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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ___ to ___
Commission File Number 0-20322
-----------------------------
STARBUCKS CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-1325671
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2401 Utah Avenue South, Seattle, Washington 98134
(Address of principal executive office, including zip code)
(206) 447-1575
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of May 1, 1996, there were 75,687,781 shares of the registrant's Common
Stock outstanding.
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STARBUCKS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page
No.
Item 1. Financial Statements. . . . . . . . . . . . . . . . .3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . .10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . .15
Item 4. Submission of Matters to a Vote of Security Holders.15
Item 5. Other Information. . . . . . . . . . . . . . . . . .15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . .15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . .17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except earnings per share)
<TABLE>
Three Months Ended Six Months Ended
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $153,609 $101,113 $323,145 $216,659
Cost of sales and related
occupancy costs 76,938 45,639 163,456 97,622
Store operating expenses 47,002 33,882 94,237 69,343
Other operating expenses 3,788 2,875 9,575 6,602
Depreciation and amortization 8,606 5,152 16,161 9,616
General and administrative
expenses 9,720 6,489 16,358 12,236
- -------------------------------------------------------------------------
Operating income 7,555 7,076 23,358 21,240
Interest income 2,857 2,371 5,116 3,357
Gain on sale of investment 9,201 0 9,201 0
Interest expense (2,709) (926) (4,959) (1,876)
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Earnings before income taxes 16,904 8,521 32,716 22,721
Income taxes 6,513 3,391 12,759 8,970
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Net earnings $10,391 $5,130 $19,957 $13,751
=========================================================================
Net earnings per share $0.14 $0.07 $0.27 $0.20
=========================================================================
Weighted average shares
outstanding 74,429 72,325 74,400 69,406
</TABLE>
See notes to consolidated financial statements.
3
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
March 31, October 1,
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 131,129 $20,944
Short-term investments 91,870 41,507
Accounts receivable (net of
allowance for doubtful accounts
of $225 and $242, respectively) 12,116 10,157
Inventories 90,806 123,657
Prepaid expenses and other
current assets 4,454 4,746
Deferred income taxes, net 4,693 4,644
- -------------------------------------------------------------------
Total current assets 335,068 205,655
Joint ventures and equity investments 3,784 11,628
Property, plant and equipment, net 302,696 244,728
Deposits and other assets 10,404 6,167
- -------------------------------------------------------------------
Total $ 651,952 $468,178
===================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,769 $28,668
Checks drawn in excess of bank balances 11,676 13,138
Accrued compensation and related costs 10,602 12,786
Accrued interest payable 3,759 650
Other accrued expenses 18,617 15,804
Income taxes payable 980 0
- ------------------------------------------------------------------
Total current liabilities 65,403 71,046
Deferred income taxes, net 5,073 3,490
Capital lease obligation 766 1,013
Convertible subordinated debentures 244,981 80,398
Shareholders' equity:
Common Stock, no par value -- 150,000,000
shares authorized; 71,394,050 and
70,956,990 shares, respectively,
issued and outstanding 269,729 265,679
Retained earnings including
cumulative translation adjustment
of $(877) and $(435), respectively,
and net unrealized holding gain(loss)
on investments of $(35) and $34,
respectively 66,000 46,552
- ------------------------------------------------------------------
Total shareholders' equity 335,729 312,231
- ------------------------------------------------------------------
Total $ 651,952 $468,178
==================================================================
</TABLE>
See notes to consolidated financial statements
4
STARBUCKS CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
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March 31, April 2,
1996 1995
(26 Weeks) (26 Weeks)
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<S> <C> <C>
Operating activities:
Net earnings $ 19,957 $13,751
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 17,647 10,468
Loss on asset disposals 355 59
Deferred income taxes, net 1,534 (50)
Equity in losses of investees 550 334
Gain on sale of equity investment (9,201) 0
Cash provided (used) by changes in
operating assets and liabilities:
Accounts receivable (1,962) (3,204)
Inventories 32,833 (11,115)
Prepaid expenses and other
current assets 289 (278)
Accounts payable (9,000) 8,131
Income taxes payable 1,031 3,474
Accrued compensation and
related costs (2,193) 1,537
Accrued interest payable 3,109 15
Other accrued expenses 2,681 3,095
- -------------------------------------------------------------------
Net cash provided by operating activities 57,630 26,217
Investing activities:
Purchase of short-term investments (89,930) (108,331)
Sale of short-term investments 3,488 7,741
Maturity of short-term investments 35,966 8,360
Investments in joint ventures and
equity securities (4,040) (11,000)
Proceeds from sale of equity investments 20,535 0
Additions to property, plant
and equipment (75,806) (56,032)
Increase in deposits and other assets (638) (1,026)
- -------------------------------------------------------------------
Net cash used by investing activities (110,425) (160,288)
Financing activities:
Decrease in cash provided by checks drawn
in excess of bank balances (1,473) (6,771)
Proceeds from sale of convertible
debentures 165,020 0
Debt issuance costs (4,040) 0
Proceeds from notes payable 0 10,000
Principal repayments of notes payable 0 (10,000)
Net proceeds from sale of common stock 0 163,873
Proceeds from sale of common stock
under employee stock purchase plan 768 0
Exercise of stock options and warrants 1,935 686
Tax benefit from exercise of non-qualified
stock options 921 2,603
Payments on capital lease obligation (125) 0
- -------------------------------------------------------------------
Net cash provided by financing activities 163,006 160,391
- -------------------------------------------------------------------
Balance, carried forward 110,211 26,320
</TABLE>
(Continued on next page)
5
<TABLE>
<S> <C> <C>
Balance, brought forward 110,211 26,320
Effect of exchange rate changes
on cash and cash equivalents (26) (49)
- ------------------------------------------------------------------
Net increase in cash and cash equivalents 110,185 26,271
Cash and cash equivalents:
Beginning of the period 20,944 8,394
- ------------------------------------------------------------------
End of the period $ 131,129 $34,665
==================================================================
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 1,895 $1,841
Income taxes 8,608 2,885
Noncash financing transactions:
Net unrealized holding gain on investments 113 93
Conversion of convertible debt into
common stock, net of unamortized
issue costs 426 0
</TABLE>
See notes to consolidated financial statements
6
STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks and 26 Weeks Ended March 31, 1996 and
April 2, 1995
(UNAUDITED)
NOTE 1. FINANCIAL STATEMENT PREPARATION:
The consolidated financial statements as of March 31, 1996 and
October 1, 1995 and for the 13-week and 26-week periods ended
March 31, 1996 and April 2, 1995 have been prepared by Starbucks
Corporation ("Starbucks" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission (the
"SEC"). The financial information for the 13-week and 26-week
periods ended March 31, 1996 and April 2, 1995 is unaudited, but,
in the opinion of management, reflects all adjustments
(consisting only of normal recurring adjustments and accruals)
necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods.
The financial information as of October 1, 1995, is derived from
the Company's consolidated financial statements and notes thereto
contained in the Company's Annual Report to Shareholders
incorporated by reference in the Company's Annual Report on Form
10-K for the year ended October 1, 1995, and should be read in
conjunction with such financial statements. Certain
reclassifications of prior year's balances have been made to
conform to the current format.
The results of operations for the 13-week and 26-week periods
ended March 31, 1996, are not necessarily indicative of the
Company's results of operations for the entire fiscal year ending
September 29, 1996.
NOTE 2. JOINT VENTURES AND EQUITY INVESTMENTS:
On March 31, 1995, the Company invested $11.3 million in cash for
shares of Noah's New York Bagels, Inc. ("Noah's") Series B
Preferred Stock, representing approximately 20% ownership in
Noah's. On February 1, 1996, Noah's was merged with Einstein
Brothers Bagels, Inc. ("Einstein Brothers"), a retailer operating
primarily in the Eastern United States. In exchange for its
investment in Noah's, the Company received $20.5 million in cash.
Concurrently, the Company purchased $1.8 million of Einstein
Brothers common stock. This investment will be accounted for
under the cost method. The Company realized a $9.2 million pre-
tax gain ($5.6 million net of tax) on this transaction.
During the second fiscal quarter, the Company modified its
50/50 joint venture agreement with Pepsi Cola Company to
revise the allocation of start-up risks and expenses
between the partners.
NOTE 3. EARNINGS PER SHARE:
Earnings per share is based on the weighted average shares
outstanding during the period after consideration of the dilutive
effect, if any, of stock options granted. The Company's 4-1/2%
Convertible Subordinated Debentures due 2003 and 4-1/4%
Convertible Subordinated Debentures due 2002 will be included in
fully diluted earnings per share, using the "if converted"
method, when such securities are dilutive.
7
NOTE 4. INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
March 31, October 1,
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Coffee:
Unroasted $ 49,338 $ 75,975
Roasted 8,517 11,612
Other merchandise held for sale 28,419 32,731
Packaging and other supplies 4,532 3,339
- -------------------------------------------------------------
Total $ 90,806 $ 123,657
=============================================================
</TABLE>
As of March 31, 1996, the Company had fixed price purchase
commitments for green coffee totaling approximately $28
million.
NOTE 5. PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment consist of the following
(in thousands):
<TABLE>
March 31, October 1,
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Land $ 3,602 $ 3,602
Building 8,338 8,338
Leasehold improvements 210,869 162,948
Roasting and store equipment 100,676 82,490
Furniture, fixtures and other 30,383 24,602
- --------------------------------------------------------------
353,868 281,980
Less accumulated depreciation (68,277) (52,215)
- --------------------------------------------------------------
285,591 229,765
Construction in process 17,105 14,963
- --------------------------------------------------------------
Total $ 302,696 $ 244,728
==============================================================
</TABLE>
NOTE 6. NEW ACCOUNTING STANDARD:
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation. This
pronouncement establishes the accounting and reporting standards
for stock-based employee compensation plans, including: stock
purchase plans, stock options, and stock appreciation rights.
This new standard defines a fair value-based method of accounting
for these equity instruments. This method measures compensation
cost based on the value of the award and recognizes that cost
over the service period. Companies may elect to adopt this
standard or to continue accounting for these types of equity
instruments under current guidance, APB Opinion No. 25,
Accounting for Stock Issued to Employees. Companies which elect
to continue using the rules of Opinion 25 must make pro forma
disclosures of net income and earnings per share as if this new
statement had been applied. This new standard is required for
fiscal years beginning after December 15, 1995.
The Company is in the process of evaluating this statement and
its impact on the Company's financial condition and results of
operations.
8
NOTE 7. SUBSEQUENT EVENTS:
On April 10, 1996, the Company called for redemption its 4-1/2%
Convertible Subordinated Debentures due 2003. In total,
approximately $80.5 million in principal was converted into the
Company's common stock prior to the redemption date, constituting
substantially all of the outstanding principal balance.
On April 30, 1996, the Company allowed its $30 million revolving
line of credit to expire. There had been no advances on the line
since November 1994.
9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Starbucks Corporation ("Starbucks" or the "Company") derives
approximately 86% of net sales from its retail store operations.
The Company's specialty sales and mail order operations account
for the remainder of net sales.
The Company's fiscal year ends on the Sunday closest to September
30. Fiscal years ending on September 29, 1996 and October 1,
1995 each include 52 weeks.
The following discussion contains forward-looking statements that
involve risks and uncertainties. Actual future results and
trends may differ materially depending on a variety of factors,
including, but not limited to, coffee and other raw materials
prices and availability, successful execution of internal
performance and expansion plans, impact of competition,
availability of financing, legal proceedings, and other risks
detailed in the Company's Securities and Exchange Commission
filings, including the Company's Annual Report on Form 10-K for
the year ended October 1, 1995.
RESULTS OF OPERATIONS -- FOR THE 13 WEEKS ENDED MARCH 31, 1996,
COMPARED TO THE 13 WEEKS ENDED APRIL 2, 1995
Revenues. Net sales for the 13 weeks ended March 31, 1996,
increased 52% to $153,609,000 from $101,113,000 for the
corresponding period in fiscal 1995. Retail sales increased 52%
to $132,301,000 from $86,894,000, primarily due to the opening
of new retail stores. Comparable store sales (sales from
stores open 13 months or longer) increased by 8% for the
period. This increase resulted primarily from an increase in the
average number of transactions combined with an increase in the
average dollar value per transaction. As part of its expansion
strategy of clustering stores in existing markets, Starbucks has
experienced a certain level of cannibalization of existing stores
by new stores as the store concentration has increased. The
Company anticipates that this cannibalization, as well as
increased competition and other factors, may continue to put
downward pressure on its comparable store sales growth in future
periods.
During the 13 weeks ended March 31, 1996, the Company opened 87
Starbucks stores (including five licensed airport stores). The
Company ended the period with 771 Company-operated stores and 57
licensed airport stores.
Specialty sales increased 58% to $18,024,000 for the 13 weeks
ended March 31, 1996, compared to $11,439,000 for the
corresponding period in fiscal 1995. Increased sales to
airlines, hotels, a chain of wholesale clubs, restaurants, and
several multi-unit retailers accounted for the majority of the
increase in sales. Mail order sales increased 18% to $3,284,000
for the 13 weeks ended March 31, 1996, compared to $2,780,000 for
the corresponding period in fiscal 1995.
Cost and Expenses. Cost of sales and related occupancy costs as
a percentage of net sales increased to 50.1% for the 13 weeks
ended March 31, 1996, from 45.1% for the corresponding fiscal
1995 period. This increase was primarily the result of higher
green coffee costs and higher occupancy costs as a percentage of
sales, partially offset by a shift in the retail sales mix
towards higher margin products. Figures for both years reflect
the cost of markouts (items that no longer meet the Company's
strict quality standards), which prior to fiscal 1996 were
included in store operating expenses.
Store operating expenses as a percentage of retail sales
decreased to 35.5% for the 13 weeks ended March 31, 1996, from
39.0% for the corresponding period in fiscal 1995. The 3.5% of
retail sales improvement was due primarily to lower advertising,
employee benefits, regional overhead and preopening expenses as a
percentage of retail sales. The leverage achieved in regional
overhead expense is the result of adding stores to existing
markets. Preopening expenses as a percentage of retail sales
have decreased due to lower average preopening costs per new
store and because sales are increasing at a faster rate than new
store openings.
10
Other operating expenses as a percentage of net sales decreased
to 2.5% for the 13 weeks ended March 31, 1996, from 2.8% for the
corresponding period in fiscal 1995. The decrease was due
primarily to a modification in the allocation of start-up risks
and expenses between partners in the Company's 50/50 joint
venture with Pepsi-Cola Company, a division of PepsiCo, Inc.
Depreciation and amortization as a percentage of net sales
increased 0.5% to 5.6% for the 13 weeks ended March 31, 1996.
This increase was due primarily to higher per-store build-out
costs.
General and administrative expenses as a percentage of net sales
were 6.3% for the 13 weeks ended March 31, 1996, compared to
6.4% for the same period in fiscal 1995. This decrease as a
percentage of sales was due primarily to leverage on
administrative costs combined with cost containment measures
which the Company began implementing during the first quarter of
fiscal 1996.
Operating Income. Operating income for the 13 weeks ended March
31, 1996 increased to $7,555,000 or 4.9% of net sales from
$7,076,000 or 7.0% of net sales for the corresponding period in
fiscal 1995. Operating income as a percentage of net sales
decreased due to lower gross margins and higher depreciation and
amortization expense as a percentage of sales, partially offset
by lower store operating and other operating expenses as a
percentage of sales.
Interest Income. Interest income for the 13 weeks ended March
31, 1996 was $2,857,000 compared to $2,371,000 for the
corresponding period in fiscal 1995. The increase in interest
income is due primarily to higher average investment balances.
Gain on Sale of Investment. On March 31, 1995, the Company
invested $11.3 million in cash for shares of Noah's New York
Bagels, Inc. ("Noah's") Series B Preferred Stock, representing
approximately 20% ownership in Noah's. On February 1, 1996,
Noah's was merged with Einstein Brothers Bagels, Inc. ("Einstein
Brothers"), a retailer operating primarily in the Eastern United
States. In exchange for its investment in Noah's, the Company
received $20.5 million in cash. Concurrently, the Company
purchased $1.8 million of Einstein Brothers common stock. This
investment will be accounted for under the cost method. The
Company realized a $9.2 million pre-tax gain ($5.6 million net of
tax) on this transaction.
Interest Expense. Interest expense for the 13 weeks ended March
31, 1996 was $2,709,000 compared to $926,000 for the
corresponding period in fiscal 1995. The increase in interest
expense is due primarily to interest on the Company's convertible
debentures issued in October 1995.
Income Taxes. The Company's effective tax rate for the 13 weeks
ended March 31, 1996 was 38.5% compared to 39.8% for the
corresponding period in fiscal 1995. The Company reduced its tax
rate in the second quarter to bring its year-to-date rate down to
39.0%, its expected effective rate for fiscal 1996.
RESULTS OF OPERATIONS -- FOR THE 26 WEEKS ENDED MARCH 31, 1996,
COMPARED TO THE 26 WEEKS ENDED APRIL 2, 1995
Revenues. Net sales for the 26 weeks ended March 31, 1996,
increased 49% to $323,145,000 from $216,659,000 for the
corresponding period in fiscal 1995. Retail sales increased 50%
to $278,032,000 from $185,007,000, primarily due to the addition
of new retail stores. Comparable store sales increased by 5%.
This increase resulted primarily from an increase in the
average dollar value per transaction combined with an increase
in the number of transactions.
During the 26 weeks ended March 31, 1996, the Company opened 155
Starbucks stores (including eight licensed airport stores and two
replacement stores), converted one Coffee Connection store to a
Starbucks store, and closed one store. The Company anticipates
opening at least 145 new Company-operated and licensed airport
stores during the remainder of fiscal 1996.
Specialty sales increased 51% to $34,640,000 for the 26 weeks
ended March 31, 1996, compared to $22,979,000 for the
corresponding period in fiscal 1995. Increased sales to hotels,
airlines, a chain of wholesale clubs, restaurants, and several
multi-unit retailers accounted for the majority of the increase
in sales. Mail order sales increased 21% to $10,473,000 for the
26 weeks ended March 31, 1996, compared to $8,673,000 for the
corresponding period in fiscal 1995.
Costs and Expenses. Cost of sales and related occupancy costs as
a percentage of net sales increased to 50.6% for the 26 weeks
ended March 31, 1996, from 45.1% for the corresponding fiscal
1995 period. This increase was primarily the result of higher
green coffee costs and higher occupancy costs as a percentage of
sales, partially offset by a shift in the retail sales mix
towards higher margin products.
11
Store operating expenses as a percentage of retail sales
decreased to 33.9% from 37.5% for the corresponding period in
fiscal 1995. The 3.6% of retail sales improvement reflects lower
regional overhead, advertising, employee benefits, and preopening
expenses as a percentage of retail sales.
Other operating expenses as a percentage of net sales remained
constant at 3.0%. Depreciation and amortization as a percentage
of net sales increased 0.6% to 5.0% for the 26 weeks ended March
31, 1996. The increase in depreciation and amortization is due
primarily to higher per-store build-out costs.
General and administrative expenses as a percentage of net sales
were 5.1% for the 26 weeks ended March 31, 1996, compared to 5.6%
for the same period in fiscal 1995. This decrease as a
percentage of sales was due primarily to leverage on
administrative costs combined with the implementation of cost
containment measures.
Operating Income. Operating income for the 26 weeks ended March
31, 1996 increased to $23,358,000 or 7.2% of net sales from
$21,240,000 or 9.8% of net sales for the corresponding period in
fiscal 1995. Operating income as a percentage of net sales
decreased due to lower gross margins and higher depreciation and
amortization expense as a percentage of sales, partially offset
by lower store operating and general and administrative expenses
as a percentage of sales.
Interest Income. Interest income for the 26 weeks ended March
31, 1996 was $5,116,000 compared to $3,357,000 for the
corresponding period in 1995. The increase in interest income is
due primarily to higher average investment balances.
Gain on Sale of Investment. The Company recorded a $9.2 million
($5.6 million net of taxes) gain on the sale of its investment in
Noah's New York Bagels, Inc.
Interest Expense. Interest expense for the 26 weeks ended March
31, 1996 was $4,959,000 compared to $1,876,000 for the
corresponding period in fiscal 1995. The increase in interest
expense is due primarily to interest on the Company's convertible
debentures issued in October 1995.
Income Taxes. The Company's effective tax rate for the 26 weeks
ended March 31, 1996 was 39.0% compared to 39.5% for the
corresponding period in fiscal 1995. This decrease is due
primarily to a decrease in the effective state tax rate due to
changes in the allocation and apportionment formulas.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the period with $223.0 million in total cash
and investments. Working capital as of March 31, 1996 totaled
$269.7 million compared to $134.6 million at October 1, 1995.
The increase of $135.1 million was due primarily to proceeds from
an October 1995 offering of 4-1/4% Convertible Subordinated
Debentures due 2002 which generated proceeds of approximately
$161 million, net of issuance costs. Cash provided by operating
activities totaled $57.6 million for the first 26 weeks of fiscal
1996.
Cash provided from financing activities for the first 26 weeks of
fiscal 1996 totaled $163.0 million. This includes the Company's
October 1995 offering of convertible debentures discussed above.
Cash provided from financing activities also included cash
generated in connection with the Company's employee stock
purchase plan, and with the exercise of options to purchase
shares of the Company's common stock and the related income tax
benefit available to the Company upon exercise of such options.
The Company will continue to receive proceeds and a tax deduction
as a result of its employees participating in stock purchase and
option plans; however, neither the amounts nor the timing thereof
can be predicted.
12
Cash used by investing activities for the first 26 weeks of
fiscal 1996 totaled $110.4 million. This included capital
expenditures (additions to property, plant and equipment) of
$75.8 million. Capital expenditures included the costs to open
147 new Company-operated stores, remodel certain existing stores,
purchase equipment, expand existing office space, and enhance
existing information systems. The Company received approximately
$20.5 million for the sale of its investment in Noah's and
concurrently purchased $1.8 million of common stock in Einstein
Brothers. The Company's wholly-owned subsidiary, Starbucks Coffee
International, Inc. ("SBI"), contributed $1.5 million to its
joint venture with SAZABY, Inc. The Company made equity
investments of $0.5 million in its 50/50 joint venture with
Pepsi-Cola Company and $0.2 million in its joint venture with
Dreyer's Grand Ice Cream, Inc. Excess cash was invested in
investment-grade marketable debt securities, the majority
of which are classified as cash equivalents.
Future cash requirements, other than normal operating expenses,
are expected to consist primarily of capital expenditures related
to the addition of new company-operated retail stores. The
Company also anticipates remodeling certain existing stores and
incurring additional expenditures for enhancing its computer
systems. Planned capital expenditures for the remainder of
fiscal 1996 are estimated to be approximately $95 million.
The Company will also have cash requirements for its joint
venture partnerships with Pepsi-Cola Company, Dreyer's Grand Ice
Cream, Inc., and SAZABY Inc., a Japanese retailer and
restauranteur. The Company plans to open, through SBI's joint
venture partnership with SAZABY, the first Starbucks retail store
in Tokyo, Japan in the summer of 1996.
In addition, under the terms of the Company's corporate office
lease, the Company has agreed to provide financing to the
building owner to be used exclusively for facilities and
leasehold development costs to accommodate the Company. During
fiscal 1996, the Company expects to provide approximately $3.5
million under this agreement. The maximum amount available under
the agreement is $17 million. Any funds advanced by the Company
will be repaid with interest over a term not to exceed 20 years.
Management believes that the existing cash and investments plus
cash generated from operations should be more than sufficient to
finance its capital requirements for the remainder of fiscal
1996. The Company anticipates that it will seek additional funds
from public or private sources in fiscal 1997; however, there can
be no assurance that such funds will be available when needed or
be available on terms favorable to the Company.
COFFEE PRICES AND AVAILABILITY AND GENERAL RISK CONDITIONS
The following important factors, among others, could impact the
Company's actual results and could cause such results to differ
materially from those expressed in the Company's forward-looking
statements. Green coffee commodity prices are subject to
substantial price fluctuations, generally a result of reports of
adverse growing conditions in certain coffee-producing countries.
Due to green coffee commodity price increases, the Company
effected sales price increases during fiscal 1994 and 1995 in its
coffee beverages and whole bean coffees to mitigate the effects
of increases in its costs of supply. Because the Company had
established fixed purchase prices for some of its supply of green
coffees, the Company's margins were favorably impacted by such
sales price increases during much of fiscal 1995. During the
latter part of fiscal 1995 and the first half of fiscal 1996,
gross margins were negatively impacted relative to the prior year
by the sell-through of higher-cost coffee inventories. As the
Company continues to sell through these inventories for the
remainder of fiscal 1996, it expects gross margins will continue
to be negatively impacted relative to the prior year.
The Company has entered into fixed price purchase commitments in
order to secure an adequate supply of quality green coffee and
fix a cost for future periods. As of March 31, 1996 the Company
had approximately $28 million in fixed price purchase commitments
which, together with existing inventory, the Company believes
will provide an adequate supply of green coffee for the remainder
of fiscal 1996 and into fiscal 1997. The Company believes that,
based on relationships established with its suppliers in the
past, the risk of non-delivery on such purchase commitments is
remote.
13
In addition to fluctuating coffee prices, management believes
that in the future, the Company's results of operations and
earnings could be significantly impacted by other factors such as
increased competition within the specialty coffee industry, the
Company's ability to find optimal store locations at favorable
lease rates, the increased costs associated with opening and
operating retail stores in new markets, the Company's continued
ability to hire, train and retain qualified personnel, and the
Company's continued ability to obtain adequate capital to finance
its planned expansion.
Due to the factors noted above, the Company's future earnings and
the prices of the Company's securities may be subject to
volatility. There can be no assurance that the Company will
continue to generate increases in net sales and net earnings, or
growth in comparable store sales. Any variance in the factors
noted above, or other areas, from what is expected by investors
could have an immediate and adverse effect on the trading price
of Company's securities.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to seasonal fluctuations. A
significant portion of the Company's net sales and profits are
realized during the first quarter of the Company's fiscal year
which includes the December holiday season. In addition,
quarterly results are affected by the timing of the opening of
new stores, and the Company's rapid growth may conceal the impact
of seasonal influences. Because of the seasonality of the
Company's business, results for the 26 weeks ended March 31,
1996, are not necessarily indicative of the results that may be
achieved for the full fiscal year ended September 29, 1996.
NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation. This
pronouncement establishes the accounting and reporting standards
for stock-based employee compensation plans, including: stock
purchase plans, stock options, and stock appreciation rights.
This new standard defines a fair value-based method of accounting
for these equity instruments. This method measures compensation
cost based on the value of the award and recognizes that cost
over the service period. Companies may elect to adopt this
standard or to continue accounting for these types of equity
instruments under current guidance, APB Opinion No. 25,
Accounting for Stock Issued to Employees. Companies which elect
to continue using the rules of Opinion 25 must make pro forma
disclosures of net income and earnings per share as if this new
statement had been applied. This new standard is required for
fiscal years beginning after December 15, 1995.
The Company is in the process of evaluating this statement and
its impact on the Company's financial condition and results of
operations.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal proceedings arising in
the ordinary course of its business, but is not currently a party
to any legal proceeding that the Company believes would have a
material adverse effect on the financial position or results of
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held on
February 28, 1996 in Kent, Washington for the purposes of
electing six directors, approving an amendment to the Company's
Articles of Incorporation to increase the number of shares of
authorized common stock, no par value, from 100,000,000 to
150,000,000 shares, as well as ratifying the selection of the
independent public auditors for fiscal 1996. The table below
shows the results of the shareholders' voting:
<TABLE>
Votes in Votes Broker
Favor Opposed Abstain Non-Votes
---------- ------- ------- ---------
Election of directors
<S> <C> <C> <C> <C>
Craig J. Foley 61,856,855 -- 1,484,315 7,816,338
Howard Schultz 61,764,018 -- 1,577,152 7,816,338
Adrian D.P. Bellamy 61,852,477 -- 1,488,693 7,816,338
Howard P. Behar 61,735,935 -- 1,605,235 7,816,338
Orin C. Smith 61,614,334 -- 1,726,836 7,816,338
Barbara Bass 61,832,613 -- 1,508,557 7,816,338
Approve amendment to
Articles of Incorporation
to increase number of
authorized shares of
common stock 62,087,876 952,787 300,507 7,816,338
Ratification of independent
auditors 62,991,487 141,573 208,110 7,816,338
</TABLE>
The following members of the Board of Directors, who were not up
for re-election during the current year, have terms that expire
at the annual meeting for fiscal years 1996 and 1997:
<TABLE>
Term expires at the
Director annual meeting for fiscal:
- ---------------------------------------------------------------
<S> <C>
James G. Shennan, Jr. 1996
Jeffrey H. Brotman 1997
Arlen I. Prentice 1997
</TABLE>
15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3.1 Restated Articles of Incorporation of Starbucks
Corporation
3.1.1 Articles of Amendment to the Restated Articles of
Incorporation of Starbucks Corporation dated
November 22, 1995
3.1.2 Articles of Amendment to the Restated Articles of
Incorporation of Starbucks Corporation dated
March 18, 1996
3.2 Amended and Restated Bylaws of Starbucks Corporation
10.21 Merger Agreement among Noah's New York Bagels, Inc.,
Shareholders and Certain Optionholders of Noah's New
York Bagels, Inc., Einstein Brothers Bagels, Inc.
and NNYB Acquisition Corporation dated January 22,
1996.
10.22 Amendment dated February 1, 1996 to Merger Agreement
among Noah's New York Bagels, Inc., Shareholders and
Certain Optionholders of Noah's New York Bagels,
Inc., Einstein Brothers Bagels, Inc. and NNYB
Acquisition Corporation dated January 22, 1996.
10.23 Master Licensing Agreement between the Company and
ARAMARK Food and Services Group, Inc. dated as of
January 30, 1996, as amended and restated May 7, 1996.
11 Statement re: computation of per share earnings
(b) Forms 8-K:
No reports on Form 8-K were filed by the Company during the 13-week
period ended March 31, 1996.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
STARBUCKS CORPORATION
Dated: May 13, 1996 By: /s/ Michael Casey
----------------------
Michael Casey
chief financial officer
Signing on behalf of the
registrant and as principal
financial officer
17
STARBUCKS CORPORATION
---------------------
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
Three Months Ended Six Months Ended
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE CALCULATION:
Net earnings $10,391 $5,130 $19,957 $13,751
=========================================================================
Weighted average shares outstanding calculation:
Weighted average number of
common shares outstanding 71,257 70,351 71,186 67,187
Dilutive effect of outstanding
common stock options 3,172 1,974 3,214 2,219
- -------------------------------------------------------------------------
Weighted average shares
outstanding 74,429 72,325 74,400 69,406
=========================================================================
Earnings per share $ 0.14 $ 0.07 $ 0.27 $ 0.20
=========================================================================
EARNINGS PER SHARE CALCULATION
ASSUMING CONVERSION OF CONVERTIBLE
SUBORDINATED DEBENTURES(1):
Net earnings calculation:
Net earnings $ 10,391 $ 5,130 $ 19,957 $ 13,751
Add after tax interest
expense on Debentures 1,615 546 2,994 1,093
Add after tax amortization
of issuance costs related
to the Debentures 128 39 226 79
- -------------------------------------------------------------------------
Net earnings assuming
conversion of Debentures $ 12,134 $ 5,715 $ 23,177 $ 14,923
=========================================================================
Weighted average shares outstanding calculation:
Weighted average number of
common shares outstanding 71,257 70,351 71,186 67,187
Dilutive effect of outstanding
common stock options 3,172 1,974 3,214 2,219
Assuming conversion of 4.5%
Convertible Subordinated
Debentures due 2003 5,331 5,367 5,340 5,367
Assuming conversion of 4.25%
Convertible Subordinated
Debentures due 2002 7,098 0 6,240 0
- -------------------------------------------------------------------------
Weighted average
shares outstanding 86,858 77,692 85,980 74,773
=========================================================================
Earnings per share $ 0.14 $ 0.07 $ 0.27 $ 0.20
=========================================================================
- -------------------
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
18
</TABLE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
STARBUCKS CORPORATION
Pursuant to RCW 23B.10.070, the following Restated Articles of
Incorporation are hereby submitted for filing:
ARTICLE 1. NAME
The name of this corporation is Starbucks Corporation.
ARTICLE 2. DURATION
The period of this corporation's duration is perpetual.
ARTICLE 3. PURPOSES
This corporation is organized for the purposes of transacting any
and all business for which corporations may be incorporated under
Title 23A of the Revised Code of Washington, as amended,
including, but not limited to, establishing and operating retail
coffee and espresso bars in the State of Washington and in other
states.
ARTICLE 4. SHARES
The Corporation shall have authority to issue 57,500,000 shares
of capital stock of which 50,000,000 shares shall be common stock
and 7,500,000 shares shall be preferred stock.
4.1 Common Stock. The Corporation shall have authority to issue
up to 50,000,000 shares of common stock, each share without par
value.
4.2 Preferred Stock. The Corporation shall have authority to
issue up to 7,500,000 shares of preferred stock, each share
without par value. The Board of Directors shall have all rights
afforded by applicable law to establish series of said preferred
shares, the rights and preferences of each such series to be set
forth in appropriate resolutions of the board.
ARTICLE 5. DIRECTORS
5.1 Number of Directors. The number of directors of this
Corporation shall be fixed by the bylaws and may be increased or
decreased from time to time in the manner specified therein.
5.2 Terms of Directors. Beginning with the Board of Directors
elected at the first Annual Meeting of Shareholders held after
all series of Preferred Stock outstanding as of May 20, 1992 are
converted into Common Stock, the terms of office of all Directors
shall be staggered by dividing the total number of Directors into
three groups, with each group containing one-third of the total
number of directors, as near as may be. The terms of Directors
in the first group will expire at the first annual shareholders'
meeting after their election, the terms of the second group will
expire at the second annual shareholders' meeting after their
election, and the terms of the third group will expire at the
third annual shareholders' meeting after their election. At each
annual shareholders' meeting held thereafter, Directors shall be
chosen for a term of three years to succeed those whose terms
expire.
ARTICLE 6. PREEMPTIVE RIGHTS
6.1 Common Stock. Shareholders of the Common Stock of this
corporation shall not have preemptive rights to acquire shares of
stock or securities convertible into shares of stock issued by
the corporation.
6.2 Preferred Stock. Holders of Preferred Stock shall have
preemptive rights subject to the rights and preferences as
described under Article 4 of these Articles of Incorporation.
ARTICLE 7. CUMULATIVE VOTING
Shareholders of this Corporation shall not have the right to
cumulate votes in the election of directors.
ARTICLE 8. AMENDMENTS OF ARTICLES OF INCORPORATION
The Corporation reserves the right to amend or repeal any
provisions contained in these Articles of Incorporation, in the
manner now or hereafter prescribed by law. All rights and powers
conferred herein on shareholders and directors are subject to
this reserved power.
ARTICLE 9. INCORPORATOR
The name and address of the incorporator is G. Scott Greenburg,
Shidler McBroom Gates & Lucas, 3500 First Interstate Center,
Seattle, Washington, 98104.
ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act,
as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of the liability of
directors, a director of the Corporation shall not be liable to
the Corporation or its shareholders for monetary damages for his
acts or omissions as a director. Any amendment to or repeal of
this Article 11 shall not adversely affect any right or
protection of a director of the Corporation for or with respect
to any acts or omissions occurring prior to such amendment or
repeal.
The undersigned, as Secretary of Starbucks Corporation, executes
these Restated Articles of Incorporation as duplicate originals
under penalty of perjury this 11th day of September, 1992.
STARBUCKS CORPORATION
/s/ G. Scott Greenburg
----------------------
G. Scott Greenburg
Secretary
EXHIBIT 3.1.1
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
STARBUCKS CORPORATION
ARTICLES OF AMENDMENT of the Articles of Incorporation of
Starbucks Corporation, (the "Corporation") are herein executed by
said Corporation, pursuant to the provisions of RCW 23B.10.060
and 23B.10.020(4), as follows:
FIRST: The name of the Corporation is Starbucks Corporation.
SECOND: Article 4 of the Articles of Incorporation is amended to
read as follows:
ARTICLE 4. SHARES
The Corporation shall have authority to issue 107,500,000
shares of capital stock of which 100,000,000 shares shall be
common stock, and 7,500,000 shares shall be preferred stock.
4.1 Common Stock. The Corporation shall have authority to
issue up to 100,000,000 shares of common stock, each share
without par value.
4.2 Preferred Stock The Corporation shall have authority
to issue up to 7,500,000 shares of preferred stock, each
share without par value. The Board of Directors shall have
all rights afforded by applicable law to establish series of
said preferred shares, the rights and preferences of each
such series to be set forth in appropriate resolutions of
the board.
THIRD: This amendment does not provide for an exchange,
reclassification or cancellation of issued shares.
FOURTH: The date of the adoption of said Amendment by the
Directors of said Corporation was the 26th day of September,
1995, and said Amendment shall become effective December 1, 1995.
FIFTH: The amendment was adopted by resolution of the Board of
Directors without shareholder action. Pursuant to RCW
23B.10.020(4), shareholder action is not required.
The foregoing is executed under penalty of perjury by the
undersigned, who is authorized to do so on behalf of the
Corporation.
DATED this 21st day of November, 1995.
Starbucks Corporation
By: /s/ G. Scott Greenburg
----------------------
G. Scott Greenburg
Corporate Secretary
EXHIBIT 3.1.2
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
STARBUCKS CORPORATION
ARTICLES OF AMENDMENT of the Articles of Incorporation of
Starbucks Corporation, (the "Corporation") are herein executed by
said Corporation, pursuant to the provisions of RCW 23B.10.060
and 23B.10.020(4), as follows:
FIRST: The name of the Corporation is Starbucks Corporation.
SECOND: Article 4 of the Articles of Incorporation is amended to
read as follows:
ARTICLE 4. SHARES
The Corporation shall have authority to issue 157,500,000
shares of capital stock of which 150,000,000 shares shall be
common stock, and 7,500,000 shares shall be preferred stock.
4.1 Common Stock. The Corporation shall have authority to
issue up to 150,000,000 shares of common stock, each share
without par value.
4.2 Preferred Stock The Corporation shall have authority
to issue up to 7,500,000 shares of preferred stock, each
share without par value. The Board of Directors shall have
all rights afforded by applicable law to establish series of
said preferred shares, the rights and preferences of each
such series to be set forth in appropriate resolutions of
the board.
THIRD: This amendment does not provide for an exchange,
reclassification or cancellation of issued shares.
FOURTH: The date of the adoption of said Amendment by the
Directors of said Corporation was the 20th day of December, 1995.
The amendment was duly approved by the shareholders of the
Corporation on February 28, 1996, in accordance with the
provisions of RCW 23B.10.030 and 23B.10.040.
The foregoing is executed under penalty of perjury by the
undersigned, who is authorized to do so on behalf of the
Corporation.
DATED this 15th day of March, 1996.
Starbucks Corporation
By: /s/ Shelley B. Lanza
--------------------
Shelley B. Lanza, Senior
Vice President and
General Counsel
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
STARBUCKS CORPORATION
ARTICLE I. SHAREHOLDERS
Section 1.1 Annual Meeting. The annual meeting of the
shareholders of the Corporation shall be held each year on a
date between January l and June 30, with a specific date and
time to be determined from time to time by the Board of
Directors. The failure to hold an annual meeting at the
time stated in these bylaws does not affect the validity of
any corporate action.
Section 1.2 Special Meetings. Special meetings of the
shareholders may be held upon call of the Board of Directors
or of the President or a Vice President, and shall be called
by the President or a Vice President upon the request of the
holders of ten percent of the outstanding stock entitled to
vote.
Section 1.3 Meeting Place. All meetings of the
shareholders shall be held at the principal place of
business of the Corporation, or at such other place as shall
be determined from time to time by the Board, and the place
at which any such meeting shall be held shall be stated in
the notice of the meeting.
Section 1.4 Notice of Meetings. Written notice of the time
and place of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is
called shall be delivered personally, or mailed, not less.
than ten days nor more than 50 days before the date of the
meeting to each shareholder of record entitled to vote, at
his post office address appearing upon the stock transfer
books of the Corporation. Meetings may be held without
notice if all shareholders entitled to vote are present or
represented by proxy or if notice is waived by those not
present or so represented.
Section 1.5 Waiver of Notice. Notice of time, place and
purpose of any meeting may be waived in writing whether
before or after the time stated therein for the meeting, and
will be waived by any shareholder by his attendance at such
meeting in person or by proxy. Any shareholder so waiving
shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
Section 1.6 Quorum. Except as otherwise required by law:
(a) A quorum at any annual or special meeting of
shareholders shall consist of shareholders representing,
either in person or by proxy, a majority of the outstanding
shares of the Corporation, entitled to vote at such meeting;
if there be no such quorum, the holders of a majority of
such shares so present or represented may adjourn the
meeting from time to time until a quorum is present.
(b) The votes of a majority in interest of those present at
any properly called or adjourned meeting of shareholders at
which a quorum as in this section defined is present, shall
be sufficient to transact business.
Section 1.7 Organization of Meetings. Meetings of the
shareholders shall be presided over by the President, but if
he is not present, then by the Vice President, but if
neither the President nor a Vice President is present, by a
Chairman to be chosen at the meeting. The Secretary of the
Corporation shall act as Secretary of the meeting, if
present.
Section 1.8 Proxies. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the
shareholder or by his duly authorized attorney in fact.
Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its
execution, unless otherwise provided in proxy. Any proxy
regular on its face shall be presumed to be valid.
Section 1.9 Shareholders' Action Without Meeting. Any
action required or which may be taken at a meeting of the
shareholders may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by
all of the shareholders entitled to vote with respect to the
subject matter thereof
Section 1.10 Action of Shareholders by Communication
Equipment. Shareholders may participate in a meeting of
shareholders by means of a conference telephone or similar
communication equipment by means of which all persons
participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence
in person at a meeting.
Section 1.11 Voting Record. At least ten days before each
meeting of shareholders, a complete record of the
shareholders entitled to vote at such meeting, or any
adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares held by
each, which record shall be kept on file at the registered
office of the Corporation for a period of ten days prior to
such meeting. The record shall be produced and kept open at
the time and place of such meeting for the inspection of any
shareholder. Failure to comply with the requirements of
this section shall not affect the validity of any action
taken at such meeting.
An officer or agent having charge of the stock transfer
books who shall fail to prepare the record of shareholders,
or keep it on file for a period of ten days, or produce and
keep it open for inspection at the meeting, as provided in
this section, shall be liable to any shareholder suffering
damages on account of such failure to the extent of such
damages.
Section 1.12 Cumulative Voting. Shareholders of this
Corporation shall not have the right to cumulate votes in
the election of directors.
ARTICLE II. DIRECTORS
Section 2.1 Number, Election, and Powers
(a) All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the
Corporation shall be managed under the direction of the
Board, except as may be otherwise provided in the Articles
of Incorporation. The Board shall consist of nine members.
The number of Directors may be changed by a resolution of
the Board or by the shareholders at the annual shareholders'
meeting.
(b) Beginning with the Board of Directors elected at the
first Annual meeting of Shareholders held after all series
of Preferred Stock outstanding as of May 20, 1992 are
converted into Common Stock, the terms of office of all
Directors shall be staggered by dividing the total number of
Directors into three classes, with each class containing one-
third of the total number of directors, as near as may be.
The terms of Directors in the first class will expire at the
first annual shareholders' meeting after their election, the
terms of the second class will expire at the second annual
shareholders' meeting after their election, and the terms of
the third class will expire at the third annual
shareholders' meeting after their election. At each annual
shareholders' meeting held thereafter, Directors shall be
chosen for a term of three years to succeed those whose
terms expire. Each Director shall hold office for the term
for which elected and until his successor shall have been
elected and qualified.
(c) Directors need not be shareholders or residents of the
state of Washington. In addition to the powers and
authorities expressly conferred upon the Corporation by
these Bylaws and the Articles of Incorporation, the Board
may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the
Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
Section 2.2 Vacancies. Any vacancy occurring in the Board,
whether caused by resignation, death or otherwise, may be
filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board.
A Director elected to fill any vacancy shall hold office for
the unexpired term of his predecessor and until his
successor is elected and qualified. Any directorship to be
filled by reason of an increase in the number of Directors
may be filled by the Board for a term of office continuing
only until the next election of Directors by the
shareholders.
Section 2.3 Quorum. A majority of the members of the Board
of Directors then holding office shall constitute a quorum
for the transaction of business, but if at any meeting of
the Board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time
to time until a quorum shall have been obtained.
Section 2.4 Term. Directors shall hold office until the
next annual election of Directors, and until their
successors shall have been elected and qualified.
Section 2.5 Removal of Directors. Except as otherwise
provided by law or by the Articles of Incorporation, at a
meeting of shareholders called expressly for that purpose,
the entire Board of Directors, or any member thereof, may be
removed by a vote of the holders of the requisite
proportionate number of shares then entitled to vote on a
cumulative basis, for the election of Directors.
Section 2.6 Regular Meetings.
(a) Meetings of the Board of Directors shall be held on a
regular schedule of at least every two months at the
principal place of business of the Corporation or at such
other place or places, either within or without the state of
Washington, as the Board may from time to time designate.
The meetings may be held with or without notice. The annual
meeting of the Board shall be held without notice
immediately after the adjournment of the annual meeting of
shareholders.
(b) Regular meetings of any committee designated by the
Board may be held without notice at the principal place of
business of the Corporation or at such other place or
places, either within or without the state of Washington as
such committee may from time to time designate. The
schedule for meetings of any committee shall be set by said
committee.
Section 2.7 Special Meetings.
(a) Special meetings of the Board may be called at any time
by the President, Secretary or by any one Director, to be
held at the principal place of business of the Corporation
or at such other place or places as the Board or the person
or persons calling such meeting may from time to time
designate.
(b) Special meetings of any committee may be called at any
time by such person or persons and with such notice as shall
be specified for such committee by the Board, or in the
absence of such specification, in the manner and with the
notice required for special meetings of the Board.
Section 2.8 Notice of Special Meetings. With the exception
of notices transmitted by facsimile machine or telephone
communication, notice of each special meeting of the Board
shall be delivered personally, telegraphed, or mailed to
each Director at his address shown on the records of the
Corporation at least two days before the meeting. Notice
transmitted by facsimile machine or verbal telecommunication
at least three hours prior to the meeting shall be
considered effective provided a facsimile response
acknowledging receipt of said notice is returned to the
Corporation by each Director prior to the special meeting.
In the event a facsimile response is not forthcoming, the
special meeting shall be postponed until two days after the
facsimile or verbal telecommunication was delivered. The
notice of any special meeting shall identify the business to
be transacted at or the purpose of the special meeting.
Section 2.9 Committees. The Board of Directors may, in its
discretion, by resolution passed by a majority of the whole
Board, appoint various committees, including an Executive
Committee, which shall have and may exercise such powers as
shall be conferred or authorized by the resolution
appointing such committee. A majority of any such
committee, composed of more than two members, may determine
its action and fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. The
Board shall have the power at any time to change the members
of any such committee, to fill vacancies, and to discharge
any such committee.
Section 2.10 Action by Directors Without a Meeting. Any
action required or which might be taken at a meeting of the
Directors, or of a committee thereof, may be taken without a
meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the
Directors, or all of the members of the committee, as the
case may be. Such consent shall be filed in the
Corporation's minute book, or with the records of the
committee so acting.
Section 2.11 Meeting by Telephone. Members of the Board of
Directors or any committee designated by the Bylaws or
appointed by the Board of Directors may participate in a
meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each
other at the same time, and participation by such means
shall constitute presence in person at a meeting.
ARTICLE III. CONFLICTS OF INTEREST
This Corporation may enter into contracts and otherwise
transact business as vendor, purchaser, or otherwise, with
its Directors, officers, and shareholders and with
corporations, associations, firms, and entities in which
they are or may be or become interested as Directors,
officers, shareholders, members, or otherwise, as freely as
though such adverse interest did not exist, even though the
vote, action, or presence of such Director, officer, or
shareholder may be necessary to obligate the Corporation
upon such contracts or transactions; and in the absence of
fraud, no such contract or transaction shall be voided and
no such Director, officer, or shareholder shall be held
liable to account to the Corporation, by reason of such
adverse interests or by reason of any fiduciary relationship
to the Corporation arising out of such office or stock
ownership, for any profit or benefit realized by him through
any such contract or transaction; provided that in the case
of Directors and officers of the Corporation (but not in the
case of shareholders who are not Directors or officers), the
nature of the interest of such Director or officer, though
not necessarily the details or extent thereof, be disclosed
or known to the Board of Directors of this Corporation, at
the meeting thereof at which such contract or transaction is
authorized or confirmed. A general notice that a Director
or officer of the Corporation is interested in any
corporation, association, firm, or entity shall be
sufficient disclosure as to such Director or officer with
respect to all contracts and transactions with that
corporation, association, firm or entity. Directors,
officers and shareholders of the Corporation need make no
disclosure under this article when their interest is less
than or equal to five percent of the voting power of the
other corporation, association, firm or entity.
ARTICLE IV. OFFICERS
Section 4.1 Election or Appointment. The Board of
Directors, as soon as may be after the election of Directors
held in each year, shall elect a President, a Secretary and
a Treasurer, and from time to time may appoint a Chairman of
the Board, one or more Vice Presidents and such Assistant
Secretaries, Assistant Treasurers and other officers as it
may deem proper. Any two or more offices may be held by the
same person, except the offices of President and Secretary,
unless all of the issued and outstanding stock owned by the
Corporation is owned of record by one shareholder. If one
shareholder is the owner of record of all of the
Corporation's issued and outstanding stock, one person may
hold all or any combination of offices. Unless otherwise
required by law, no officer need be a stockholder of the
Corporation or a member of the Board of Directors.
Section 4.2 Term. The term of office of all officers shall
be one year, and until their respective successors are
elected and qualify. Any officer may be removed from office
at any time by the affirmative vote of a majority of the
Directors. The vacancy so created may be filled by the
Board of Directors.
Section 4.3 Removal. Any officer or agent elected or
appointed by the Board may be removed by the vote of at
least two-thirds of the Board whenever in its judgment the
best interests of the Corporation would be served thereby,
but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 4.4 Vacancies.. A vacancy in any office because of
death, resignation, removal, disqualification or any other
cause, may be filled by the Board for the unexpired portion
of the term at any regular or special meeting.
Section 4.5 Delegation. In the case of absence or
inability to act of any officer of the Corporation and of
any person herein authorized to act in such person's place,
the Board may from time to time delegate the powers or
duties of such officer to any other officer or any Director
or other person whom it may select.
Section 4.6 Bonds. The Board may, by resolution, require
any or all of the officers to give bonds to the Corporation,
with sufficient surety or sureties, conditioned for the
faithful performance of the duties of their respective
offices, and to comply with such other conditions as may
from time to time be required by the Board.
Section 4.7 President. The President shall be the
principal executive officer of the Corporation and, subject
to the Board's control, shall supervise and control all of
the business and affairs of the Corporation. When present,
he shall preside over all meetings of shareholders and
Directors. With the Secretary or other officer of the
Corporation authorized by the Board, he may sign
certificates far shares of the Corporation, deeds,
mortgages, bonds, contracts, or other instruments that the
Board has authorized to be executed, except when the signing
and execution thereof has been expressly delegated by the
Board or by these Bylaws to some other officer or agent of
the Corporation or is required by law to be otherwise signed
or executed by some other officer or in some other manner.
In general, he shall perform all duties incident to the
office of President and such other duties as may be
prescribed by the Board from time to time.
Section 4.8 Vice President. In the absence of the
President or in the event of his death, inability or refusal
to act, the executive Vice President, if any, the Vice
President (or in the event of more than one Vice President,
the Vice President who was first elected to such office)
shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all
the restrictions upon the President. Vice Presidents shall
perform such other duties as from time to time may be
assigned to them by the President or by the Board.
Section 4.9 Secretary. The Secretary shall: (a) keep the
minutes of shareholders' and Board meetings in one or more
books provided for that purpose; (b) see that all notices
are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) have responsibility for
maintaining the corporate records and the seal of the
Corporation and see that the seal of the Corporation is
affixed to all documents, the execution of which on behalf
of the Corporation under its seal is duly authorized; (d)
keep a register of the post office address of each
shareholder as furnished to the Secretary by each
shareholder; (e) sign with the President or a Vice President
certificates for shares of the Corporation, the issuance of
which have been authorized by resolution of the Board; (f)
have general responsibility for the stock transfer books of
the Corporation; and (g) in general perform all duties
incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the President or
by the Board.
Section 4.10 Treasurer. The Treasurer shall have the
custody of all moneys and securities of the Corporation and
shall keep regular books of account. The Treasurer shall
disburse the funds of the Corporation in payment of the just
demands against the Corporation or as may be ordered by the
Board, taking proper vouchers for such disbursements, and
shall render to the Board from time to time as may be
required of the Treasurer, an account of all such
transactions as Treasurer and of the financial condition of
the Corporation. The Treasurer shall perform such other
duties incident to such office or that are properly required
of the Treasurer by the Board. The Assistant Treasurer, or
Assistant Treasurers in the order designated by the Board,
shall perform all of the duties of the Treasurer in the
absence or disability of the Treasurer, and at other times
may perform such other duties as are directed by the
President of the Board.
Section 4.11 Salaries. The salaries, if any, of the
officers shall be fixed from time to time by the Board, and
no officer shall be prevented from receiving such salary by
reason of the fact that he is also a Director of the
Corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 5.1 Contracts. The Board may authorize any officer
or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general
or confined to specific instances.
Section 5.2 Loans. No loans shall be contracted on behalf
of the Corporation and no evidences of indebtedness shall be
issued in its name unless authorized by a resolution of the
Board. Such authority may be general or confined specific
instances.
Section 5.3 Loans to Officers and Directors. No loan shall
be made by the Corporation to its officers or Directors,
unless first approved unanimously by the Board of Directors
or first approve by holders of two-thirds of the shares.
Section 5.4 Checks, Drafts, etc. All checks, drafts or
other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the
Corporation, shall be signed by such officer or officers,
agent or agents of the Corporation and in such manner as is
from time to time determined by resolution of the Board.
Section 5.5 Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to
the credit of the Corporation in such banks, trust companies
or other depositories as the Board may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 6.1 Issuance of Shares. No shares of the
Corporation shall be issued unless authorized by the Board.
Such authorization shall include the maximum number of
shares to be issued and the consideration to be received for
each share. No certificate shall be issued for any share
until such share is fully paid.
Section 6.2 Certificates for Shares. Certificates
representing shares of the Corporation shall be signed by
the President or the Vice President and by the Secretary and
shall include on their face written notice of any
restrictions which the Board may impose on the
transferability of such shares. All certificates shall be
consecutively numbered or otherwise identified. The name
and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificates
for a like number of shares shall have been surrendered and
canceled except that in case of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board may
prescribe.
Section 6.3 Transfers.
(a) Transfers of shares shall be made only upon the share
transfer books of the Corporation, kept at the registered
office of the Corporation or at its principal place of
business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old
certificate shall be surrendered for cancellation. The
Board may, by resolution, open a share register in any state
of the United States, and may employ an agent or agents to
keep such register, and to record transfers of shares
therein.
(b) Shares shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment
in writing on the back of the certificate or an assignment
separate from certificate, or by a written power of attorney
to sell, assign and transfer the same, signed by the holder
of said certificate. No shares of stock shall be
transferred on the books of the Corporation until the
outstanding certificates therefor have been surrendered to
the Corporation. The Board may, by resolution, adopt
appropriate procedures to allow transfers of shares, the
certificates for which have been lost, stolen, mutilated or
destroyed.
Section 6.4 Restriction on Transfer. All certificates
representing unregistered shares of the Corporation shall
bear the following legend on the face of the certificate or
on the reverse of the certificate if a reference to the
legend is contained on the face:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE
OR DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT COVERING SAID SHARES OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF THE STATE
HAVING JURISDICTION OVER SUCH SALE OR DISPOSITION.
ARTICLE VII. SEAL
The seal of this Corporation shall consist of the name of
the Corporation and the state and year of its incorporation.
ARTICLE VIII. INDEMNIFICATION
Section 8.1 Right to Indemnification. Each person who was
or is made a party or is threatened to be made a party to or
is involved (including, without limitation, as a witness) in
any actual or threatened action, suit, or proceeding,
whether civil, criminal, administrative, or investigative,
by reason of the fact that he or she is or was a Director,
officer, employee, or agent of the Corporation or, being or
having been such a Director, officer, employee or agent, he
or she is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another
corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while
serving as a director, officer, employee, or agent, shall be
indemnified and held harmless by the Corporation to the full
extent authorized by the Washington Business Corporation Act
or other applicable law, as the same exists or may hereafter
be amended, against all expense, liability, and loss
(including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts to be paid in settlement)
actually and reasonably incurred or suffered by such person
in connection therewith and such indemnification shall
continue as to a person who has ceased to be a Director,
officer, employee, or agent and shall inure to the benefit
of his or her heirs, executors, and administrators;
provided, however, that except as provided in Paragraph 8.2
of this Article with respect to proceedings seeking to
enforce rights to indemnification, the Corporation shall
indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this Paragraph 8.1
shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending
any such proceeding in advance of its final disposition;
provided, however, that the payment of such expenses in
advance of the final disposition of a proceeding shall be
made only upon delivery to the Corporation of an
undertaking, by or on behalf of such Director, officer,
employee, or agent, to repay all amounts so advanced if it
shall ultimately be determined that such Director, officer,
employee, or agent is not entitled to be indemnified under
this Paragraph 8.1 or otherwise.
Section 8.2 Right of Claimant To Bring Suit. If a claim
under Paragraph 8.1 of this article is not paid in full by
the Corporation within sixty days after a written claim has
been received by the Corporation, except in the case of a
claim for expenses incurred in defending a proceeding in
advance of its final disposition, in which case the
applicable period shall be twenty days, the claimant may at
any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, to the extent
successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such
claim. The claimant shall be presumed to be entitled to
indemnification under this article upon submission of a
written claim (and, in an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance
of its final disposition, where the required undertaking has
been tendered to the Corporation) and thereafter the
Corporation shall have the burden of proof to overcome the
presumption that the claimant is not so entitled. Neither
the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders)
to have made a determination prior to the commencement of
such action that indemnification of, or reimbursement or
advancement, of expenses to the claimant is proper in the
circumstances nor an actual determination by the Corporation
(including its Board of Directors, independent legal
counsel, or its shareholders) that the claimant is not
entitled to indemnification or to the reimbursement or
advancement of expenses shall be a defense to the action or
create a presumption that the claimant is not so entitled.
Section 8.3 Non-exclusivity of Rights. The right to
indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition
conferred in this Article shall not be exclusive of any
other right which any person may have or hereafter acquire
under any statute, provision of the Articles of
Incorporation, Bylaws, agreement, vote of shareholders or
disinterested Directors, or otherwise.
Section 8.4 Insurance Contracts and Funding. The
Corporation may maintain insurance, at its expense, to
protect itself and any Director, officer, employee, or agent
of the Corporation or another Corporation, partnership,
joint venture, trust, or other enterprise against any
expense, liability, or loss, whether or not the Corporation
would have the power to indemnify such person against such
expense, liability, or loss under the Washington Business
Corporation Act. The Corporation may enter into contracts
with any Director, officer, employee, or agent of the
Corporation in furtherance of the provisions of this Article
and may create a trust fund, grant a security interest, or
use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this
article.
Section 8.5 Indemnification of Employees and Agents of the
Corporation. The Corporation may, by action of its Board of
Directors from time to time, provide indemnification and pay
expenses in advance of the final disposition of a proceeding
to employees and agents of the Corporation with the same
scope and effect as the provisions of this article with
respect to the indemnification and advancement of expenses
of Directors and officers of the Corporation or pursuant to
rights granted pursuant to, or provided by, the Washington
Business Corporation Act or otherwise.
ARTICLE IX. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and
records of account and shall keep minutes of the proceedings
of its shareholders and Board; and shall keep at its
registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by
each. Any books, records, and minutes may be in written
form or any other form capable of being converted into
written form within a reasonable time.
ARTICLE X. AMENDMENTS
Except to the extent prohibited by law, and only upon a vote
of two-thirds of the Board of Directors, these Bylaws may be
altered, amended or repealed, and new Bylaws may be adopted
by the Board at any regular or special meeting of the Board.
Amended December 14, 1987; January l8, 1991; May 29, 1991;
June 4, 1992; September 27, 1993; May 17, 1995; and December
20, 1995.
EXHIBIT 10.21
MERGER AGREEMENT
AMONG
NOAH'S NEW YORK BAGELS, INC.,
SHAREHOLDERS AND CERTAIN OPTIONHOLDERS
OF NOAH'S NEW YORK BAGELS, INC.,
EINSTEIN BROS. BAGELS, INC.
and
NNYB ACQUISITION CORPORATION
DATED JANUARY 22, 1996
TABLE OF CONTENTS
Page
Article 1. The Merger; the Stock Purchase 1.
1.1 The Merger 1.
1.2 Effective Time of the Merger 1.
1.3 Articles of Incorporation of the Company 2.
1.4 Bylaws of the Company 2.
1.5 Treatment of Shares of the Company 2.
1.6 Treatment of Optionees 2.
1.7 Treatment of Shares of Common Stock of Merger Sub 2.
1.8 Time and Place of the Closing 2.
1.9 The Merger 2.
1.10 The Stock Purchase 3.
Article 2. Representations and Warranties of the
Shareholders Concerning the Transaction 3.
2.1 Organization of Certain Shareholders; Due Authorization 3.
2.2 Binding Obligation 3.
2.3 Ownership of Shares of the
Company By the Shareholders 4.
2.4 Investment Bankers' and Brokers' Fees 4.
2.5 Acquisition of Purchased Shares 4.
2.6 Status of Shareholders for Tax Purposes 4.
Article 3. Representations and Warranties
of Einstein Bros. and Merger Sub 4.
3.1 Organization, Power and Authority of
Einstein Bros. and Merger Sub 4.
3.2 Binding Obligation; Noncontravention 5.
3.3 Capital Stock of Einstein Bros. 5.
3.4 Capital Stock of Merger Sub 5.
3.5 Certificates of Incorporation and
Bylaws of Einstein Bros. and Merger Sub 5.
3.6 Purchased Shares 6.
3.7 Financial Statements of Einstein Bros. 6.
3.8 Liabilities of Einstein Bros. 6.
3.9 Assets of Einstein Bros. 6.
3.10 Licenses and Permits of Einstein Bros. 6.
3.11 Proprietary Rights of Einstein Bros. 6.
3.12 Adequacy of Einstein Bros.' Assets 7.
3.13 Litigation Concerning Einstein Bros. 7.
3.14 No Material Adverse Change 7.
3.15 Compliance With Laws 7.
3.16 Investment Bankers' and Brokers' Fees 7.
3.17 Products Liability 7.
3.18 Records of Einstein Bros. 7.
3.19 Material Transactions 7.
3.20 Accuracy Of Information Furnished
By Einstein Bros. 7.
3.21 Hart-Scott-Rodino Act Reporting Matters 8.
Article 4. Representations and Warranties
Concerning the Company 8.
4.1 Organization, Power and Authority
of the Company; Binding Obligation 8.
4.2 Capital Stock of the Company 9.
4.3 Subsidiaries of the Company 9.
4.4 Financial Statements of the Company 9.
4.5 Liabilities of the Company 10.
4.6 Tax Matters 10.
4.7 Real Estate of the Company 11.
4.8 Good Title to and Condition of the Company's Assets 12.
4.9 Products Liability 12.
4.10 Licenses and Permits of the Company 12.
4.11 Proprietary Rights of the Company 12.
4.12 Adequacy of the Company's Assets; the Company's
Relationships with its Customers and Suppliers 13.
4.13 Documents of and Information with
Respect to the Company 13.
4.14 Insurance Covering the Company and its Assets 14.
4.15 Litigation Involving the Company 14.
4.16 Records of the Company 14.
4.17 No Material Adverse Change 14.
4.18 Absence of Certain Acts or Events 15.
4.19 Compliance with Laws by the Company 15.
4.20 Environmental Matters 15.
4.21 Labor Relations of the Company 16.
4.22 Employee Benefits 17.
4.23 Accuracy of Information Furnished by the Company 18.
4.24 HSR Act Reporting Matters 18.
Article 5. Additional Covenants of the
Shareholders and the Company 19.
5.1 Reasonable Best Efforts 19.
5.2 Conduct of Business Pending the Closing 19.
5.3 Access to the Company's Stores,
Properties and Records 19.
5.4 Notice of Material Developments 20.
5.5 No Other Discussions 20.
Article 6. Additional Covenants of Einstein
Bros. and Merger Sub 20.
6.1 Reasonable Best Efforts 20.
6.2 Guarantee of Performance by Merger Sub 20.
6.3 Conduct Of Business Pending The Closing 20.
6.4 Notice Of Material Developments 21.
Article 7. Conditions To The Obligation
Of Einstein Bros. And Merger Sub 21.
7.1 Accuracy of Representations and
Warranties and Compliance with Obligations 21.
7.2 Opinion of Counsel 21.
7.3 Receipt of Bank Consent 21.
7.4 No Adverse Litigation 21.
7.5 Resignations 21.
7.6 Employment and Consulting Agreements; Options 21.
7.7 Landlord Consents 22.
7.8 Qualifications, Legal Investment 22.
7.9 Termination Of Certain Agreements 22.
Article 8. Conditions to Obligation of
the Shareholders and the Company 22.
8.1 Accuracy of Representations
and Warranties and Compliance with Obligations 22.
8.2 Opinion of Counsel 23.
8.3 Einstein Bros. Registration Rights Agreement 23.
8.4 Election of Noah Alper 23.
8.5 Agreements with Certain Members of Noah's Management 23.
8.6 Receipt Of Bank Consent 23.
8.7 No Adverse Litigation 23.
8.8 Landlord Consents 23.
Article 9. Certain Actions After the Closing 23.
9.1 Execution of Further Documents 23.
9.2 Restrictions on Transfer of Purchased Shares 24.
9.3 Certain Post-Closing Cooperation 25.
9.4 Certain Voting Agreements 25.
9.5 Confidential Information 26.
9.6 Restrictive Covenants 27.
9.7 Additional Agreements Of
Starbucks, the Company And Einstein Bros. 27.
9.8 Additional Agreement Of Noah Alper 28.
9.9 Remedies; Waiver 28.
9.10 Employee Benefit Plans 29.
Article 10. Indemnification 29.
10.1 Agreement by the Shareholders to Indemnify 29.
Article 11. Miscellaneous 32.
11.1 Amendment and Modification 32.
11.2 Payment of Expenses 32.
11.3 Termination 33.
11.4 Binding Effect 33.
11.5 Entire Agreement 33.
11.6 Headings 33.
11.7 Certain Defined Terms 33.
11.8 Execution in Counterpart 34.
11.9 Notices 34.
11.10 Governing Law 35.
11.11 Amendment and Restatement 35.
MERGER AGREEMENT
This Merger Agreement (the "Agreement") is made and entered into
as of the 22nd day of January, 1996 by and among Noah's New York
Bagels, Inc., a California corporation (the "Company"), the
shareholders of the Company who have executed this Agreement
(collectively, the "Shareholders"), the holders of Options (as
defined in Section 1.6) who are Purchasers (as defined in Section
1.1), Einstein Bros. Bagels, Inc., a Delaware corporation
("Einstein Bros."), and NNYB Acquisition Corporation, a Delaware
corporation ("Merger Sub").
Recitals
The Shareholders own a majority of the issued and outstanding
shares of capital stock of the Company. The parties desire that
Merger Sub be merged with and into the Company, with the Company
being the surviving corporation in the merger and the outstanding
shares of capital stock of the Company being converted into cash,
on the terms and subject to the conditions set forth herein. The
board of directors of each of the Company, Einstein Bros. and
Merger Sub has approved and adopted such merger on the terms and
subject to the conditions set forth herein. Immediately after
such merger, certain of the Shareholders and holders of Options
desire to purchase shares of Einstein Bros. Common Stock on the
terms and subject to the conditions set forth herein.
COVENANTS
In consideration of the mutual representations, warranties and
covenants and subject to the conditions herein contained, the
parties hereto agree as follows:
ARTICLE 1. THE MERGER; THE STOCK PURCHASE
1.1 THE MERGER. At the Closing (as defined in Section 1.8), on
the terms and subject to the conditions set forth in this
Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "Delaware Act") and the General
Corporation Law of the State of California (the "California
Act"), Merger Sub shall be merged with and into the Company (the
"Merger"). Following the Merger, the Company shall continue as
the surviving corporation (the "Surviving Company") and the
separate existence of Merger Sub shall cease.
1.2 Effective Time of the Merger. The Merger shall become
effective at the time (the "Effective Time") the Company and
Merger Sub file an agreement of merger in the form attached as
Exhibit A hereto (the "Merger Agreement") with the Secretary of
State of Delaware and the Secretary of State of California. The
Surviving Company may, at any time after the Effective Time, take
any action (including executing and delivering any document) in
the name and on behalf of either the Company or Merger Sub in
order to carry out and effectuate the transactions contemplated
by this Agreement.
1.3 Articles of Incorporation of the Company. The Articles of
Incorporation of the Surviving Company shall be the Articles of
Incorporation of the Company as they exist immediately prior to
the Effective Time.
1.4 Bylaws of the Company. The bylaws of the Surviving Company
shall be the bylaws of the Company as they exist immediately
prior to the Effective Time.
1.5 Treatment of Shares of the Company. At and as of the
Effective Time, each outstanding share of capital stock of the
Company shall be converted into the right to receive an amount in
cash (the "Per Share Merger Consideration") equal to (a)
$100,900,000, less the amounts paid to persons identified in the
first sentence of Section 11.2, plus the aggregate exercise price
of all Options (as defined in Section 1.6), divided by (b) the
total number of shares of capital stock of the Company
outstanding immediately prior to the Effective Time, plus the
total number of shares of capital stock subject to the Options.
1.6 Treatment of Optionees. Subject to obtaining the consent of
the shareholders of the Company required under Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"),
immediately prior to the Effective Time, the Company shall
accelerate the vesting of the options held by the optionees
identified in the Disclosure Schedule (other than options to
purchase 240,000 shares of Common Stock held by Glenn Bacheller)
that have not been exercised (the "Options"). At the Effective
Time, Einstein Bros. shall pay to each of such optionees in
cancellation and satisfaction of his or her Options an amount
equal to (a) the total number of shares subject to such
optionee's Options, multiplied by the Per Share Merger
Consideration, less (b) the aggregate exercise price of such
optionee's Options.
1.7 Treatment of Shares of Common Stock of Merger Sub. At and
as of the Effective Time, each share of Common Stock of Merger
Sub shall be converted into the right to receive one share of
Common Stock of the Company.
1.8 Time and Place of the Closing. The Merger shall take place
at the offices of Cooley Godward Castro Huddleson & Tatum, One
Maritime Plaza, 20th Floor, San Francisco, California at 10:00
a.m., local time, on January 31, 1996; provided, however, that if
any of the conditions which are set forth in Articles 7 and 8
have not been satisfied or waived by said date, then, subject to
the provisions of Section 11.3 hereof, such transactions shall
take place on a subsequent date, which shall be determined by the
mutual agreement of Einstein Bros. and the Company. Throughout
this Agreement, the consummation of the Merger is referred to as
the "Closing" and such date and time are referred to as the
"Closing Date."
1.9 The Merger. At the Closing:
1.9.1 Merger Sub and the Company shall file the Merger
Agreement with the Secretary of State of California and the
Secretary of State of Delaware.
1.9.2 Einstein Bros. (a) shall cause the consideration to
be paid to the shareholders and optionholders of the Company
in the manner provided in Section 1.5 and Section 1.6,
respectively, and (b) shall pay to Alex. Brown & Sons
Incorporated and the other persons identified in the first
sentence of Section 11.2 hereof the amounts it is instructed
in writing by the Company to pay. The parties may cause
such payments to be made by a paying agent of the Company,
if Einstein Bros. so elects, with the fees of the paying
agent to be paid by Einstein Bros.
1.10 The Stock Purchase. Immediately following the Closing, and
on the terms and subject to the conditions set forth in this
Agreement, the Shareholders and holders of Options identified on
Schedule 1.10 (the "Purchasers") will purchase the number of
shares of Common Stock of Einstein Bros. set forth opposite their
respective names on Schedule 1.1 under the heading "Purchased
Shares," in exchange for the cash payment set forth opposite
their respective names on Schedule 1.10 under the heading
"Purchase Price," for an aggregate of 3,801 shares of Einstein
Bros. Common Stock. (Such transaction is herein sometimes
referred to as the "Purchase" and the shares of Einstein Bros.
Common Stock so purchased are herein sometimes collectively
referred to as the "Purchased Shares.") Each Purchaser hereby
authorizes Einstein Bros. to withhold such Purchaser's Purchase
Price from the consideration to be received by such Purchaser
pursuant to Sections 1.5 and 1.6.
Article 2. Representations and Warranties of the Shareholders
Concerning the Transaction
In order to induce Einstein Bros. and Merger Sub to enter into
this Agreement and to consummate the transactions contemplated
hereunder, except as set forth in the Disclosure Schedule
attached hereto, each Shareholder makes the following
representations and warranties:
2.1 ORGANIZATION OF CERTAIN SHAREHOLDERS; DUE AUTHORIZATION. If
such Shareholder is a corporation or a partnership, such
Shareholder is duly organized and legally existing in good
standing under the laws of the jurisdiction of its organization,
with full power and authority to enter into this Agreement and to
carry out the transactions and agreements contemplated hereby.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary action of such Shareholder.
2.2 Binding Obligation. This Agreement has been duly executed
and delivered by such Shareholder and is a valid and binding
obligation of such Shareholder, enforceable in accordance with
its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or general principles of
equity. Neither the execution and delivery of this Agreement by
such Shareholder nor the consummation of the transactions
contemplated hereby will: (i) conflict with or violate any
decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or
enforceable against such Shareholder; or (ii) assuming, in the
case of Starbucks Corporation ("Starbucks"), the satisfaction of
the condition set forth in Section 8.6, result in a breach of,
constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify or
cancel, or require any notice under, any mortgage, contract,
agreement, indenture, will, trust or other instrument which is
either binding upon or enforceable against such Shareholder. No
permit, consent, approval or authorization of, or declaration to
or filing with, any regulatory or other government authority is
required in connection with the execution and delivery of this
Agreement by such Shareholder and the consummation by such
Shareholder of the transactions contemplated hereby.
2.3 Ownership of Shares of the Company By the Shareholders.
Such Shareholder is the lawful record and beneficial owner of all
of the shares of capital stock of the Company shown as owned by
such Shareholder in the Disclosure Schedule and has valid title
thereto, free and clear of all liens, pledges, encumbrances,
security interests, restrictions on transfer (other than
restrictions under federal and state securities laws), claims and
equities of every kind, except those arising under the agreements
listed in the Disclosure Schedule. Except for this Agreement and
the agreements listed in the Disclosure Schedule, there are no
outstanding warrants, options or rights of any kind to acquire
from such Shareholder any of such Shares.
2.4 Investment Bankers' and Brokers' Fees. Such Shareholder has
no obligation to pay any fees or commissions to any investment
banker, broker, finder or agent with respect to the transactions
contemplated by this Agreement, except its obligation under
Section 11.2 hereof to pay the fees of Alex. Brown & Sons
Incorporated.
2.5 Acquisition of Purchased Shares. If such Shareholder is a
Purchaser, such Purchaser is acquiring Purchased Shares for such
Shareholder's own account and not with a view to, or for sale in
connection with, any distribution thereof. Such Purchaser
understands that the Purchased Shares will not have been
registered under the Securities Act of 1933, as amended, or under
any state securities laws, and that, except as provided in the
Amended and Restated Registration Rights Agreement (as
hereinafter defined), Einstein Bros. does not contemplate nor is
Einstein Bros. legally required to file a registration statement
for the purpose of registering the Purchased Shares under any of
such laws. Such Purchaser is an "accredited investor" as that
term is defined in Rule 501 of Regulation D under the Securities
Act of 1933 and confirms that all documents, records and books
pertaining to Einstein Bros. and its business have been made
available to such Purchaser and that such Purchaser has been
given an opportunity to make any further inquiries of Einstein
Bros. and its representatives that such Purchaser desires to make
and that each such inquiry has been answered, or requested
information provided, to such Purchaser's satisfaction.
2.6 Status of Shareholders for Tax Purposes. Such Shareholder
is a U.S. person (as defined in Section 7701(a)(30) of the Code).
Article 3. Representations and Warranties of Einstein Bros. and
Merger Sub.
In order to induce the Company and the Shareholders to enter into
this Agreement and to consummate the transactions contemplated
hereunder, except as set forth in the Einstein Bros. Disclosure
Schedule, Einstein Bros. and Merger Sub make the following
representations and warranties:
3.1 Organization, Power and Authority of Einstein Bros. and
Merger Sub. Each of Einstein Bros. and Merger Sub is a
corporation duly organized and validly existing in good standing
under the laws of the State of Delaware, with full corporate
power and authority to enter into this Agreement and to carry out
the transactions and agreements contemplated hereby. The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action of each of
Einstein Bros. and the Merger Sub.
3.2 Binding Obligation; Noncontravention. This Agreement and
the Merger Agreement have been duly executed and delivered by
each of Einstein Bros. and Merger Sub that is a party thereto and
each such agreement is a valid and binding obligation of each of
Einstein Bros. and Merger Sub that is a party thereto,
enforceable in accordance with its terms, except to the extent
that such enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally,
or general principles of equity. Neither the execution and
delivery of this Agreement and the Merger Agreement by each of
Einstein Bros. and Merger Sub that is a party thereto nor the
consummation of the transactions contemplated hereby will: (i)
conflict with or violate any provision of the certificate of
incorporation or bylaws of Einstein Bros. or Merger Sub or of any
decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or
enforceable against Einstein Bros. or Merger Sub; or (ii)
assuming satisfaction of the conditions set forth in Article 7.3,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under, any
mortgage, contract, agreement, indenture or other instrument
which is either binding upon or enforceable against Einstein
Bros. or Merger Sub. Assuming the accuracy of the
representations of the Company in Section 4.24, no permit,
consent, approval or authorization of, or declaration to or
filing with, any regulatory or other government authority is
required in connection with the execution and delivery of this
Agreement and the Merger Agreement by each of Einstein Bros. and
Merger Sub that is a party thereto and the consummation of the
transactions contemplated hereby, except for the filing of the
Merger Agreement and filings under federal and state securities
laws.
3.3 Capital Stock of Einstein Bros. The authorized capital
stock of Einstein Bros. consists solely of 1,000,000 shares of
Common Stock, $.01 par value per share, 24,754.92 shares of which
are issued and outstanding and none of which are issued and held
in its treasury, and 200,000 shares of Preferred Stock, $.01 par
value, 6,250 shares of which are issued and designated as
Series A Preferred Stock. Except as set forth in Section 1.10 or
the Einstein Bros. Disclosure Schedule: (i) there are no
outstanding warrants, options or rights of any kind to acquire
from Einstein Bros. any shares of its Common Stock or securities
of any kind, (ii) there are no pre-emptive rights with respect to
the issuance or sale of shares of capital stock of Einstein Bros.
and (iii) there are no voting trusts, proxies or other agreements
or understandings with respect to the voting of the capital stock
of Einstein Bros.
3.4 Capital Stock of Merger Sub. The authorized capital stock
of Merger Sub consists solely of 100 shares of Common Stock, $.01
par value per share, 100 shares of which are issued and
outstanding and none of which are issued and held in its
treasury.
3.5 Certificates of Incorporation and Bylaws of Einstein Bros.
and Merger Sub. Einstein Bros. has previously delivered to the
Company copies of the certificate of incorporation and all
amendments thereto to date (certified by the Secretary of State
of Delaware) and of the bylaws of each of Einstein Bros. and
Merger Sub.
3.6 PURCHASED SHARES. The Purchased Shares, when issued at the
Closing, will be duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock, $.01 par value per share,
of Einstein Bros.
3.7 FINANCIAL STATEMENTS OF EINSTEIN BROS. Set forth in the
Einstein Bros. Disclosure Schedule, are the following financial
statements of Einstein Bros: (i) audited consolidated balance
sheet at March 24, 1995, (ii) unaudited consolidated balance
sheet at December 31, 1995, and (iii) unaudited consolidated
statement of operations for the period from March 24, 1995 to
December 31, 1995. Such financial statements present fairly the
consolidated financial position of Einstein Bros. at each of such
balance sheet dates and the results of its operations for each of
the periods covered, and they have been prepared in conformity
with generally accepted accounting principles except that the
unaudited financial statements are subject to normal recurring
year end audit adjustments, none of which will be material, and
do not contain either the statement of cash flows or the
footnotes required under generally accepted accounting
principles. The December 31, 1995 balance sheet is herein
sometimes referred to as the "Einstein Bros. Balance Sheet."
3.8 LIABILITIES OF EINSTEIN BROS. As of the date of the
Einstein Bros. Balance Sheet, Einstein Bros. had no material
liabilities of a type required to be set forth on a balance sheet
prepared in accordance with generally accepted accounting
principles, except as set forth on the Einstein Bros. Balance
Sheet.
3.9 ASSETS OF EINSTEIN BROS. Einstein Bros. has good and
marketable title to all of its assets and properties, free and
clear of all liens, mortgages, pledges, encumbrances or charges
of every kind, nature and description whatsoever, except for
mortgages, pledges and security interests granted under or
pursuant to the secured loan agreement between Boston Chicken,
Inc. ("BCI") and Einstein Bros. dated March 24, 1995, as amended,
and such liens, mortgages, pledges, encumbrances or charges as do
not have a Material Adverse Effect (as defined in Section 11.7).
3.10 LICENSES AND PERMITS OF EINSTEIN BROS. Einstein Bros.
possesses all licenses and other required governmental or
official approvals, permits or authorizations, the failure to
possess which would have a Material Adverse Effect. All such
licenses, approvals, permits and authorizations that are material
to Einstein Bros.' business are in full force and effect,
Einstein Bros. is in substantial compliance with their
requirements, and no proceeding is pending or, to the Best of the
Knowledge of Einstein Bros. (as defined in Section 11.7),
threatened to revoke or amend any of them.
3.11 PROPRIETARY RIGHTS OF EINSTEIN BROS. To the Best of the
Knowledge of Einstein Bros., except as set forth in the Einstein
Bros. Disclosure Schedule, Einstein Bros. possesses all
proprietary rights to carry on its business as now being
conducted without conflict with valid proprietary rights of
others.
3.12 ADEQUACY OF EINSTEIN BROS.' ASSETS. The assets and
properties of Einstein Bros. constitute, in the aggregate, all of
the property necessary for the conduct of Einstein Bros.'
business in the manner in which and to the extent to which it is
currently being conducted. Except as set forth in this
Agreement, Einstein Bros. is not restricted by agreement from
carrying on its current business anywhere in the world.
3.13 LITIGATION CONCERNING EINSTEIN BROS. There are on the date
hereof no actions, suits, claims, governmental investigations or
arbitration proceedings pending or to the Best of the Knowledge
of Einstein Bros. threatened against or affecting Einstein Bros.
or any of its assets or properties which, if determined adversely
to Einstein Bros., would have a Material Adverse Effect.
3.14 NO MATERIAL ADVERSE CHANGE. From the date of the Einstein
Bros. Balance Sheet to the date of this Agreement, there have not
been any changes in the business or properties of Einstein Bros.,
or in its consolidated financial condition, other than changes
occurring in the ordinary course of business which in the
aggregate have not had a Material Adverse Effect.
3.15 COMPLIANCE WITH LAWS. Einstein Bros. is in substantial
compliance with all laws, regulations and orders applicable to
it, its assets, properties and business, except where the failure
so to comply would not have a Material Adverse Effect.
3.16 INVESTMENT BANKERS' AND BROKERS' FEES. Einstein Bros. does
not have any obligation to pay any fees or commissions to any
investment banker, broker, finder or agent with respect to the
transactions contemplated by this Agreement.
3.17 PRODUCTS LIABILITY. Einstein Bros. has no liability (and
to the Best of the Knowledge of Einstein Bros. there is no basis
for any liability) arising out of any injury to individuals or
property as a result of the ownership, possession, use or
consumption of any product manufactured, sold or delivered by
Einstein Bros.
3.18 RECORDS OF EINSTEIN BROS. A record of all action taken by
the stockholders and board of directors of Einstein Bros. and all
minutes of their meetings are contained in the minute books of
Einstein Bros. and are accurate and complete, except that such
minute books do not contain minutes of meetings of directors held
in November, December and January. The stock records and stock
ledgers of Einstein Bros. contain an accurate and complete record
of all issuances, transfers and cancellations of shares of
capital stock of Einstein Bros.
3.19 MATERIAL TRANSACTIONS. Except as set forth in the Einstein
Bros. Disclosure Schedule, since the date of the Einstein Bros.
Balance Sheet, Einstein Bros. has not incurred any material
obligations (including any indebtedness) or entered into any
material transaction, except in the ordinary course of business
and except for this Agreement and the transactions contemplated
hereby.
3.20 ACCURACY OF INFORMATION FURNISHED BY EINSTEIN BROS. No
representation, statement or information made or furnished in
writing by Einstein Bros. to the Company or the Purchasers,
including, without limitation, those contained in this Agreement
and the Einstein Bros. Disclosure Schedule, taken as a whole,
contains any untrue statement of a material fact or omits any
material fact necessary to make the representations, statements
and information made or furnished therein, in light of the
circumstances in which they were made, not misleading.
3.21 HART-SCOTT-RODINO ACT REPORTING MATTERS. Einstein Bros. is
the "ultimate parent entity" of Einstein Bros. within the meaning
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). Einstein Bros. does not have total
assets, and did not record annual net sales for its most recent
fiscal year, in excess of $100,000,000, for purposes of the HSR
Act.
Article 4. Representations and Warranties Concerning the Company
In order to induce Einstein Bros. and Merger Sub to enter into
this Agreement and to consummate the transactions contemplated
hereunder, except as set forth in the Disclosure Schedule, the
Company makes the following representations and warranties:
4.1 ORGANIZATION, POWER AND AUTHORITY OF THE COMPANY; BINDING
OBLIGATION. The Company is a corporation duly organized and
legally existing in good standing under the laws of California,
and has full corporate power and authority (i) to enter into this
Agreement and to carry out the transactions and agreements
contemplated hereby, and (ii) to carry on its business as it is
now being conducted. The Company is legally qualified to
transact business as a foreign corporation, and is in good
standing, in the jurisdictions identified in the Disclosure
Schedule, those being the only jurisdictions in which its
business or property is such as to require that it be thus
qualified. This Agreement and the Merger Agreement have been duly
authorized by all necessary corporate action of the Company,
including its board of directors and shareholders, and each such
agreement has been duly executed and delivered by the Company and
is a valid and binding obligation of the Company, enforceable in
accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally
or general principles of equity. Neither the execution and
delivery of this Agreement and the Merger Agreement by the
Company nor the consummation of the transactions contemplated
hereby will: (i) conflict with or violate any provision of the
articles of incorporation or bylaws of the Company, or any decree
or order of any court or administrative or other governmental
body which is either applicable to, binding upon or enforceable
against the Company; or (ii) except as set forth in the
Disclosure Schedule, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify or cancel, or require any
notice under, any mortgage, contract, agreement, indenture, will,
trust or other instrument which is either binding upon or
enforceable against the Company or the assets and properties of
the Company. Assuming the accuracy of the representations of
Einstein Bros. in Section 3.21 hereof, no permit, consent,
approval or authorization of, or declaration to or filing with,
any regulatory or other government authority is required in
connection with the execution and delivery of this Agreement and
the Merger Agreement by the Company and the consummation by it of
the transactions contemplated hereby, except for the filing of
the Merger Agreement and filings under federal and state
securities laws.
4.2 CAPITAL STOCK OF THE COMPANY. The authorized capital stock
of the Company consists solely of: 38,000,000 shares of Common
Stock without par value, of which 5,365,197 shares are issued and
outstanding and none of which are issued and held in its
treasury; 38,000,000 shares of Preferred Stock without par value,
of which 3,375,000 shares are designated "Series A Preferred
Stock" (of which 3,286,406 are issued and outstanding) and
4,904,425 shares are designed "Series B Preferred Stock" (of
which 4,744,838 are issued and outstanding). No shares of
Preferred Stock are issued and held in the Company's treasury and
no other shares of capital stock are outstanding. All voting
rights in the Company are vested exclusively in its shares of
Common and Preferred Stock, and, except for the agreements listed
in the Disclosure Schedule, there are no voting trusts, proxies
or other agreements or understandings with respect to the voting
of the capital stock of the Company. All of the issued and
outstanding shares of Common Stock of the Company are validly
authorized and issued, fully paid and non-assessable. The
Disclosure Schedule sets forth the name of, and the number of
shares of Common Stock of the Company owned by, each shareholder
of record as of the date hereof. Except as set forth in the
Disclosure Schedule, which lists each outstanding option granted
by the Company, the name of the optionee, the number of shares
subject to the option and the plan pursuant to which such option
was granted, there are no outstanding warrants, options or rights
of any kind to acquire from the Company any shares of its Common
Stock or securities of any kind, and there are no preemptive
rights with respect to the issuance or sale of shares of capital
stock of the Company. The Company has delivered to Einstein
Bros. true and correct copies of all option plans and option
agreements entered into by the Company. The Company has no
obligation to acquire any of its issued and outstanding shares of
Common Stock or any other security issued by it from any holder
thereof.
4.3 SUBSIDIARIES OF THE COMPANY. The Company has no equity
interest or the right or obligation to acquire an equity
interest, in any other person or entity.
4.4 FINANCIAL STATEMENTS OF THE COMPANY. Set forth in the
Disclosure Schedule are the following financial statements of the
Company:
4.4.1 audited balance sheets at December 31 of each of the
years 1993 and 1994;
4.4.2 an unaudited balance sheet of the Company at November
25, 1995;
4.4.3 audited statements of operations and retained
earnings and statements of cash flow for each year in the
two-year period ended December 31, 1994; and
4.4.4 an unaudited statement of operations of the Company
for the forty-seven week period ended November 25, 1995.
Such financial statements present fairly the financial position
of the Company at each of the said balance sheet dates and the
results of its operations for each of the said periods covered,
and they have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis except as may
be disclosed in the notes thereto; provided, however, that the
unaudited financial statements are subject to normal recurring
year end audit adjustments, none of which will be material, and
do not contain either the statement of cash flows or the
footnotes required under generally accepted accounting
principles. The unaudited balance sheet of the Company at
November 25, 1995 is referred to herein as the "1995 Balance
Sheet."
4.5 Liabilities of the Company. The Company has no liabilities
or obligations, either accrued, absolute, contingent or
otherwise, except: (i) to the extent reflected or taken into
account in determining net worth in the 1995 Balance Sheet and
not heretofore paid or discharged; (ii) to the extent clearly
disclosed and specifically set forth in or incorporated by
express reference in any of the schedules attached hereto; (iii)
obligations incurred in the ordinary course of business that can
be terminated by the Company on not more than 30 days' notice
without liability to the Company in excess of $25,000; and
(iv) liabilities incurred in the ordinary course of business,
consistent with prior practice, since the date of the 1995
Balance Sheet. The Company has no obligation to pay any fees or
commissions to any investment banker, broker, finder or agent
with respect to the transactions contemplated by this Agreement,
except for the fees of Alex. Brown & Sons Incorporated.
4.6 Tax Matters.
4.6.1 The Company has accurately prepared and timely filed
all tax returns and reports required to be filed by it,
including without limitation all federal, state, local and
foreign tax returns, and has paid in full all taxes and
other charges which have become due in connection therewith.
The amounts provided in the 1995 Balance Sheet for taxes are
adequate to cover all unpaid liabilities for all federal,
state, local and foreign taxes and other charges in
connection therewith which were accrued through, or
applicable to the period ended, November 25, 1995 and for
which the Company may be liable in its own right or as a
transferee of the assets of, or successor to, any other
person or entity. There is no tax deficiency proposed or,
to the Best of the Knowledge of the Company, threatened
against the Company. There are no tax liens upon any
property or assets of the Company except liens for current
taxes not yet due and payable. The Company has made all
payments of estimated taxes when due in amounts sufficient
to avoid the imposition of any penalty.
4.6.2 All taxes and other assessments and levies which the
Company was required by law to withhold or to collect have
been duly withheld and collected, and have been paid over to
the proper governmental entity or are being held by the
Company, and all such withholdings and collections and all
other payments due in connection therewith as of the date of
the 1995 Balance Sheet are duly reflected on the 1995
Balance Sheet.
4.6.3 The Company has not been advised that any of the tax
returns of the Company is under audit or examination by any
tax authority, and there are no outstanding agreements or
waivers extending the statute of limitations applicable to
any federal or state income tax returns of the Company for
any period. The Company has previously delivered to
Einstein Bros. accurate and complete copies of all federal
and state income tax returns, examination reports and
statements of deficiencies assessed against or agreed to by
the Company.
4.6.4 The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply, nor has the Company
made any "qualified stock purchases," as defined in Section
338 of the Code.
4.6.5 The Company is not, and has not been during the
applicable period specified in Section 897(c)(1)(A)(ii) of
the Code, a United States real property holding corporation,
within the meaning of Section 897(c)(2) of the Code.
4.6.6 To the extent the Company is obligated to make a
payment to any individual that would not be deductible to
the Company because of the provisions of Section 280G of the
Code, or otherwise makes such a payment under this
Agreement, the Company shall obtain prior to Closing
consents of its shareholders sufficient so that Section 280G
shall not apply.
4.7 Real Estate of the Company.
4.7.1 The Company owns no fee interests in real estate.
4.7.2 The Disclosure Schedule accurately and completely
sets forth, with respect to every parcel of real estate
leased by the Company (the "Leasehold Premises"), the
lessor and lessee thereof and the date and term of the lease
governing such property. The Company has previously
delivered to Einstein Bros. accurate and complete copies of
each of the leases covering the Leasehold Premises, and none
of such leases has been amended or modified except to the
extent that such amendments or modifications are disclosed
in such copies or in the Disclosure Schedule. All of the
leases covering the Leasehold Premises are in full force and
effect, and the Company is not in material default or breach
under any such lease. No event has occurred which with the
passage of time or the giving of notice or both would cause
a material breach of or default by the Company under any
such lease. To the Best of the Knowledge of the Company,
there is no breach or anticipated breach by the other
parties to such lease.
4.7.3 The Leasehold Premises are each in good operating
condition, normal wear and tear excepted. The Company's
commissary is sufficient to satisfy the Company's current
normal production levels. The Company has received no
notice of: (i) any condemnation proceeding with respect to
any portion of the Leasehold Premises, and to the Best of
the Knowledge of the Company no proceeding is contemplated
by any governmental authority; or (ii) any special
assessment which may affect the Leasehold Premises, and to
the Best of the Knowledge of the Company no such special
assessment is contemplated by any governmental authority.
4.8 GOOD TITLE TO AND CONDITION OF THE COMPANY'S ASSETS. The
Company has good and marketable title to all of its assets and
properties, free and clear of all liens, mortgages, pledges,
encumbrances or charges of every kind, nature, and description
whatsoever, except: (i) those set forth in the Disclosure
Schedule, (ii) liens for current taxes not yet due and payable,
(iii) purchase money security interests in equipment in or for
use by the Company's stores, commissaries, or corporate offices,
and (iv) minor liens or encumbrances that have no material effect
on the value of the Company's assets and do not impair the
present use or marketability of such assets. The Company's fixed
assets are in good operating condition, normal wear and tear
excepted. The inventory and supplies of the Company consist of
items of a quality and quantity saleable or usable, respectively,
in the normal course of the Company's business at values in the
aggregate at least equal to the values at which such items are
carried on its books, net of reserves therefor on the 1995
Balance Sheet.
4.9 PRODUCTS LIABILITY. The Company has no liability (and to
the Best of the Knowledge of the Company there is no basis for
any liability) arising out of any injury to individuals or
property as a result of the ownership, possession, use or
consumption of any product manufactured, sold or delivered by the
Company.
4.10 LICENSES AND PERMITS OF THE COMPANY. The Company possesses
all licenses and other required governmental or official
approvals, permits or authorizations, the failure to possess
which would have a Material Adverse Effect. All such licenses,
approvals, permits and authorizations are in full force and
effect, the Company is in compliance with their requirements, and
no proceeding is pending or, to the Best of the Knowledge of the
Company, threatened to revoke or amend any of them. None of such
licenses, approvals, permits and authorizations are or will be
impaired or in any way affected by the execution and delivery of
this Agreement or the consummation of the transactions
contemplated hereby.
4.11 PROPRIETARY RIGHTS OF THE COMPANY. To the Best of the
Knowledge of the Company, except as set forth in the Disclosure
Schedule, the Company possesses all proprietary rights, to carry
on its business as now being conducted without conflict with
valid proprietary rights of others. The Disclosure Schedule
contains an accurate and complete list of all trade secrets,
technology, know-how, copyrights, common law trademarks and
service marks, trademark and service mark registrations and
applications, trade names, and rights to any of the foregoing,
owned by the Company, or in which it has any interest
(collectively, "Proprietary Rights"), and each jurisdiction in
which each such Proprietary Right is registered and the number
and expiration date, if applicable, for such registration and
each jurisdiction in which an application to register such item
is pending and the date such application was made. Except as set
forth on the Disclosure Schedule, (i) the Company owns full,
exclusive and unencumbered title in the United States in and to
and the exclusive right to use all of the Proprietary Rights,
(except that the Company makes no representation that its
formulas and processes are protectable trade secrets), (ii) as to
the registrations set forth in the Disclosure Schedule, all such
registrations are presently in full force and effect, (iii) as to
the applications for marks set forth in the Disclosure Schedule,
all such applications are presently pending with no known grounds
for refusal or outstanding officer actions; (iv) there are no
legal or administrative actions, challenges or other adverse
claims or challenges pending or, to the Best of the Knowledge of
the Company, threatened against any of the Proprietary Rights and
there are no grounds for the same, (v) the Company has not
entered into any licenses regarding the Proprietary Rights or any
open agreement with any third party acknowledging any prior
rights or consenting to any concurrent right of any other party
or granting any right to any other party to use any proprietary
right that is confusingly similar to any of the trademarks,
service marks or trade dress included in the Proprietary Rights
and (vi) to the Best of the Knowledge of the Company no other
person or entity is using any of the Proprietary Rights or any
trademark or service mark that is confusingly similar to any of
the Proprietary Rights.
4.12 ADEQUACY OF THE COMPANY'S ASSETS; THE COMPANY'S
RELATIONSHIPS WITH ITS CUSTOMERS AND SUPPLIERS. The assets and
properties of the Company constitute, in the aggregate, all of
the property necessary for the conduct of the Company's business
in the manner in which and to the extent to which it is currently
being conducted. Except for the joint venture between Starbucks
and Bagel Oasis no officer or director of the Company has any
direct or indirect interest in any customer, supplier or
competitor of the Company or in any person from whom or to whom
the Company leases real or personal property, or in any other
person with whom the Company is doing business, except for the
ownership of less than 5% of a public company. The Company is
not restricted by agreement from carrying on its business
anywhere in the world. All agreements, contracts, commitments or
arrangements to which the Company is a party or by which it is
bound and to which any of the Shareholders or any Affiliate (as
hereinafter defined) of any of the Shareholder (other than the
Company) or any officer or director of the Company, or any
Affiliate of such person ("Affiliated Person") is a party or by
which such person is bound, have been negotiated, and, if
applicable, entered into, at arms' length, and do not contain
terms or provisions or obligate the Company on terms that are
materially less favorable to the Company than those which could
be obtained if such agreement, contract, commitment or
arrangement was with a person other than an Affiliated Person.
As used in this Agreement, the term "Affiliate" means, with
respect to a specified person, any other person which directly,
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the persons
specified.
4.13 Documents of and Information with Respect to the
Company. The Disclosure Schedule accurately and completely lists
the following: (i) each loan, credit agreement, guarantee,
security agreement or similar document or instrument to which the
Company is a party or by which it is bound, other than agreements
creating purchase money security interests in equipment in or for
use by the Company's stores, or commissaries or corporate
offices; (ii) each lease of personal property to which the
Company is a party or by which it is bound, other than leases
under which the annual rent payable is less than $50,000;
(iii) any other agreement, contract or commitment to which the
Company is a party or by which it is bound which involves a
future commitment by the Company in excess of $50,000 and which
cannot be terminated without liability on 90 days or less notice;
(iv) each power of attorney executed by or on behalf of the
Company; (v) the name and current annual salary of each salaried
employee of the Company whose current annual salary is in excess
of $50,000 and the profit sharing, bonus or any other form of
compensation (other than salary) paid or payable by the Company
to or for the benefit of each such person for the year ended
December 31, 1995, and any employment or other compensation
agreement of the Company with any of its officers or employees;
(vi) the name of each of the Company's officers and directors;
and (vii) the name of each bank in which the Company has an
account or safe-deposit box, the name in which the account or box
is held and the names of all persons authorized to draw thereon
or to have access thereto. The Company has previously furnished
Einstein Bros. with an accurate and complete copy of each such
agreement, contract or commitment listed in the Disclosure
Schedule. There is no continuing default under any such
agreement, contract or instrument.
4.14 INSURANCE COVERING THE COMPANY AND ITS ASSETS. The
Disclosure Schedule accurately and completely lists each policy
of insurance in force with respect to the Company, its assets and
properties, and each of the performance or other surety bonds
maintained by the Company in the conduct of its business. All
premiums and other payments which have become due under the
policies of insurance listed in the Disclosure Schedule have been
paid in full, all of such policies are now in full force and
effect and the Company has received no notice from any insurer,
agent or broker of the cancellation of, or any increase in
premium (other than normal increases) with respect to, any of
such policies or bonds. The Company has received no notification
from any insurer, agent or broker denying or disputing any claim
made by the Company or denying or disputing any coverage for any
such claim or the amount of any claim. The Company has no claim
against any of its insurers under any of such policies pending or
anticipated and, to the Best of the Knowledge of the Company,
there has been no occurrence of any kind which would give rise to
any such claim.
4.15 LITIGATION INVOLVING THE COMPANY. Except as set forth in
the Disclosure Schedule there are on the date hereof no actions,
suits, claims, governmental investigations or arbitration
proceedings pending or to the Best of the Knowledge of the
Company threatened against or affecting the Company or any of its
assets or properties and, to the Best of the Knowledge of the
Company, there is no basis for any of the foregoing. There are
no outstanding orders, decrees or stipulations issued by any
federal, state, local or foreign judicial or administrative
authority in any proceeding to which the Company is or was a
party.
4.16 RECORDS OF THE COMPANY. The Company has previously
furnished Einstein Bros. with copies of the Company's amended and
restated articles of incorporation and all amendments thereto to
date (certified by the Secretary of State of California) and of
the Company's by-laws (certified by the Company's secretary), and
such copies are correct and complete in all respects. All of the
Company's operating data and records, including without
limitation customer lists and financial, accounting and credit
records (the "Company Records"), are accurate and complete in all
material respects and there are no material matters required to
be recorded in the Company records as to which appropriate
entries have not been made in the Company Records. A record of
all action taken by the shareholders and the board of directors
of the Company and all minutes of their meetings (except the
minutes of the January, 1996 meetings) are contained in the
minute books of the Company and are accurate and complete. The
stock records and stock ledgers of the Company contain an
accurate and complete record of all issuances, transfers and
cancellations of shares of capital stock of the Company.
4.17 NO MATERIAL ADVERSE CHANGE. From the date of the 1995
Balance Sheet to the date of this Agreement, there have not been
any changes in the business or properties of the Company, or in
its consolidated financial condition, other than changes
occurring in the ordinary course of business which in the
aggregate have not had a Material Adverse Effect. There is not,
to the Best of the Knowledge of the Company, except for general
competitive conditions or risks common to businesses generally,
any threatened event or condition of any character whatsoever
which could have a Material Adverse Effect.
4.18 ABSENCE OF CERTAIN ACTS OR EVENTS. Except as disclosed in
the Disclosure Schedule, or as contemplated by this Agreement,
since the date of the 1995 Balance Sheet, the Company has not:
(i) authorized or issued any of its shares of capital stock
(including any held in its treasury) or any other securities;
(ii) declared or paid any dividend or made any other distribution
of or with respect to its shares of capital stock or other
securities or purchased or redeemed any shares of its capital
stock or other securities; (iii) paid any bonus or, except in the
ordinary course of business, increased the rate of compensation
of any of its employees; (iv) sold, leased, transferred or
assigned any of its assets other than in the ordinary course of
business; (v) made or obligated itself to make capital
expenditures aggregating more than $50,000; (vi) incurred any
material obligations or liabilities (including any indebtedness)
or entered into any material transaction, except in the ordinary
course of business and except for this Agreement and the
transactions contemplated hereby; or (viii) suffered any theft,
damage, destruction or casualty loss not covered by insurance in
excess of $50,000.
4.19 COMPLIANCE WITH LAWS BY THE COMPANY. Except as set forth
in the Disclosure Schedule, the Company is in compliance in all
material respects with all laws, regulations and orders
applicable to the Company, its assets, properties and business.
The Company has received no notification of any asserted past or
present failure to comply with any laws, and to the Best of the
Knowledge of the Company, no proceeding with respect to any such
violation is contemplated. Neither the Company nor, to the Best of
the Knowledge of the Company, any employee of the Company, has
made any payment of funds in connection with the business of the
Company prohibited by law, and no funds have been set aside to be
used in connection with the business of the Company for any
payment prohibited by law.
4.20 ENVIRONMENTAL MATTERS.
4.20.1 The Company has not transported, stored, treated or
disposed, nor has it allowed or arranged for any third
parties to transport, store, treat or dispose of Hazardous
Substances or other waste to or at any location other than a
site lawfully permitted to receive such Hazardous Substances
or other waste for such purposes, nor has it performed,
arranged for or allowed by any method or procedure such
transportation, storage, treatment or disposal in
contravention of any laws or regulations. The Company has
not disposed, or allowed or arranged for any third parties
to dispose, of Hazardous Substances or other waste upon
property owned or leased by them, except as permitted by
law. For purposes of this Section 4.20, the term "Hazardous
Substances" shall have the meaning given it in the
Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Sections 9601, et seq.), as
amended, and the regulations promulgated pursuant thereto
("CERCLA"), or any similar state law.
4.20.2 There has not occurred during the Company's
occupancy of any of the Leasehold Premises, and to the Best
of the Knowledge of the Company, there has not occurred
prior thereto, any Release of any Hazardous Substance on,
into or beneath the surface of such Leasehold Premises. For
purposes of this Section 4.20, the term "Release" shall mean
releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching,
disposing or dumping.
4.20.3 The Company has not transported or disposed, nor has
it allowed or arranged for any third parties to transport or
dispose, any Hazardous Substance or other waste to or at a
site which, pursuant to CERCLA or any similar state law,
(i) has been placed on the National Priorities List or its
state equivalent, or (ii) the Environmental Protection
Agency or the relevant state agency has proposed or is
proposing to place on the National Priorities List or its
state equivalent. The Company has received no notice, and
it has no knowledge of any facts which could give rise to
any notice, that the Company is a potentially responsible
party for a federal or state environmental cleanup site or
for corrective action under CERCLA or any other applicable
law or regulation. The Company has not submitted nor was it
required to submit any notice pursuant to Section 103(c) of
CERCLA with respect to the Leasehold Premises. The Company
has received no written or oral request for information in
connection with any federal or state environmental cleanup
site. The Company has not undertaken (or been requested to
undertake) any response or remedial actions or clean-up
actions of any kind at the request of any federal, state or
local governmental entity, or at the request of any other
person or entity.
4.20.4 The Company does not use, and has not used, any
Underground Storage Tanks, and the Company is not aware of
any Underground Storage Tanks on the Leasehold Premises.
For purposes of this Section 4.20, the term "Underground
Storage Tanks" shall have the meaning given it in the
Resource Conservation and Recovery Act (42 U.S.C. Sections
6901 et seq.).
4.20.5 There is no asbestos in or on any of the Leasehold
Premises presently requiring remediation or abatement or
which may be reasonably expected hereafter to require such
remediation or abatement.
4.20.6 There are no laws, regulations, ordinances,
licenses, permits or orders relating to environmental or
worker safety matters presently requiring any work, repairs,
construction or capital expenditures with respect to the
assets or properties of the Company, or which may be
reasonably expected hereafter to require any such work.
4.21 Labor Relations of the Company. The Company is not a party
to or bound by any collective bargaining agreement or any other
agreement with a labor union, and, except as set forth in the
Disclosure Schedule, there has been no effort by any labor union
to organize any employees of the Company into one or more
collective bargaining units. There is not pending or, to the
best of the knowledge of the Sellers or the Company, threatened
any labor dispute, strike or work stoppage which affects or which
may affect the business of the Company or which may interfere
with its continued operation. Except as set forth in the
Disclosure Schedule, neither the Company nor, to the Best of the
Knowledge of the Company, any agent, representative or employee
of the Company has committed any unfair labor practice as defined
in the National Labor Relations Act, as amended, and there is not
now pending or, to the Best of the Knowledge of the Company,
threatened any charge or complaint against the Company by or with
the National Labor Relations Board or any representative thereof.
There has been no strike, walkout or work stoppage affecting the
Company involving any of the employees of the Company during the
five-year period prior to the date hereof. To the Best of the
Knowledge of the Company, no executive or key employee or group
of employees has any plans to terminate his, her or their
employment with the Company.
4.22 Employee Benefits.
4.22.1 Neither the Company, nor any corporation or business
which is now or at the relevant time was a member of a
controlled group of corporations or trades or businesses
including the Company, within the meaning of Section 414 of
the Code, maintains or contributes to, or at any time has
maintained or contributed to: (i) any non-qualified
deferred compensation or retirement plans or arrangements;
(ii) any qualified defined contribution retirement plans or
arrangements; (iii) any qualified defined benefit pension
plan; (iv) any other plan, program, agreement or arrangement
under which former employees of the Company or their
beneficiaries are entitled, or current employees of the
Company will be entitled following termination of
employment, to medical, health, life insurance or other
benefits other than pursuant to benefit continuation rights
granted by state or federal law; or (v) any other employee
benefit, health, welfare, medical, disability, life
insurance, stock, stock purchase or stock option plan,
program, agreement, arrangement or policy, except in each
case as described in the Disclosure Schedule attached
hereto. The plans described in the Disclosure Schedule are
referred to herein as the "Plans."
4.22.2 The administration of the Plans complies in all
respects with the requirements of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and the Plans meet
any applicable requirements for favorable tax treatment
under the Code in both form and operation. All of the Plans
which constitute employee pension benefit plans or employee
welfare plans subject to ERISA and the trusts or other
funding vehicles related to the Plans have been maintained
in compliance in both form and operation with the
requirements of ERISA including, but not limited to, the
preparation and filing of all required reports with respect
to the Plans, the submission of such reports to the
appropriate governmental authorities, the timely preparation
and distribution of all required employee communications
(including without limitation any notice of plan amendment
which is required prior to the effectiveness of such
amendments), the proper and timely purchase and maintenance
of required surety bonds and the proper and timely
disposition of all benefit claims. The costs of
administering the Plans through the date of the 1995 Balance
Sheet, including fees for the trustee and other service
providers which are customarily paid by the Company, have
been paid or will be paid prior to the Closing or are
reflected in the 1995 Balance Sheet. There have been no
prohibited transactions involving the Company as defined in
Section 406 of ERISA or Section 4975 of the Code with respect
to any of the Plans or any parties in interest or
disqualified persons with respect to the Plans or any
reduction or curtailment of accrued benefits with respect to
any of the Plans. There are no pending or threatened
claims, lawsuits, or arbitrations which have been asserted
or instituted against the Plans, any fiduciaries thereof
with respect to their duties to the Plans or the assets of
any of the trusts under any of the Plans.
4.22.3 All required contributions for all Plan years ending
prior to the Closing Date have been made and adequate
accruals for contributions with respect to all current Plan
years are reflected in the 1995 Balance Sheet. The Company
has no plans, programs, agreements or arrangements and has
made no other commitments to its employees, former employees
or their beneficiaries under which it has any obligation to
provide any retiree or other employee benefit payments which
are not adequately funded through a trust or other funding
arrangement.
4.22.4 The Company has furnished Einstein Bros. with true
and complete copies of: (i) the Plans and any amendments
thereto and any related or contracts and the related summary
plan descriptions with respect to each Plan, if any;
(ii) the most recent determination letters received from the
Internal Revenue Service regarding the Plans, if any, and
copies of any pending applications, filings or notices with
respect to any of the Plans with the Internal Revenue
Service, the Pension Benefit Guaranty Corporation, the
Department of Labor or any other governmental agency, if
any; (iii) the policies or contracts, if any, for each of
the Plans as of the end of the most recent plan year; and
(iv) copies of any communications or notices provided to
employees or plan participants with respect to the Plans
along with information concerning the date and extent of
distribution of such communications, including without
limitation notices intended to comply with Section 606 of
ERISA and Section 4980B of the Code.
4.23 Accuracy of Information Furnished by the Company. No
representation, statement or information made or furnished in
writing by the Company to Einstein Bros., in this Agreement and
the Disclosure Schedule, taken as whole, contains any untrue
statement of a material fact or omits any material fact necessary
to make the representations, statements and information made or
furnished therein, in light of the circumstances in which they
were made, not misleading.
4.24 HSR Act Reporting Matters. The Company is the "ultimate
parent entity" of the Company within the meaning of the HSR Act.
The Company does not have total assets, and did not record annual
net sales for its most recent fiscal year, in excess of
$100,000,000.
ARTICLE 5. ADDITIONAL COVENANTS OF THE SHAREHOLDERS AND THE
COMPANY
5.1 REASONABLE BEST EFFORTS. The Indemnifying Shareholders and
the Company will use their reasonable best efforts to cause to be
satisfied as soon as practicable and prior to the Closing Date
all of the conditions set forth in Article 7 to the obligations
of Einstein Bros. and Merger Sub to consummate the Merger. The
Indemnifying Shareholders will use their reasonable best efforts
to cause each of the shareholders of the Company who has not
signed this Agreement on the date hereof to sign this Agreement
and become a party hereto prior to Closing.
5.2 CONDUCT OF BUSINESS PENDING THE CLOSING. From and after the
execution and delivery of this Agreement and until the Closing
Date, except as otherwise provided with the prior written consent
of Einstein Bros. or as contemplated by this Agreement:
5.2.1 the Company will conduct its business and operations
in the manner in which the same have heretofore been
conducted and use reasonable best efforts to (i) preserve
its business organization intact, (ii) keep available the
services of its officers, employees, agents and
distributors, and (iii) preserve its relationships with
customers, suppliers and others having dealings with the
Company;
5.2.2 the Company will maintain all of its properties in
customary repair, order and condition, reasonable wear and
use and damage by unavoidable casualty excepted, and
maintain insurance of such types and in such amounts upon
all of its properties and with respect to the conduct of its
business as are in effect on the date of this Agreement;
5.2.3 the Company will not (i) authorize or issue any
shares of its capital stock (including any held in its
treasury) or any other securities, except pursuant to the
exercise of outstanding stock options, (ii) declare or pay
any dividend or make any other distribution of or with
respect to its shares of capital stock or other securities
or purchase or redeem any shares of its capital stock or
other securities; (iii) pay any bonus or increase the rate
of compensation of any of its employees (except pursuant to
normal policies of the Company) or enter into any new
employment agreement or amend any existing employment
agreement; (iv) sell, lease, transfer or assign any of its
assets other than in the ordinary course of business; (v)
make or obligate itself to make capital expenditures
aggregating more than $50,000; (vi) incur any material
obligations or liabilities or enter into any material
transaction; or (vii) amend its amended and restated
articles of incorporation or by-laws.
5.3 ACCESS TO THE COMPANY'S STORES, PROPERTIES AND RECORDS.
From and after the execution and delivery of this Agreement, the
Company will afford to the representatives of Einstein Bros.
access, during normal business hours and upon reasonable notice,
to the Company's premises sufficient to enable Einstein Bros. to
inspect the assets and properties of the Company, and the Company
shall furnish to such representatives during such period all such
information relating to the foregoing investigation as Einstein
Bros. may reasonably request; provided, however, that any
furnishing of such information to Einstein Bros. and any
investigation by Einstein Bros. shall not affect the right of
Einstein Bros. to rely on the representations and warranties made
by the Company in or pursuant to this Agreement, and, provided
further that Einstein Bros. and Merger Sub will hold in
confidence all documents and information concerning the Company
so furnished, and, if the Merger shall not be consummated, such
confidence shall be maintained in accordance with the
confidentiality agreement between Einstein Bros. and the Company
dated September 13, 1995.
5.4 NOTICE OF MATERIAL DEVELOPMENTS. The Company will give
prompt written notice to Einstein Bros. of any material
development affecting the assets, properties, business, business
prospects, financial condition or results of operation of the
Company, including without limitation any development which
results in the inaccuracy of any of the representations and
warranties of the Company made herein. However, no disclosure
pursuant to this Section 5.4 shall be deemed to amend or
supplement any of such representations and warranties, or any of
the schedules hereto.
5.5 NO OTHER DISCUSSIONS. Neither the Shareholders nor the
Company will, prior to the Closing Date, enter into discussions
or negotiate with or entertain or accept the unsolicited offer of
any other party concerning the potential sale or exchange of all
or any part of the assets or shares of the Company to, other than
sales in the ordinary course of business, or the merger or
consolidation or other business combination of the Company with,
any person other than Einstein Bros.
ARTICLE 6. ADDITIONAL COVENANTS OF EINSTEIN BROS. AND MERGER
SUB.
6.1 REASONABLE BEST EFFORTS. Einstein Bros. and Merger Sub will
use their reasonable best efforts to cause to be satisfied as
soon as practicable and prior to the Closing Date all of the
conditions set forth in Article 8 to the obligation of the
Shareholders and the Company to consummate the Purchase and the
Merger. Einstein Bros. will use its reasonable best efforts to
cause each of its stockholders to enter into the Amended and
Restated Registration Rights Agreement (as hereinafter defined) and
will indemnify and hold the Shareholders of the Company harmless
from and against any expenses, losses, costs, deficiencies,
liabilities and damages (including reasonable related counsel
fees and expenses) incurred or suffered by any of the
shareholders (or any of their successors in interest) arising
from any claim or action of any stockholders of Einstein Bros.
related to the execution and delivery of the Amended and Restated
Registration Rights Agreement or the consummation of any of the
transactions contemplated thereby without the consent of such
stockholders.
6.2 GUARANTEE OF PERFORMANCE BY MERGER SUB. Einstein Bros.
agrees to cause Merger Sub to perform all of its obligations
hereunder.
6.3 CONDUCT OF BUSINESS PENDING THE CLOSING. From and after the
execution and delivery of this Agreement and until the Closing
Date, except as otherwise provided by the prior written consent
of the Company, Einstein Bros. will conduct its business and
operations in the manner in which the same have heretofore been
conducted and use reasonable best efforts to (i) preserve its
business organization intact, (ii) keep available the services of
its officers, employees, agents and distributors, and
(iii) preserve its relationships with customers, suppliers and
others having dealings with it.
6.4 NOTICE OF MATERIAL DEVELOPMENTS. Einstein Bros. will give
prompt written notice to the Company of any material development
affecting the assets, properties, business, business prospects,
financial condition or results of operation of Einstein Bros.
including without limitation any development which results in the
inaccuracy of any of the representations and warranties of
Einstein Bros. made herein. However, no disclosure pursuant to
this Section 6.4 shall be deemed to amend or supplement any of
such representations and warranties, or any of the schedules
hereto.
ARTICLE 7. CONDITIONS TO THE OBLIGATION OF EINSTEIN BROS. AND
MERGER SUB
The obligation of Einstein Bros. and Merger Sub to consummate the
Merger shall be subject to the satisfaction or waiver of the
following conditions:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE
WITH OBLIGATIONS. The representations and warranties of the
Company contained in Section 4.1 (except as they relate to
foreign qualification) and 4.2 of this Agreement and the
representations and warranties of the Shareholders in this
Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and
correct in all material respects at and as of the Closing Date
with the same force and effect as though made at and as of that
time. The Company shall have performed and complied in all
material respects with all of its obligations required by this
Agreement to be performed or complied with at or prior to the
Closing Date. The Company shall have delivered to Einstein Bros.
and Merger Sub a certificate, dated as of the Closing Date and
signed by the Company, certifying that such representations and
warranties are thus true and correct and that all such
obligations have been thus performed and complied with.
7.2 OPINION OF COUNSEL. Einstein Bros. shall have received an
opinion dated the Closing Date from Cooley Godward Castro
Huddleson & Tatum, counsel for the Company and the Sellers, in
form and substance as set forth in Exhibit B attached hereto.
7.3 RECEIPT OF BANK CONSENT. BCI shall have obtained the
consent of Bank of America, N.A. to the transactions contemplated
hereby.
7.4 NO ADVERSE LITIGATION. There shall not be pending or
threatened any action or proceeding by or before any court or
other governmental body which shall seek to restrain, prohibit or
invalidate the Merger or any other transaction contemplated
hereby which, in the reasonable judgment of Einstein Bros., makes
it inadvisable to proceed with the Merger.
7.5 RESIGNATIONS. The Company shall have delivered to Einstein
Bros. the written resignations of the directors of the Company.
7.6 EMPLOYMENT AND CONSULTING AGREEMENTS; OPTIONS. Each of the
employment agreements and consulting agreements to which the
Company is a party (other than the agreement between William
Hughson and the Company) shall have been terminated without
liability to the Company.
7.7 LANDLORD CONSENTS. All required consents of the Company's
landlords to the transactions contemplated by this Agreement
shall have been obtained; provided, however, that Einstein Bros.
and Merger Sub shall agree to waive this condition at Closing if
requested to do so by the Company, in which event the
Shareholders will indemnify Einstein Bros. for all damages it may
incur as a result of its failure to obtain such consents, unless
Einstein Bros. has requested a similar waiver from the Company
and the Shareholders pursuant to Section 8.8 hereof, in which
event the Shareholders will indemnify Einstein Bros. for one-half
of such damages.
7.8 QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, filings, or permits, if any, of any governmental
authority or regulatory body of the United States, the State of
California or of any other state that are required in connection
with the lawful sale or issuance of the Purchased Shares shall
have been duly obtained and shall be effective on and as of the
Closing. At the time of the Closing, the sale or issuance of the
Purchased Shares shall be legally permitted by all laws and
regulations to which Einstein Bros. and the Purchasers are
subject.
7.9 TERMINATION OF CERTAIN AGREEMENTS. Each of the following
agreements shall have been terminated without liability to the
Company, pursuant to termination agreements satisfactory in form
and substance to Einstein Bros.: (i) the Series A Preferred
Stock Purchase Agreement dated May 3, 1994 among the Company,
certain of its shareholders and certain purchasers, (ii) the
Series B Preferred Stock Purchase Agreement dated March 31, 1995
among the Company, certain of its shareholders and certain
purchasers; (iii) Amended and Restated Investor Rights Agreement
dated March 31, 1995 among Starbucks, the Company and certain
shareholders of the Company; (iv) the Amended and Restated Voting
Rights Agreement dated March 31, 1995 among Starbucks, the
Company and certain shareholders of the Company; (v) the Founders
and Rosewood Voting Rights Agreement dated March 31, 1995 among
the Company and certain shareholders of the Company; and (vi) the
Protective Covenants Agreement dated March 31, 1995 among
Starbucks, the Company and certain shareholders of the Company.
ARTICLE 8. CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS AND THE
COMPANY.
The obligation of the Shareholders and the Company to consummate
the Merger shall be subject to the satisfaction or waiver of each
of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE
WITH OBLIGATIONS. The representations and warranties of Einstein
Bros. and Merger Sub contained in Sections 3.1, 3.2, 3.3, 3.4,
3.5 and 3.6 of this Agreement shall have been true and correct in
all material respects at and as of the date hereof, and they
shall be true and correct in all material respects at and as of
the Closing Date with the same force and effect as though made at
and as of that time. Einstein Bros. and Merger Sub shall have
performed and complied in all material respects with all of its
obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. Einstein Bros.
and Merger Sub shall have delivered to the Shareholders a
certificate, dated as of the Closing Date and signed by an
officer of Einstein Bros. and Merger Sub. certifying that such
representations and warranties are thus true and correct and that
all such obligations have been thus performed and complied with.
8.2 OPINION OF COUNSEL. The Sellers shall have received an
opinion, dated the Closing Date, from Bell, Boyd & Lloyd, counsel
for Einstein Bros. and Merger Sub, in form and substance as set
forth in Exhibit C attached hereto.
8.3 EINSTEIN BROS. REGISTRATION RIGHTS AGREEMENT. Einstein Bros.
shall have executed and delivered to each of the Purchasers an
amended and restated registration rights agreement in the form
set forth in Exhibit D hereof (the "Amended and Restated
Registration Rights Agreement").
8.4 ELECTION OF NOAH ALPER. Noah Alper shall have been elected
as a director and vice chairman of Einstein Bros.
8.5 AGREEMENTS WITH CERTAIN MEMBERS OF NOAH'S MANAGEMENT.
Einstein Bros. shall have executed and delivered to each of Jim
Mizes, Bob Purcell, Nancy Hauge, Bill Schrader, Paul Soulier,
Doug Troy and Barbara Musante agreements in the form set forth in
Exhibit E.
8.6 RECEIPT OF BANK CONSENT. Starbucks shall have obtained the
consent of Bank of America, N.A. to the transactions contemplated
hereby.
8.7 NO ADVERSE LITIGATION. There shall not be pending or
threatened any action or proceeding by or before any court or
other governmental body which shall seek to restrain, prohibit or
invalidate the Merger or the Purchase or any other transaction
contemplated hereby which, in the reasonable judgment of the
Company, makes it inadvisable to proceed with the Merger or the
Purchase.
8.8 LANDLORD CONSENTS. All required consents of the Company's
landlords to the transactions contemplated by this Agreement
shall have been obtained; provided, however, that the
Shareholders and the Company shall agree to waive this condition
at Closing if requested to do so by Einstein Bros., in which
event the Shareholders will have no liability for the failure to
obtain any such consent, unless the Company has requested a
similar waiver from Einstein Bros. and Merger Sub pursuant to
Section 7.7 hereof, in which event the Shareholders will
indemnify Einstein Bros. for one-half of all damages it may incur
as a result of the Company's failure to obtain any such consents.
ARTICLE 9. CERTAIN ACTIONS AFTER THE CLOSING
9.1 Execution of Further Documents. From and after the Closing,
upon the reasonable request of Einstein Bros., the Shareholders
shall execute, acknowledge and deliver all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney
and assurances as may be required to carry out the transactions
contemplated by this Agreement.
9.2 RESTRICTIONS ON TRANSFER OF PURCHASED SHARES. The
restrictions of this Section 9.2 apply to any holder of the
Purchased Shares. Each Purchaser acknowledges and agrees that:
9.2.1 The Purchased Shares to be issued pursuant to the
Purchase may be owned, as of the Closing, only in the names
of and by such Purchasers.
9.2.2 No federal, state or other agency has made any
finding or determination as to the fairness of the offering
of the Purchased Shares for investment, nor any
recommendation or endorsement of the Purchased Shares.
9.2.3 Because the Purchased Shares will not have not been
registered under the Securities Act of 1933, as amended
("the Securities Act"), or applicable state or other
securities laws, the economic risk of the investment must be
borne indefinitely by such Purchasers, and the Purchased
Shares cannot be sold unless subsequently registered under
the Securities Act and such state or other laws, or unless
an exemption from such registration is available; Einstein
Bros. is not obligated to file a notification under
Regulation A of the Securities Act or a registration
statement under the Securities Act, except pursuant to the
Amended and Restated Registration Rights Agreement; and Rule
144, adopted under the Securities Act and governing the
possible disposition of the Purchased Shares, is not
currently available.
9.2.4 No Purchased Shares may be transferred unless
(i) such transfer is effected pursuant to a registration
statement which has been filed under the Securities Act and
declared effective by the Securities and Exchange
Commission, or (ii) in the written opinion of counsel, which
opinion and counsel shall be satisfactory to Einstein Bros.
(the fees and expenses of which counsel shall be borne by
the transferring Purchaser), an exemption from the
registration requirements of the Securities Act and
applicable state or other securities laws is available.
9.2.5 The Purchasers agree that they shall enter into an
agreement restricting the public resale of the Purchased
Shares for a period of up to 120 days, to the extent
required by the underwriters in any initial public offering
of shares of Common Stock of Einstein Bros. and that they
will not sell, transfer or otherwise dispose of any of the
Purchased Shares unless they have first obtained the written
agreement of the transferee of such shares (which agreement
shall be satisfactory to Einstein Bros.) to be bound by the
provisions of this Section 9.2.5.
9.2.6 Each certificate evidencing the Purchased Shares
shall bear the following legends:
"The shares represented by this certificate were issued
without registration under the Securities Act of 1933, as
amended (the "Securities Act") or applicable state
securities laws, in reliance upon the exemptions contained
therein. No transfer of these shares or any interest
therein may be made unless (i) such transfer is effected
pursuant to a registration statement which has been filed
under the Securities Act and declared effective by the
Securities and Exchange Commission, or (ii) in the written
opinion of counsel, which opinion and counsel shall be
satisfactory to the issuer of these shares, an exemption
from the registration requirements of the Securities Act and
applicable state or other securities laws is available."
"The shares represented by this certificate are also subject
to certain covenants and agreements (including restrictions
on transfer) contained in a Merger Agreement dated as of
January 22, 1996 by and among Einstein Bros. Bagels, Inc.,
Noah's New York Bagels, Inc. ("Noah's"), NNYB Acquisition
Corporation and shareholders of Noah's."
9.3 CERTAIN POST-CLOSING COOPERATION. Each of the Shareholders
acknowledges and agrees that Einstein Bros. may have need of
information concerning the Company and the Shareholders in order
to comply with applicable securities laws and regulations in
connection with future public and private debt and equity
offerings by Einstein Bros. ("Offerings"). Each Purchaser agrees
that such Purchaser will cooperate with Einstein Bros. in
connection with any Offerings and that such Purchaser will
furnish Einstein Bros. with such information concerning the
Company prior to the Closing Date and such Purchaser as Einstein
Bros. may reasonably require to comply with applicable securities
laws and regulations. Each Shareholder who is not a Purchaser
agrees that such Shareholder will furnish Einstein Bros. with
such information concerning such Shareholder as Einstein Bros.
may reasonably require in connection with any Offerings to comply
with applicable securities laws and regulations.
9.4 CERTAIN VOTING AGREEMENTS.
(a) Each of the Purchasers agrees that from and after the
Closing and until the earlier of February 28, 1998 or the
completion of any Qualified Public Offering, that such
Purchaser shall vote (at any meeting and in any action by
written consent) such Purchaser's Purchased Shares (and any
equity or other voting securities issued or issuable
directly or indirectly with respect to such shares by way of
stock dividend or stock split or in connection with a
combination of stores, recapitalization, merger,
consolidation or other reorganization) over which such
Purchaser has voting control and shall take all other
actions within the control of such Purchaser (whether in
such Purchaser's capacity as a stockholder or director of
the Company or otherwise) to cause the election to the Board
of Directors of Einstein Bros. of (a) Daniel V. Colangelo,
(b) Gail Lozoff, (c) the designee of OBG Holdings, Inc.
("OBG") pursuant to Section 5.M of the agreement to
contribute assets dated March 23, 1995 by and among Einstein
Bros., OBG (formerly known as Offerdahl's Bagel Gourmet,
Inc.) and the shareholders of OBG, (d) three directors
designated by BCI, and (e) three directors designated from
time to time by the holders of an aggregate of 15,104.95
shares of Common Stock of Einstein Bros. pursuant to
subscription agreements entered into by the purchasers of
such shares dated as of March 24, 1995. For purposes of
this Section 9.4(a), a "Qualified Public Offering" means a
sale in an underwritten public offering registered under the
Securities Act of 1933, as amended, of shares of Einstein
Bros.' Common Stock in which the aggregate gross proceeds
are equal to at least $15,000,000.
(b) Until the provisions of Section 9.4(a) cease to be
effective, the Shareholders shall not sell, transfer,
assign, pledge or otherwise dispose of any interest in any
Purchased Shares, unless in each case the proposed
transferee has executed and delivered to Einstein Bros. a
written agreement in form satisfactory to Einstein Bros.
pursuant to which such transferee agrees to be bound by the
provisions hereof with respect to the Purchased Shares so
transferred.
(c) Until the provisions of Section 9.4 of this Agreement
cease to be effective, each certificate evidencing Purchased
Shares shall bear the following legend:
"The shares of stock represented by this certificate are
subject to certain voting agreements and certain
restrictions on transfer set forth in a Merger Agreement
dated as of January 22, 1996, a copy of which is available
for inspection at the offices of the Secretary of the
Company."
9.5 CONFIDENTIAL INFORMATION.
9.5.1 The Restricted Shareholders (as defined in Section
9.6) possess certain confidential and proprietary
information and trade secrets of the Company, including, but
not limited to, information, methods, techniques, procedures
and knowledge developed by or for the Company respecting the
business of the Company (the "Confidential Information").
Each of the Restricted Shareholders acknowledges and agrees
that neither such Restricted Shareholder nor any other
person or entity has acquired by or through such Restricted
Shareholder any interest in or right to use the Confidential
Information other than the right to utilize it in the
operation of the business of Einstein Bros. and its
subsidiaries, and that the use or duplication of the
Confidential Information in any other business would
constitute an unfair method of competition with Einstein
Bros. and its subsidiaries. Each of the Restricted
Shareholders hereby agrees that such Restricted Shareholder:
(i) will not use the Confidential Information in any other
business or capacity; (ii) will maintain the absolute
secrecy and confidentiality of the Confidential Information;
and (iii) will not make unauthorized copies of any portion
of the Confidential Information disclosed in written or
other tangible form.
9.5.2 Notwithstanding the foregoing, the obligations of the
Restricted Shareholders specified above shall not apply to
any Confidential Information which (i) is disclosed in a
printed publication available to the public, or is otherwise
in the public domain through no act of any of the Restricted
Shareholders, their agents or any person or entity which has
received such Confidential Information from or through any
of the Restricted Shareholders, (ii) is approved for release
by written authorization of an officer of Einstein Bros.,
(iii) is required to be disclosed by proper order of a court
of applicable jurisdiction after adequate notice to Einstein
Bros. to seek a protective order therefor, the imposition of
which protective order the Restricted Shareholders agree to
approve and support, or (iv) in the written opinion of the
disclosing Restricted Shareholder's counsel, is necessary to
be made by such Restricted Shareholder in order that the
Restricted Shareholder not violate any law, rule or
regulation applicable to him or her.
9.6 RESTRICTIVE COVENANTS. Each of the Restricted Shareholders
acknowledges and agrees that Einstein Bros. would be unable to
protect the Confidential Information against unauthorized use or
disclosure and Einstein Bros. would be unable to realize the
benefits of this Agreement if such Restricted Shareholder were
permitted, directly or indirectly, to engage in, hold interests
in or perform services for any entity which derives more than 15%
of its revenues from the business of selling, producing,
marketing or distributing bagels, other than Einstein Bros. and
its subsidiaries and franchisees (a "Competitive Business").
Each of the Restricted Shareholders further acknowledges and
understands that Einstein Bros. intends, and expects, to expand
its business throughout the United States. Each of the
Restricted Shareholders therefore agrees that for a period of
three (3) years from the Closing Date, such Restricted
Shareholder shall not, and shall not permit such Restricted
Shareholder's Affiliates, to directly or indirectly, anywhere in
the United States (including without limitation every county in
the State of California): (i) have any interest as a record or
beneficial owner in any Competitive Business; provided, however,
the Restricted Shareholders may have an interest in any
Competitive Business as passive investors in such Competitive
Business conducted by a company which has a class of securities
which is registered under Section 12 of the Securities Exchange
Act of 1934, as amended, or traded on a national securities
exchange provided that the interest consists solely of such
securities and the interest held by any Restricted Shareholder,
or any group of which any Restricted Shareholder is a member that
would be treated as a person under Section 13(d)(3) of the
Securities Exchange Act of 1934, shall in no event exceed five
percent (5%) of the total equity securities of such issuer;
(ii) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any
Competitive Business; or (iii) divert or attempt to divert any
business or any customers of Einstein Bros.' business to any
Competitive Business. For purposes of this Section 9.5, the term
"Restricted Shareholders" means Noah Alper, Dan Alper and Bill
Hughson.
9.7 ADDITIONAL AGREEMENTS OF STARBUCKS, THE COMPANY AND EINSTEIN
BROS.
9.7.1 Until March 31, 1998, Starbucks will continue, with
respect to both the Company and Einstein Bros., to comply
(and to cause its subsidiaries to comply) with the covenants
made by it in Section 3.3 of the Amended and Restated
Investor Rights Agreement dated as of March 31, 1995 by and
among the Company and certain investors in the Company,
whether or not such agreement continues in effect.
9.7.2 Until March 31, 1998, the Company and Einstein Bros.
will comply (and will cause their respective subsidiaries to
comply) with the covenants made by the Company, as if made
by both Einstein Bros. and the Company, in Section 3.4 of
the Amended and Restated Investor Rights Agreement dated as
of March 31, 1995 by and among the Company and certain
investors in the Company, whether or not such agreement
continues in effect.
9.7.3 At any time, Einstein Bros. may terminate its
obligations and those of the Company under Section 9.7.2
upon written notice to Starbucks and shall terminate such
obligations if a Covered Entity (as hereinafter defined)
takes any action which, if taken by Einstein Bros., would
violate Section 9.7.2. If Einstein Bros. terminates its
obligations, then the obligations of Starbucks under Section
9.7.1 shall terminate at the same time. "Covered Entity"
shall mean (i) an entity in which BCI holds (or has the
right to acquire) a majority equity interest or (ii) an
entity in which BCI holds (or has the right to acquire) an
equity interest which would result in BCI "controlling" such
entity within the meaning of such term as it is used in Rule
405 of the Securities Act.
9.8 ADDITIONAL AGREEMENT OF NOAH ALPER. Noah Alper hereby
grants to the Company the exclusive right to use his name,
likeness and persona in the business conducted by the Company,
consistent with the manner in which it is currently used (but
without any restriction whatsoever on the use of any trademark or
service mark of the Company) and agrees that he will not at any
time, without Einstein Bros.' written consent, use his name,
likeness or persona in a Competitive Business.
9.9 REMEDIES; WAIVER.
9.9.1 Einstein Bros., the Restricted Shareholders and
Starbucks (collectively, the "Restricted Persons") agree
that the provisions and restrictions set forth above in
Section 9.5, 9.6, 9.7 and 9.8 applicable to such Restricted
Person are necessary to protect Einstein Bros. and
Starbucks, as applicable, and their respective successors
and assigns in the protection of the business to be acquired
by Einstein Bros. pursuant to this Agreement. Each of the
Restricted Persons agrees that damages cannot compensate
Einstein Bros. or Starbucks, as applicable in the event of a
violation of the covenants contained in Section 9.5, 9.6,
9.7 or 9.8 hereof applicable to such Restricted Person, and
that injunctive relief shall be essential for the protection
of Einstein Bros. and Starbucks, as applicable, and their
respective successors and assigns. Accordingly, each of the
Restricted Persons agrees and consents that, in the event
such Restricted Person shall violate or breach any of said
covenants, Einstein Bros. or Starbucks, as applicable, shall
be entitled to obtain (and such Restricted Person hereby
consents to) such injunctive relief against such Restricted
Person, without bond, in addition to such further or other
relief as may appertain at equity or law. The exercise or
enforcement by Einstein Bros. or Starbucks, as applicable,
of any other right or remedy hereunder shall not preclude
the exercise or enforcement by Einstein Bros. or Starbucks,
as applicable, of any other right or remedy hereunder or
which Einstein Bros. or Starbucks, as applicable, has the
right to enforce under applicable law.
9.9.2 Failure by any party to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall
not be deemed a waiver of such term, covenant or condition,
nor shall any waiver or relinquishment of any right or
remedy hereunder at any one or more times be deemed a waiver
or relinquishment of such right or remedy at any other time
or times.
9.10 EMPLOYEE BENEFIT PLANS. Einstein Bros. intends that the
Plans described in Schedule 4.22 (the "Company Benefit Plans")
that are in effect at the date of this Agreement shall remain in
effect until such time as the Company's employees are allowed to
participate in employee plans and benefit arrangements of
Einstein Bros. (the "Einstein Bros. Plans") or of an area
developer of Einstein Bros. who hires such employees, if such
area developer is formed.
Article 10. INDEMNIFICATION
10.1 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY. The
Shareholders agree that they will indemnify and hold Einstein
Bros. and the Company harmless in respect of the aggregate of all
Indemnifiable Damages (as hereinafter defined). With respect to
Indemnifiable Damages arising from any inaccurate representation
or warranty made by the Company in Article 4 of this Agreement,
the obligation of the Shareholders to indemnify will be limited
to the following persons: Starbucks, Rosewood Capital, L.P.,
Noah Alper, Dan Alper, Robert Polsky and Bill Hughson
(collectively, the "Indemnifying Shareholders"), who shall be
obligated severally to indemnify Einstein Bros. and Merger Sub,
with each such person being obligated to indemnify for up to the
following percentage of the aggregate amount of Indemnifiable
Damages: Starbucks: 28.74%; Rosewood Capital, L.P.: 29.14%;
Noah Alper: 15.76%; Dan Alper: 6.32%; Robert Polsky: 10.94%;
and Bill Hughson: 9.10%. With respect to any other
Indemnifiable Damages, the obligation of the Shareholders to
indemnify shall be several. For purposes of this Agreement,
Indemnifiable Damages shall mean the aggregate of all expenses,
losses, costs, deficiencies, liabilities and damages (including
reasonable related counsel fees and expenses) incurred or
suffered by Einstein Bros., Merger Sub or the Company (or any
successor to all or any part of the assets or business of the
Company) (i) resulting from any inaccurate representation or
warranty made by the Shareholders or the Company in or pursuant
to this Agreement (disregarding for this purpose the limitations
on materiality set forth in the third sentence of Section 4.7.2
and the first sentence of Section 4.19), (ii) resulting from any
default in the performance of any of the covenants or agreements
made by the Shareholders in this Agreement, (iii) resulting from
any claim or action of any shareholder of the Company who has not
entered into this Agreement prior to the Closing related to the
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, including without
limitation any action based on the dissenters' rights of any such
shareholder under California law, or (iv) resulting from any
representation or statement made by the Company to its
shareholders in connection with the solicitation of consents to
approve the Merger that, taken as a whole, contains any untrue
statement of a material fact or omits any material fact necessary
to make the representations and statements made, in light of the
circumstances in which they were made, not misleading. Without
limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, Einstein Bros. and the
Company shall have the right to be put in the same financial
position as they would have been in had each of the
representations and warranties of the Shareholders and the
Company been true and correct, had each of the covenants of the
Shareholders been performed in full, had there been no such claim
or action described in clause (iii) of the preceding sentence and
had no misleading statement or omission been made as described in
clause (iv) of the preceding sentence. The foregoing obligation
to indemnify Einstein Bros., and the Company shall be subject to
each of the following principles or qualifications:
10.1.1 Each of the representations and warranties made by
the Shareholders and the Company in this Agreement or
pursuant hereto, shall survive for a period of one year
after the Closing Date, notwithstanding any investigation at
any time made by or on behalf of Einstein Bros. or Merger
Sub, and thereafter all such representations and warranties
shall be extinguished, provided, however, that the
representations and warranties made by the Shareholders in
Sections 2.1, 2.2, 2.3, 2.4, 2.5, 4.1 (except to the extent
it relates to foreign qualification and except for clause
(ii) of the fourth sentence thereof) and 4.2 hereof shall in
each case survive forever (or, to the extent a claim
hereunder relates to third-party claims, a period of six
months after the expiration of the statute of limitations
applicable to such claim), those made in clause (ii) of the
fourth sentence thereof shall survive for six months after
the expiration of the applicable statute of limitations and
those made in Section 4.6 hereof shall in each case survive
until the first anniversary of the later of (i) the date on
which the applicable period of limitation on assessment or
refund of tax has expired, or (ii) the date on which the
applicable taxable year (or portion thereof) has been
closed. No claim for the recovery of Indemnifiable Damages
based upon the inaccuracy of such representations and
warranties may be asserted by Einstein Bros. or the Company
after such representations and warranties shall be thus
extinguished; provided, however, that claims first asserted
in writing within the applicable period (whether or not the
amount of any such claim has become ascertainable within
such period) shall not thereafter be barred.
10.1.2 The Shareholders shall not be liable for any claim
for Indemnifiable Damages arising out of any inaccuracy of
any representation or warranty if the aggregate amount of
all Indemnifiable Damages does not exceed $250,000. For
this purpose, amounts which would constitute Indemnifiable
Damages but for the limitations on materiality set forth in
the third sentence of Section 4.7.2 and the first sentence
of Section 4.19 shall be taken into account in determining
whether such threshold has been met.
10.1.3 The Shareholders' liability for claims for
Indemnifiable Damages arising out of any inaccuracy of
representations and warranties shall not exceed $10,000,000
in the aggregate.
10.1.4 The limitations set forth in Sections 10.1.2 and
10.1.3 shall not apply to Indemnifiable Damages arising out
of any inaccuracy of any representation or warranty in
Sections 2.1, 2.2, 2.3, 2.4, 2.5, 4.1 (except to the extent
it relates to foreign qualification) or 4.2.
10.1.5 Einstein Bros. and the Company shall not be entitled
to recover Indemnifiable Damages with respect to any matter
to the extent such matter is covered by insurance, but in
such event the effect of such matter on the insurance costs
of Einstein Bros. and the Company shall also be taken into
account in determining the amount of Indemnifiable Damages.
10.1.6 Absent fraud, the provisions of this Article 10
shall provide the exclusive remedy of Einstein Bros. and the
Company for damages arising from the inaccuracy of
representations and warranties of the Shareholders and the
Company in this Agreement.
10.1.7 In the event Einstein Bros. or the Company becomes
involved in any legal, governmental or administrative
proceeding which may result in indemnification claims
hereunder and such proceeding, if adversely determined, can
reasonably be expected to result in the payment of
Indemnifiable Damages hereunder in an amount (a) in excess
of the amount of damages of the Company that would not be
recovered because of the threshold set forth in Section
10.1.2 hereof, but (b) less than the cap set forth in
Section 10.1.3 hereof, then the Indemnifying Shareholders
may, at their option and expense, defend such proceeding.
If the Indemnifying Shareholders elect to defend any such
proceeding, they shall have full control over the conduct of
such proceeding, although Einstein Bros. shall have the
right to retain legal counsel and to participate in the
defense of such proceeding at its own expense and shall have
the right to approve any settlement of any dispute giving
rise to such proceeding, such approval not to be withheld
unreasonably; provided that, in the event the Indemnifying
Shareholders shall fail to initiate a defense of a claim
within twenty days of the notice to the Indemnifying
Shareholders of a claim, Einstein Bros. shall have the
option to conduct the defense of such claim as it may in its
discretion and in good faith deem proper, and the
Indemnifying Shareholders shall have the right to retain
legal counsel and to participate in the defense of such
proceeding at their own expense. If any proceeding, if
adversely determined, can reasonably be expected to result
in an amount of damages of the Company (x) that would not be
recovered because such amount would be less than the
threshold set forth in Section 10.1.2 hereof, or (y) that
would exceed the cap set forth in Section 10.1.3 hereof,
then Einstein Bros. may, at its option, defend such
proceeding. If Einstein Bros. elects to defend any such
proceeding, it shall have full control over the conduct of
such proceeding, although the Indemnifying Shareholders
shall have the right to retain legal counsel and to
participate in the defense of such proceeding at their own
expense and shall have the right to approve any settlement
of any dispute giving rise to such proceeding, such approval
not to be withheld unreasonably; provided that, in the event
Einstein Bros. shall fail to initiate a timely defense of a
claim, the Indemnifying Shareholders shall have the option
to conduct the defense of such claim, and Einstein Bros.
shall have the right to retain legal counsel and to
participate in the defense of such proceeding at its own
expense.
10.1.8 Nothing in this Section 10.1 shall prevent Einstein
Bros. from obtaining equitable relief in any appropriate
case.
10.1.9 Einstein Bros. and the Company agree to use
reasonable best efforts to give prompt written notice to the
Indemnifying Shareholders of each claim for Indemnifiable
Damages which they believe they have suffered; provided,
however, that no delay in the giving of such notice shall
affect the rights of Einstein Bros., and the Company to
recover Indemnifiable Damages hereunder except to the extent
the recipient of such notice is prejudiced by such delay.
ARTICLE 11. MISCELLANEOUS
11.1 AMENDMENT AND MODIFICATION. Subject to any restrictions
set forth in the California Act and the Delaware Act, the parties
hereto may amend, modify and supplement this Agreement in such
manner as may be agreed upon in writing by Einstein Bros., the
Company and Shareholders owning on the date hereof 75% of the
aggregate number of shares of capital stock of the Company owned
by all of the Shareholders, provided, however, that (i) any
amendment to Section 8.4 or 9.8 shall require only the consent of
Einstein Bros. and Noah Alper, (ii) any amendment to Section 9.5
or 9.6 shall require only the consent of Einstein Bros. and of
all Restricted Shareholders affected thereby, (iii) any amendment
to Section 9.7 shall require only the consent of Einstein Bros.
and Starbucks, (iv) any amendment to Section 9.9 shall require
only the consent of Einstein Bros. and all of the Restricted
Persons affected thereby, (v) any amendment to Article 10 shall
require only the consent of Einstein Bros. and all of the
Indemnifying Shareholders, (vi) any amendment to any of clauses
(i) through (v) of this Section 11.1 shall require only the
consent of all of the persons identified in such clause, and
(vii) any amendment of Section 11.3.4 shall require only the
consent of Starbucks, Rosewood Capital, L.P., Noah Alper and
Einstein Bros.
11.2 PAYMENT OF EXPENSES. The Shareholders shall pay all fees
and expenses incurred in connection with this Agreement and the
transactions contemplated hereby payable to Alex. Brown & Sons
Incorporated; Cooley Godward Castro Huddleson & Tatum, counsel
for the Company; Preston Gates & Ellis, representing Starbucks;
and certain other professional advisors approved by the Company.
Einstein Bros. shall pay all of the expenses incurred by it or
Merger Sub in connection with this Agreement, including without
limitation their legal and accounting fees and expenses, and the
commissions, fees and expenses of any person employed or retained
by them to bring about, or to represent them in, the transactions
contemplated hereby.
11.3 TERMINATION. Anything to the contrary herein
notwithstanding, this Agreement may be terminated and the
transaction contemplated hereby may be abandoned:
11.3.1 by the mutual written consent of all of the parties
hereto at any time prior to the Closing Date;
11.3.2 by Einstein Bros. in the event of the material
breach by the Shareholders of any provision of this
Agreement, which breach is not remedied by the breaching
party within 10 days after receipt of notice thereof from
Einstein Bros.;
11.3.3 by the Shareholders in the event of the material
breach by Einstein Bros. of any provision of this Agreement,
which breach is not remedied by Einstein Bros. within 10
days after receipt of notice thereof from Shareholders; or
11.3.4 by any party hereto if the Closing has not taken
place by the close of business on February 2, 1996.
If this Agreement is terminated pursuant to Sections 11.3.1, no
party shall have any liability for any costs, expenses, loss of
anticipated profit or any further obligation for breach of
warranty or otherwise to any other party to this Agreement. Any
termination of this Agreement pursuant to Sections 11.3.2,
11.3.3, or 11.3.4 shall be without prejudice to any other rights
or remedies of the respective parties.
11.4 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors, assigns, heirs and legal representatives.
11.5 ENTIRE AGREEMENT. This Agreement and the exhibits and
schedules attached hereto and the confidentiality agreement
between Einstein Bros. and the Company dated September 13, 1995,
contain the entire agreement of the parties hereto with respect
to the Purchase and the Merger and the other transactions
contemplated herein, and supersede all prior understandings and
agreements of the parties with respect to the subject matter
hereof. Any reference herein to this Agreement shall be deemed
to include the schedules and exhibits attached hereto.
11.6 HEADINGS. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of
this Agreement.
11.7 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the meanings given them below:
"Best of the Knowledge of the Company" means the knowledge
of any of Noah Alper, Dan Alper, Bob Polsky, Bill Hughson or
Glenn Bacheller and the knowledge which any of them could
reasonably be expected to have upon the exercise of
reasonable diligence in the performance of his duties or in
the preparation of the Disclosure Schedules (to the extent
such person was involved in the preparation of such
Disclosure Schedules).
"Best of the Knowledge of Einstein Bros." means the
knowledge of any of Einstein Bros.' executive officers and
the knowledge which any of them could reasonably be expected
to have in the performance of his duties or in the
preparation of the Einstein Bros. Disclosure Schedules (to
the extent such person was involved in the preparation of
such Einstein Bros. Disclosure Schedules).
"Material Adverse Effect" means, when used with reference to
Einstein Bros., a material adverse effect on the business,
financial condition or results of operations of Einstein
Bros. and its subsidiaries, taken as a whole, and when used
with reference to the Company, a material adverse effect on
its business, financial condition or results of operations.
11.8 EXECUTION IN COUNTERPART. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an
original.
11.9 NOTICES. Any notice, request, information or other
document to be given hereunder shall be in writing. Any notice,
request, information or other document shall be deemed duly given
when delivered personally or by courier, when sent by facsimile
transmission with confirmed receipt, or four business days after
it is sent by registered or certified mail, postage prepaid, to
the intended recipient, addressed as follows:
If to any one or more of the Shareholders, addressed to such
Shareholder at its address set forth on Schedule 11.9
hereto.
If to the Company, prior to the Closing, addressed to:
Noah's New York Bagels, Inc.
14054 Catalina Street
P.O. Box 2158
San Leandro, CA 94577-0331
Attention: Glenn Bacheller
with a copy to:
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Christopher Westover
If to the Company after the Closing, or if to Einstein Bros.
or Merger Sub, addressed to:
Einstein Bros. Bagels, Inc.
1526 Cole Boulevard, Suite 200
Golden, CO 80401
Attention: General Counsel
with a copy to:
Bell, Boyd & Lloyd
70 W. Madison, Suite 3200
Chicago, Illinois 60602
Attention: Paul T. Metzger
Any party may send any notice, request, information or other
document to be given hereunder using any other means (including
personal delivery, courier, messenger service, facsimile
transmission or ordinary mail), but no such notice, request,
information or other document shall be deemed duly given unless
and until it is actually received by the party for whom it is
intended. Any party may change the address to which notices
hereunder are to be sent to it by giving written notice of such
change of address in the manner herein provided for giving
notice.
11.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed therein, except
that the Merger shall be governed by and become effective in
accordance with the California Act to the extent provided
therein.
11.11 AMENDMENT AND RESTATEMENT. This Agreement amends and
restates in its entirety that certain Merger Agreement, dated as
of January 22, 1996, among the Company, Einstein Bros., Merger
Sub and certain Shareholders.
[THIS SPACE INTENTIONALLY LEFT BLANK]
In Witness Whereof, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
Noah's New York Bagels, Inc.
By: /s/ William B. Hughson
------------------------
Title: President
Einstein Bros. Bagels, Inc.
By: /s/ Paul A. Strasen
------------------------
Title: Vice President
NNYB Acquisition Corporation
By: /s/ Joel Alam
------------------------
Title: Vice President
SHAREHOLDER SIGNATURE PAGE TO
MERGER AGREEMENT
STARBUCKS CORPORATION
-------------------------
Print Shareholder Name
/s/ Martin M. Casey
-------------------------
Signature of Shareholder
(or authorized signatory,
if Shareholder is not an
individual)
Senior Vice President
-------------------------
Name and Title of
authorized signatory, if
Shareholder is not an
individual
EXHIBIT 10.22
AMENDMENT TO MERGER AGREEMENT
This Amendment (the "Amendment") to Merger Agreement is
made and entered into this 1st day of February, 1996 by and
among Noah's New York Bagels, Inc., a California corporation
(the "Company"), the shareholders and optionholders of the
Company who have executed this Agreement, Einstein Bros.
Bagels, Inc., a Delaware corporation ("Einstein Bros."), and
NNYB Acquisition Corporation, a Delaware corporation
("Merger Sub").
RECITALS
Certain of the parties hereto are also parties,
together with other persons, to a Merger Agreement dated as
of January 22, 1996 (the "Merger Agreement"). Pursuant to
Section 11.1 of the Merger Agreement, the parties hereto
have the right to amend the Merger Agreement in the manner
set forth in this Amendment. The parties to this Amendment
who have not yet executed the Merger Agreement are becoming
parties hereto for the purpose of becoming a party to the
Merger Agreement as amended by this Amendment.
COVENANTS
In consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Sections 1.5 and 1.6 of the Merger Agreement are
hereby amended to read in their entirety as follows:
"1.5 TREATMENT OF SHARES OF THE COMPANY. At and as of
the Effective Time, each outstanding share of capital stock
of the Company shall be converted into the right to receive
an amount in cash (the "Per Share Merger Consideration")
equal to (a) $100,900,000, less the amounts paid to persons
identified in the first sentence of Section 11.2, plus the
aggregate exercise price of all Options (as defined in
Section 1.6) that have not been exercised prior to the
Effective Time, plus the aggregate exercise price received
by the Company upon the exercise of options after the
acceleration of vesting provided for in Section 1.6, divided
by (b) the total number of shares of capital stock of the
Company outstanding immediately prior to the Effective Time,
plus the total number of shares of capital stock subject to
all unexercised Options.
1.6 TREATMENT OF OPTIONEES. Subject to obtaining the
consent of the shareholders of the Company required under
Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), prior to the Effective Time the
Company shall accelerate the vesting of the options held by
the optionees identified in the Disclosure Schedule (other
than options to purchase 240,000 shares of Common Stock held
by Glenn Bacheller) (the "Options"). At the Effective Time,
(a) Options that have been exercised (and as to which the
exercise price has been received by the Company) shall be
ignored and the shares of Common Stock issued upon such
exercise shall be treated as provided in Section 1.5 and (b)
the Company shall pay to any optionee whose Options have not
been exercised, in cancellation and satisfaction of his or
her Options, an amount equal to (i) the total number of
shares subject to such optionee's Options, multiplied by the
Per Share Merger Consideration, less (b) the aggregate
exercise price of such optionee's Options.
2. Section 8.5 of the Merger Agreement is amended to
read in its entirety as follows:
8.5 AGREEMENTS WITH CERTAIN MEMBERS OF THE COMPANY'S
MANAGEMENT. Einstein Bros. shall have executed and
delivered to each of Jim Mizes, Bob Purcell, Nancy Hauge,
Bill Schrader, Doug Troy, Barbara Musante and Paul Soulier
agreements in the form set forth in Exhibit E.
3. Section 9.6 of the Merger Agreement is amended to
read in its entirety as follows:
9.6 RESTRICTIVE COVENANTS. Each of the Restricted
Shareholders acknowledges and agrees that Einstein Bros.
would be unable to protect the Confidential Information
against unauthorized use or disclosure and Einstein Bros.
would be unable to realize the benefit of this Agreement if
such Restricted Shareholder were permitted, directly or
indirectly, to engage in, hold interests in or perform
services for any entity which derives more than 15% of its
revenues from the business of selling, producing, marketing
or distributing bagels, other than Einstein Bros. and its
subsidiaries and franchisees (a "Competitive Business").
Each of the Restricted Shareholders further acknowledges and
understands that Einstein Bros. intends, and expects, to
expand its business throughout the United States. Each of
the Founder Restricted Shareholders therefore agrees that
for a period of three (3) years from the Closing Date, and
each of the Management Restricted Shareholders therefore
agrees that for a period of two (2) years from the Closing
Date, such Restricted Shareholder shall not, and shall not
permit such Restricted Shareholder's Affiliates, to directly
or indirectly, anywhere in the United States (including
without limitation every county in the State of California):
(i) have any interest as a record or beneficial owner in any
Competitive Business; PROVIDED, HOWEVER, the Restricted
Shareholders may have an interest in any Competitive
Business as passive investors in such Competitive Business
conducted by a company which has a class of securities which
is registered under Section 12 of the Securities Exchange
Act of 1934, as amended, or traded on a national securities
exchange provided that the interest consists solely of such
securities and the interest held by any Restricted
Shareholder, or any group of which any Restricted
Shareholder is a member that would be treated as a person
under Section 13(d)(3) of the Securities Exchange Act of
1934, shall in no event exceed five percent (5%) of the
total equity securities of such issuer; (ii) perform
services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any
Competitive Business; or (iii) divert or attempt to divert
any business or any customers of Einstein Bros.' business to
any Competitive Business. For purposes of this Section 9.6,
the term "Founder Restricted Shareholders" means Noah Alper,
Dan Alper and Bill Hughson, the term "Management Restricted
Shareholders" means the persons identified in Section 8.5,
and the term "Restricted Shareholders" means all of the
Founder Restricted Shareholders and all of the Management
Restricted Shareholders.
4. The final sentence of Section 9.7.3 of the Merger
Agreement is amended to read in its entirety as follows:
""Covered Entity" shall mean (i) an entity in which BCI
holds (or has the right to acquire) at least 35% of the
equity or (ii) an entity in which BCI holds (or has the
right to acquire) an equity interest which would result in
BCI "controlling" such entity within the meaning of such
term as it is used in Rule 405 of the Securities Act."
5. The second sentence of Section 10.1 of the Merger
Agreement is amended by substituting the following
percentages for the percentages set forth in the Merger
Agreement: Starbucks: 28.88%; Rosewood Capital, L.P.:
28.78%; Noah Alper: 15.84%; Dan Alper: 6.35%; Robert Polsky:
11%; and Bill Hughson: 9.15%.
6. The portion of the second sentence of Section
10.1.7 of the Merger Agreement following the semi-colon is
amended to read as follows:
"PROVIDED THAT, in the event the Indemnifying
Shareholders shall fail to initiate a timely defense of a
claim, Einstein Bros. shall have the option to conduct the
defense of such claim as it may in its discretion and in
good faith deem proper, and the Indemnifying Shareholders
shall have the right to retain legal counsel and to
participate in the defense of such proceeding at their own
expense."
The portion of the last sentence of Section 10.1.7 of
the Merger Agreement following the semi-colon is amended to
read as follows:
"PROVIDED THAT, in the event Einstein Bros. shall fail
to initiate a timely defense of a claim, the Indemnifying
Shareholders shall have the option to conduct the defense of
such claim as they may in their discretion and in good faith
deem proper, and Einstein Bros. shall have the right to
retain legal counsel and to participate in the defense of
such proceeding at its own expense."
7. Section 11.2 of the Merger Agreement is amended to
read in its entirety as follows:
11.2 PAYMENT OF EXPENSES. The Shareholders shall pay
all fees and expenses incurred by the Company or them in
connection with this Agreement and the transactions
contemplated hereby, including without limitation all fees
and expenses payable to Alex. Brown & Sons Incorporated;
Cooley Godward Castro Huddleson & Tatum, counsel for the
Company; Preston Gates & Ellis, representing Starbucks; and
certain other professional advisors approved by the Company.
The Shareholders have requested that Einstein Bros. pay on
behalf of the Shareholders, from the consideration to be
delivered in the Merger, the sum of $1,202,000 to Alex.
Brown & Sons Incorporated and the sum of $298,000 to the
Cooley Godward Castro Huddleson & Tatum Trust Account, which
will be used to pay the professional advisors other than
Alex. Brown & Sons Incorporated. Other than the payments
described in the preceding sentence, Einstein Bros. or
Merger Sub shall have no responsibility for any fees and
expenses incurred by the Company or the Shareholders in
connection with this Agreement and the transactions
contemplated hereby. Einstein Bros. shall pay all of the
expenses incurred by it or Merger Sub in connection with
this Agreement, including without limitation their legal and
accounting fees and expenses, and the commissions, fees and
expenses of any person employed or retained by them to bring
about, or to represent them in, the transaction contemplated
hereby.
8. The Company has requested from Einstein Bros. and
Merger Sub and Einstein Bros. and Merger Sub have requested
from the Company and the Shareholders a waiver of the
respective conditions set forth in Sections 7.7 and 8.8 of
the Merger Agreement and each of the parties hereto hereby
agrees to waive such conditions.
9. The Company represents and warrants to Einstein
Bros. and Merger Sub that the shareholders of the Company
who have executed this Amendment own in the aggregate at
least 75% of the aggregate number of outstanding shares of
capital stock of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed on the day and year first
above written.
NOAH'S NEW YORK BAGELS, INC.
By: /s/ Glenn Bacheller
--------------------------
Title: CEO
EINSTEIN BROS. BAGELS, INC.
By: /s/ Paul A. Strasen
---------------------------
Title: Vice President
NNYB ACQUISITION CORPORATION
By: /s/ Paul A. Strasen
---------------------------
Title: President
SHAREHOLDERS:
/s/ Noah C. Alper /s/ Douglas Troy
- --------------------------- ---------------------------
/s/ Daniel V. Alper /s/ Barbara Musante
- --------------------------- ---------------------------
/s/ William B. Hughson /s/ Paul Soulier
- --------------------------- ---------------------------
/s/ James Mizes /s/ William Schrader
- --------------------------- ---------------------------
/s/ Robert Purcell
- ---------------------------
/s/ Nancy Hauge
- ---------------------------
/s/ Robert D. Polsky
- ----------------------------
IN WITNESS WHEREOF, the parties have caused this
Amendment to be duly executed on the day and year first
above written.
ROSEWOOD CAPITAL, L.P.
By: /s/ Chip Adams
- ---------------------------
Title: Principal
STARBUCKS CORPORATION
By: /s/ Martin M. Casey
- -----------------------------------
Title: Senior Vice President
ALPER LIVING TRUST U/A/E 6/18/94
By: /s/ Noah C. Alper, Trustee
- -----------------------------------
WILLIAM B. HUGHSON and MARGARET A. HSIA REVOCABLE TRUST
By: /s/ William B. Hughson, Trustee
- ------------------------------------
EXHIBIT 10.23
STARBUCKS CORPORATION
AMENDED AND RESTATED MASTER LICENSING AGREEMENT
THIS AMENDED AND RESTATED MASTER LICENSING AGREEMENT (this
"Agreement") is made and entered into this 7th day of May,
1996, by and between Starbucks Corporation, a Washington
corporation ("STARBUCKS"), and ARAMARK Food and Services
Group, Inc., a Delaware corporation ("ARAMARK").
RECITALS
A. STARBUCKS operates specialty retail stores engaged in
the sale of coffee, tea, and espresso beverages, whole bean
coffee, related hardware items, and selected food items,
each of which operates under the name "Starbucks Coffee."
B. ARAMARK and STARBUCKS desire to enter into this
Agreement to provide ARAMARK with the rights to operate a
number of Starbucks Stores at businesses, industrial sites,
health care locations, colleges, universities and other
locations in the United States designated on each Exhibit A,
which is executed by STARBUCKS and ARAMARK or any ARAMARK
(as defined hereinafter) from time to time.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals, of
the following terms and conditions, and of other good and
valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereby agree as
follows:
DEFINITIONS
The following terms used herein shall have the following
definitions:
Agreement. "Agreement" shall mean this Agreement executed on
the date first set forth above between STARBUCKS and
ARAMARK, as defined in the preamble hereto.
Confidential Information. "Confidential Information" shall
have the meaning set forth in Section 5.11.1.
Commencement Date. "Commencement Date" shall have the
meaning set forth in Section 2.2.
Effective Date. "Effective Date" shall have the meaning set
forth in Section 7.16.
Gross Revenue. "Gross Revenue" shall have meaning set forth
in Section 2.2.
Initial and Advanced Training Programs. STARBUCKS' "Initial
Training Program" shall mean the program developed by and
presented by STARBUCKS that trains employees concerning
coffee and its preparation and in the operational aspects of
Starbucks Stores. STARBUCKS' "Advanced Training Program"
shall mean the program developed by and presented by
STARBUCKS that trains managers in the operational aspects
and managerial aspects of the Starbucks System and Starbucks
Stores, and that trains participants in how to train Regular
Employees to do their jobs within Starbucks Stores to the
level of training as presented in the Initial Training
Program.
Lessor. "Lessor" shall mean the party with whom ARAMARK has
an Occupancy Agreement that allows ARAMARK to operate a
concession, lease space, or engage in other business
ventures on property controlled by such Lessor. For
definitional purposes, a party granting an Occupancy
Agreement to ARAMARK shall be referred to as a Lessor even
if ARAMARK and such party do not have a landlord-tenant
relationship.
License. "License" shall have the meaning set forth in
Section 1.1.
"Licensed ARAMARK Affiliate" shall mean ARAMARK Services,
Inc.; VERSA Services, Ltd.; ARAMARK Educational Services,
Inc.; ARAMARK Refreshment Services, Inc.; and ARAMARK
Healthcare Support Services, Inc.
License Fee. "License Fee" shall have the meaning set forth
in Section 2.1.
Management Employee. "Management Employee" shall have the
meaning set forth in Section 4.1.
Manual. The "Manual" shall mean the series of documents,
publications, and bulletins designated as such by STARBUCKS
as the guide for operation of a Starbucks Store, which is
hereby incorporated by reference as if fully set forth
herein. STARBUCKS shall have the continuing right to revise
the Manual, upon reasonable notice, and each update,
modification, and expansion of and to the Manual adopted
from time to time by STARBUCKS shall become a part thereof
and accepted by ARAMARK when received by ARAMARK.
Occupancy Agreements. As used herein, "Occupancy
Agreements" shall mean those agreements, however
denominated, that allow ARAMARK to lease, manage and/or
operate concessions and stores at property owned by third
parties. Without limiting the foregoing, Occupancy
Agreements include all leases, concession agreements,
licenses, and similar arrangements between ARAMARK and third
parties.
Regular Employee. "Regular Employee" shall have the meaning
set forth in Section 4.1.
Royalty. "Royalty" shall have the meaning set forth in
Section 2.2.
Starbucks Store. "Starbucks Store" shall mean a STARBUCKS
retail coffee bar or whole bean coffee store, as the case
may be, as operated by ARAMARK pursuant to this Agreement.
Starbucks System. "Starbucks System" shall mean the business
operation system that allows ARAMARK or a Licensed ARAMARK
Affiliate to operate a Starbucks Store, including interior
and exterior store design; other items of trade dress;
specifications for equipment, fixtures, and uniforms;
defined product offerings and preparation methods; standard
operating and administrative procedures; and management and
technical training programs, all as the same may exist today
or as they may change from time to time, as specified in the
Manual or as otherwise reasonably directed by STARBUCKS from
time to time with respect to comparable operations,
consistently applied.
Trade Area. "Trade Area" shall include the entire
contiguous campus of the college, university, business,
health care, or industrial enterprise at which any Starbucks
Store is located, unless a smaller Trade Area is set forth
on the Exhibit A applicable to such store.
Trademarks. "Trademarks" shall mean those proprietary marks
held by STARBUCKS that STARBUCKS specifically designates, in
writing, for use by ARAMARK, including those trademarks
designated by STARBUCKS that are owned by a distributor or
joint venture of which STARBUCKS is a part.
ARTICLE 1.0 THE LICENSE
Grant of License. Subject to the terms and conditions of
this Agreement, STARBUCKS hereby grants to ARAMARK and the
Licensed ARAMARK Affiliates a nonexclusive license (the
"License") to use the Starbucks System and the Trademarks
for each licensed Starbucks Store, to be identified on an
Exhibit A to this Agreement, executed by ARAMARK or a
Licensed ARAMARK Affiliate, as the case may be. Any
Licensed ARAMARK Affiliate which executes an Exhibit A
shall, as to all Starbucks Stores on such Exhibit, be bound
by this Agreement just as if such Licensed ARAMARK Affiliate
had executed this Agreement. References herein to "ARAMARK"
shall include each Licensed ARAMARK Affiliate as to all
Starbucks Stores on each Exhibit A executed by such Licensed
ARAMARK Affiliate.
ARTICLE 2.0 FEES, ROYALTIES, AND PAYMENTS
2.1. License Fee. ARAMARK will pay a license fee for each
Starbucks Store opened by ARAMARK as set forth on Schedule
2.0 (the "License Fee"), with such fee attributable as set
forth on Schedule 2.0. The License Fee for each Starbucks
Store opened by ARAMARK shall be due on or within thirty
(30) days after ARAMARK and STARBUCKS execute an Exhibit A
for that Starbucks Store. No store shall open prior to the
full execution of Exhibit A for such store and the payment
of the applicable License Fee.
2.2. Royalty and Advertising Fee to STARBUCKS. Starting on
the first day that its first Starbucks Store opens to the
public (the "Commencement Date"), ARAMARK shall pay
STARBUCKS a royalty as set forth on Schedule 2.0 (the
"Royalty"), plus an advertising fee in accordance with
Section 2.3.2.
"Gross Revenue" shall mean the total of all revenues derived
from the Starbucks Store during the term of the License,
whether such revenues are evidenced by cash, services,
property, or other means of exchange, and whether STARBUCKS
offers such services or products in its other locations, and
shall include without limitation, the following: (a)
sales, monies, property, or receipts from sales, of any
nature or kind whatsoever, derived by ARAMARK or by any
other person or entity (including without limitation persons
controlling, controlled by, or under common control with
ARAMARK); (b) sales of STARBUCKS products in contravention
of this Agreement at locations other than the Starbucks
Stores, provided, that sales of Starbucks coffee through
Starbucks' wholesale programs shall not be considered sales
in contravention of this Agreement; (c) the proceeds of any
business interruption insurance, after the satisfaction of
any applicable deductible; (d) sales from vending devices;
(e) mail or telephone orders received or filled on or from
the Starbucks Store; (f) all deposits not refunded to
purchasers; (g) orders taken although filled elsewhere.
There shall be no reduction for the costs or expenses of
operating the Starbucks Stores or for federal, state, or
local income taxes or business and occupation taxes related
to the Starbucks Stores. "Gross Revenue" shall exclude the
amount of any state or local sales or use tax actually paid
by ARAMARK and sales of fixtures or other capital items sold
by ARAMARK after use thereof in the operation of the
Starbucks Stores.
2.3. Payment.
2.3.1 Payment of Royalty. ARAMARK will calculate the
Royalty due to STARBUCKS for each calendar month and submit
payment to STARBUCKS for the amount due together with a
statement of ARAMARK's Gross Revenue for the Accounting
Period no later than the twenty-fifth day of the month
following the month for which such Royalty Payment is due.
2.3.2 Payment of Advertising Fee. For each Starbucks
Store, ARAMARK shall submit to STARBUCKS an advertising
report in the manner set forth on Schedule 2.0.
2.4. Promotional Materials. ARAMARK shall purchase for
each Starbucks Store it opens an initial supply of
promotional materials from STARBUCKS costing not less than
five hundred dollars ($500) and, from time to time, shall
purchase additional promotional materials from STARBUCKS or
a vendor approved by STARBUCKS to maintain that supply.
Promotional materials are materials such as customer
brochures and counter cards that contain the Trademarks.
STARBUCKS will supply these materials to ARAMARK at
STARBUCKS' cost, plus a markup estimated to be twenty
percent (20%) to cover its costs of order processing,
handling, and shipping. ARAMARK may submit samples of such
products from other vendors to STARBUCKS for testing and
approval under the procedures set forth in Section 5.9.1.
2.5. Training Fees. The fees and costs typically charged
by STARBUCKS for training one (1) Management Employee and
six (6) Regular Employees for each Starbucks Store are
included in the License Fee paid by ARAMARK for such site,
provided, that ARAMARK and STARBUCKS may agree to such other
number of Regular Employees as may be necessary to
adequately staff such Starbucks Store. For all other
training requested by ARAMARK, STARBUCKS may charge
reasonable fees and costs for materials and participation.
STARBUCKS shall not be responsible for any out-of-pocket
expenses, travel, hotel, or salary costs, incurred during
training by ARAMARK personnel (including without limitation
any Management Employees or Regular Employees).
2.6 Multiple Stores.
In the event there is more than one Starbucks Store at a
location that includes a previously licensed Starbucks
Store, each such Starbucks Store shall be subject, among
other things, to the fees as set forth in this Agreement,
including without limitation those described in Sections
2.2, 2.4, and 2.5.
2.7. Initial Design and Fabrication; Refurbishment Costs.
2.7.1. Design, Fabrication, and Set-up. STARBUCKS shall
provide initial design services for each Starbucks Store,
based on plans, specifications and criteria established by
STARBUCKS in accordance with its trade dress and business
practice. The costs of such initial design services shall
be included within the License Fee and ARAMARK shall not be
separately charged for such initial design services.
ARAMARK shall build and install the Starbucks Store using a
contractor approved by STARBUCKS, acting reasonably, and
following procedures set forth in the Manual. The fee
covers only initial design services, and Starbucks shall not
be responsible for detailed architectural or construction
drawings or revisions.
2.7.2. Refurbishment. From time to time, ARAMARK, at its
expense, shall refurbish each Starbucks Store as needed to
maintain the building design, trade dress, color schemes,
and presentation then used by STARBUCKS in its other
operations. Refurbishment may include, without limitation,
structural changes, remodeling, redecoration, and
modifications to existing improvements. During each year of
the term of a Starbucks Store, ARAMARK shall not be required
to expend more than Twenty Percent (20%) of the total cost
incurred by ARAMARK to design, construct and equip the
Starbucks Store on refurbishment required by this Section
2.7.2. This limitation shall not apply in the event of a
renewal of a License for a Starbucks Store, in which event
ARAMARK shall modify the store as necessary to reflect
STARBUCKS' current trade dress and image.
2.7.3 Notice of New Starbucks Store. Upon determining
that it wishes to open a new store, ARAMARK shall provide
STARBUCKS with at least ninety (90) days written notice of
such desire. STARBUCKS shall inform ARAMARK whether it
wishes to authorize the location within thirty (30) days of
receipt of notice from ARAMARK. STARBUCKS shall retain sole
and absolute discretion regarding the authorization of any
new Starbucks Store, and may elect not to authorize a site
for any reason including, without limitation, the failure of
ARAMARK's operations to meet with STARBUCKS' continuing
operational, financial and legal approval.
2.8. Purchase of Products.
2.8.1 Coffee. ARAMARK shall purchase from STARBUCKS all
coffee sold by the Starbucks Stores. STARBUCKS will sell
each type of the various blends and roasts of such coffee to
ARAMARK at the prices set forth on Schedule 2.8 as of the
execution of this Agreement, and thereafter at prices
calculated in accordance with Schedule 2.8.
2.8.2 Other Products. ARAMARK may elect to purchase
other products, services, and reports from either (a)
STARBUCKS, if STARBUCKS has such items available for sale,
or (b) other vendors that meet STARBUCKS' specifications and
that have been approved in writing by STARBUCKS, which
approval shall not be unreasonably withheld. The procedures
for purchasing from such other vendors are further described
in Section 5.9.
2.8.3 Shipment. All coffee and other products shall be
shipped F.O.B. STARBUCKS' dock, Seattle, Washington, or
F.O.B. STARBUCKS' dock at such other shipping point in the
continental United States as STARBUCKS shall determine.
Policies with respect to products, returns, and product
quality are contained in the Manual.
2.9. Taxes. ARAMARK shall pay to STARBUCKS the amount of
all sales taxes, real estate taxes, use taxes, personal
property taxes, and similar taxes imposed on, or paid on
account of, any goods or services furnished by sale, lease,
or otherwise by STARBUCKS, and all amounts that STARBUCKS
may advance, pay, or become obliged to pay on ARAMARK's
behalf for any reason whatsoever except with respect to
License Fees and Royalty Fees.
2.10. Payment of Invoices. All invoices for products,
services, fees, and expenses issued by STARBUCKS are due
upon issuance and payable by ARAMARK net forty-two (42) days
from the date of issuance except as otherwise provided
herein.
ARTICLE 3.0 TERM, RENEWAL
3.1 Term of License. The License granted in Section 1.1
shall be for a term of five (5) years for each Starbucks
Store, subject to the termination rights of the parties as
set forth in Article 6 below. Such term shall begin on the
date that such Starbucks Store first opens for business.
STARBUCKS and ARAMARK acknowledge that, under certain
circumstances, the term for a particular site may be longer
or shorter than five years, depending on the terms and
conditions of the applicable Occupancy Agreement. Upon
store opening, the parties will exchange a revised Exhibit A
confirming the actual opening date and expiration date for
each store.
3.2 Renewal. Without limiting the termination rights
accorded the parties in Article 6, STARBUCKS may renew this
Agreement for a Starbucks Store for a period of five(5)
years or such longer or shorter renewal term as may be
appropriate pursuant to the applicable Occupancy Agreement.
If such renewal notice is not given at least ninety (90)
days prior to the expiration of the then-existing term for a
Starbucks Store, the term for such site shall expire upon
its previously established expiration date. There shall be
no License Fee applicable to the renewal of a license.
ARTICLE 4.0 PREOPENING ASSISTANCE AND REQUIREMENTS
4.1. Training Programs. ARAMARK acknowledges that quality
control and adherence to the Starbucks System are needed to
preserve and enhance the value of the Starbucks System and
the License. As a condition precedent to ARAMARK's opening
the Starbucks Stores to the public, all newly hired and
replacement managers of ARAMARK's locations ("Management
Employees") shall be subject to STARBUCKS' reasonable
approval and shall successfully complete, to STARBUCKS'
satisfaction, the "Initial Training Program" and the
"Advanced Training Program" conducted by STARBUCKS.
Employees of ARAMARK having managerial responsibilities at
ARAMARK's locations shall have a skill level, training and
experience commensurate with the demands of the position,
and in keeping with STARBUCKS' high standards for quality
products, courteous service, and cleanliness of operations.
Also, each non-management employee of ARAMARK that will work
in a Starbucks Store ("Regular Employee") shall, prior to,
and as a condition precedent to opening of that Starbucks
Store, receive training to STARBUCKS' satisfaction to the
level of STARBUCKS' Initial Training Program. Except as
provided in Section 2.5 hereof, ARAMARK shall pay training
costs and related expenses of each person who attends any
such training programs on its behalf. STARBUCKS shall not
be responsible for paying the salaries and expenses of
employees of ARAMARK who are attending training programs.
4.2. Opening Assistance. STARBUCKS shall furnish to
ARAMARK one (1) person experienced in the Starbucks System
to assist ARAMARK for a minimum period of seven (7)
operating days in conjunction with, and prior to, the
opening of any Starbucks Store. If ARAMARK opens more than
one Starbucks Store at a campus or other location
simultaneously, then STARBUCKS may furnish one person, and
the opening assistance periods may run consecutively.
STARBUCKS shall use diligent effort to furnish one person
per Starbucks Store if ARAMARK opens more than one Starbucks
Store at a campus or other location simultaneously.
4.3. Opening Timetable. ARAMARK shall locate its first
Starbucks Store and obtain STARBUCKS' approval for the
location promptly following execution of this Agreement.
Initial training for ARAMARK's employees will be scheduled
after the execution of this Agreement and completed before
the opening date scheduled pursuant to Section 2.7.3
ARAMARK shall commence construction promptly following
receipt of approval of a site by STARBUCKS and shall open
each Starbucks Store promptly on completing construction.
ARTICLE 5.0 OPERATION OF THE BUSINESS
5.1. Standards of Performance and Quality. ARAMARK
understands and acknowledges that it is important to
STARBUCKS and ARAMARK to develop and maintain high and
uniform operating standards, to increase the demand for
STARBUCKS' products and services, and to protect the
reputation and goodwill of STARBUCKS. Without limiting the
standards of performance set forth in the Manual, ARAMARK
covenants and agrees as follows:
5.1.1. ARAMARK shall ensure that the operation of each
Starbucks Store is at all times under the direct control of
a Management Employee. Each Management Employee shall be
solely dedicated to operation of the Starbucks Store to
which the person is assigned, provided, that a Management
Employee may supervise multiple stores if such stores are
located within a geographic area that reasonably allows for
such multiple store supervision, such as the campus or other
location identified on the Exhibit A covering the Starbucks
Stores, with such area to be approved by STARBUCKS.
5.1.2. ARAMARK shall operate the Starbucks Stores in
accordance with the standards of service, advertising,
promotion, management, and cleanliness prescribed by
STARBUCKS and on such days and during such hours as ARAMARK
may reasonably determine, exercising its judgment as a
global provider of food and other managed services; comply
with all business policies, practices, and procedures
imposed by STARBUCKS; maintain the physical facilities of
each Starbucks Store at a "like new" level of cosmetic
appearance; sell at the Starbucks Stores only those services
and products designated and approved by STARBUCKS; and
maintain the interior and exterior of the Starbucks Stores
in a sound, clean, and attractive condition. ARAMARK may,
exercising its judgment as a global provider of food and
other managed services, reasonably determine what STARBUCKS-
approved services and products are to be sold at a Starbucks
Store, provided, that ARAMARK shall at all times offer the
items included in the "core menu" established for such store
on the Exhibit A applicable to such store.
5.1.3. ARAMARK shall obtain and use materials distinctive
to the operations of Starbucks Stores (napkins, paper bags,
etc.) only of the kind now or hereafter marketed or licensed
by STARBUCKS in accordance with its specifications. ARAMARK
specifically acknowledges and agrees that the cup used to
serve STARBUCKS coffee is an integral and valuable part of
the STARBUCKS product. ARAMARK therefore agrees to use in
the operation of its Starbucks Stores only cups that comply
with STARBUCKS' specifications.,
5.1.4. ARAMARK shall not alter, add to, or delete from any
portion of the Starbucks System, Trademarks, or STARBUCKS
products as licensed hereunder without STARBUCKS' prior
written consent, which STARBUCKS may withhold in its sole
and absolute discretion.
5.1.5. ARAMARK shall purchase all furniture, fixtures,
equipment, supplies, and signage, including replacements, in
accordance with STARBUCKS' specifications, and from
suppliers approved by STARBUCKS under Section 5.9.1.
5.1.6. ARAMARK shall use at all times the methods,
materials, and equipment designated by STARBUCKS to serve
customers.
5.1.7. ARAMARK shall maintain at all times an inventory of
goods and supplies sufficient to satisfy customer demand.
5.1.8. ARAMARK shall cause all of its employees, while
working at Starbucks Stores, to wear uniforms of such color,
design, and other specifications as STARBUCKS may reasonably
designate, to present a neat and clean appearance, and to
render competent and courteous service to customers.
ARAMARK's employees working in the Starbucks Stores shall be
dedicated solely to the Starbucks Stores and shall not work
at any other business owned or operated by ARAMARK, except
where ARAMARK reasonably determines it can provide shifts at
other locations with no detrimental effect on the operations
of its Starbucks Stores.
5.1.9. ARAMARK shall operate the Starbucks Stores as a
retail business only under the name "Starbucks Coffee"
without any additional or accompanying words or symbols
unless otherwise directed or approved by STARBUCKS in
writing, in STARBUCKS' sole and absolute discretion, subject
only to the requirement that such words or symbols be
required to be adopted at substantially all other Starbucks
Stores. ARAMARK shall implement all changes in
identification required by STARBUCKS within forty-five (45)
days after receipt of a notice setting out an alternate
Trademark pursuant to Section 5.10.2.
5.1.10. ARAMARK shall promptly pay when due all trade and
supplier accounts, all federal, state, and local taxes
(including, but not limited to, income, business and
occupation, gross receipts, sales, use, property, and excise
taxes), lease payments, and indebtedness of any kind
incurred by ARAMARK in the operation of the Starbucks
Stores, unless ARAMARK in good faith, contests any such
payment.
5.1.11. ARAMARK shall secure, maintain in force, and, on
reasonable notice, give reasonable evidence (or access) to
STARBUCKS on request of all business licenses, permits,
registrations, and certificates legally required to operate
the Starbucks Stores and shall comply with all applicable
laws, ordinances, and regulations.
5.1.12. ARAMARK shall faithfully observe and timely perform
all covenants to be observed and performed by it pursuant to
the Occupancy Agreements for the locations for its Starbucks
Stores.
5.1.13. ARAMARK shall not, without the prior consent of
STARBUCKS, knowingly employ or seek to employ any person who
is at the time employed by STARBUCKS or operating a business
under license from STARBUCKS, or otherwise directly or
indirectly induce any such person to leave his or her
employment. STARBUCKS shall give ARAMARK notice as promptly
as is practicable of any situation in which it appears
ARAMARK may breach, or has breached, this Section 5.1.13.
5.1.14. ARAMARK shall pay a compensation rate specified by
STARBUCKS and out-of-pocket expenses including, but not
limited to, transportation, lodging, and food, of any agent
or employee of STARBUCKS who works at any of ARAMARK's
Starbucks Stores and performs services that would otherwise
be performed by an employee of ARAMARK (whether a Management
Employee or a Regular Employee).
5.1.15. ARAMARK shall replace items of equipment that are
obsolete or otherwise mechanically impaired to the extent
they require replacement, or as STARBUCKS may reasonably
require.
5.1.16. Except for participation in STARBUCKS' wholesale
programs or as otherwise specifically authorized by
STARBUCKS, ARAMARK shall sell no coffee products or other
products supplied by STARBUCKS outside of the Starbucks
Stores nor to any customer for the purpose of resale by the
customer, and all sales by ARAMARK shall be for retail
consumption only.
5.1.17. ARAMARK shall notify STARBUCKS in writing within
ten (10) days after ARAMARK receives actual notice of the
commencement of any action, suit, or other proceeding, or
the issuance of any order, writ, injunction, award, or other
decree of any court, agency, or other governmental
instrumentality that pertains to the Starbucks Stores or
that may adversely affect ARAMARK's operation of the
Starbucks Stores or ability to meet its obligations
hereunder, of such proceeding or decree.
5.2. Inspection. ARAMARK agrees to permit representatives
of STARBUCKS to inspect ARAMARK's business locations and
operating methods during normal business hours to determine
the condition of the Starbucks Stores and ARAMARK's
compliance with this Agreement. STARBUCKS acknowledges that
in certain instances, access to a Starbucks Store may be
subject to the consent of the ARAMARK client, and that such
client may refuse to grant consent. ARAMARK shall use
diligent efforts to obtain such client's consent to access
by STARBUCKS.
5.3. Prices. [Intentionally deleted.]
5.4. Employee Training.
5.4.1. STARBUCKS and ARAMARK agree that it is desirable for
the benefit and promotion of the Starbucks System to use
uniform product preparation methods and employ approved
products, ingredients, and techniques. ARAMARK therefore
agrees that each Management Employee must be fully trained
by STARBUCKS in its Initial Training Program and Advanced
Training Program prior to beginning work as a manager in any
Starbucks Store and each Regular Employee must be trained up
to the level of training in STARBUCKS' Initial Training
Program either by a fully trained Management Employee or by
attending STARBUCKS' Initial Training Program. The Manual
shall contain current charges payable by ARAMARK for any
such training performed by STARBUCKS if requested by ARAMARK
or required hereunder and not covered by Section 2.5.
Notwithstanding any training provided by STARBUCKS,
STARBUCKS has no responsibility for the quality of any
products provided by ARAMARK to its customers except for
beans and other products manufactured by STARBUCKS and
provided to ARAMARK.
5.4.2. Pursuant to Sections 2.5 and 4.1, STARBUCKS
shall provide the initial training of ARAMARK's initial
staff at ARAMARK's Starbucks Stores. STARBUCKS shall also
bear the costs of any other training requested by STARBUCKS.
ARAMARK shall bear the direct costs and fees associated with
any training requested by ARAMARK or required hereunder.
ARAMARK shall pay the costs and expenses of each person who
attends any STARBUCKS training program on its behalf.
STARBUCKS shall not be responsible for any such expenses, or
for any salary or salary-related expenses of any of
ARAMARK's employees during attendance at training.
5.5. Advertising.
5.5.1. All advertising for its Starbucks Stores conducted
by ARAMARK must be dignified and must conform to the highest
ethical advertising standards and to policies prescribed by
STARBUCKS. All advertising, promotional, or marketing plans
and materials that ARAMARK uses shall be developed by
STARBUCKS or shall be approved (except with respect to
prices charged) in writing by STARBUCKS before use. ARAMARK
shall use any advertising schemes or promotional materials
developed by STARBUCKS only with STARBUCKS' approval. Any
advertising or promotional material submitted by ARAMARK for
STARBUCKS' approval, which is not rejected within thirty
(30) days after STARBUCKS receipt thereof, shall be deemed
approved.
5.5.2. ARAMARK agrees to keep visible to customers at its
Starbucks Stores at all times a display, a counter card, a
supply of catalogs, or such other items promoting STARBUCKS'
mail order business as STARBUCKS may reasonably designate,
provided that STARBUCKS gives such materials to ARAMARK
without charge.
5.6. Insurance.
5.6.1. At all times during the term of this Agreement,
ARAMARK shall keep in effect such insurance (including, but
not limited to, course of construction insurance, fire and
extended coverage insurance on the real property, equipment,
leasehold improvements and stock at the Starbucks Stores,
business interruption insurance, rental insurance, and
workers' compensation insurance) as may be required by the
terms of Occupancy Agreements covering ARAMARK's Starbucks
Stores' premises, such insurance as may be required by law,
comprehensive general liability insurance (including
products and completed operations), and personal injury at a
minimum limit of liability of $3,000,000. All policies
shall name STARBUCKS as an additional insured as
appropriate, and shall provide that STARBUCKS shall receive
thirty (30) days' prior written notice of termination,
expiration or cancellation of any such policy. All policies
shall be written with insurers with a rating reasonably
acceptable to STARBUCKS and each insurer shall be licensed
to do business in the jurisdiction in which the applicable
Starbucks Store is located.
5.6.2. On the execution hereof, ARAMARK shall provide
STARBUCKS with an insurance certificate evidencing the
coverages required by this Section 5.6. Thereafter,
ARAMARK, shall submit to STARBUCKS an insurance certificate
evidencing the coverages required by this Section 5.6, at
any time and from time to time, within thirty (30) days
after a request therefor from STARBUCKS, and ARAMARK shall
submit to STARBUCKS annually evidence of the renewal or
extension of each insurance policy.
5.6.3. [Intentionally omitted]
5.7 Procurement of Insurance. If ARAMARK at any time
fails to maintain in effect any insurance coverage required
by STARBUCKS or to furnish satisfactory evidence thereof,
STARBUCKS in addition to its other rights and remedies under
this Agreement at law or in equity, may, but need not,
obtain such insurance coverage on behalf of ARAMARK, and
ARAMARK shall promptly execute any applications or other
forms or instruments required to obtain any such insurance
and pay to STARBUCKS on demand any premiums and any expenses
of procurement incurred by STARBUCKS.
5.8. Signs. ARAMARK shall pay all costs of signage, and
shall only use signs in connection with its Starbucks Stores
that STARBUCKS has approved in writing. ARAMARK shall, at
all times, maintain and display signs reflecting the current
image of the Starbucks System, which shall be the color,
size, design, and materials specified by STARBUCKS, in the
locations specified by STARBUCKS, and subject to the
approval of the governing body that controls the site on
which the Starbucks Store is located, if required by
ARAMARK's Occupancy Agreement. ARAMARK agrees that it shall
not use any handwritten signs. On receipt of notice by
STARBUCKS of a requirement to alter any existing sign on its
premises, ARAMARK will at its cost make the required changes
within forty-five (45) days, subject to the approval of the
applicable governing body for the location of the Starbucks
Store if required. ARAMARK shall not place or allow to be
placed additional signs or posters on its premises without
the written consent of STARBUCKS.
5.9. Purchases From STARBUCKS and Approved Suppliers.
5.9.1. To promote the uniformity and quality of the
Starbucks System, ARAMARK shall purchase all coffee from
STARBUCKS and all goods, products, and supplies used in or
sold from the Starbucks Stores' only from STARBUCKS or from
suppliers designated or approved in writing by STARBUCKS,
acting in its sole and absolute discretion. In considering
its approval, STARBUCKS may require ARAMARK to submit
samples or specifications of any goods or supplies from a
proposed supplier to STARBUCKS or to any other person for
testing and ARAMARK shall bear any cost of such testing.
STARBUCKS will notify ARAMARK of the grant or denial of such
approval or of STARBUCKS' need for additional information or
samples within thirty (30) days of the submission of
specifications or samples. All coffees, goods, products,
and supplies purchased from STARBUCKS shall be purchased in
accordance with the order format issued from time to time by
STARBUCKS, the current form of which shall be set forth in
the Manual.
5.9.2. STARBUCKS may change the prices, delivery terms and
other terms relating to its sale of goods, products and
supplies to ARAMARK, including coffee prices, on thirty
days' notice. STARBUCKS, in its sole discretion, may
discontinue the sale of any product at any time if in
STARBUCKS' sole judgment its continued sale becomes
unfeasible, unprofitable, or otherwise undesirable.
5.9.3. STARBUCKS shall not be liable to ARAMARK for
unavailability of, or delay in shipment or receipt of,
merchandise because of temporary product shortages, order
backlogs, production difficulties, delays, unavailability of
transportation, fire, strikes, work stoppages, or other
causes beyond the reasonable control of STARBUCKS.
5.9.4. STARBUCKS may act as a manufacturer or wholesaler of
goods, products, and/or supplies purchased by ARAMARK and
shall be entitled to a reasonable return comparable to other
wholesalers or other manufacturers for similar items in the
marketplace. ARAMARK agrees to the wholesale price as set
forth in STARBUCKS' wholesale catalog, on all goods,
products, and supplies purchased from STARBUCKS, except for
coffees purchased at prices set forth in Schedule 2.8 or as
adjusted in accordance therewith.
5.9.5. On the termination of this Agreement, STARBUCKS
shall not be obliged to fill or ship any orders then pending
or made any time thereafter by ARAMARK.
5.10. Trademarks.
5.10.1. ARAMARK acknowledges that STARBUCKS owns the
Trademarks and ARAMARK agrees that it shall use only the
Trademarks in the operation of the Starbucks Stores and no
other trade name or trademark and shall use the Trademarks
only for the term of this Agreement. ARAMARK may also use
the Trademarks for presentations for business opportunities
that it reasonably believes will lead to the development of
more Starbucks Stores.
5.10.2. STARBUCKS expressly reserves the right to change
the Trademarks or substitute any other trade name,
trademark, service name, or service mark at any time;
provided that such change or substitution is made effective
for substantially all of retail stores operated or owned by
STARBUCKS directly. If STARBUCKS makes such a change, each
new mark or name shall be a "Trademark" for purposes of this
Agreement and shall replace the appropriate discontinued
mark or name used in this Agreement.
5.10.3. ARAMARK agrees that it will not use or display any
Trademark or any variation thereof other than in strict
conformity with STARBUCKS' specifications and the provisions
of this Agreement, that ARAMARK has no right to license any
person to use any Trademark, and that ARAMARK shall not use
any Trademark or any phonetically or visually similar name
or mark or any combination thereof in any trading name of
any corporation, partnership, or other organization or
business without STARBUCKS' express written consent, which
may be withheld in STARBUCKS' sole and absolute discretion.
Neither during nor after the term of this Agreement shall
ARAMARK take any action that does or may adversely affect
the goodwill associated with the Trademarks.
5.10.4. ARAMARK shall not imprint or authorize any person
to imprint any Trademark on any product without the express
written approval of STARBUCKS. ARAMARK shall not use the
Trademarks in connection with any offering of securities or
any request for credit without the prior express written
approval of STARBUCKS. STARBUCKS may withhold or condition
any approval related to the Trademarks, including those
described in this Section, in its sole and absolute
discretion.
5.10.5. If ARAMARK learns of the use of the name
"STARBUCKS", any other Trademark, or any phonetically or
visually similar name or mark by another, ARAMARK shall
promptly inform STARBUCKS. If another person claims that
ARAMARK's use of a Trademark infringes upon the rights of
such other person, ARAMARK shall promptly notify STARBUCKS.
STARBUCKS shall wholly control any litigation with respect
to any Trademark, shall be solely responsible for all of its
attorneys' fees associated with such litigation, and shall
be entitled to all damages awarded based on infringement of
any Trademark. STARBUCKS shall indemnify and hold ARAMARK
and its affiliates harmless from and against any claim,
liability or other obligation arising out of ARAMARK's use
of the Trademarks or other intellectual property provided to
ARAMARK by STARBUCKS.
5.10.6. If STARBUCKS changes any Trademark, ARAMARK agrees
to comply with the change within forty-five (45) days after
notice thereof by STARBUCKS, at ARAMARK's expense.
5.10.7. ARAMARK acknowledges and recognizes STARBUCKS'
exclusive ownership of the Trademarks and the validity of
the Trademarks, and agrees that its use of the Trademarks
inures to the benefit of STARBUCKS. ARAMARK agrees not to
contest or assist anyone in contesting at any time during or
after the term of this Agreement, in any manner, the
validity of any Trademark or its registration, and ARAMARK
further agrees to maintain the integrity of the Trademarks
and to prevent their dilution. ARAMARK agrees that nothing
in this Agreement shall grant ARAMARK any right, title, or
interest in the Trademarks.
5. 10.8. STARBUCKS makes no representation or warranty
about the rights of STARBUCKS or ARAMARK to use the
Trademarks.
5.11. Confidential Information.
5.11.1. ARAMARK has or will have knowledge concerning the
Starbucks System and other confidential matters necessary or
useful to the successful development of Starbucks Stores,
such as STARBUCKS' plans, strategy, costing, prospects, and
potential locations (the "Confidential Information). Any
and all information pertaining to the Starbucks System and
that is identified in writing as confidential, either
through a stamp on such information or through specific
identification of such information as confidential in other
written communication, including all information in the
Manual, except information that is or has become a part of
the public domain through publication or communication by
others, or that ARAMARK can show was already in ARAMARK's
possession before receipt from STARBUCKS, shall be
"Confidential Information" for purposes of this Agreement.
ARAMARK acknowledges that the Confidential Information is
confidential, proprietary information, and a trade secret.
Any financial, operating, statistical, customer, marketing
or similar information supplied by ARAMARK to STARBUCKS or
compiled by STARBUCKS or its auditors or other agents,
directly related to ARAMARK's operations, including without
limitation, any client or customer lists, and that is
identified in writing as confidential, either through a
stamp on such information or through specific identification
of such information as confidential in other written
communication (the "ARAMARK Information") is confidential,
proprietary and constitutes a trade secret owned solely by
ARAMARK. STARBUCKS shall not disclose any ARAMARK
Information to any third party (except to the extent
permitted in Section 5.12.2), and shall not use the ARAMARK
Information for any purpose other than fulfilling the terms
of this Agreement, without the prior written consent of
ARAMARK.
5.11.2. ARAMARK hereby covenants to treat as confidential
at all times the Confidential Information and to use all
reasonable efforts to keep such information confidential.
ARAMARK acknowledges that the unauthorized use or disclosure
of such Confidential Information will cause incalculable and
irreparable injury to STARBUCKS. ARAMARK accordingly agrees
that it shall not at any time during or after the term of
this Agreement disclose or use or permit the use (except as
may be required by applicable law or authorized by this
Agreement) of the Confidential Information, in whole or in
part, or otherwise make the same available to any
unauthorized person or source without STARBUCKS' prior
written consent.
5.11.3. ARAMARK shall grant access to the Confidential
Information to its employees only on a need-to-know basis,
and shall, to the extent permitted by law, require all of
its Management Employees to enter into a written
confidentiality and noncompetition agreement in the form
attached hereto as Exhibit B, prohibiting them during the
term of their employment or thereafter from communicating,
divulging, or using for the benefit of anyone, any
Confidential Information that they may acquire during their
employment with ARAMARK at the Starbucks Stores.
5.11.4. If ARAMARK has any reason to believe that any
Management Employee has violated the provisions of the
confidentiality and noncompetition agreement, ARAMARK shall
promptly notify STARBUCKS and shall cooperate with STARBUCKS
to protect STARBUCKS against infringement or other unlawful
use including, but not limited to, the prosecution of any
lawsuits if, in the reasonable judgment of STARBUCKS, such
action is necessary or advisable.
5.11.5. In view of the importance of the Trademarks and the
Confidential Information to STARBUCKS, and the importance of
the ARAMARK Information to ARAMARK and the incalculable and
irreparable harm that would result to either party if the
other party were to breach its covenants and agreements in
connection with these matters, the parties agree that
STARBUCKS may seek specific performance and/or injunctive
relief to enforce the covenants and agreements in this
Agreement, in addition to any other relief to which
STARBUCKS may be entitled at law or in equity, and that
ARAMARK may seek specific performance and/or injunctive
relief, in addition to other legal or equitable remedies, to
enforce the covenants and agreements in this Section 5.11.
5.11.6. ARAMARK shall not disclose the substance of this
Agreement to any third party except as necessary to inform
entities from which it is seeking Occupancy Agreements or
entities which are parties to Occupancy Agreements in order
to obtain renewals of, or avoid terminations of, such
Occupancy Agreements or as necessary to obtain any
governmental permits, licenses, approvals, etc., or to the
extent required by the lawful order of any court of
competent jurisdiction or federal, state, or local agency
having jurisdiction over ARAMARK, provided that ARAMARK
shall give STARBUCKS prior notice of such disclosure. The
parties agree to cooperate on press releases and other
public communications and to coordinate any public
announcements concerning this Agreement.
5.12. Accounting, Reports, and Records.
5.12.1. ARAMARK shall prepare, and keep for a period of not
less than three (3) years following the end of each of its
fiscal years, adequate books and records showing inventories
and receipts of all inventory, daily receipts in, at, or
from the Starbucks Stores, applicable sales tax returns (if
any), all pertinent original serially numbered sales slips
and cash register records, and such other sales records as
may be reasonably required by STARBUCKS from time to time to
verify Gross Revenue reported by ARAMARK to STARBUCKS, in a
form suitable for an audit of its records by an authorized
auditor or agent of STARBUCKS. Such information shall be
broken down by categories of goods, foods and beverages
sold, where possible. ARAMARK shall permit STARBUCKS or its
duly authorized auditor or agent to inspect, audit, examine
and make copies from ARAMARK's books and accounting records
for the Starbucks Stores at any reasonable time during
normal business hours.
5.12.2 ARAMARK shall submit reports of Gross Revenue
for the Starbucks Stores to STARBUCKS for each calendar
month or at such intervals as STARBUCKS may reasonably
require. STARBUCKS agrees that this information is ARAMARK
Information, and shall be treated as provided in Section
5.11(except to the extent that applicable law requires
disclosure or that STARBUCKS uses it to prepare reports
detailing average sales and income and similar statistics).
STARBUCKS may require that ARAMARK connect each of its
Starbucks Stores to STARBUCKS' point-of-sale system at
STARBUCKS' cost or otherwise give daily reports of sales to
STARBUCKS. STARBUCKS may require ARAMARK to submit annual
reports of Gross Revenue for the Starbucks Stores prepared
at ARAMARK's expense and reviewed and approved by ARAMARK's
internal audit staff. STARBUCKS also has the right to have
an independent audit made of the books of ARAMARK's
Starbucks Stores at any time. If an audit reveals that any
Gross Revenues have been understated in any report to
STARBUCKS, then ARAMARK shall pay STARBUCKS the Royalty due
on the understated Gross Revenues immediately on demand,
together with interest at the prime rate as announced from
time to time by Seattle First National Bank plus two percent
(2%) or, if less, the maximum rate permitted by law. In
addition, if an audit reveals that Gross Revenues were
understated by two percent (2%) or more during the period
audited, ARAMARK shall reimburse STARBUCKS for all costs and
expenses incurred in connection with the audit. The
foregoing remedies shall be in addition to any other
remedies available to STARBUCKS.
5.13. Promotional Programs. ARAMARK shall honor all
coupons, discounts, and similar promotions provided by
STARBUCKS for use at its stores generally that are presented
by ARAMARK's customers. STARBUCKS shall reimburse ARAMARK
for any direct costs incurred by ARAMARK thereby. STARBUCKS
shall have no obligation to reimburse ARAMARK for coupons,
discounts, and similar promotions if (i) promoted or
undertaken for ARAMARK's Starbucks Stores but not for
Starbucks Stores generally, or (ii) if ARAMARK has delayed
more than 60 days in submitting reimbursement requests for
such coupons, discounts and promotions pursuant to the
above.
5.14. Customer Lists. ARAMARK shall use reasonable efforts
to secure the names and addresses of its customers at
Starbucks Stores and shall allow such ARAMARK information
to be used by STARBUCKS. This obligation shall not require
ARAMARK to solicit such customer information outside the
boundaries of the Starbucks Stores.
5.15. Indemnification. ARAMARK hereby agrees to indemnify
and hold harmless STARBUCKS, its officers, directors,
shareholders, employees, and agents and each of them, in
their corporate and individual capacities, from any
liability or damage any of them may incur, including
reasonable attorneys fees, as a result of claims, demands,
costs, or judgments of any kind or nature, by anyone
whomsoever, for bodily injury or property damage arising out
of or otherwise connected with ARAMARK's negligent
performance or actions with respect to this Agreement, the
License, the Trademarks, the Confidential Information, the
ownership, maintenance, or operation of the Starbucks
Stores, or any act of omission or commission by ARAMARK or
its officers, directors, shareholders, partners, employees,
or agents, except to the extent such liability or damage is
due to the negligence or fault of STARBUCKS. ARAMARK's
obligations to indemnify and the rights of STARBUCKS and its
officers, directors, shareholders, employees and agents, to
indemnification under this Section shall survive termination
or expiration of this Agreement. STARBUCKS shall give
ARAMARK prompt notice of any claim for which STARBUCKS
demands indemnity, shall cooperate with ARAMARK in the
defense of such claim, and hereby grants to ARAMARK full
right and power to direct, manage, control and settle the
litigation of such claim. The absence of any indemnity
obligation of STARBUCKS (other than that set forth in
Section 5.10) shall not be, or be construed to be, a bar to
ARAMARK's action for such indemnity for claims, including
without limitation, those claims excepted out of ARAMARK's
indemnity obligation in this Section 5.15.
ARTICLE 6.0 TERMINATION; TRANSFERS
6.1. Termination; Default.
6.l.1. The License may be terminated at any time by mutual
agreement of ARAMARK and STARBUCKS.
6.1.2. Either ARAMARK or STARBUCKS may terminate this
License and Agreement for convenience at any time, either
with respect to one or more particular Starbucks Stores or
with respect to the entire Agreement, on thirty (30) days'
written notice.
6.1.3. STARBUCKS may terminate this Agreement due to
default by ARAMARK by written notice to ARAMARK at any
time before its expiration on any of the following
grounds:
6.1.3.1. ARAMARK's failure to pay STARBUCKS any sums due
and owing STARBUCKS under this Agreement within fifteen (15)
days after receipt of written notice of default.
6.1.3.2. ARAMARK's failure to comply with the Trademark
provisions of this Agreement within fifteen (15) days after
receipt from STARBUCKS of notice of default.
6.1.3.3. By giving ARAMARK not less than thirty (30) days'
prior written notice of termination (or such longer notice
as may be required by applicable law) on the failure of
ARAMARK to comply with any other terms required to be
observed by ARAMARK under this Agreement or any other
agreement between STARBUCKS and ARAMARK, or on any grounds
that are a basis for termination of the License under
applicable law and, in the case of any default capable of
being cured, failure to cure such default within fifteen
(15) days after receipt of written notice of default.
6.1.3.4. With respect to a particular Starbucks Store, on
the fourth default by ARAMARK at such store within any 12-
month period, after three such defaults at such store of
which ARAMARK was given notice and an opportunity to cure,
regardless of whether previous defaults were cured, and
without affording ARAMARK any additional time to cure such
default.
6.1.3.5. With respect to a particular site, on not less
than thirty (30) days' prior written notice on the
occurrence of any one or more of the following events: a
condemnation or transfer in lieu of condemnation, or the
withdrawal of permission from the applicable Lessor that
results in ARAMARK's inability to continue operation of any
Starbucks Store; casualty damage to a Starbucks Store that
cannot reasonably be repaired or replaced within thirty (30)
days; or closing of a Starbucks Store required by law if
such closing was not the result of a violation by STARBUCKS,
provided that in any such case, the termination shall apply
only to the affected Starbucks Store.
6.1.3.6. ARAMARK's filing of a voluntary petition in
bankruptcy or any pleading seeking any reorganization,
liquidation, or dissolution under any law, or ARAMARK's
admission or failure to contest the material allegations of
any such pleading filed against it, the entry of an order
for relief against ARAMARK under the Bankruptcy Code, the
adjudication of ARAMARK as insolvent, the appointment of a
receiver for a substantial part of the assets of ARAMARK or
its Starbucks Stores, the abatement of the claims of
creditors of ARAMARK or the Starbucks Stores under any law,
or the making of an assignment for the benefit of creditors,
or similar disposition of the assets of the Starbucks
Stores.
6.1.3.7. ARAMARK's participation in fraud or criminal
misconduct relating to operation of the Starbucks Stores or
if ARAMARK or any of its officers, directors, or key
employees is convicted of or pleads guilty or nolo
contendere to a charge of any felony, or any law, the
violation of which will adversely affect the Starbucks
Stores, the Trademarks, any Confidential Information, or the
reputation of STARBUCKS or ARAMARK.
6.1.3.8. ARAMARK's assignment, transfer, or attempt to
assign or transfer: (i) the Starbucks Stores, License
Agreement, or ARAMARK in whole or in part or (ii) any
portion of the premises upon which any Starbucks Store is
located, in a manner inconsistent with the provisions of
Section 6.5 and 6.6 of this Agreement.
6.1.3.9. ARAMARK's failure to have its employees complete
successfully and timely the Initial Training Program.
6.1.3.10. ARAMARK's submission to STARBUCKS on three or
more separate occasions for the same Starbucks Store at any
time during the term of the License a periodic report,
financial statement, tax return or schedule, or other
information that understates the Gross Revenues of the
Starbucks Stores for any period by more than two percent
(2%).
6.1.3.11. ARAMARK's unauthorized use, disclosure, or
duplication of the Confidential Information.
6.1.3.12. ARAMARK's surrender or transfer of control of any
Starbucks Stores without STARBUCKS' written consent.
6.1.4. Termination shall be without prejudice to any other
rights or remedies that STARBUCKS or ARAMARK, as the case
may be, shall have in law or in equity.
6.1.5 STARBUCKS, without waiving any rights it may have
pursuant to this Section 6.1, and in its sole discretion,
may elect not to terminate a License as a result of a
default. In the event a default occurs, STARBUCKS may
elect to give written notification (a "Notice of
Noncompliance") to ARAMARK that a Starbucks Store (or more
than one Starbucks Store, if applicable), is not in
compliance with the terms and conditions of this Agreement.
Such Notice of Noncompliance shall state a period for
ARAMARK to cure the noncompliance, which shall be a period
not less than thirty (30) days. For a period of six months
from and after the date of such Notice of Noncompliance,
ARAMARK shall reimburse STARBUCKS for reasonable costs that
STARBUCKS incurs with respect to the Starbucks Store(s)
identified in such notice, including without limitation the
costs of any audit or inspection of such store(s) in excess
of STARBUCKS' normal audit program applied to all Starbucks
stores, any mystery shopping for such store during such six
month period in excess of STARBUCKS' normal mystery shopping
program applied to all Starbucks Stores, additional training
that STARBUCKS determines is required to bring the store up
to STARBUCKS standards, and any personnel costs incurred by
STARBUCKS at the store site to ensure the proper management
and operation of such store(s). Nothing in this section
shall limit STARBUCKS' termination rights as otherwise set
forth in this Agreement, which STARBUCKS reserves the right
to exercise at any time.
6.1.6 ARAMARK may terminate this Agreement due to a default
by STARBUCKS, which is not cured by STARBUCKS within thirty
(30) days after STARBUCKS receipt of such notice, upon
written notice to STARBUCKS, provided, that if the default
is such that it cannot be reasonably cured within such
thirty-day period, STARBUCKS shall not be deemed in default
if it commences to cure such default within thirty days and
diligently prosecutes such cure to completion.
6.2. ARAMARK's Obligations Upon Termination, Expiration or
Nonrenewal. On termination, expiration or nonrenewal of
this Agreement for any reason, with respect to each
Starbucks Store, ARAMARK agrees as follows:
6.2.1. ARAMARK shall immediately pay all sums due and owing
to STARBUCKS, including any reasonable expenses incurred by
STARBUCKS in obtaining injunctive relief for the enforcement
of this Agreement.
6.2.2. ARAMARK shall immediately cease to operate the
Starbucks Stores, and shall not thereafter, directly or
indirectly, hold any of its locations out as a Starbucks
Store.
6.2.3. ARAMARK shall immediately cease using all of the
Confidential Information, the Trademarks, and any
confusingly similar names, marks, systems, insignia,
symbols, or other rights, procedures, and methods. ARAMARK
shall deliver all goods and materials containing the
Trademarks to STARBUCKS and STARBUCKS shall have the sole
and exclusive use of any items containing the Trademarks.
ARAMARK shall immediately make any specified changes to its
location as STARBUCKS may reasonably require for this
purpose, which shall include, but not be limited to, removal
of the signs, custom decorations, and promotional materials.
6.2.4. ARAMARK shall immediately cease representing itself
as then or formerly a licensee or other affiliate of
STARBUCKS.
6.2.5. ARAMARK shall immediately return the Manual and all
written materials incorporating Confidential Information and
any copies thereof to STARBUCKS.
6.2.6. ARAMARK shall immediately cancel all assumed name or
equivalent registrations relating to its use of any
Trademark, notify the telephone company and all listing
agencies of the termination or expiration of ARAMARK's right
to use any telephone number and any classified or other
telephone directory listings associated with its Starbucks
Stores, and authorize their transfer to STARBUCKS.
6.2.7 If STARBUCKS so elects, at its sole option, upon any
termination or expiration of this Agreement, ARAMARK will
sell to STARBUCKS such equipment and furnishings as
STARBUCKS may designate that are associated with the
Starbucks Store (other than product and inventory, which
shall be handled in accordance with Section 6.3) at its net
book value, using a 5-year amortization period.
6.3. Product, Inventory, and De-identification.
6.3.1 If STARBUCKS terminates this Agreement with respect
to any or all Starbucks Stores for convenience, or if
ARAMARK terminates this Agreement with respect to any or all
Starbucks Stores due to a default by STARBUCKS, STARBUCKS
shall repurchase all unused, but usable, product and
supplies inventory at the terminated Starbucks Store(s) at
ARAMARK's cost for such product and supplies inventory. In
such event, STARBUCKS shall bear the expense of de-
identifying the Starbucks Store(s) subject to such
termination. If the termination is partial, and if
STARBUCKS so permits, ARAMARK shall use its best efforts to
use the inventory at other Starbucks Stores to reduce the
amount STARBUCKS would pay pursuant to this Section.
STARBUCKS shall have no other payment obligations to
ARAMARK, and ARAMARK specifically waives any and all claims
to be paid for equipment, furnishings, fixtures,
personalized materials not usable by STARBUCKS, or the
goodwill associated with the terminated Starbucks Store(s).
STARBUCKS may offset against its obligations pursuant to
this Section any amounts owed by ARAMARK to STARBUCKS.
6.3.2 If ARAMARK terminates this Agreement with respect to
any or all Starbucks Stores for convenience, or if STARBUCKS
terminates this Agreement with respect to any or all
Starbucks Stores due to a default by ARAMARK, ARAMARK shall
not receive any compensation for any remaining product and
supplies inventory at the terminated Starbucks Store(s).
Upon STARBUCKS' request and at ARAMARK's expense, ARAMARK
shall return any remaining product and supplies inventory to
a location designated by STARBUCKS. In such event, ARAMARK
shall also bear the expense of de-identifying the Starbucks
Store(s) subject to such termination. If the termination is
partial, and provided there is no adverse effect on the
quality of products sold, STARBUCKS shall permit ARAMARK to
use such inventory at other Starbucks Stores to reduce the
expense of returning such inventory to STARBUCKS.
6.3.3 Upon any termination or expiration, each Starbucks
Store shall be de-identified to the standard set forth in
the Manual, or, if no standard is included in the Manual, to
such standards as STARBUCKS may then have in effect for its
company-owned operations. Upon any termination or
expiration of this Agreement, STARBUCKS shall return all
ARAMARK Information and copies thereof, to ARAMARK
6.4. Transferability of Interest.
6.4.1. ARAMARK may not sell, assign, or transfer its
interest in this Agreement, including transfers for
security, without STARBUCKS' prior written approval, which
STARBUCKS may withhold in its sole and absolute discretion,
and any attempt or purported assignment or transfer shall
constitute a breach of this Agreement and be void and shall
be cause for termination.
6.4.2. Without limiting STARBUCKS' discretion to approve
any assignment of this Agreement or the License for
security, ARAMARK shall grant no security interest in this
Agreement, the License, the Starbucks Stores, or any of its
assets at a Starbucks Store unless the secured party agrees
that it shall give STARBUCKS prior notice of any attempt to
foreclose on its security interest, STARBUCKS shall have the
right and option to be substituted as obligee to the secured
party, and STARBUCKS shall have the right to cure any
default of ARAMARK.
6.4.3. STARBUCKS has the right to disapprove, in its sole
discretion, of any person or entity or any transaction that
would change the actual, legal, or effective control of the
License or the Starbucks Stores upon a sale, transfer, or
change of ownership of ARAMARK, the License, or the
Starbucks Stores. Without limiting the foregoing, STARBUCKS
may disapprove an assignment, sale, or transfer of this
Agreement, the License, or the Starbucks Stores by ARAMARK
or its owners unless:
6.4.3.1. The assignment or transfer complies with all
applicable laws and regulations, all obligations of ARAMARK
created by this Agreement, and any other agreement between
STARBUCKS and ARAMARK, and the relationships created
hereunder are assumed by the transferee, provided however,
that such assumption shall not relieve ARAMARK of any such
obligations;
6.4.3.2. All debts of ARAMARK to STARBUCKS are paid;
6.4.3.3. ARAMARK is not in default under this Agreement or
any other related agreement;
6.4.3.4. The transferee and its Management and Regular
Employees satisfactorily complete the training required of
new licensees on STARBUCKS' then current terms before the
transfer;
6.4.3.5. ARAMARK reasonably satisfies STARBUCKS that the
transferee meets all requirements of STARBUCKS for new
ARAMARK's, including, but not limited to, experience, skill,
aptitude, good reputation and character, business acumen,
financial strength, and other business conditions;
6.4.3.6. ARAMARK or transferee pays to STARBUCKS Five
Thousand Dollars($5,000) for each Starbucks Store for
transferee's initial training, and STARBUCKS' internal and
out-of-pocket costs associated with acting on the transfer
request, including without limitation all of STARBUCKS'
costs and attorneys' fees associated with the transfer; and
6.4.3.7. There shall not be any suit, action, or proceeding
pending, or to the knowledge of ARAMARK any suit, action, or
proceeding threatened, against ARAMARK with respect to the
Starbucks Stores.
6.4.5. Any consent to assignment or transfer shall be
without prejudice to STARBUCKS' rights against ARAMARK
hereunder or to any right (including right of indemnity),
remedy, or relief vested in or to which STARBUCKS may be
entitled by reason of the default, breach, or nonobservance
of any covenant, term, or condition that occurred before the
sale or assignment. Without limiting the foregoing, it is
expressly understood and agreed that STARBUCKS' consent to
an assignment of this Agreement or transfer of the License
shall not waive: (i) any payment or other duty owed by
ARAMARK to STARBUCKS under this Agreement before such
assignment or transfer; or (ii) ARAMARK's duty of
indemnification and defense as set forth in Section 5.15
hereof, whether before or after such assignment or transfer,
or (iii) the obligation to obtain STARBUCKS' consent to any
subsequent transfer.
6.4.6. ARAMARK shall not assign this Agreement as security
for the payment of any obligation that may arise by reason
of such sale or assignment.
6.5. Noncompetition.
6.5.1. During the term of this Agreement and for a period
of three (3) years following its termination, ARAMARK shall
not without first obtaining STARBUCKS' written consent
solicit or contact personnel of STARBUCKS or its related or
affiliated companies in an attempt to hire or employ said
personnel.
6.5.2. During the term of this Agreement, within the Trade
Area of a licensed Starbucks Store, ARAMARK shall not,
except as authorized under the License or any additional or
successor license granted by STARBUCKS, or as consented to
by STARBUCKS in writing, have any interest, direct or
indirect, in the ownership or operation of, nor grant any
rights of operation to, any retailer selling espresso
drinks, premium branded coffee by the drink other than
STARBUCKS, or whose primary product is premium branded
coffee. The foregoing shall not preclude ARAMARK from
selling any of its own proprietary brands of drip coffee,
whether regular or flavored (but not whole bean coffee,
espresso or espresso related drinks) within the Trade Area
of a Starbucks Store, so long as ARAMARK's sales of such
coffee are made in a manual food service location such as a
cafeteria servery, or food court, or in a vending area, or
in any other location where such coffee is not the dominant
product offering at that location.
6.5.3. At no time during or after the terms of this
Agreement shall ARAMARK:
6.5.3.1 Commit any act that adversely affects the Starbucks
Stores, the Trademarks, or the Confidential Information; or
6.5.3.2 Except as authorized under the License or any
additional or successor license granted by STARBUCKS, use,
in connection with the operation of any business wherever
located, the Starbucks System, any Trademarks, or the
Confidential Information, or cause or permit any such
business to imitate the Starbucks System or to be operated
in a manner tending to have such effect.
6.5.4. The parties agree that (i) if any provision of this
Section 6.5 is held to be invalid or unenforceable, the
remaining provisions shall continue to be valid and
enforceable as though the invalid or unenforceable part had
not been included, and (ii) if any geographical area or term
or period of this Section 6.5 is held to be invalid or
unenforceable, such geographical area or term or period
shall be valid and enforceable over a reasonable
geographical area or a reasonable term or period of time.
6.5.5 ARAMARK agrees that, if it goes into a business
pursuant to which it offers, by mail order, products
available from STARBUCKS, it will provide STARBUCKS a
reasonable opportunity to participate in such program.
ARTICLE 7.0 MISCELLANEOUS
7.1. Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the
State of Washington.
7.2. Relationship of Parties.
7.2. 1. ARAMARK is an independent contractor and is not,
and shall not hold itself out as, a partner, joint-venturer,
agent, employee, or legal representative of STARBUCKS, and
is not otherwise authorized to act for or on behalf of
STARBUCKS as a result of this Agreement or any other
agreement and cannot act for nor legally bind STARBUCKS.
ARAMARK is not authorized to make any agreement, warranty,
covenant, or other representation nor to create any
obligation, express or implied, on behalf of STARBUCKS, nor
shall ARAMARK represent that it has any right or power to do
so.
7.2.2. ARAMARK shall hire and be exclusively responsible
for the compensation and training of all employees of its
Starbucks Stores except for the training described in
Sections 2.5 and 4.1, and ARAMARK shall have sole
responsibility to collect and promptly pay when due all
federal, state, and FICA, FUTA, withholding, and other
applicable payroll taxes, worker's compensation
contributions, unemployment insurance premiums, and all
similar taxes, fees, and charges. ARAMARK acknowledges that
it is acting as an independent contractor, and not as an
agent for STARBUCKS, in connection with all matters
described in this Section.
7.3. Limitation of Remedy. If STARBUCKS should breach this
Agreement or any related agreement, ARAMARK may pursue
whatever remedies may be available at law or in equity,
provided, that in no event shall ARAMARK have the remedy of
withholding any payment due STARBUCKS under this Agreement.
If ARAMARK breaches this Agreement or any related agreement,
STARBUCKS may pursue any remedies that may be available at
law or in equity.
7.4. Entire Agreement. This Agreement and all documents,
schedules, exhibits, and information specifically
incorporated into this Agreement by reference, collectively
constitute the entire agreement between STARBUCKS and
ARAMARK in respect of the subject matter hereof, and
supersedes all prior agreements between STARBUCKS and
ARAMARK in connection with its subject matter. No officer,
employee, or other servant or agent of STARBUCKS or ARAMARK
is authorized to make any representation, warranty, or other
promise not contained in this Agreement. No change,
termination, or attempted waiver of any provision of this
Agreement shall bind STARBUCKS or ARAMARK unless in writing
and signed by STARBUCKS and ARAMARK.
7.5. Severability. If any provision of this Agreement or
the application of any provision to any person or to any
circumstance is determined to be invalid or unenforceable,
then such determination shall not affect any other provision
of this Agreement or the application of such provision to
any other person or circumstance, all of which other
provisions shall remain in full force and effect. STARBUCKS
and ARAMARK intend that if any provision of this Agreement
is susceptible to two or more constructions, one of which
would render the provision enforceable and the other or
others of which would render the provision unenforceable,
then the provision shall be given the meaning that renders
it enforceable.
7.6. Waiver and Consent. No waiver by either party of any
covenant or condition or the breach of any covenant of this
Agreement to be kept or performed by the other party shall
be construed as a waiver by the waiving party of any
subsequent breach of such covenant or condition or authorize
the breach or nonobservance on any other occasion of the
same or any other covenant or condition of this Agreement.
Acceptance by STARBUCKS of any payments due it hereunder
shall not be deemed to be a waiver of any preceding breach
by ARAMARK of any terms, covenants, or conditions of this
Agreement.
7.7 Modification. To be effective, any modification of
this Agreement must be in writing and signed by ARAMARK and
STARBUCKS.
7.8. Section Headings; Pronouns. This Agreement may be
executed in duplicate originals, each of which shall be
deemed an original. The Section headings are for
convenience of reference only and shall not be deemed to
alter or affect any provision thereof. Each pronoun used
herein shall be deemed to include the other number and
gender.
7.9. Forum. Any lawsuit, arbitration or other proceeding
arising out of or with respect to this Agreement shall be
conducted in King County, Washington.
7.10. Attorneys' Fees and Costs. If either party is
required to employ legal counsel or to incur other expenses
to enforce any provision of this Agreement, then the
prevailing party will be entitled to recover from the
nonprevailing party the amount of all reasonable fees of
counsel and all other expenses incurred in enforcing such
obligation or in defending against such claim, demand,
action, or proceeding.
7.11. Interest. Any sum owed to STARBUCKS by ARAMARK or
paid by STARBUCKS on ARAMARK's behalf shall bear interest
from the date due until paid by ARAMARK at the rate of
twelve percent (12%) or, if lower, the maximum lawful rate.
7.12. Notices. Notices under this Agreement shall be in
writing, and shall be delivered in person or by registered
or certified mail, return-receipt requested, prepaid,
addressed as follows:
If to STARBUCKS:
STARBUCKS Corporation
2401 Utah Avenue South
Seattle, Washington 98134
Attn: Department of Law and Corp. Affairs
If to ARAMARK:
ARAMARK Food & Support Services Group, Inc.
1101 Market Street, ARAMARK Tower
Philadelphia, PA 19107
Attn: Don Lowry, Vice President, Marketing
With a required copy to:
Any Starbucks Store(s) affected by such notice at the
address set forth on Exhibit A for such Starbucks Store.
Any Licensed ARAMARK Affiliates affected by such notice, at
the principal ARAMARK notice address set forth above.
or such other address any party shall have specified in a
written notice to the other.
7.13. Successors and Assigns. The terms and provisions of
this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the parties.
7.14. Incorporation of Exhibits, Schedules, Etc. The terms
of the Manual, as the same may change from time to time, and
all Exhibits and Schedules hereto are hereby incorporated
into and made a part of this Agreement as if the same had
been set forth in full herein. The following Exhibits and
Schedules are incorporated herein:
Exhibit A (form of notice and agreement on location);
Exhibit B (form of nondisclosure agreement)
Schedule 2.0 - Fee Schedule
Schedule 2.8 - Coffee Price Adjustment
7.15. Acknowledgments. ARAMARK acknowledges that:
7.15.1. STARBUCKS expressly disclaims the making of, and
ARAMARK acknowledges that it has not received or relied
upon, any warranty or guaranty, express or implied, as to
the potential volume, profits, or success of the business
venture contemplated by this Agreement.
7.15.2. It knows of no representation by STARBUCKS, or its
officers, directors, shareholders, employees, agents, or
servants, about the ARAMARK that is contrary to the terms of
this Agreement or the documents incorporated herein, and
further represents to STARBUCKS as an inducement to its
entry into this Agreement, that it has made no
misrepresentations in obtaining this Agreement.
7.16. Effective Date. This Agreement shall be effective as
of the date it is execute an authorized representative of
STARBUCKS.
IN WITNESS WHEREOF, the parties have hereunto set their
hands as of the day and year indicated below.
EXECUTED by ARAMARK this 7th day of May, 1996.
ARAMARK FOOD AND SUPPORT SERVICES GROUP, INC.
By: /s/ Michael O'Hara
------------------
Its: Vice President
EXECUTED by STARBUCKS at Seattle, Washington, this 7th day
of May 1996.
STARBUCKS CORPORATION
By: /s/ Howard Schultz
------------------
Its: Chairman of the Board
and Chief Executive Officer
