business except for "shrink wrap" licenses of commonly available software
(collectively, the "CPI Intellectual Property"). The Purchaser owns all right,
title and interest in and to, or possesses the exclusive right to use, the CPI
Intellectual Property used in the conduct of its business (including, without
limitation, the exclusive right to use and license the same (in the
jurisdiction(s) where registered in the case of trademarks, service marks and
copyrights)) and each item constituting part of the CPI Intellectual Property in
<PAGE>
which the Purchaser has an ownership or license interest has been, to the extent
indicated on Schedule 5.18, duly registered with, filed in or issued by, as the
case may be, the United States Patent and Trademark Office or such other
Governmental Entities as are indicated on Schedule 5.18 and such registrations,
filings and issuances remain in full force and effect. No claim of infringement
or misappropriation of patents, trademarks, trade names, service marks,
copyrights or trade secrets of any other Person has been made nor threatened
against the Purchaser and the Purchaser is not infringing or misappropriating
any patents, trademarks, trade names, service marks, copyrights or trade secrets
of any other Person.
5.19 Licenses. The Purchaser has all licenses, permits, consents and other
governmental certificates, authorizations and approvals required by every
federal, state, provincial, local and foreign Governmental Entity for the
conduct of its business and the use of its properties as presently conducted or
used including, without limitation, all licenses required under Environmental
Laws and any federal, state, local or foreign law relating to public health and
safety, or employee health and safety (collectively, "CPI Licenses"). All of the
CPI Licenses are in full force and effect and no action or claim is pending nor
threatened to revoke or terminate any CPI License or declare any CPI License
invalid in any material respect. The Purchaser has taken all necessary action to
maintain such CPI Licenses.
5.20 Competition. Except as set out in Schedule 5.20, and other than
restrictions which may exist under any of the CPI Leases, the Purchaser is not a
party to any agreement which restricts the freedom of the Purchaser to carry on
its business as currently being carried on, including, without limitation, any
contract or agreement which contains a covenant by the Purchaser thereto not to
compete in any line of business with any other Person.
5.21 Brokerage Fees .21 Brokerage Fees .21 Brokerage Fees. No broker, finder or
investment banker (other than Black & Company whose fees are paid by the
Purchaser) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated herein based upon arrangements
made by or on behalf of the Purchaser.
5.22 Outstanding Options. Schedule 5.22 contains an accurate and complete list
of all outstanding options to acquire shares in the capital of the Purchaser
held by individuals who are, as at the date hereof, or previously were employees
of the Purchaser. Schedule 5.22 sets out the date of grant, the exercise price,
the expiry date, the vesting date and the number of options held by each such
employee.
5.23 Contracts with Non-Arm's Length Persons. Except as set forth in Schedule
5.23, there are no existing contracts or arrangements to which the Purchaser is
a party in which any director or officer of the Purchaser, or any other Person
not dealing at arm's length (as that term is defined in the Code) with the
Purchaser has an interest, whether directly or indirectly, other than such
contracts or arrangements with terms based on fair market value in the ordinary
course of business which are not material to the business of the Purchaser.
5.24 Provision for Store Closures. The provision made by the Purchaser for the
closure of the stores set out on Schedule 7.6 is adequate and sufficient to
provide for all lease termination costs, operating losses and any other costs
associated with the closure of such stores.
5.25 Coffee Plantation Acquisition. The parties acknowledge that all of the
retail coffee stores operated by the Purchaser in the state of Arizona
(collectively, the "Coffee Plantation Business") were acquired from a wholly
owned Subsidiary of Vendor, pursuant to an Assets Purchase Agreement, dated
April 21, 1997. With respect to all of the representations, warranties and
covenants made by the Purchaser in this Agreement, neither the existence of, nor
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the failure to disclose the existence of, any fact, condition, circumstance,
liability, default, obligation or loss arising out of or relating to the
operation of the Coffee Plantation Business prior to May 21, 1997 shall
constitute a breach by the Purchaser of this Agreement.
ARTICLE VI
COVENANTS OF THE VENDOR
6.1 Conduct of the Corporation and its Subsidiaries. From the date of the
Acquisition Agreement until the Closing Date, the Vendor has caused and shall
cause the businesses of the Corporation and its Subsidiaries to be conducted, in
all material respects, in the usual and ordinary course. Without limiting the
generality of the foregoing, from the date of the Acquisition Agreement until
the Closing Date, except as contemplated hereby, without the written consent of
the Purchaser, the Vendor shall not permit either the Corporation or any of its
Subsidiaries to:
(a) amend its articles of incorporation or by-laws, other than in
connection with a Corporate Reorganization;
(b) (i) enter into any written contract, agreement, plan or arrangement
concerning any director, officer, employee or consultant of the Corporation or a
Subsidiary thereto that provides for the making of any payments, the
acceleration of vesting of any benefit or right or any other entitlement
contingent upon (A) the closing of the transactions contemplated by this
Agreement or (B) the termination of employment after the closing of the
transactions contemplated by this Agreement; or (vii) enter into or amend any
employment agreements (oral or written) to increase the compensation payable or
to become payable by it to any of its employees or consultants or otherwise
materially alter its employment relationship with any officer, director,
employee or consultant over the amount payable as of the date of the Acquisition
Agreement;
(c) other than in connection with a Corporate Reorganization, (i)
purchase, acquire, issue, deliver, sell or authorize the issuance, delivery or
sale of any shares of its capital stock of any class or any securities
convertible into or exchangeable for, or rights, warrants or options to acquire,
any such shares of its capital stock or convertible or exchangeable securities;
(ii) make any changes in its capital structure; (iii) amend any stock option,
warrant, retirement, deferred compensation, employment, termination or other
agreement, trust fund or arrangement for the benefit of any director, officer,
consultant or employee of the Corporation or any of its Subsidiaries; or (iv)
enter into any agreement or understanding or take any preliminary action with
respect to the matters referred to in clause (i), (ii) or (iii) of this
paragraph (c);
(d) permit any individual employed by the Corporation or any of its
Subsidiaries as of the date of this Agreement to be granted options to acquire
shares in the capital of The Second Cup Ltd., the Vendor, the Corporation or any
of its Subsidiaries;
(e) incur any additional interest bearing indebtedness for borrowed
money (including by way of guarantee or the issuance and sale of debt securities
or rights to acquire debt securities), or incur any additional indebtedness to
an Affiliate, or incur any account payable except in the ordinary course of
business, or enter into or modify any contract, agreement, commitment or
arrangement with respect to the foregoing;
(f) other than sales in the ordinary course of business and consistent
with present practice (i) sell, lease or otherwise dispose of any of its assets
(a) material, individually or in the aggregate, to the business, results of
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operations or financial condition of the Corporation or any of its Subsidiaries,
or (b) to its Affiliates (other than dividends or pursuant to a Corporate
Reorganization); or (ii) enter into, or consent to the entering into of, any
agreement granting a preferential right to sell, lease or otherwise dispose of
any of such assets;
(g) (i) enter into any new line of business; (ii) merge or consolidate
with another entity, or acquire or agree to merge or acquire by purchasing a
substantial portion of the assets of, or in any other manner, any business or
Person, other than pursuant to a Corporate Reorganization; or (iii) make any
investment in any Person;
(h) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
its accounting policies or procedures;
(i) agree or commit to do any of the foregoing; and
(j) enter into any agreement or perform any act which might interfere
with or be inconsistent with the successful completion of the transactions
contemplated by this Agreement.
6.2 Shareholder Meeting. The Vendor will cooperate in a reasonable manner with
the Purchaser in the preparation of any filings which the Purchaser may be
required to make under the Exchange Act and in the preparation of the Proxy
Statement and Registration Statement with respect to any information about The
Second Cup Ltd., the Vendor, the Corporation and its Subsidiaries which the
Purchaser reasonably requests in connection with the preparation of such filings
and statements.
6.3 Compliance with Obligations. Prior to the Closing Date, the Vendor shall
cause the Corporation and its Subsidiaries to comply with (a) all applicable
federal, state, provincial, local and foreign laws, rules and regulations of
Canada and the United States, (b) all agreements and obligations, including its
articles of incorporation and by-laws, respectively, by which it, its properties
or its assets may be bound, (c) all decrees, orders, writs, injunctions,
judgments, statutes, rules and regulations applicable to it, its properties or
its assets, and (d) all of their obligations and covenants contained in this
Agreement.
6.4 Maintenance of Cash in Account. Unless otherwise adjusted in accordance with
Section 8.11 of this Agreement, the Vendor shall ensure that the Corporation and
its Subsidiaries have not less than $2,500,000 consolidated in cash in their
bank accounts on the Closing Date, after payment of all of their expenses in
connection with this Agreement and the transactions contemplated hereby and that
neither the Corporation nor any of its Subsidiaries shall have any interest
bearing indebtedness for borrowed money (short or long term) or any indebtedness
to an Affiliate on the Closing Date.
6.5 Loan to Purchaser. Unless otherwise adjusted in accordance with Secti |
