EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
XXXXX X. XXXXXX, XXXXXX X. XXXXXXXX, AND
XXXXXXXXXX'X INCORPORATED; AND NEW WORLD COFFEE, INC.
TABLE OF CONTENTS
Page
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ARTICLE I - DEFINITIONS............................................... 2
1.1 Definitions Generally................................... 2
1.2 Specific Definitions.................................... 2
ARTICLE II - THE TRANSACTION.......................................... 7
2.1 Terms of the Transaction................................ 7
(a) Sale of Stock........................................... 7
(b) Purchase Price.......................................... 7
(i) Cash.................................................... 7
(ii) Promissory Notes........................................ 8
(A) Notes................................................... 8
(B) Convertibility.......................................... 8
(iii) Common Stock............................................ 9
2.2 Security Interest....................................... 9
2.3 Name.................................................... 10
2.4 Employment Agreements................................... 11
(a) Employment Agreements................................... 11
(b) Other Employee Issues................................... 12
2.5 Debt.................................................... 13
2.6 Closing................................................. 13
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLERS............... 13
3.1 Organization and Qualification.......................... 14
3.2 Capitalization.......................................... 14
3.3 Financial Condition..................................... 15
3.4 Tax and Other Liabilities............................... 17
3.5 Litigation and Claims................................... 18
3.6 Properties.............................................. 18
3.7 Contracts and Other Instruments......................... 21
3.8 Employees............................................... 22
3.9 Intangibles............................................. 23
3.10 Questionable Payments................................... 24
3.11 Authority to Sell....................................... 24
3.12 Non-distributive Intent................................. 26
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PURCHASER.............. 26
4.1 Organization............................................. 26
4.2 Authority to Buy......................................... 27
4.3 Validity of Shares....................................... 27
4.4 Shares Reserved.......................................... 27
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4.5 Purchaser's Financial Condition.......................... 27
4.6 NWC Tax and Other Liabilities............................ 29
ARTICLE V - CONDITIONS TO OBLIGATIONS OF PURCHASER.................... 30
5.1 Accuracy of Representations and
Compliance With Conditions............................ 30
5.2 Opinion of Counsel....................................... 31
5.3 Other Closing Documents.................................. 32
5.4 Legal Action............................................. 32
5.5 No Governmental Action................................... 33
5.6 Contractual Consents..................................... 34
5.7 Material Adverse Change.................................. 34
ARTICLE VI - CONDITIONS TO OBLIGATIONS OF SELLERS..................... 34
6.1 Accuracy of Representations and
Compliance With Conditions............................ 34
6.2 Opinion of Counsel....................................... 35
6.3 Other Closing Documents.................................. 35
6.4 Legal Action............................................. 36
6.5 Releases................................................. 36
6.6 Insurance Policies....................................... 36
ARTICLE VII - COVENANTS OF THE SELLERS................................ 36
7.1 Access................................................... 36
7.2 Conduct of Business...................................... 37
7.3 Advice of Changes........................................ 37
7.4 Public Statements........................................ 38
7.5 Other Proposals.......................................... 38
7.6 Voting by Stockholders................................... 39
7.7 Confidentiality.......................................... 40
ARTICLE VIII - COVENANTS OF PURCHASER................................. 40
8.1 Advice of Changes........................................ 41
8.2 Public Statements........................................ 41
8.3 Confidentiality.......................................... 41
8.4 Operation of the Company................................. 42
8.5 Change of Control........................................ 42
8.6 Form S-8................................................. 43
8.7 Corporate Entity......................................... 43
8.8 Sale of Assets........................................... 43
8.9 Seller's Trade Guarantees................................ 44
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ARTICLE IX - INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY...... 44
9.1 Indemnification.......................................... 44
9.2 Survival; Limitations on Liability....................... 45
ARTICLE X - TERMINATION PRIOR TO CLOSING.............................. 46
10.1 Termination.............................................. 46
10.2 Effect on Obligations.................................... 48
ARTICLE XI - MISCELLANEOUS............................................ 48
11.1 Brokerage Fees........................................... 48
11.2 Further Actions.......................................... 49
11.3 Submission to Jurisdiction............................... 49
11.4 Merger; Modification..................................... 49
11.5 Notices.................................................. 49
11.6 Waiver................................................... 50
11.7 Binding Effect........................................... 51
11.8 No Third-Party Beneficiaries............................. 51
11.9 Separability............................................. 51
11.10 Headings................................................ 51
11.11 Counterparts; Governing Law............................. 51
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AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is being made as of
this 21st day of October 1996, by and among NEW WORLD COFFEE, INC., a Delaware
corporation ("NWC" or the "Purchaser"), with offices at 000 Xxxx Xxxxxxxx, Xxx
Xxxx, Xxx Xxxx 00000; XXXXXXXXXX'X INCORPORATED (d/b/a Xxxxxxxxxx'x Coffee and
Tea), a Connecticut corporation ("Xxxxxxxxxx'x" or the "Company"), with offices
at 0000 Xxxxxx Xxxxxx, Xxx Xxxxx, Xxxxxxxxxxx 00000, XX. XXXXX X. XXXXXX
("Xxxxxx"), an individual residing at 00 Xxxxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxx
00000 and XX. XXXXXX X. XXXXXXXX ("Xxxxxxxx"), an individual residing at 00
Xxxxxxx Xxxxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxx 00000. Xxxxxx and Xxxxxxxx are each
referred to hereinafter individually as a "Seller" and collectively as the
"Sellers."
W I T N E S S E T H :
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WHEREAS, the Sellers own beneficially and of record 100% of the issued
and outstanding capital stock of the Company; and
WHEREAS, the Purchaser desires to acquire all of the capital stock of
the Company in exchange for the consideration set forth herein and the Sellers
desire to effect such exchange, subject to the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the premises, representations,
warranties, and covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.1 DEFINITIONS GENERALLY.
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For all purposes of this Agreement (i) the terms defined herein shall
include the plural as well as the singular, (ii) all accounting terms not
otherwise defined herein shall have the meanings assigned to them in accordance
with generally accepted accounting principles, consistently applied, and (iii)
the term "to the knowledge of" as used in this Agreement means to the knowledge
of such person, after due inquiry.
1.2 SPECIFIC DEFINITIONS.
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"AFFILIATE": a Person that directly or indirectly, through one or
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more intermediaries, controls, is controlled by or is under common control with
the Person specified. The term "control" means the possession, directly or
indirectly, alone or in concert with others, of the power to direct or cause the
direction of the management of a Person, whether through ownership of
securities, by contract, or otherwise.
"AGREEMENT": this Agreement, as amended from time-to-time.
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"ASSIGNMENT": as defined in Section 2.2 hereof.
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"CAPITAL STOCK": as defined in Section 2.1 hereof.
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"CHANGE OF CONTROL": as defined in Section 8.5 hereof.
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"CLAIMS": as defined in Section 9.1 hereof.
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"CLOSING": as defined in Section 2.6 hereof.
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"CLOSING DATE": as defined in Section 2.6 hereof.
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"COLLATERAL": as defined in Section 2.2 hereof.
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"COMPANY": as defined in the preamble hereof.
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"COMPANY COMMON STOCK": as defined in Section 3.2 hereof.
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"EMPLOYMENT AGREEMENTS": as defined in Section 2.4 hereof.
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"ENVIRONMENTAL LAWS": any U.S. federal, state, or local law, rule,
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regulation, ordinance, code, permit, policy, order, or rule of common law now in
effect and in each case as amended to the date hereof and any judicial or
administrative interpretation thereof now in effect relating to Hazardous
Materials, environmental matters, the protection of public health and safety
from environmental or health concerns, or otherwise relating to environmental
conditions.
"ERISA": as defined in Section 3.8 hereof.
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"ESCROW AGENT": as defined in Section 2.2 hereof.
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"ESCROW AGREEMENT": as defined in Section 2.2 hereof.
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"ESCROWED PROPERTY": as defined in Section 2.2 hereof.
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"EXCHANGE ACT": as defined in Section 8.5 hereof.
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"HAZARDOUS MATERIALS": all hazardous substances, hazardous wastes, or
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hazardous constituents, hazardous solid wastes, special wastes, toxic
substances, pollutants, contaminants, petroleum or petroleum derived substances
or wastes, radioactive materials, urea formaldehyde, polychlorinated biphenyls,
radon gas, and related materials, including, without limitation, any such
materials defined, listed, identified under, or described in any Environmental
Laws.
"HOLDER": as defined in Section 2.1 hereof.
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"INDEMNITIES": as defined in Section 9.1 hereof.
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"LAST BALANCE SHEET": as defined in Section 3.3 hereof.
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"LAST BALANCE SHEET DATE": as defined in Section 3.3 hereof.
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"LEASED PROPERTIES": as defined in Section 3.6 hereof.
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"LEASES": as defined in Section 3.6 hereof.
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"1933 ACT": as defined in Section 3.12 hereof.
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"NOTES": as defined in Section 2.1 hereof.
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"PERSON": any individual, partnership, joint venture, corporation,
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trust, limited liability company, unincorporated organization, government or
department or agency thereof, or other entity.
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"PUBLIC SALE PRICE": as defined in Section 2.1 hereof.
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"PURCHASER": as defined in the preamble hereof.
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"PURCHASER'S COMMON STOCK": as defined in Section 2.1 hereof.
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"PURCHASER'S LAST BALANCE SHEET": as defined in Section 4.5 hereof.
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"PURCHASER'S LAST BALANCE SHEET DATE": as defined in Section 4.5
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hereof.
"RELEASE TIME": as defined in Section 7.1 hereof.
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"REGISTRATION RIGHTS AGREEMENT": as defined in Section 2.1 hereof.
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"SEC": as defined in Section 8.6 hereof.
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"SELLERS": as defined in the Preamble.
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"STOCK OPTION PLAN": as defined in Section 2.4 hereof.
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"TAKEOVER PROPOSAL": as defined in Section 7.5 hereof.
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"TAXES": as defined in Section 3.4 hereof.
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"TECHNOLOGY": any and all, whether currently existing or created
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hereafter:
(i) Technical information, plans, drawings, and documents in whatever
form, patentable or otherwise, owned by or licensed to the Company, including,
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without limitation, (x) franchises, permits, licenses, and other similar
authority and (y) processes for the manufacture, production, or utilization of
any product;
(ii) Patents and patent applications owned by or licensed to the
Company, regardless of whether registered in the United States, or elsewhere,
and all continuations, extensions, renewals and continuations-in-part, and all
rights in connection therewith, including all claims against third parties for
past, present, or future infringement relating to any of the foregoing;
(iii) All trade names, trademarks, service marks, and
registrations and registration applications related thereto, copyrights and
copyright registrations and registration applications, owned by or licensed to
the Company, and all goodwill associated therewith, and all continuations,
extensions, renewals and continuations-in-part, and all rights in connection
therewith, including all claims against third parties for past, present or
future infringement relating to any of the foregoing;
(iv) Computer programs, including, without limitation, all source
codes, algorithms, object codes, program manuals, and documentation developed
by, owned by, or licensed to the Company;
(v) All licenses, permits, and agreements of any kind or nature
pursuant to which the Company possesses, uses, or has authority to possess or
use intangible property of others, or others possess, use, or have authority to
possess or use intangible property of the Company, and all recorded data of any
kind or nature regardless of the medium or
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recording, including without limitation, all software, writings, plans,
specifications, and schematics, whether now owned or hereafter acquired.
"WARRANT": as defined in Section 2.4 hereof.
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ARTICLE II - THE TRANSACTION
2.1 TERMS OF THE TRANSACTION.
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(a) Sale of Stock. At the Closing, the Sellers shall sell, assign,
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and transfer to the Purchaser all of their right, title, and interest in and to
all of the capital stock (the "Capital Stock") of the Company, free and clear of
any claim, encumbrance, or lien of any nature whatsoever. At the Closing, each
of the Sellers shall deliver to the Purchaser stock certificates representing
such Capital Stock, duly endorsed in blank or with stock powers duly endorsed in
blank. Additionally, at the Closing, the Sellers should deliver to the
Purchaser, the Company's minute book, the Company's corporate seal, the
Company's stock ledger, and such other corporate documents and records as the
Purchaser or its counsel shall request in writing prior to the Closing.
(b) Purchase Price. The purchase price (the "Purchase Price") for the
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Capital Stock and other transactions contemplated herein shall be as follows:
(i) Cash. The aggregate sum of $600,000 in cash shall be paid by the
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Purchaser to the Sellers by wire transfer or certified checks at the Closing.
An additional aggregate sum of $600,000 in cash shall be paid by the Purchaser
to the Sellers by wire transfer or certified checks on or before July 1, 1997.
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(ii) Promissory Notes.
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(A) Notes. The Purchaser shall issue to the Sellers convertible
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promissory notes (the "Notes") in the aggregate principal amount of $1,700,000.
Interest shall accrue on the unpaid principal of the Notes, from the date of the
Closing to the date the Note is paid in full at the rate of 6% (not compounded)
per annum. The principal of the Notes shall be paid in two installments: the
aggregate sum of $600,000 shall be paid on or before January 5, 1998 and the
aggregate sum of $1,100,000 shall be paid on or before January 5, 1999.
Interest on the unpaid principal shall be paid by the Purchaser to each Note
holder ("Holder") on or before October 15 of each year. The Notes shall have
cross default provisions. The form of Note is annexed hereto as Exhibit
2.1(b)(ii).
(B) Convertibility. Each Note shall be convertible, at the option of
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the Holder, but subject to the conditions set forth below, at a conversion price
equal to a 10% discount to the closing public sale price of the Purchaser's
common stock, par value $.01 per share (the "Purchaser's Common Stock"), on the
date the Note holder delivers notice to the Purchaser of its election to
convert. The closing public sale price ("Public Sale Price") shall be
determined by taking the average closing bid and asked price as reported in the
Wall Street Journal for the five trading days immediately preceding the date on
which the Note holder delivers notice of its election to convert. The Notes can
be converted only in minimum principal amounts of $50,000. The notes shall not
be convertible (x) prior to April 15, 1997 or (y) at any time that the closing
Public Sale Price is less than 6 1/8. The Sellers shall have incidental or
"piggy-back" registration rights with respect to the Purchaser's Common Stock
issued upon conversion of the Notes.
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(iii) Common Stock. The Purchaser shall deliver to the Sellers, in
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the aggregate, shares of the Purchaser's Common Stock valued at $200,000, in
accordance with the schedule set forth below. The value of the Purchaser's
Common Stock to be delivered pursuant to this Section 2.1(b)(iii) shall be
determined by taking the average closing bid and asked price of the Purchaser's
Common Stock as reported in the Wall Street Journal for the 20 trading days
immediately preceding the issuance of such Purchaser's Common Stock. The Sellers
shall have incidental or "piggy back" registration rights with respect to the
Purchaser's Common Stock issued hereunder. At the Closing, the Sellers and the
Purchaser shall enter into a Registration Rights Agreement (the "Registration
Rights Agreement") substantially in the form attached hereto as Exhibit
2.1(b)(iii).
VALUE OF STOCK DATE OF ISSUANCE
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$50,000 Closing Date
$50,000 On or before July 1, 1997
$50,000 On or before January 5, 1998
$50,000 On or before January 5, 1999
2.2 SECURITY INTEREST.
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(a) As security for NWC's obligation to pay the Purchase Price, NWC
shall pledge the Capital Stock to the Sellers. At the Closing, (i) 790 shares
of Capital Stock (representing 79% of the Capital Stock) and (ii) an assignment
(the "Assignment") of the Xxxxxxxxxx'x Coffee & Tea trademark and tradename
(collectively, the "Escrowed Property") shall be delivered by the Purchaser to
the law firm of Camhy Xxxxxxxxx & Xxxxx LLP and Xxxxx & Xxxx, P.C. (collectively
the "Escrow Agents"), who shall hold the Escrowed Property on behalf of the
Sellers, as pledgees. At the Closing, the Escrow Agents, NWC, and each of the
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Sellers shall enter into an Escrow Agreement (the "Escrow Agreement")
substantially in the form of Exhibit 2.2.
(b) Pursuant to the terms of the Escrow Agreement, the Escrow Agents
shall release the Capital Stock and Assignment from escrow only as follows: (i)
210 shares of Capital Stock upon the Purchaser delivering shares of the
Purchaser's Common Stock valued at $50,000, to the Sellers and paying the
$600,000 due and payable to the Sellers on or before July 1, 1997; (ii) Two
Hundred Ten (210) shares of Capital Stock upon the Purchaser delivering shares
of Purchaser's Common Stock valued at $50,000 to the Sellers and paying the
$600,000 due and payable to Sellers on or before January 5, 1998, provided
however, that the Escrow Agent shall release only 70 shares of Capital Stock to
the Purchaser from the escrow for this payment if Purchaser's net worth
(Stockholders Equity) reported in its September 30, 1997 Quarterly Report to the
SEC on Form 10-QSB is less than $7,000,000; and (iii) the balance of the Capital
Stock and the Assignment shall be delivered by the Escrow Agent to the Purchaser
upon satisfaction of the Purchaser's obligations for the Purchase Price.
(c) [Reserved]
2.3 NAME.
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Until the Sellers have received, in the aggregate, the sum of
$1,950,000 in cash and Purchaser's Common Stock, the Purchaser shall continue to
use the name "Xxxxxxxxxx'x Coffee & Tea" at all of Xxxxxxxxxx'x retail stores
existing as of the Closing. After such time and until the entire purchase price
has been paid, Purchasers may change or discontinue the use
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of the name Xxxxxxxxxx'x Coffee & Tea but only with the written consent of the
Sellers, which consent shall not be unreasonably withheld.
2.4 EMPLOYMENT AGREEMENTS.
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(a) Employment Agreements. At the Closing and as a condition to the
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Closing, each of the Sellers shall enter into employment agreements
substantially in the form of Exhibit 2.4 (the "Employment Agreements"). The
Employment Agreements will contain such terms and conditions as are mutually
agreed upon by the Purchaser and the Sellers including, without limitation, the
following terms:
(i) The term of such Employment Agreement shall be until
January 15, 1999.
(ii) The base salary (the "Base Salary") for each Employment
Agreement shall be $75,000 per annum.
(iii) The minimum guaranteed bonus annually shall be 40% of
the Base Salary and shall be paid within 30 days after
completion of Company's year end audited financial
statements but in no event later than March 31.
(iv) Each Seller shall have the title of Vice President -
Coffee and each Seller shall report directly to the Chief
Executive Officer of the Purchaser.
(v) Each Employment Agreement shall contain non-competition
restrictions during the period of employment and one year
thereafter provided that such non-competition restrictions
shall terminate sooner if the Purchaser materially
breaches its obligations to make any payment of the
Purchase Price and such breach continues after any
applicable notice and grace period.
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(vi) The Employment Agreements shall provide that each of
Messrs. Xxxxxx and Xxxxxxxx shall receive warrants (the
"Warrants") for 20,000 shares of the Purchaser's Common
Stock at the Closing and 20,000 shares of the Purchaser's
Common Stock for each full year they are employed by the
Purchaser. Other than the Warrants issued at the Closing,
the Warrants shall be issued on the anniversary dates of
employment. The Warrants shall have an exercise price
equal to the closing public sale price of the underlying
Common Stock on the date of issuance of the Warrants.
Messrs. Xxxxxx and Xxxxxxxx right of exercise of the
Warrants shall be cumulative. Each Warrant for 20,000
shares shall vest as to 5,000 shares on an annual basis
and shall fully vest our a four year period. The Warrants
shall be granted pursuant to and shall be subject to the
Purchaser's employee stock option plan ("Stock Option
Plan"). Further, such Warrants shall, if meeting the
requirements therefor, be considered incentive stock
options ("ISO's").
(vii) The Purchaser shall provide to Messrs. Xxxxxx and
Xxxxxxxx (and their dependents), the Aetna Managed Choice
Plan providing for choice of plan doctors (100% coverage
with $10 co-pay) or non-plan doctors (80% coverage).
(viii) The Purchaser shall continue to pay all life insurance
premiums with respect to all life insurance policies
heretofore paid by Xxxxxxxxxx'x as of September 15, 1996.
(ix) The Employment Agreements shall provide for a car
allowance for each of Messrs. Xxxxxx and Xxxxxxxx in the
amount of $6,000 per annum.
(b) Other Employee Issues. The Purchaser will give priority treatment
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in retaining and hiring Xxxxxxxxxx'x current employees in staffing the current
Xxxxxxxxxx'x retail stores and roasting facility. Further, as of the Closing
Date, employees of Xxxxxxxxxx'x shall be eligible for and shall be considered
for the Purchaser's Stock Option Plan.
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2.5 DEBT.
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To the extent that the aggregate debt of the Company exceeds $700,000
as of the Closing Date, such excess shall, at the option of the Purchaser,
either (x) be assigned to Messrs. Xxxxxx and Xxxxxxxx or (y) be credited against
the principal amount due to the Sellers under the Notes.
2.6 CLOSING.
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The Closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of Camhy Xxxxxxxxx & Xxxxx LLP at 0000
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx X.X.X. 00000 at 10:00 a.m., New York City time on
or before November 1, 1996 (the "Closing Date") or such other time or date as
the parties may mutually agree, but in no event later than November 15, 1996.
If the Closing shall not take place by November 15, 1996, then the parties not
at fault shall have the right to cancel and terminate this Agreement pursuant to
and subject to the provisions and conditions of Section 10.1(b) hereof.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of the Sellers, jointly and severally, represent and warrant to
the Purchaser as follows:
3.1 ORGANIZATION AND QUALIFICATION.
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The Company does not own any capital stock of any corporation or any
interest in any other Person. The business and operations of the Company are
conducted solely by and through the Company. Schedule 3.1 correctly sets forth
the Company's place of incorporation,
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xxxxxxxxx xxxxx of business, and jurisdictions in which it is qualified to do
business. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with all
requisite power and authority, and all necessary consents, authorizations,
approvals, orders, licenses, certificates, and permits of and from, and
declarations and filings with, all governmental authorities, and all courts and
other tribunals, to own, lease, license, and use its properties and assets and
to carry on the business in which it is now engaged. The Company is duly
qualified to transact the business in which it is now engaged and is in good
standing as a foreign corporation in every jurisdiction in which its ownership,
leasing, licensing, or use of property or assets or the conduct of its business
makes such qualification necessary.
3.2 CAPITALIZATION.
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The authorized Capital Stock of the Company consists solely of 1,000
shares of Company Common Stock, no par value per share ("Company Common Stock"),
of which 1,000 shares are issued and outstanding. Each of such outstanding
shares of Company's Capital Stock is validly authorized, validly issued, fully
paid, and nonassessable, has not been issued and is not owned or held in
violation of any preemptive right of stockholders, and is owned of record and
beneficially in accordance with the following table:
Name of Stockholder Number of Shares
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Xxxxx X. Xxxxxx 500
Xxxxxx X. Xxxxxxxx 500
The Company's Capital Stock is owned by its holders free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
and voting trusts. There
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is no commitment, plan, or arrangement to issue, and no outstanding option,
warrant, or other right calling for the issuance of, any share of Capital Stock
of the Company or any security or other instrument convertible into, exercisable
for, or exchangeable for Capital Stock of the Company. There is no outstanding
security or other instrument convertible into or exchangeable for Capital Stock
of the Company.
3.3 FINANCIAL CONDITION.
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(a) The Sellers have delivered to the Purchaser true and correct
copies of the following: the unaudited balance sheet of the Company as of April
30, 1996 and 1995 and the unaudited statements of income, statements of retained
earnings, and statements of cash flows of the Company for the years ended April
30, 1996 and 1995. The Sellers have also delivered to Purchaser true and
correct copies of the interim unaudited balance sheet (the "Last Balance Sheet")
of the Company as of September 30, 1996 (the "Last Balance Sheet Date") and the
interim unaudited statement of income, statement of retained earnings, and
statement of cash flows for the five month period ended September 30, 1996.
Each such balance sheet presents fairly the financial condition, assets,
liabilities, and stockholders' equity of the Company as of its date; each such
statement of income and statement of retained earnings presents fairly the
results of operations of the Company for the period indicated and its retained
earnings as of the date indicated; and each such statement of cash flows
presents fairly the information purported to be shown therein. The financial
statements referred to in this Section 3.3 are in accordance with the books and
records of the Company.
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(b) As of the date hereof, and as of the Closing Date, the total debt
of the Company, including, without limitation, two SBA loans, a loan from
Purchaser, and certain short term advances from Messrs. Xxxxxx and Xxxxxxxx,
does not exceed $700,000.
(c) Since the Last Balance Sheet Date:
(i) There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities, or, to each of Seller's knowledge, the future prospects of Company.
(ii) The Company has not authorized, declared, paid, or effected any
dividend or liquidating or other distribution in respect of its capital stock or
any direct or indirect redemption, purchase, or other acquisition of any stock
of the Company.
(iii) The operations and business of the Company have been
conducted in all respects only in the ordinary course.
(iv) The Company has not suffered an extraordinary loss (whether or
not covered by insurance) or waived any right of substantial value.
(d) Except as set forth on Schedule 3.3 hereof, there is no fact
known to the Sellers or the Company which materially and adversely affects or in
the future (as far as the Sellers can reasonably foresee) may reasonably be
likely to materially and adversely affect the financial condition, results of
operations, business, properties, assets, liabilities, or future
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prospects of the Company; provided, however, that the Sellers express no opinion
as to political or economic matters of general applicability.
3.4 TAX AND OTHER LIABILITIES.
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The Company has no liability of any nature, accrued or contingent,
including, without limitation, liabilities for U.S. federal, state, or local
taxes, or any other foreign taxes or any penalties, interest, and additions to
taxes (collectively, "Taxes") and liabilities to customers or suppliers, other
than the following: (a) liabilities for which full provision has been made on
the Last Balance Sheet; and (b) other liabilities arising since the Last Balance
Sheet Date and prior to the Closing in the ordinary course of business which are
not inconsistent with the representations and warranties of the Sellers or any
other provision of this Agreement. Without limiting the generality of the
foregoing, the amounts set up as provisions for Taxes on the Last Balance Sheet
adequately reflect all accrued and unpaid Taxes of the Company, whether or not
due and payable and whether or not disputed, under tax laws, as in effect on the
Last Balance Sheet Date or now in effect, for the period ended on such date and
for all fiscal periods prior thereto. The Company has filed all U.S. Federal,
state, or local and foreign tax returns required to be filed by it; has
delivered to Purchaser a true and correct copy of each such return which was
filed in the past three (3) years, and has paid (or has established on the Last
Balance Sheet a reserve for) all Taxes, assessments, and other governmental
charges payable or remittable by it or levied upon it or its properties, assets,
income, or franchises which are due and payable.
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3.5 LITIGATION AND CLAIMS.
---------------------
Except as set forth on Schedule 3.5, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending, or to the knowledge of the Sellers, threatened, with
respect to the Company, or any of its respective businesses, properties, or
assets. To the knowledge of the Sellers, there has occurred no event which is
reasonably likely to give rise to such litigation, arbitration, claim,
governmental, or other proceeding or investigation. The Company is not affected
by any present or threatened strike or other labor disturbance nor to the
knowledge of the Sellers is any union attempting to represent any employee of
the Company as collective bargaining agent. The Company is not in violation of,
or in default with respect to, any law, rule, regulation, order, judgment, or
decree, the violation of which would have a material adverse effect on the
Company; nor is the Company required to take any action in order to avoid such
violation or default.
3.6 PROPERTIES.
----------
(a) Set forth on Schedule 3.6(a)(i) is a list of all properties in
which the Company holds a leasehold or other possessory interest ("Leased
Properties") along with a full description of the respective leases or other
agreements granting such rights ("Leases"). There are no other leases,
licenses, options to lease, leasehold mortgages, security agreements or other
similar types of agreements whether oral or written with respect to the
Company's interest in the Leased Properties that are currently in force or
executed but not yet effective. A true and complete copy of each of the Leases
(including all amendments and material correspondence related to the Leases) has
been delivered to the Purchaser and is fully described on Schedule 3.6(a)(i).
The Company has a valid and subsisting leasehold estate in and the right to
quiet
-18-
enjoyment of the Leased Properties for the full term described in the respective
Leases. The Company has the right to, and has, exclusive possession of all of
the Leased Properties and there are no subleases, licenses or other occupancy
agreements for use of any of the Leased Properties whether oral or written that
are currently in force or executed but not yet effective (other than the
Leases). The rent currently being paid by the Company with respect to the Leased
Properties is as reflected in the Leases. There is no default by any party under
the Leases or under any restrictive covenant affecting any of the Leased
Properties and no event has occurred or circumstance exists that with the
passage of time or the giving of notice would amount to a default under any of
the Leases or such restrictive covenants. No consent is required of any party
when there is a transfer of stock of the Company nor shall such transfer be
deemed a default under any of the Leases, except as otherwise disclosed on
Schedule 3.6(a)(i). In connection with the leases listed on Schedule 3.6(a)(i),
requiring the landlord's consent with respect to the sale of the Company's
Capital Stock pursuant to this Agreement, on or before the Closing the Company
shall obtain an unconditional written consent from each landlord under each of
such leases. There are no unpaid commissions or other similar fees due to any
broker, agent, or other party with regard to any of the Leases. The Company has
fully discharged all obligations to make any improvements to any of the Leased
Properties, other than as set forth on Schedule 3.6(a)(i). None of the Sellers
have received any citation, subpoena, summons or other notice from any
governmental or regulatory agency alleging a violation of, or asserting
liability under, any laws applicable to the Leased Properties or the
improvements located thereon including, without limitation, any building,
zoning, fire safety, environmental protection, parking, architectural barriers
to the handicapped, occupational safety or other applicable law
-19-
and the Company is not in violation of any of such laws. There are no pending
or, to the knowledge of Sellers threatened, condemnation or appropriation
proceedings against any of the Leased Properties. The Company does not own any
fee interest in any real estate. No real property owned, leased, or licensed by
the Company lies in an area which is, or to the knowledge of the Sellers will
be, subject to zoning, use, or building code restrictions that would prohibit
the continued effective ownership, leasing, licensing, or use of such real
property in the business which the Company is now engaged.
(b) Set forth in Schedule 3.6(b) is a true and complete list of all
tangible personal properties and tangible assets (other than accounts receivable
and real property) exceeding Ten Thousand ($10,000.00) Dollars (U.S.)
individually or Ten Thousand ($10,000.00) Dollars (U.S.) for single categories
of assets (in each case as reflected on the Last Balance Sheet) owned by the
Company or leased or licensed by the Company from or to a third party. All such
properties and assets owned by the Company are reflected on the Last Balance
Sheet (except for acquisitions subsequent to the Last Balance Sheet Date which
are noted on Schedule 3.6(b)). All such properties and assets owned, leased, or
licensed by the Company are in good and usable condition (reasonable wear and
tear which is not such as to affect adversely the operation of the business of
the Company excepted).
(c) All accounts and notes receivable reflected on the Last Balance
Sheet, or arising since the Last Balance Sheet Date, have been collected, or are
and will be good and collectible, in each case with respect to at least ninety
five (95%) percent of the aggregate
-20-
recorded amounts thereof without right or recourse, defense, deduction, return
of goods, counterclaim, offset, or set-off.
(d) The Company has received no notification, nor to the Sellers'
knowledge, are they aware, that (i) Hazardous Materials have been generated,
used, treated or stored on, or transported to or from, any property that is
leased, owned, or used by the Company, (ii) Hazardous Materials have been
released or disposed of on any such property, or (iii) the Company is not in
compliance in all material respects with applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws with respect to
any such property. There are no pending or, to the knowledge of the Sellers
threatened claims, suits, demands, investigations, proceedings or other actions
relating to any Environmental Law with respect to any such property.
3.7 CONTRACTS AND OTHER INSTRUMENTS.
-------------------------------
Except as otherwise noted on Schedule 3.7 (or otherwise disclosed
herein or pursuant hereto), Schedule 3.7 accurately and completely sets forth a
list of all material contracts, agreements, loan agreements, instruments,
leases, licenses, arrangements, or understandings with respect to the Company.
The Sellers have furnished to Purchaser prior to the date hereof, true and
correct copies of the certificate or articles of incorporation (or other charter
document) and by-laws of the Company and all amendments thereto, as presently in
effect. Each such contract, agreement, loan agreement, instrument, lease, or
license is in full force and is the legal, valid, and binding obligation of the
Company and is enforceable as to it in accordance with its terms. The Company
is not in violation, in breach of, or in default with
-21-
respect to any material terms of any such contract, agreement, loan agreement,
instrument, lease, or license. Except for employment agreements and as
disclosed in Schedule 3.7, the Company is not a party to any contract,
agreement, loan agreement, instrument, lease, license, arrangement, or
understanding with, a Seller or any director, officer, or employee of a Seller,
or any Affiliate of a Seller, or the Company or of any such director, officer,
or employee. The stock ledgers and stock transfer books and the minute book
records of the Company relating to all issuances and transfers of capital stock
and all proceedings of the stockholders and the Board of Directors and
committees thereof of the Company since its incorporation made available to
Purchaser are the original stock ledgers and stock transfer books and minute
book records of the Company or exact copies thereof.
3.8 EMPLOYEES.
---------
(a) The Company does not have and it does not contribute to, any
pension, profit sharing, option, other incentive plan, or any other type of
Employee Benefit Plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or the analogous foreign
laws, and does not have any obligation to or customary arrangement with
employees for bonuses, incentive compensation, vacations, severance pay,
insurance, or other benefits, except as set forth in Schedule 3.8. The Company
has furnished to the Purchaser: (i) true and correct copies of all documents
evidencing plans, obligations, or arrangements referred to in Schedule 3.8 (or
true and correct written summaries, of such plans, obligations, or arrangements
to the extent not evidenced by documents) and true and correct copies, of all
documents evidencing trusts, summary plan descriptions, and any other summaries
or descriptions relating to any such plans; and (ii) the two most recent annual
reports, if any,
-22-
including all schedules thereto and the most recent annual and periodic
accounting of related plan assets with respect to each Employee Benefit Plan.
(b) Schedule 3.8 contains a true and correct statement of the names,
relationship with the Company, present rates of compensation (whether in the
form of salary, bonuses, commissions, or other supplemental compensation now or
hereafter payable), and aggregate compensation for the fiscal year ending April
30, 1996 of each director, officer, or other employee of the Company whose
aggregate compensation for the fiscal year ended April 30, 1996 exceeds Fifty
Thousand ($50,000) Dollars per annum.
3.9 INTANGIBLES.
-----------
(a) Set forth on Schedule 3.9(a) is a list of and description of
all Technology owned by the Company.
(b) Set forth on Schedule 3.9(b) is a list of and description of
all Technology licensed to the Company.
(c) The Technology listed on Schedules 3.9(a) and 3.9(b) is
uncontested. All rights to the Technology are owned by or licensed to the
Company free and clear of any claim, lien, or encumbrance of any nature
whatsoever.
(d) None of the Sellers, any director, officer, or employee of the
Sellers, nor any Affiliate of the Sellers or of any such director, officer, or
employee, possesses any Technology which relates to the business of the Company.
-23-
(e) There is no right under any Technology necessary to the business
of the Company, except such as are so designated in Schedules 3.9(a) and (b).
The Company has not infringed, is not infringing, and has not received notice of
any infringement with asserted intellectual property, intangibles, or technology
of others. To the knowledge of the Sellers, there is no infringement by others
of Technology of the Company.
3.10 QUESTIONABLE PAYMENTS.
---------------------
None of the Company, any director, officer, agent, employee, or other
person associated with or acting on behalf of the Company has, directly, or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; made any false or fictitious entry on the books or records of the
Company; or made any bribe, kickback, or other payment of a similar or
comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
3.11 AUTHORITY TO SELL.
-----------------
(a) Each of the Sellers and the Company has the capacity to execute,
deliver, and perform this Agreement and the transactions contemplated hereby.
All necessary corporate proceedings of each of the Sellers and the Company have
been duly taken to authorize
-24-
the execution, delivery, and performance of this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
of the Sellers and the Company, is the legal, valid, and binding obligation of
each of the Sellers, and the Company, and is enforceable as to each of them in
accordance with its terms. None of the Sellers and the Company is under any
contractual restriction or obligation which is inconsistent with the execution
and performance of this Agreement and the transactions contemplated hereby. The
Sellers and the Company have no knowledge of any consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any governmental authority or any court or other tribunal that is
required by the Sellers, and the Company for the execution, delivery, or
performance of this Agreement by the Sellers and the Company.
(b) No consent of any party to any material lease, license,
distribution, agency, consulting, employment, financing, lending, installment
sale or conditional sale, security, pledge, guarantee, or other agreement,
arrangement, or understanding to which the Sellers, or the Company is a party,
or to which any of their properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement, except as otherwise
disclosed in Schedule 3.11. None of the Sellers or the Company have made any
agreement or understanding not approved in writing by Purchaser as a condition
for obtaining any consent, authorization, approval, order, license, certificate,
or permit required for the consummation of the transactions contemplated by this
Agreement. The execution, delivery, and performance of this Agreement by the
Sellers and the Company will not violate, result in a breach of, conflict with,
or (with or without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under such lease, license,
distribution, agency, consulting,
-25-
employment, financing, lending, installment sale or conditional sale, security,
pledge, guarantee, or other agreement, or understanding, or violate or result in
a breach of any term of the certificate or articles of incorporation (or other
charter document) or by-laws of the Company, or, to the Sellers' knowledge,
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on any of the Sellers or the Company, or to
which any of his or its operations, business, properties, or assets are subject.
3.12 NON-DISTRIBUTIVE INTENT.
-----------------------
Each of the Sellers are acquiring the shares of Purchaser's Common
Stock to be issued pursuant to Section 2.1(iii) hereof for his own account (and
not for the account of others) for investment and not with a view to the
distribution thereof. The Sellers will not sell or otherwise dispose of such
shares without registration under the Securities Act of 1933 (the "1933 Act"),
or an exemption therefrom.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants to the Sellers as follows:
4.1 ORGANIZATION.
------------
The Purchaser is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware, with all requisite
power and authority to own, lease, license, and use its properties and assets
and to carry on the business in which it is now engaged and in which it
contemplates engaging.
-26-
4.2 AUTHORITY TO BUY.
----------------
The Purchaser has all requisite power and authority to execute,
deliver, and perform this Agreement and the transactions contemplated hereby.
All necessary corporate proceedings of Purchaser have been duly taken to
authorize the execution, delivery, and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly authorized,
executed, and delivered by Purchaser, is the legal, valid, and binding
obligation of Purchaser, and is enforceable as to it in accordance with their
respective terms. The Purchaser is under no contractual restriction or
obligation which is inconsistent with the execution and performance of this
Agreement and the transactions contemplated hereby. The Purchaser has no
knowledge of any consent, authorization, approval, order, license, certificate,
or permit of or from, or declaration or filing with, any governmental authority
or any court or tribunal that is required by Purchaser for the execution,
delivery, or performance of this Agreement.
4.3 VALIDITY OF SHARES.
------------------
The shares of Purchaser's Common Stock to be issued to the Sellers
pursuant to this Agreement, will be validly authorized, validly issued, fully
paid, and nonassessable.
4.4 SHARES RESERVED.
---------------
The Purchaser has reserved a sufficient number of shares of
Purchaser's Common Stock for issuance pursuant to this Agreement.
-27-
4.5 PURCHASER'S FINANCIAL CONDITION.
-------------------------------
(a) The Purchaser has delivered to the Sellers a true and correct copy
of the following: the audited balance sheet of the Purchaser as of December 31,
1995 and the unaudited statements of income, statements of retained earnings,
and statements of cash flows of the Purchaser for the years ended December 31,
1995. The Purchaser has also delivered to Sellers true and correct copies of the
interim unaudited balance sheet (the "Purchaser's Last Balance Sheet") of the
Purchaser as of June 30, 1996 (the "Purchaser's Last Balance Sheet Date") and
the interim unaudited statement of income, statement of retained earnings, and
statement of cash flows for the six month period ended June 30, 1996. Each such
balance sheet presents fairly the financial condition, assets, liabilities, and
stockholders' equity of the Purchaser as of its date; each such statement of
income and statement of retained earnings presents fairly the results of
operations of the Purchaser for the period indicated and its retained earnings
as of the date indicated; and each such statement of cash flows presents fairly
the information purported to be shown therein. The financial statements referred
to in this Section 4.5 have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved and
are in accordance with the books and records of the Company.
(b) Since the Purchaser's Last Balance Sheet Date:
(i) There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities, or, to each of Seller's knowledge, the future prospects of
Purchaser.
-28-
(ii) The Purchaser has not authorized, declared, paid, or effected any
dividend or liquidating or other distribution in respect of its capital stock or
any direct or indirect redemption, purchase, or other acquisition of any stock
of the Purchaser.
(iii) The operations and business of the Purchaser have been
conducted in all respects only in the ordinary course.
(iv) The Purchaser has not suffered an extraordinary loss (whether or
not covered by insurance) or waived any right of substantial value.
(c) Except as set forth on Schedule 4.5 hereof, there is no fact known
to the Purchaser which materially and adversely affects or in the future (as far
as the Purchaser can reasonably foresee) may reasonably be likely to materially
and adversely affect the financial condition, results or operations, business,
properties, assets, liabilities, or future prospects of the Purchaser; provided,
however, that the Purchaser expresses no opinion as to political or economic
matters of general applicability.
4.6 NWC TAX AND OTHER LIABILITIES.
-----------------------------
The Purchaser has no liability of any nature, accrued or contingent,
including, without limitation, liabilities for Taxes and liabilities to
customers or suppliers, other than the following: (a) liabilities for which full
provision has been made on the Purchaser's Last Balance Sheet; and (b) other
liabilities arising since the Purchaser's Last Balance Sheet Date and prior to
the Closing in the ordinary course of business which are not inconsistent with
the representations and warranties of the Purchaser or any other provision of
this Agreement. Without limiting the generality of the foregoing, the amounts
set up as provisions for Taxes on
-29-
the Purchaser's Last Balance Sheet adequately reflect all accrued and unpaid
Taxes of the Purchaser, whether or not due and payable and whether or not
disputed, under tax laws, as in effect on the Purchaser's Last Balance Sheet
Date or now in effect, for the period ended on such date and for all fiscal
periods prior thereto. No governmental authority has audited any income tax
returns of NWC. The Purchaser has filed all U.S. Federal, state, or local and
foreign tax returns required to be filed by it.
ARTICLE V - CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement are subject, at the
option of Purchaser, to the following conditions:
5.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS.
----------------------------------------------------------
All representations and warranties of the Sellers contained in this
Agreement shall be accurate when made and, in addition, shall be accurate as of
the Closing as though such representations and warranties were then made in
exactly the same language by the Sellers and regardless of the knowledge or lack
thereof on the part of the Sellers or changes beyond their control; as of the
Closing, the Sellers shall have performed and complied with all covenants and
agreements and satisfied all conditions required to be performed and complied
with by any of them at or before such time by this Agreement; and Purchaser
shall have received a certificate executed by the Sellers, dated the date of the
Closing, to that effect.
-30-
5.2 OPINION OF COUNSEL.
------------------
The Sellers shall deliver to Purchaser on the Closing Date the opinion
of counsel to the Sellers, dated as of the Closing Date, in form and substance
satisfactory to counsel for Purchaser, substantially to the effect that:
(a) The Company is a corporation validly existing and in good
standing under the laws of Connecticut.
(b) The Company is duly qualified to transact the business in
which it is engaged.
(c) The authorized and outstanding Capital Stock of the Company is as
set forth in Section 3.2 of this Agreement; and all of such outstanding shares
of Capital Stock of the Company are validly authorized and issued, fully paid,
and nonassessable.
(d) All necessary corporate proceedings of each of the Sellers and the
Company have been duly taken to authorize the execution, delivery, and
performance of this Agreement by each of the Sellers and the Company and the
consummation of the transactions contemplated by this Agreement.
(e) After reasonable investigation, such counsel has no knowledge of
any consent of, or declaration or filing with, any governmental authority which
is required of the Sellers, and the Company for the execution, delivery, or
performance of this Agreement by the Sellers and the Company.
-31-
(f) After reasonable investigation, such counsel has no knowledge of
any action, suit, or proceeding, pending or threatened against the Company or
the Sellers, at law or in equity, or before any governmental department,
commission, board, bureau, agency, or instrumentality that (i) can reasonably be
expected to result in any materially adverse change in the business, properties,
operations, prospects, or assets or in the condition, financial or otherwise, of
the Company, or (ii) seeks to prohibit or otherwise challenge the consummation
of the transactions contemplated by this Agreement, or to obtain substantial
damages with respect thereto.
(g) This Agreement has been duly authorized, executed, and delivered
by the Sellers and the Company, constitutes the legal, valid, and binding
obligation of the Sellers and the Company, and (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally) is enforceable as to each of the Sellers and the
Company in accordance with its terms.
5.3 OTHER CLOSING DOCUMENTS.
-----------------------
The Sellers shall have delivered to Purchaser at or prior to the
Closing such other documents as Purchaser or its counsel may reasonably request
in order to enable Purchaser to determine whether the conditions to its
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.
-32-
5.4 LEGAL ACTION.
------------
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
5.5 NO GOVERNMENTAL ACTION.
----------------------
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any governmental authority or by any court or other tribunal,
including the entry of a preliminary or permanent injunction, which, in the sole
judgment of Purchaser, (a) makes any of the transactions contemplated by this
Agreement illegal, (b) results in a delay in the ability of Purchaser to
consummate any of the transactions contemplated by this Agreement, (c) requires
the divestiture by Purchaser of any of the shares of the Company's Capital Stock
to be acquired pursuant to this Agreement or of a material portion of the
business of either Purchaser or of the Company, (d) imposes material limitations
on the ability of Purchaser effectively to exercise full rights of ownership of
such shares of the Company's Capital Stock including the right to vote such
shares on all matters properly presented to the shareholders of the Company, or
(e) otherwise prohibits, restricts, or delays consummation of any of the
transactions contemplated by this Agreement or impairs the contemplated benefits
to Purchaser of any of the transactions contemplated by this Agreement.
-33-
5.6 CONTRACTUAL CONSENTS.
--------------------
The parties to this Agreement shall have obtained at or prior to the
Closing, all consents required for the consummation of the transactions
contemplated by this Agreement from any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which any of them
is a party, or to which any of them or any of their respective businesses,
properties, or assets are subject.
5.7 MATERIAL ADVERSE CHANGE.
-----------------------
Since the Last Balance Sheet Date, there shall have been no event or
development or combinations of changes or developments, individually or in the
aggregate, that could be reasonably expected to have a material adverse effect
on the business, operations, or future prospects of the Company.
ARTICLE VI - CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of the Sellers under this Agreement are subject, at
the option of the Sellers, to the following conditions:
6.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS.
----------------------------------------------------------
All representations and warranties of Purchaser contained in this
Agreement shall be accurate when made and, in addition, shall be accurate as of
the Closing as though such representations and warranties were then made in
exactly the same language by Purchaser and regardless of the knowledge or lack
thereof on the part of Purchaser or changes beyond its control; as of the
Closing, Purchaser shall have performed and complied with all conditions
-34-
required to be performed and complied with by it at or before such time by this
Agreement; and the Sellers shall have received a certificate executed by an
executive officer of Purchaser, dated the date of the Closing, to that effect.
6.2 OPINION OF COUNSEL.
------------------
Purchaser shall deliver to the Sellers on the Closing Date the opinion
of counsel to Purchaser, dated as of the Closing Date, in form and substance
satisfactory to counsel to the Sellers, substantially to the effect that:
(a) Purchaser is a corporation validly existing and in good
standing under the laws of the State of Delaware.
(b) All necessary corporate proceedings of Purchaser have been duly
taken to authorize the execution, delivery, and performance or this Agreement,
and the consummation of the transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed, and delivered
by Purchaser, constitute the legal, valid, and binding obligations of Purchaser,
and (subject to applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) are enforceable as to Purchaser
in accordance with its respective terms.
6.3 OTHER CLOSING DOCUMENTS.
-----------------------
Purchaser shall have delivered to the Sellers at or prior to the
Closing such other documents as the Sellers or their counsel may reasonably
request in order to enable the Sellers
-35-
to determine whether the conditions to their obligations under this Agreement
have been met and otherwise to carry out the provisions of this Agreement.
6.4 LEGAL ACTION.
------------
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
6.5 RELEASES.
--------
(a) The Company will pay the Centerbank loans in full at the Closing
and thereafter will secure for Sellers and their spouses' releases from their
personal guaranties of such loans, and the collateral securing such loans.
6.6 INSURANCE POLICIES.
------------------
At the Closing, the Company shall assign to the Sellers the Aetna Life
insurance policies listed on Exhibit 6.6 attached hereto.
ARTICLE VII - COVENANTS OF THE SELLERS
The Sellers covenant and agree as follows:
7.1 ACCESS.
------
Until the earlier of the Closing and the rightful abandonment or
termination of this Agreement pursuant to Article X or otherwise (the "Release
Time"), the Sellers will cause the Company to afford the officers, employees,
counsel, agents, investment bankers, accountants,
-36-
and other representatives of Purchaser free and full access to the plants,
properties, books, and records of the Company, will permit them to make extracts
from the copies of such books and records, and will from time to time furnish
Purchaser with such additional financial and operating data and other
information as to the financial condition, results of operations, businesses,
properties, assets, liabilities, or future prospects of the Company as Purchaser
from time to time may reasonably request.
7.2 CONDUCT OF BUSINESS.
-------------------
Until the Release Time, the Sellers will use their best efforts to
cause the Company to conduct its affairs so that at the Closing no
representation or warranty of the Sellers will be inaccurate, no covenant or
agreement of the Sellers will be breached, and no condition in this Agreement
will remain unfulfilled by reason of the actions or omissions of the Company.
Except as otherwise requested by Purchaser in writing, until the Release Time,
the Sellers will cause the Company to use its best efforts to preserve the
business and operations of the Company intact, to keep available the services of
their present personnel, to preserve in full force and effect the contracts,
agreements, instruments, leases, licenses, arrangements, and understandings of
the Company, and to preserve the good will of their customers, and others having
business relations with any of them. Until the Release Time, the Sellers will
cause the Company to conduct its business and operations in all respects only in
the ordinary course.
7.3 ADVICE OF CHANGES.
-----------------
Until the Release Time, the Sellers will immediately advise Purchaser
in a detailed written notice of any fact or occurrence or any pending or
threatened occurrence of which any
-37-
of them obtains knowledge and which (if existing and known at the date of the
execution of this Agreement) would have been required to be set forth or
disclosed in this Agreement or a Schedule hereto, which (if existing and known
at any time prior to or at the Closing) would make the performance by any party
of a covenant contained in this Agreement impossible or make such performance
materially more difficult than in the absence of such fact or occurrence, or
which (if existing and known at the time of the Closing) would cause a condition
to any party's obligations under this Agreement not to be fully satisfied.
7.4 PUBLIC STATEMENTS.
-----------------
Until the Release Time, the Sellers shall not disseminate any
information to the public regarding this Agreement or the transactions
contemplated hereby, without the prior written consent of Purchaser.
Notwithstanding the foregoing, nothing contained herein shall prevent the
Sellers or the Company from releasing any information to any governmental
authority or to the public if required to do so by law.
7.5 OTHER PROPOSALS.
---------------
Until the Release Time, the Sellers shall not, and shall neither
authorize nor permit any officer, director, employee, counsel, agent, investment
banker, accountant, or other representative of any of them directly or
indirectly, to: (i) initiate contact with any person or entity in an effort to
solicit any Takeover Proposal (as such term is defined in this Section 7.5);
(ii) cooperate with, or furnish or cause to be furnished any non-public
information relating to the financial conditions, results of operations,
business, properties, assets, liabilities, or future prospects of the Company to
any person or entity in connection with any Takeover Proposal;
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(iii) negotiate with any person or entity with respect to any Takeover Proposal;
or (iv) enter into any agreement or understanding with the intent to effect a
Takeover Proposal of which any of them becomes aware. As used in this Section
7.5, "Takeover Proposal" shall mean any proposal, other than as contemplated by
this Agreement, (x) for a merger, consolidation, reorganization, other business
combination, or recapitalization involving the Company, for the acquisition of a
five (5%) percent or greater interest in the equity or in any class or series of
capital stock of the Company, for the acquisition of the right to cast five (5%)
percent or more of the votes on any matter with respect to the Company, or for
the acquisition of a substantial portion of any of its assets other than in the
ordinary course of its businesses or (y) the effect of which may be to prohibit,
restrict, or delay the consummation of any of the transactions contemplated by
this Agreement or impair the contemplated benefits to the Purchaser or of any of
the transactions contemplated by this Agreement. In the event that this Section
7.5 is breached, the Sellers shall promptly reimburse Purchaser for all expenses
(including, without limitation, Purchaser's attorneys' fees) incurred in
connection with the transactions contemplated hereby, up to an amount not to
exceed $100,000 (U.S.).
7.6 VOTING BY STOCKHOLDERS.
----------------------
The Sellers agree that, until the Release Time, they will vote all
securities of the Company which they are entitled to vote against (a) any
merger, consolidation, reorganization, other business combination, or
capitalization involving the Company, (b) any sale of assets of the Company, (c)
any stock split, stock dividend, or reverse stock split relating to any class or
services of the Company's stock, (d) any issuance of any shares of capital stock
of the Company, any option, warrant, or other right calling for the issuance of
any such share of
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capital stock, or any security convertible into or exchangeable for any such
share of capital stock, (e) any authorization of any other class or series of
stock of the Company (except as contemplated herein), (f) the amendment of the
certificate of incorporation (or other charter document) or the by-laws of the
Company (except as contemplated herein), or (g) any other proposition the effect
of which may be to prohibit, restrict, or delay the consummation of any of the
transactions contemplated by this Agreement or to impair materially the
contemplated benefits to Purchaser of the transactions contemplated by this
Agreement.
7.7 CONFIDENTIALITY.
---------------
The Sellers shall insure that all confidential information which the
Sellers, any of its respective officers, directors, employees, counsel, agents,
investment bankers, or accountants, may now possess or may hereafter create or
obtain relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of Purchaser shall not be
published, disclosed, or made accessible by any of them to any other person or
entity at any time or used by any of them without the prior written consent of
Purchaser; provided, however, that the restrictions of this sentence shall not
apply (a) as may otherwise be required by law, (b) as may be necessary or
appropriate in connection with the enforcement of this Agreement, or (c) to the
extent the information shall have otherwise become publicly available.
ARTICLE VIII - COVENANTS OF PURCHASER
Purchaser covenants and agrees as follows:
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8.1 ADVICE OF CHANGES.
-----------------
Until the Release Time, Purchaser will immediately advise the Sellers
in a detailed written notice of any fact or occurrence or any pending or
threatened occurrence of which it obtains knowledge and which (if existing and
known at the date of the execution of this Agreement) would have been required
to be set forth or disclosed in this Agreement or a Schedule hereto, which (if
existing and known at any time prior to or at the Closing) would make the
performance by any party of a covenant contained in this Agreement impossible or
make such performance materially more difficult than in the absence of such fact
or occurrence, or which (if existing and known at the time of the Closing) would
cause a condition to any party's obligations under this Agreement not to be
fully satisfied.
8.2 PUBLIC STATEMENTS.
-----------------
Until the Release Time, Purchaser shall not disseminate any
information to the public regarding this Agreement or the transactions
contemplated hereby, without the prior written consent of the Sellers.
Notwithstanding the foregoing, nothing contained herein shall prevent Purchaser
from releasing any information to any governmental authority or to the public if
required to do so by law.
8.3 CONFIDENTIALITY.
---------------
Purchaser shall insure that all confidential information which
Purchaser, its officers, directors, employees, counsel, agents, investment
bankers, or accountants, may now possess or may hereafter create or obtain
relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company shall not be
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published, disclosed, or made accessible by any of them to any other person or
entity at any time or used by any of them without the prior written consent of
the Company; provided, however, that the restrictions of this sentence shall not
apply (a) as may otherwise be required by law, (b) as may be necessary or
appropriate in connection with the enforcement of this Agreement, or (c) to the
extent the information shall have otherwise become publicly available.
8.4 OPERATION OF THE COMPANY.
------------------------
Until the Purchase Price is paid in full the Purchaser covenants (i)
to continue to operate the Company in the manner set forth in Exhibit 8.4
attached hereto and (ii) not to close the Branford store, any New Haven store or
the Branford roasting plant without the prior written consent of the Sellers,
which consent will not be unreasonably withheld. A breach of this provision
shall cause an acceleration of the payment obligation of the Sellers of any
unpaid balance of the Purchase Price.
8.5 CHANGE OF CONTROL.
-----------------
(a) In the event that there is a change-of-control (as defined below)
of NWC and the acquirer has a net worth less than the current net worth of NWC,
then the balance of any unpaid Purchase Price shall be immediately due and
payable.
(b) "Change-of-Control" shall occur if (i) any "person" as such term
is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") (other than a current stockholder that owns 5% or more of the
----- ----
NWC's outstanding common stock or an affiliate of such 5% or greater stockholder
and other than NWC, any trustee, or other fiduciary holding securities under any
employee benefit plan of NWC) becomes the
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"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of the securities of the Purchaser representing 50% or more of
the combined voting power of the Purchaser's then outstanding securities; or
(ii) the stockholders of the Purchaser approve a plan of complete liquidation of
the Purchaser or an agreement for the sale or disposition by the Purchaser of,
or the Purchaser sells or disposes of, all or substantially all of the
Purchaser's assets.
8.6 FORM S-8.
--------
The Company covenants to file a Form S-8 registration statement (or
any successor form thereto) with the Securities and Exchange Commission ("SEC")
on or before March 31, 1997 covering the Warrants and/or options to be issued to
the Sellers pursuant to this Agreement and the Employment Agreements.
8.7 CORPORATE ENTITY.
----------------
Until NWC has satisfied its obligations to pay the Purchase Price
hereunder, NWC covenants to keep the Company as a separate and distinct
corporate entity.
8.8 SALE OF ASSETS.
--------------
Until NWC has satisfied its obligations to pay the Purchase Price
hereunder, NWC covenants not (i) to sell a material portion of the Company's
---
assets other than in the ordinary course of business and (ii) to sell all or
substantially all of the Company's assets to an entity with a net worth less
than the Purchaser's current net worth. In the event of a sale of all or
substantially all of the Company's assets, NWC covenants that such sale shall be
conditioned
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upon such acquiring entity expressly and directly assuming the obligations to
the Sellers hereunder.
8.9 SELLER'S TRADE GUARANTEES.
-------------------------
The Purchaser agrees to indemnify and hold harmless the Sellers with
respect to purchases the Company makes after closing from suppliers or merchants
to whom Sellers delivered personal guarantees prior to the Closing.
ARTICLE IX - INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY
9.1 INDEMNIFICATION.
---------------
(a) Subject to the terms and conditions set forth in Section 9.2, each
of the Sellers, jointly and severally, agree to indemnify and hold harmless
Purchaser, its officers, directors, employees, counsel, and agents,
(collectively, the "Indemnities"), against and in respect of any and all claims,
suits, actions, proceedings (formal or informal), investigations, judgments,
deficiencies, damages, settlements, liabilities, and reasonable legal and other
expenses related thereto (collectively, "Claims"), as and when incurred, arising
out of or based upon any breach of any representation, warranty, covenant, or
agreement of each of the Sellers contained in this Agreement (including the
Exhibits and Schedules attached hereto), the Employment Agreements, or any
certificates delivered pursuant to this Agreement or the Employment Agreements.
(b) Subject to the terms and conditions set forth in Section 9.2, the
Purchaser agrees to indemnify and hold harmless the Sellers, its counsel and
agents,
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(collectively, the "Indemnities"), against and in respect of any and all claims,
suits, actions, proceedings (formal or informal), investigations, judgments,
deficiencies, damages, settlements, liabilities, and reasonable legal and other
expenses related thereto (collectively, "Claims"), as and when incurred, arising
out of or based upon any breach of any representation, warranty, covenant, or
agreement of the Purchaser contained in this Agreement (including the Exhibits
and Schedules attached hereto), or any certificates delivered pursuant to this
Agreement.
(c) Each Indemnitee shall give the indemnifying party prompt notice of
any claim asserted or threatened against such Indemnitee on the basis of which
such Indemnitee intends to seek indemnification (but the obligations of the
indemnifying party shall not be conditioned upon receipt of such notice, except
to the extent that the indemnifying party is actually prejudiced by such failure
to give notice). The indemnifying party shall promptly assume the defense of
any Indemnitee, with counsel reasonably satisfactory to such Indemnitee, and the
fees and expenses of such counsel shall be at the sole cost and expense of the
indemnifying party. Notwithstanding the foregoing, any Indemnitee shall be
entitled, at his or its expense, to employ counsel separate from counsel for the
indemnifying party and from any other party in such action, proceeding, or
investigation. No Indemnitee may agree to a settlement of a claim without the
prior written approval of the indemnifying party, which approval shall not be
unreasonably withheld.
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9.2 SURVIVAL; LIMITATIONS ON LIABILITY.
----------------------------------
(a) Subject to the provisions of Section 9.2(b), the covenants,
agreements, representations, and warranties contained in or made pursuant to
this Agreement shall survive the Closing.
(b) The liabilities and obligations of the parties under this
Agreement shall be subject to the following limitations:
(i) No party shall have liability or obligation with respect to any
claim for a breach of a representation or warranty under this Agreement made
after two (2) years from the Closing Date except for claims arising out of a
breach of the representations as to tax liabilities under Section 3.4 and as to
liabilities under Environmental Laws under Section 3.6(e) hereof, with respect
to which the Sellers shall remain liable until ninety (90) days after the
expiration of the applicable statute of limitations relating to such potential
liabilities; and
(ii) No indemnifying party shall be responsible for any Claims until
the cumulative aggregate amount thereof shall exceed Ten Thousand ($10,000.00)
U.S. Dollars (the "Minimum Amount") in which case such indemnifying party shall
then be liable for all amounts in excess of the Minimum Amount.
ARTICLE X - TERMINATION PRIOR TO CLOSING
10.1 TERMINATION.
-----------
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
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(a) by the mutual written consent of Purchaser, on the one hand,
and the Sellers, on the other hand;
(b) by either the Sellers, on the one hand, or Purchaser, on the other
hand, in writing, without liability on the part of the terminating party or
parties, as the case may be, on account of such termination (provided the
terminating party or parties are not otherwise in default or breach of this
Agreement), if the other party or parties shall (i) fail to perform any material
covenant or agreement contained herein required to be performed by such party or
parties prior to November 15, 1996, or (ii) have breached any of the
representations or warranties of such party or parties contained herein;
provided, however, that no such termination shall become effective unless the
-------- -------
terminating party or parties has notified the other party or parties in writing
of its or their intent to terminate, such notice to be sent at least ten days
prior to the intended date of termination and specifying the nature of the
failure or breach giving rise to such termination; and provided, further, that
-------- -------
such notice to terminate shall be void if the recipient thereof has cured such
failure or breach on or before the expiration of such ten-day period; or
(c) by the Sellers by written notice to the Purchaser in the event
that the Sellers or the Company have received another bid for the Company and
the Sellers or the Company accept such bid; provided, however, that if this
Agreement is terminated pursuant to this Section 10.1(c), the Sellers will upon
such termination pay to Purchaser the sum of $310,000 (in addition to the
reimbursement of expenses, if any, for which Purchaser shall be
-47-
entitled pursuant to Section 7.5 hereof, if applicable) by wire transfer of
immediately available funds to an account designated by Purchaser for such
purpose.
10.2 EFFECT ON OBLIGATIONS.
---------------------
Termination of this Agreement pursuant to this Article X shall
terminate all obligations of the parties hereunder, except for the obligations
under Sections 10.1(c), the confidentiality provisions contained in Sections 7.7
and 8.3, the notice provisions contained in Section 11.5 hereof, and the
obligations set forth in the next succeeding sentence of this Section 10.2.
Upon any termination of this Agreement each party hereto will redeliver all
documents, workpapers, and other material of any other party relating to the
transactions contemplated hereby, and all copies of such materials, whether so
obtained before or after the execution hereof, to the party originally
furnishing the same.
ARTICLE XI - MISCELLANEOUS
11.1 BROKERAGE FEES.
--------------
If any person shall assert a claim to a fee, commission, or other
compensation on account of alleged employment as a broker or finder, in
connection with or as a result of any of the transactions contemplated by this
Agreement, the party purportedly engaging such broker or finder shall indemnify
and hold harmless the other parties against any and all Claims (as defined in
Section 9.1), as and when incurred, arising out of, based upon, or in connection
with such Claim by such person, except to the extent that it is determined in
any suit, action, or proceeding that such other parties or any Indemnitee had
engaged such broker or finder.
-48-
11.2 FURTHER ACTIONS.
---------------
At any time and from time to time, each party agrees, as its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of this Agreement.
11.3 SUBMISSION TO JURISDICTION.
--------------------------
Each of the parties hereto irrevocably submits to the jurisdiction of
the courts of the State of New York, and of any federal court located in the
State of New York, in connection with any action or proceeding arising out of or
relating to, or a breach of, this Agreement or the Employment Agreements, or of
any document or instrument delivered pursuant to, in connection with, or
simultaneously with this Agreement or the Employment Agreements.
11.4 MERGER; MODIFICATION.
--------------------
This Agreement, the Employment Agreements, and the Schedules and
Exhibits attached hereto and thereto set forth the entire understanding of the
parties with respect to the subject matter hereof, supersede all existing
agreements concerning such subject matter, and may be modified only by a written
instrument duly executed by each party to be charged.
11.5 NOTICES.
-------
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or to
a location outside of the United States) or by Federal Express, or similar
overnight delivery or courier service or delivered (in person or by telecopy, or
similar telecommunications equipment) against receipt to the party to whom it is
to
-49-
be given at the address of such party set forth in the preamble to this
Agreement and addressed to the President of such Person if a corporation (or to
such other address as the party shall have furnished in writing in accordance
with the provisions of this Section 11.5). A copy of any notice (which copy
shall not constitute notice) sent to the Sellers shall also be sent to Xxxxx &
Xxxx, P.C., 000 Xxxxxx Xxxxxx, Xxx Xxxxx, Xxxxxxxxxxx 00000, Attention: Xxxx X.
Xxxxx, Xx., Esq. A copy of any notice (which copy shall not constitute notice)
sent to Purchaser shall also be sent to Camhy Xxxxxxxxx & Xxxxx LLP, 0000
Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000, Attention: Xxxxxx X. Xx
Xxxx, Esq. Any notice or other communication given by certified mail (or by such
comparable method) shall be deemed given three business days after certification
thereof (or comparable act) except for a notice changing a party's address which
will be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 11.5 shall be deemed given at the time of
receipt thereof.
11.6 WAIVER.
------
Any waiver by any party of a breach of any terms of this Agreement
shall not operate as or be construed to be a waiver of any other breach of that
term or of any breach of any other term of this Agreement. The failure of a
party to insist upon strict adherence to any term of this Agreement on one or
more occasions will not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
-50-
11.7 BINDING EFFECT.
--------------
The provisions of this Agreement shall be binding upon and inure to
the benefit of Purchaser, and its successors and assigns and each of the Sellers
and their successors, representatives, and heirs, and shall inure to the benefit
of each Indemnitee and its successors and assigns (if not a natural person) and
his assigns, heirs, and personal representatives (if a natural person).
11.8 NO THIRD-PARTY BENEFICIARIES.
----------------------------
This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement
(except as provided in 11.7).
11.9 SEPARABILITY.
------------
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
11.10 HEADINGS.
--------
The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
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11.11 COUNTERPARTS; GOVERNING LAW.
---------------------------
(a) This Agreement may be executed in any number of counterparts (and
by facsimile), each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(b) It shall be governed by, and construed in accordance with, the
laws of the State of New York, without giving effect to the rules governing the
conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
NEW WORLD COFFEE, INC.
By: _______________________________________
Name:
Title:
XXXXXXXXXX'X INCORPORATED
By: _______________________________________
Name:
Title:
___________________________________________
XXXXX X. XXXXXX
___________________________________________
XXXXXX X. XXXXXXXX
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