UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 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 0-23024
BROTHERS GOURMET COFFEES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1681708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 GLADES ROAD
SUITE 100E
BOCA RATON, FL 33431
(Address of principal executive offices)
(Zip code)
(407) 995-2600
(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 7, 1996 the Registrant had outstanding (1) 10,362,605 shares of Common
Stock, par value $.0001 per share, and (2) 839,332 shares of Class B Common
Stock, par value $.0001 per share.
<PAGE>
BROTHERS GOURMET COFFEES, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--March
29, 1996 and December 29, 1995.....................1
Condensed Consolidated Statements of
Operations--Three months ended March 29, 1996
and March 31, 1995.................................2
Condensed Consolidated Statements of Cash
Flows--Three months ended March 29, 1996 and
March 31, 1995.....................................3
Notes to Condensed Consolidated Financial
Statements--March 29, 1996.........................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.........................................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................10
Item 2. Changes in Securities.............................10
Item 3. Defaults Upon Senior Securities...................10
Item 4. Submission of Matters to a Vote of Security
Holders...........................................10
Item 5. Other Information.................................10
Item 6. Exhibits and Reports on Form 8-K..................10
SIGNATURES...................................................................12
i
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<TABLE>
<CAPTION>
BROTHERS GOURMET COFFEES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
March 29, December 29,
1996 1995
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ --
Trade receivables, net 8,741 14,354
Receivable from the sale of retail operations 4,308 6,271
Inventories 7,095 6,390
Prepaid promotional expenses 2,563 2,398
Prepaid expenses and other current assets 1,467 932
Net assets of discontinued retail operations
at estimated net disposal value 722 1,350
--------- ---------
Total current assets 24,896 31,695
Property, plant and equipment, net 15,351 16,534
Net noncurrent assets of discontinued
retail operations, at estimated disposal value -- 1,122
Other assets:
Excess of cost over net assets acquired, net 53,580 53,950
Noncompete agreements, net 2,094 2,498
Noncurrent promotional expenses 4,255 3,319
Other assets 755 842
--------- ---------
$ 100,931 $ 109,960
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 11,328 $ 19,004
Accounts payable 7,932 6,444
Accrued expenses 7,206 6,680
Accrued losses and other costs of
discontinued retail operations 2,081 4,378
Accrued restructuring costs 981 1,539
--------- ---------
Total current liabilities 29,528 38,045
Minority interest 91 191
Stockholders' equity:
Preferred Stock--10,000,000 shares authorized: $1.00 par value;
-0- shares issued and outstanding at March 29, 1996
and December 29, 1995 -- --
Common Stock--15,000,000 shares authorized:
$.0001 par value; 10,400,105 shares issued and outstanding
at March 29, 1996 and December 29, 1995 1 1
Class B Common Stock--2,000,000 shares authorized:
$.0001 par value; 839,332 shares issued and outstanding
at March 29, 1996 and December 29, 1995 -- --
Additional paid-in capital 142,505 142,505
Accumulated deficit in earnings (70,944) (70,532)
Treasury stock (37,500 shares, at cost) (250) (250)
--------- ---------
Total stockholders' equity 71,312 71,724
--------- ---------
$ 100,931 $ 109,960
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
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<TABLE>
<CAPTION>
BROTHERS GOURMET COFFEES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three-months Three-months
Ended March 29, Ended March 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales $ 19,109 $ 25,901
Cost of goods sold 10,007 15,085
-------- --------
Gross profit 9,102 10,816
Operating expenses:
Distribution, selling and marketing 6,514 10,151
Administrative 1,558 1,904
Amortization of intangibles 775 898
Restructuring 97 (1,000)
-------- --------
Income (loss) from operations 158 (1,137)
Other expenses (income):
Interest expense, net 579 361
Other income (9) (11)
-------- --------
Loss from continuing operations (412) (1,487)
Loss from discontinued retail operations -- (2,044)
-------- --------
Net loss $ (412) $ (3,531)
======== ========
Loss per common share:
Loss per common share from continuing
operations $ (0.04) $ (0.13)
Loss per common share from discontinued
retail operations -- $ (0.19)
-------- --------
Net loss per common share $ (0.04) $ (0.32)
======== ========
Weighted average common shares outstanding 11,202 11,198
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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<TABLE>
<CAPTION>
BROTHERS GOURMET COFFEES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three-months Three-months
Ended March 29, Ended March 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (412) $(3,531)
Adjustments to reconcile net income to cash
provided by operating activities:
Discontinued retail operations -- 2,044
Depreciation and amortization 3,501 3,749
Current and noncurrent promotional expenses (2,294) (1,910)
Changes in operating assets and liabilities:
Current assets 4,255 3,287
Current liabilities 1,729 (3,547)
Other noncurrent assets (106) (22)
------- -------
Net cash provided by (used in) operating activities:
Continuing operations 6,673 70
Discontinued retail operations (1,760) (1,563)
------- -------
4,913 (1,493)
Cash flows from investing activities:
Purchases of property, plant and equipment, net (420) (549)
Proceeds from sale of discontinued retail operations 3,183 --
------- -------
Net cash provided by (used in) investing activities 2,763 (549)
Cash flows from financing activities:
Net borrowings and repayments under revolving
line of credit (7,676) 1,949
Issuance of common stock -- 93
------- -------
Net cash (used in) provided by financing activities (7,676) 2,042
------- -------
Change in cash -- --
Cash at the beginning of the period -- --
------- -------
Cash at the end of the period $ -- $ --
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BROTHERS GOURMET COFFEES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q pursuant to the
Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X,
as amended. Accordingly, they do not include all the financial statements and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 29, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 27, 1996. For further information, refer to the Brothers Gourmet
Coffees, Inc.'s (the "Company") consolidated financial statements and footnotes
included in its Annual Report on Form 10-K for the fiscal year ended December
29, 1995.
NOTE 2--RECLASSIFICATION AND RESTATEMENTS
Certain amounts in the financial statements for the three-month period ended
March 31, 1995 have been reclassified to conform to presentation in the
financial statements for the three-month period ended March 29, 1996.
NOTE 3--SALES
The Company is an integrated sourcer, roaster and wholesaler of high quality
gourmet coffee products. The Company participates in the wholesale distribution
channel through sales of gourmet coffee to supermarkets, grocery stores and mass
merchandisers. The Company's business is seasonal, with increased sales during
the colder months. As a result, in a typical year, a substantial portion of the
Company's sales and its reported income from operations occur during the fourth
quarter of each year. The Company's results of operations for any particular
quarter may not necessarily be indicative of its results of operations for any
other particular quarter or for the whole year.
NOTE 4--EARNINGS PER SHARE
Shares underlying options and warrants are not included in the computation for
the three-month periods ended March 29, 1996 and March 31, 1995 because the
effect is antidilutive to the net loss per share.
NOTE 5--INVENTORIES
The components of inventories consist of the following:
March 29, December 29,
1996 1995
--------- ------------
Green coffee $ 2,009 $ 1,594
Finished goods 4,783 4,428
Packaging and other supplies 1,936 2,001
------- -------
8,728 8,023
Less: LIFO reserve (1,633) (1,633)
------- -------
$ 7,095 $ 6,390
======= =======
4
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BROTHERS GOURMET COFFEES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
An actual valuation of inventory under the last-in, first-out ("LIFO") method
can only be determined at the end of each year based on the inventory levels and
costs at that time. Accordingly, interim LIFO calculations must necessarily be
based on management's estimates of expected year-end inventory levels and costs.
Because inventory levels and costs are subject to many factors beyond
management's control, interim results are subject to the final year-end LIFO
inventory valuation.
NOTE 6--CREDIT ARRANGEMENTS
In March 1996, the Company obtained a ninety-day extension to June 28, 1996, of
its existing revolving credit facility with First Union National Bank of North
Carolina (the "Bank") (the "Existing Credit Facility"). Under the terms of the
extension, (1) the Company's borrowing availability under the Existing Credit
Facility was reduced to $13,500 and is subject to further reduction(s) for any
proceeds the Company receives from the sale of discontinued retail operations,
(2) the Bank received an extension fee of $260 and (3) the Bank received a
warrant to purchase 286,770 shares of Class B Common Stock at an exercise price
of $.01 per share, which warrant will vest in its entirety and become
exercisable in full if all outstanding obligations under the Existing Credit
Facility are not repaid on or before May 31, 1996. During April 1996, the
Company's borrowing availability and outstanding principal loan balance under
the Existing Credit Facility were reduced by an additional $500 of proceeds from
the sale of discontinued retail operations.
In April 1996, the Company received a commitment (the "Commitment") from another
lending institution (the "Lender") for a new long-term financing arrangement
(the "New Credit Facility"). Under the terms of the Commitment, the Lender would
provide (1) up to a $15,000 borrowing based, revolving line of credit which
would bear interest initially at the rate of prime plus 1.0% (with a LIBOR Rate
interest option at LIBOR plus 2.5%) and mature in three years, (2) up to a
$10,000 term loan which would bear interest initially at the rate of prime plus
1.5% (with a LIBOR Rate interest option at LIBOR plus 3.0%) and be payable over
three years (the "Term Loan") and (3) certain guaranty and letter of credit
facilities. The Term Loan would be available in two tranches, Tranche A in the
amount of $7,500, which would be made available in full at the time of closing
the New Credit Facility, and Tranche B in the amount of $2,500, which would
become available after the Company meets certain financial convenants (to be set
forth in the definitive loan agreement). Management believes that it will
complete negotiations and documentation of, and close, the New Credit Facility,
and intends to draw under the New Credit Facility and repay the obligations
under the Existing Credit Facility in full, on or before May 31, 1996.
NOTE 7--DISCONTINUED OPERATIONS
In June 1995, the Company's board of directors (the"Board") adopted a plan (the
"Disposition Plan") to dispose of all of its retail operations, consisting of
the Gloria Jean's specialty retail business ("Gloria Jean's") and the Brothers
Gourmet Coffee Bars (the "Coffee Bars"). Accordingly, the operating results of
discontinued retail operations, including provisions for estimated losses during
the phase-out period, have been segregated from continuing operations and
reported as a separate line item on the statement of operations. Interest
expense has been allocated to discontinued retail operations based on the ratio
of discontinued operations net assets to consolidated net assets. Due to the
subjective nature of estimating future operating losses and incremental costs of
disposal, it is reasonably possible that these estimates may change in the
future. Future changes in estimates will be included in the statement of
operations in the fiscal year determined.
5
<PAGE>
BROTHERS GOURMET COFFEES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
In February and March 1996, the Company closed the sale of 18 of its Coffee Bars
located in Colorado,Texas and Washington, D.C. (including 1 Coffee Bar site
which was not built out) for $1,750 (subject to certain holdbacks to secure the
performance by the Company of certain of its post-closing obligations). The
Company's 4 Coffee Bars located in New York are under contract (the "N.Y. Coffee
Bars"). Also, the Company's 11 Coffee Bars (including 4 Coffee Bar sites which
were not built out) in Illinois are under contract (the "Illinois Coffee Bars").
The terms of both of these sales are currently being negotiated. The Company
expects to close (1) the sale of its N.Y. Coffee Bars in May 1996 and (2) the
sale of its Illinois Coffee Bars in late May or early June 1996.
As of March 29, 1996, the Company's obligations under the non-cancelable
operating leases for its Coffee Bars were as follows: fiscal year 1996 - $184;
fiscal year 1997 - $336; fiscal year 1998 - $346; fiscal year 1999 - $355;
fiscal year 2000 - $369 ; and thereafter -$1,064. The Company is in the process
of attempting to negotiate the settlement of its lease obligations with respect
to its remaining 5 Coffee Bar sites (1 in New York, 1 in Maryland and 3 in
Texas) that were never built out. Management has accrued for the termination
costs associated with these leases and believes that such accrual is adequate.
NOTE 8--CONTINGENCIES
See "PART II -- Other Information -- Item 1. Legal Proceedings" below for
information concerning (1) certain franchisee litigation filed against Edglo
Enterprises, Inc. ("Edglo") and indemnification issues related thereto and (2)
certain shareholder lawsuits that have been filed against the Company.
NOTE 9--RESTRUCTURING
In connection with the Disposition Plan, the Company accrued $1,500 in
restructuring costs during the second quarter of fiscal year 1995. The $1,500
second quarter accrual was for certain personnel severance and facilities
consolidation costs. During the first quarter of 1996, the Company recorded $97
of additional restructuring costs in connection with severance costs related to
the closing of its Denver, Colorado roasting and packaging facility. The Company
anticipates that it will incur additional restructuring costs, which are not
expected to be significant, associated with its ongoing effort to streamline its
cost structure.
During the first quarter of fiscal 1995, the Board terminated the Company's 1993
restructuring plan, which resulted in the reversal into income of $1,000 of
previously accrued restructuring costs. The reversal of accrued restructuring
costs was principally associated with the curtailment of production facilities
realignment and other operational changes in connection with previous
acquisitions.
NOTE 10--INCOME TAXES
The Company historically has experienced net operating losses and has
established valuation allowances to offset net deferred tax assets. Accordingly,
the Company has had no provision for income taxes for the three-month periods
ended March 29, 1996 and March 31, 1995, and expects this trend to continue for
the remainder of fiscal 1996.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is an integrated sourcer, roaster, and wholesaler of high
quality gourmet coffee products. The Company is the largest wholesaler of
gourmet coffees in the United States and sells its gourmet coffees to
supermarkets, grocery stores and mass merchandisers.
FIRST QUARTER FISCAL 1996 COMPARED WITH FIRST QUARTER FISCAL 1995
NET SALES. Net sales decreased $6.8 million, or 26.2%, in the first
quarter of fiscal 1996 as compared to the first quarter of fiscal 1995 due to a
decline in pound volume of 1.4 million. This decline resulted principally from
the loss of certain customers in its grocery channel of distribution.
Competitive pressures to provide unprofitable promotional incentives (in the
form of product placement costs) and the Company's decision not to provide
certain other product placement costs due to liquidity constraints were the
principal reasons for the loss of these customers.
GROSS PROFIT AND GROSS PROFIT MARGIN. Gross profit decreased $1.7 million,
or 15.8%, in the first quarter of fiscal 1996 as compared to the first quarter
of fiscal 1995. The $1.7 million decrease resulted principally from a decrease
in sales volume. In addition, gross profit during the first quarter of fiscal
1995 included $0.5 million of last-in, first-out ("LIFO") basis cost of goods
sold reductions due principally to inventory decrements not recurring during the
first quarter of fiscal 1996. The gross profit margin increased as a percentage
of sales from 41.8% in the first quarter of fiscal 1995 to 47.6% in the first
quarter of fiscal 1996 principally due to a decline in green coffee costs by
approximately $.40 per pound and decreases in plant overhead costs due to plant
consolidations of $0.2 million.
DISTRIBUTION, SELLING AND MARKETING EXPENSES. Distribution, selling and
marketing expenses decreased $3.6 million, or 35.8%, in the first quarter of
fiscal 1996 as compared to the first quarter of fiscal 1995 principally due to
lower advertising and promotional expenses, product placement, distribution
costs and salaries. Distribution, selling and marketing expenses as a percentage
of sales decreased from 39.2% of sales in the first quarter of fiscal 1995 to
34.1% of sales in the first quarter of fiscal 1996 principally due to the same
factors.
ADMINISTRATIVE EXPENSES. Administrative expenses decreased $0.3 million,
or 18.2%, in the first quarter of fiscal 1996 as compared to the first quarter
of fiscal 1995 principally due to lower professional fees, salaries, and bad
debt expense aggregating $0.5 million which were partially offset by plant
consolidation equipment transfer and set-up costs of $0.2 million..
Administrative expenses increased from 7.4% of sales in the first quarter of
fiscal 1995 to 8.2% of sales in the first quarter of fiscal 1996 due the $6.8
million decrease in sales being relatively greater than the $.3 million decrease
in administrative expenses .
RESTRUCTURING CHARGES. Restructuring charges increased $1.1million in the
first quarter fiscal 1996 as compared to the first quarter of fiscal 1995.
Additionally, in the first quarter of 1996, the Company incurred $0.1 million of
severance expense related to the closing of its Denver, Colorado roasting and
packaging facility. The Company anticipates additional minor restructuring costs
during the remainder of fiscal 1996 related to the closing of its Pittsburgh,
Pennsylvania roasting and packaging facility.
INTEREST EXPENSE. Interest expense increased $0.2 million, or 60.4%, in
the first quarter of fiscal 1996 as compared to the first quarter of fiscal
1995. During the first quarter of fiscal 1995, $0.4 million of interest expense
was allocated to discontinued retail operations compared to $-0- of interest
expense allocated to discontinued retail operations in the first quarter of
fiscal 1996. Total interest expense for both continuing and discontinued retail
operations decreased $0.2 million in the first quarter of 1996 compared to the
first quarter of fiscal 1995 principally due to lower outstanding borrowings.
LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations decreased
$1.3 million in the first quarter of fiscal 1996 as compared to the first
quarter of fiscal 1995 principally due to lower operating expenses.
7
<PAGE>
LOSS FROM DISCONTINUED RETAIL OPERATIONS. Loss from discontinued retail
operations decreased $2.0 million in the first quarter of fiscal 1996 compared
to the first quarter of fiscal 1995. In the second quarter of fiscal 1995, the
Board adopted the Disposition Plan to sell its entire retail operations.
Accordingly, the operating results of the discontinued retail operations,
including provisions for estimated losses during the phase-out period, have been
segregated from continuing operations and reported as a separate component of
loss.
NET LOSS. Net loss decreased $3.1 million, or 88.3%, in the first quarter
of fiscal 1996 from the first quarter of fiscal 1995 principally because of
decreased losses from continuing and discontinued retail operations.
SUMMARY. The Company's plans for its wholesale operations in fiscal 1996
include the following:
/bullet/ revising its product packaging;
/bullet/ offering new coffee blends and new coffee flavors;
/bullet/ offering a new 8 oz. coffee can;
/bullet/ offering a new 1.75 oz. mini-can;
/bullet/ providing new display models to grocery stores and supermarkets;
and
/bullet/ aggressively pursuing new wholesale customer accounts and
renewals of existing wholesale accounts.
There can be no assurance that implementation of any of these projects will
increase the Company's gross revenues.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operations for the first quarter of fiscal
1996 and the first quarter of fiscal 1995 was $4.9 million and ($1.5) million,
respectively. Net cash provided by (used in) in investing activities for the
first quarter of fiscal 1996 and the first quarter of fiscal 1995 was $2.8
million and $(0.5) million, respectively. Net cash (used in) provided by
financing activities for the first quarter of fiscal 1996 and the first quarter
of fiscal 1995 was $(7.7) million and $2.0 million, respectively. During the
first quarter of fiscal 1996, cash from operating activities and the liquidation
of accounts receivable were partially offset by increases in inventories and
promotional costs and payments related to discontinued retail operations. Net
cash provided by operations and proceeds from the sale of discontinued retail
operations were used to fund capital expenditures and to paydown the obligations
under its Existing Credit Facility.
Management expects capital expenditures in fiscal 1996 (primarily
associated with the acquisition of customer display and plant equipment) not to
exceed $4 million. Management expects to fund these expenditures from operations
and borrowings under the Company's New Credit Facility (as discussed below), to
the extent required. At March 29, 1996, the Company had approximately $2.2
million of unused borrowing availability under its Existing Credit Facility.
The Company's Existing Credit Facility was due to mature on March 31,
1996. In late March 1996, the Company obtained a ninety-day extension of the
maturity date of its Existing Credit Facility to June 28, 1996. In early April
1996, the Company received a Commitment for a New Credit Facility from another
lending institution. See Note 6 - Credit Arrangements to the Notes to Condensed
Consolidated Financial Statements for a detailed discussion of the status of the
Existing Credit Facility and the Commitment for the New Credit Facility.
Notwithstanding the foregoing, there can be no assurance that the Company will
be successful in closing the New Credit Facility.
SUPPLY OF COFFEE AND GENERAL RISK CONDITIONS
Coffee is the world's second largest traded commodity. Supply and price
can be and have been volatile. While most coffee trades in the commodities
market, coffee of the quality level sought by the Company has a tendency to
trade on a negotiated basis at a substantial premium above commodity coffee
pricing, depending upon the supply and demand at the time of purchase. The
supply and price can be affected by multiple factors, such as weather, politics
and economics in the coffee producing countries, many of which are lesser
developed nations.
The International Coffee Organization, through the imposition of export
quotas agreed upon by consumer and producer member nations, has in the past
attempted to maintain the commodity prices of green coffees. In July 1989, the
refusal of certain countries to participate in the quota system resulted in the
dissolution of the agreement and a drop in the prices of coffees. In August
1993, 21 coffee-producing countries formed a new cartel, the Association of
Coffee Producing Countries
8
<PAGE>
("ACPC"), and announced plans to cut the supply of coffee by 20% beginning
October 1, 1993 in an attempt to raise world coffee prices. The effect of the
ACPC on coffee prices is difficult to determine in light of the dramatic price
increases resulting from the frosts in Brazil discussed below. Nonetheless, the
ACPC met in November of 1994 and resolved to withhold 20% of its exportable
green coffee bean crop in an effort to raise and sustain green coffee bean
prices. In January 1996, the ACPC agreed to extend its current limitations on
the supply of green coffee upon their expiration in June 1996 through the
1996/1997 green coffee year. The Company is unable to predict whether the ACPC
will be successful in achieving its goals; however, the supplies of green
coffees held by consumers (roasters and buyers) are currently at historical low
levels.
Brazil experienced frosts on June 26, 1994 and July 10, 1994 which
reportedly damaged approximately 40% of its green coffee bean crop. The
announcement of the Brazilian frost damage caused a substantial increase in
green coffee bean prices and other coffee-product related prices worldwide. The
Company purchases a modest amount of its green coffee beans from Brazil.
Nonetheless, in the third and fourth quarters of fiscal year 1994 the Company
experienced a significant increase in the price of green coffee beans which
carried over into the first three quarters of fiscal 1995. Subsequent to the
third quarter of fiscal 1995, the Company's green coffee purchases and
commitments returned to pricing levels closer to those that existed prior to
June 1994 Brazilian frost.
The Company is unable to predict weather events that may adversely affect
coffee supplies in particular countries. In the past, when green coffee bean
prices have increased, the Company has been able to pass those price increases
through to its customers, thereby maintaining its gross profit margins. The
Company was not able to immediately pass through to customers all of the price
increases in the third and fourth quarters of fiscal 1994 following the
significant increase in green coffee bean prices that resulted from the
Brazilian frost. In the third and fourth quarter of fiscal 1994 and the first
quarter of fiscal 1995, the Company experienced customer resistance to price
increases. In light of the events in the third and fourth quarters of fiscal
year 1994 and first quarter of fiscal 1995, the Company cannot predict whether
it will be able to pass inventory price increases through to its customers in
full in the future.
A significant portion of the Company's green coffee supply is contracted
for future delivery, generally between three and twelve months forward (with
declining percentages of the supply being subject to future contracts in the
latter portions of each year), to ensure both an adequate supply and reduced
risk of short-term price fluctuations. Green coffee is a large market with
well-established brokers, importers and warehousemen through which the Company
manages its requirements. In addition to forward purchases, the Company keeps
physical inventory in each of its production facility(ies) and third-party
warehouses representing anywhere from four to ten weeks of supply requirements.
All coffee purchase transactions are in U.S. dollars, the industry's standard
currency. The Company believes that it is not dependent upon any one importer or
broker for its supply of green coffee beans from any particular country.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
The Company's business is seasonal, with increased sales during the colder
months. As a result, in a typical year, a substantial portion of the Company's
sales and its reported income from operations occur during the fourth quarter of
each fiscal year, while the Company's working capital requirements fluctuate
during the year with its greatest needs during the third and fourth quarter of
each year. The Company's income from operations thus fluctuates somewhat from
quarter to quarter. The timing of slotting fee payments, other similar payments
and product introduction costs in connection with wholesale accounts and the
amount of revenue contributed by such new wholesale accounts may cause the
Company's quarterly results of operations to fluctuate in the future. The
Company may experience quarterly losses and its results of operations for any
particular quarter may not necessarily be indicative of net income or loss that
may be expected for any other particular quarter or for the whole year.
9
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PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Gloria Jean's Franchise Litigation. See the discussion of the Gloria Jean's
Franchise Litigation, current through March 28, 1996, in Part I, Item 3.,
Section 1., of the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1995 (the "1995 10-K"). There have been no material
developments with respect to the Gloria Jean's Franchise Litigation since March
28, 1996.
2. Shareholder Class Action. See the discussion of the Shareholder Class Action,
current through March 28, 1996, in Part I, Item 3., Section 2., of the Company's
1995 10-K. In early April 1996, the court granted the Company's motion
requesting a stay of discovery pending the court's ruling on the Company's
motion to dismiss the entire class action lawsuit (the "Motion to Dismiss").
Oral argument of the Company's Motion to Dismiss is currently scheduled in May
1996. There have been no other material developments with respect to the
Shareholder Class Action since March 28, 1996.
3. Shareholder Derivative Action. See discussion of the Shareholder Derivative
Action, current through March 28, 1996, in Part I, Item 3., Section 3., of the
Company's 1995 10-K. There have been no material developments with respect to
the Shareholder Derivative Action since March 28, 1996.
4. Other Litigation. The Company is also involved in routine legal proceedings
incidental to the conduct of its business. Management believes that none of
these routine legal proceedings will have a material adverse effect on the
financial condition or operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
10.1 Agreement of Sale by and among Foster Brothers Corporation
and Brothers Coffee Bars, Inc., Brothers Gourmet Coffees, Inc.
and Brothers Retail Corp. and joined in by Kent Foster dated as
of March 27, 1996.
10.2 Fourth Amendment to Loan Agreement and Loan Documents dated
as of March 29, 1996 by and between the Company and First Union
National Bank of North Carolina.
10
<PAGE>
(B) REPORTS ON FORM 8-K.
On April 3, 1996, the Company filed a Current Report on Form 8-K
with a press release as an exhibit reporting that the Company
completed the sale of five of its Washington, D.C. retail coffee
bars and has also accepted an offer to sell its four coffee bars
located in New York City. The Company also announced that it was
successful in obtaining a ninety-day extension to June 28, 1996
of its Existing Credit Facility, which allows the Company to
continue negotiating a long-term financing arrangement with
another lending institution.
11
<PAGE>
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.
BROTHERS GOURMET COFFEES, INC.
Dated: May 7, 1996 By: /s/ BARRY BILMES
----------------
Barry Bilmes
Vice President Finance
and Administration
Signing on behalf of the registrant
and as principal accounting officer
of the registrant
12
EXHIBIT 10.1
AGREEMENT OF SALE
BY AND AMONG
FOSTER BROTHERS CORPORATION (AS PURCHASER)
AND
BROTHERS COFFEE BARS, INC.,
BROTHERS GOURMET COFFEES, INC.
AND
BROTHERS RETAIL CORP. (AS SELLERS)
AND JOINED IN BY
KENT FOSTER
(AS GUARANTOR)
DATED AS OF MARCH 27, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Sale of Assets...................................................... 2
a. Transferred Assets......................................... 2
b. Excluded Assets............................................ 3
c. Amendments to Schedule 1(a)................................ 3
2. Purchase Price...................................................... 3
a. Calculation; Timing of Payment............................. 3
b. Allocation of Purchase Price............................... 4
c. Transition Payments........................................ 4
3. Assumption of Certain Liabilities................................... 4
a. Nonassumed Liabilities..................................... 4
b. Assumed Liabilities........................................ 4
4. Other Agreements.................................................... 5
a. Employee Matters........................................... 5
b. Bulk Transfers............................................. 5
c. License to Use Name........................................ 5
d. Brothers Keeper and Brothers Sleeper....................... 5
e. Access to Books and Records................................ 6
f. Preservation of Goodwill................................... 6
g. Non-Compete................................................ 6
h. Confidentiality............................................ 6
i. Sellers to Operate in Ordinary Course of Business.......... 7
j. Certain Defaults........................................... 7
k. Additional Actions......................................... 8
5. Conditions to Closing, Closing and Deliveries at
Closing............................................................. 8
a. Conditions to Purchaser's Obligations...................... 8
b. Conditions to Sellers' Obligations......................... 10
c. Location of Closing and Closing Date....................... 10
d. Deliveries at Closing...................................... 10
6. Representations and Warranties of Sellers........................... 11
a. Due Incorporation and Authorization........................ 11
b. Violation.................................................. 12
c. Consents................................................... 12
d. Schedule of Assets......................................... 12
e. Encumbrances............................................... 12
f. Misstatements and Omissions................................ 12
g. Litigation................................................. 13
h. Financial Information...................................... 13
i. Ordinary Course of Business................................ 13
j. Compliance with Laws....................................... 13
k. Inventories................................................ 14
i
<PAGE>
l. Permits and Licenses....................................... 15
m. Material Contracts......................................... 15
n. Labor Matters.............................................. 15
o. Taxes...................................................... 15
p. Other Transactions......................................... 16
q. Leases and Real Property................................... 16
r. Absence of Undisclosed Liabilities......................... 16
s. Full Disclosure............................................ 16
7. Exclusion of Warranties............................................. 16
a. No Warranties.............................................. 16
b. Limited Warranty........................................... 17
8. Representations and Warranties of Purchaser......................... 17
a. Due Incorporation and Authorization........................ 17
b. Violation.................................................. 18
c. Consents................................................... 18
d. Misstatements and Omissions................................ 18
e. Litigation................................................. 18
f. Financing.................................................. 18
9. Indemnification..................................................... 18
a. Survival of Representations and Warranties................. 18
b. Agreement to Indemnify..................................... 18
c. Procedure for Indemnification.............................. 19
d. Limitations on Indemnification............................. 20
e. Remedies Exclusive......................................... 20
f. Payments................................................... 20
10. Transfer; Risk of Loss.............................................. 21
a. Transfer of Assets and Assumption of Assumed
Liabilities................................................ 21
b. Risk of Loss............................................... 21
11. Certain Transition Provisions....................................... 21
a. Taxes and Rents............................................ 21
b. Pre-Closing Credits........................................ 21
c. Post-Closing Charges....................................... 21
d. Supply Agreement........................................... 22
e. Personnel Support.......................................... 22
12. Taxes and Expenses.................................................. 22
13. Public Announcements................................................ 22
14. Miscellaneous....................................................... 23
a. Waiver..................................................... 23
b. Expenses and Absence of Commissions........................ 23
c. Notices.................................................... 23
d. Assignability and Benefit.................................. 23
e. Construction............................................... 24
ii
<PAGE>
f. Entire Agreement........................................... 24
g. Counterparts............................................... 24
h. Attorneys' Fees............................................ 24
i. Guarantor's Guaranty....................................... 25
iii
<PAGE>
SCHEDULES
1(a) - Assets
1(a)(i) - Leases
1(a)(ii) - FF&E
1(a)(iii) - Licenses
1(a)(vi) - Blueprints
1(a)(vii) - POS Equipment
1(a)(viii) - Computers and Software
2(b) - Allocation of Purchase Price
4(d) - Brothers Keeper and Brothers Sleeper
Technology and Equipment
4(g) - Non-Compete Exceptions
6(b) - Violation
6(c) - Consents
6(e) - Encumbrances
6(g) - Litigation
6(h) - Financial Information
6(i) - Ordinary Course of Business
6(j) - Compliance with Laws
6(l) - Permits and Licenses
6(m) - Material Contracts
6(n) - Labor Matters
6(q) - Leases and Real Property
11(e) - Personnel Support
EXHIBITS
Exhibit A: Assumption Agreement
Exhibit B: Form of Opinion of Ballard Spahr Andrews &
Ingersoll
Exhibit C: Bills of Sale
Exhibit D: Form of Lease Assignment
iv
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE (this "Agreement") is made this 27th
day of March, 1996 by and among (1) BROTHERS COFFEE BARS, INC. ("Bars"),
BROTHERS GOURMET COFFEES, INC. ("Brothers") and BROTHERS RETAIL CORP.
("Retail"), all three of which are Delaware corporations whose principal places
of business are located at 2255 Glades Road, Suite 100E, Boca Raton, Florida
33431 (each of Bars, Brothers and Retail is sometimes individually referred to
herein as a "Seller," and all of them are sometimes collectively referred to
herein as "Sellers"), (2) FOSTER BROTHERS Corporation, a Delaware corporation
having its principal place of business at c/o Global Communications Systems
Incorporated, 5550 Friendship Boulevard, Suite 260, Chevy Chase, Maryland, 20815
(referred to herein as "Purchaser") and (3) KENT FOSTER, the sole shareholder of
Purchaser ("Guarantor"). Each of the Sellers and the Purchaser is sometimes
referred to herein as a "Party," and all of them are sometimes collectively
referred to herein as the "Parties."
RECITALS
WHEREAS, Sellers are engaged through the "Brothers" trade name
in the business of retail sales of coffee and other food, beverage, accessory
and specialty items, as conducted through five (5) store locations (and as was
planned to be conducted at one (1) location for a store not yet built, the "Dark
Lease") (as more specifically described in the leases set forth in SCHEDULE
1(A)(I)) (individually, a "Store" and collectively, the "Stores") (collectively,
the "Business");
WHEREAS, Sellers desire (1) to sell to Purchaser certain of
their assets as more fully described in Paragraph 1(a) below, which assets
include, without limitation, real property leasehold interests for the five (5)
Stores and one (1) Dark Lease, and (2) that Purchaser assume certain of the
Sellers' liabilities under the terms and conditions as hereinafter set forth;
WHEREAS, Purchaser desires to purchase said assets, and is
willing to assume said liabilities, all under the terms and conditions as
hereinafter set forth; and
WHEREAS, Guarantor owns one hundred percent (100%) of
the issued and outstanding stock of the Purchaser; and
WHEREAS, Guarantor is joining in this Agreement for the sole
purpose of guaranteeing the performance by Purchaser of its obligations
hereunder.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and representations of the Parties contained herein and for other good
and valuable consideration, the receipt and
<PAGE>
sufficiency of which are hereby acknowledged, it is hereby agreed by the Parties
as follows:
1. SALE OF ASSETS.
a. TRANSFERRED ASSETS. On the Closing Date (as
defined in Paragraph 5(c) below), Sellers shall sell, transfer, assign, convey
and deliver to Purchaser, for the consideration hereinafter provided, all right,
title and interest in and to all of the assets used in or useful to the
Business, as such assets are enumerated in SCHEDULE 1(A) (the "Assets"), which
Assets specifically include:
(i) All of Sellers' right, title and
interest under the real property leases for the Store locations described in
SCHEDULE 1(A)(I), true and complete copies of which leases have been delivered
by Sellers to Purchaser prior to the date hereof (the "Leases"), and the related
security deposits.
(ii) All the stock-in-trade, retail
inventory, supplies, furniture, fixtures and equipment, leasehold improvements,
telephone equipment, telephone numbers (if assignable), rights in and to
personal property and other property used in the Business, as described in
SCHEDULE 1(A)(II) (the "FF&E").
(iii) All licenses and permits issued for
use by Sellers at the Stores, if and to the extent so assignable, as described
in SCHEDULE 1(A)(III) (the "Licenses").
(iv) All customer address cards,
profiles, mailing lists and all other information regarding Sellers' current and
potential customers at the Stores.
(v) All hiring, training, operations,
personnel, quality control, marketing and other manuals or systems owned by
Sellers, including any computer-based or on-line systems, that are used in or
were developed for the operation of the Stores.
(vi) All existing plans or designs for
the Stores and for capital and cost reduction projects in process at or
currently planned in connection with the Stores (collectively, the
"Blueprints"), as described in SCHEDULE 1(A)(VI).
(vii) All cash registers and polling
systems used in or for the Stores, as described in SCHEDULE 1(A)(VII) (the "POS
Equipment").
(viii) The personal computers used at the
Store locations, including, to the extent assignable, all related packaged and
developed software, analysis sheets and business forms
2
<PAGE>
(i.e., time sheets, inventory control, etc.) used in Sellers' day- to-day
operation of the Stores, Lotus Notes and the specialized programming developed
to download and process Store operations data, as described in SCHEDULE
1(A)(VIII) (the "Computer Equipment").
(ix) Subject to Paragraph 4(d) below, all
Brothers Keeper/Sleeper bean storage equipment.
(x) All training, operations, personnel,
quality control and marketing manuals and/or systems, including those which are
computer based.
(xi) All rights of Sellers under any and
all express or implied warranties from Sellers' suppliers with respect to the
Assets, if and to the extent assignable.
b. EXCLUDED ASSETS. This sale does not include
any assets of Sellers other than those specifically described in SCHEDULE 1(A).
c. AMENDMENTS TO SCHEDULE 1(A). Sellers shall
have the right to amend and update SCHEDULE 1(A) through the Closing Date. No
such amendment to SCHEDULE 1(A) shall reduce the number of Stores and related
Leases that are the subject of this Agreement, nor shall any such amendment have
the effect of reducing by more than $2,500 the value of the Assets or of any
particular Store, or adversely affecting by more than $2,500 the potential
future operations of any particular Store.
2. PURCHASE PRICE.
a. CALCULATION; TIMING OF PAYMENT. The total
purchase price for the Assets payable by Purchaser shall be Four Hundred
Thousand Dollars ($400,000) (the "Purchase Price"). The Purchaser shall pay the
Purchase Price at the following times in the following manner and subject to the
following conditions:
(i) Fifty percent (50%) of the Purchase
Price, Two Hundred Thousand Dollars ($200,000), (the "Downpayment") shall be
paid by Purchaser to Sellers at Closing in cash by federal funds wire transfer
pursuant to written wire instructions provided by Sellers to Purchaser at least
three (3) business days prior to Closing.
(ii) The balance of the Purchase Price,
Two Hundred Thousand Dollars ($200,000) (the "Purchase Reserve") shall be paid
by Purchaser to Sellers on October 1, 1996, in cash by federal funds wire
transfer pursuant to written wire instructions provided by Sellers to Purchaser
on or before September 26, 1996.
3
<PAGE>
b. ALLOCATION OF PURCHASE PRICE. Sellers and
Purchaser shall allocate the Purchase Price among the Assets as set forth on
SCHEDULE 2(B) hereto, using the allocation method required by Section 1060 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder. Sellers and Purchaser each agree to report the federal, state and
local income and other tax consequences of the transactions contemplated herein,
and in particular to report the information required by Code Section 1060(b), in
a manner consistent with such allocation and will not take any position
inconsistent therewith.
c. TRANSITION PAYMENTS. Sellers and Purchaser
agree to make the payments described in Paragraph 11 below to each other as
provided for in Paragraph 11.
3. ASSUMPTION OF CERTAIN LIABILITIES.
a. NONASSUMED LIABILITIES. Except as
specifically provided in Paragraph 3(b) below, Purchaser shall not assume and
shall not acquire, take over, or be responsible for any liabilities or
obligations of the Sellers presently in existence, including, without
limitation, all liabilities and obligations relating to the Business, Lease
related commitments to contractors and landlords for Store build-outs, deferred
rents or any other ongoing non-lease related items (such liabilities or
obligations not assumed by Purchaser hereunder being herein referred to as the
"Nonassumed Liabilities") and Sellers shall indemnify, defend and hold harmless
Purchaser from all loss, cost, damage or expense related to the Nonassumed
Liabilities. The parties intend for Purchaser to acquire ownership of the Assets
free and clear of all claims, liens or encumbrances, except those claims, liens
or encumbrances which the Purchaser has agreed to assume or take subject to as
provided in Paragraph 3(b) below. The Sellers shall prior to Closing fulfill all
construction, consulting and similar commitments (other than the payment of rent
for periods after the month in which the Closing occurs) to landlords under the
Leases.
b. ASSUMED LIABILITIES. At Closing, Purchaser
shall, pursuant to the terms of an Assumption Agreement in the form and
substance of Exhibit A hereto, (i) assume and agree to perform the obligations
of the Sellers arising after the Closing Date under the Leases, (ii) assume and
agree to perform the obligations of Sellers arising after the Closing Date under
all personal property leases set forth on SCHEDULE 1(A)(II), (iii) satisfy all
costs arising after the Closing Date under service agreements set forth on
SCHEDULE 1(A)(II), (iv) assume and agree to perform the obligations of Sellers
under the Dark Lease and (v) assume and agree to perform the obligations of
Sellers under the Lease located at 3238 Wisconsin Avenue, N.W., Washington,
D.C., the Zebra Room, and the separate Consulting Agreement (the "Consulting
Agreement"), by and between Brothers Gourmet Coffees, Inc. and Zebra
4
<PAGE>
Corporation, dated as of September 13, 1994, as amended (collectively referred
to herein as the "Assumed Liabilities"), and shall indemnify, defend and hold
harmless Sellers from all loss, cost, damage or expense related to the Assumed
Liabilities, except as provided for in Paragraph 10 below.
4. OTHER AGREEMENTS.
a. EMPLOYEE MATTERS. Purchaser shall not
assume, acquire, take over or be responsible for any liabilities or obligations
of Sellers pursuant to any contract between Sellers and any of their employees.
After the date hereof, Purchaser may interview any or all of Sellers' employees
involved in the day-to- day operations of the Stores; provided, that, if the
transaction contemplated by this Agreement does not close as provided herein,
Purchaser shall not initiate contact with any of such employees for the purpose
of inducing such employee to leave the employ of the Sellers until the date that
is eighteen (18) months after the date hereof.
b. BULK TRANSFERS. Purchaser and Sellers agree
to waive the Uniform Commercial Code provisions relating to bulk transfers
("Bulk Sales Laws") with respect to the transactions contemplated by this
Agreement. Sellers shall indemnify and hold Purchaser, its directors, officers,
employees and agents harmless from and against all damages, costs and expenses
arising out of the noncompliance with the Bulk Sales Laws.
c. LICENSE TO USE NAME. Sellers shall permit
Purchaser to use the "Brothers" trade name and trademark for a period not to
exceed six (6) months following the Closing Date, in displays, signage and
postings and on cups, stationery, packaging materials, supplies or inventory,
and Purchaser shall discontinue any use thereof upon the expiration of such
six-month period. Purchaser acknowledges that the failure to discontinue the use
of the "Brothers" trade name and trademark at such time will cause irreparable
damage to Sellers and that Sellers will be entitled to seek all available
remedies at law and in equity against Purchaser.
d. BROTHERS KEEPER AND BROTHERS SLEEPER.
Purchaser shall have the royalty-free right and perpetual, worldwide license to
use the Brothers Keeper and Brothers Sleeper technology and equipment (as
described on SCHEDULE 4(D) hereto) in the Stores (the "License"); provided,
however, that Sellers shall retain any and all patent and other intellectual
property rights in such equipment other than the License and, except as provided
elsewhere herein, shall not be responsible following the Closing for (i) any
warranties with respect to such technology and equipment, except as provided in
this Agreement, (ii) any enhancements or modifications to such technology and
equipment following the Closing or (iii) providing to Purchaser any
5
<PAGE>
additional technology or equipment other than the technology and equipment in
Sellers' retail stores on the Closing Date as set forth on SCHEDULE 4(D) hereto.
e. ACCESS TO BOOKS AND RECORDS. Purchaser may,
prior to the Closing Date, through its representatives, review the properties,
books and records of Sellers as they relate to the Assets and the Stores to
inspect such Assets and Stores and familiarize itself with the Assets, the
Leases and other matters related to the Assets and the Stores. Sellers shall, at
Purchaser's expense, permit Purchaser and its representatives to have, from time
to time after the Closing Date, full access to the premises and to all the books
and records of Sellers related to the Assets and the Stores and to cause the
officers of Sellers to cooperate with and to furnish Purchaser with such
financial and operating data and other information with respect to the Financial
Statements (as defined in Paragraph 6(h) below), Assets and the Stores as
Purchaser shall from time to time reasonably request for the purpose of
conducting an audit or such other purposes related to the Business.
f. PRESERVATION OF GOODWILL. After the date
hereof and through the Closing Date, Sellers shall use reasonable efforts to
preserve for Purchaser the goodwill the Sellers have developed with their
suppliers, customers and other persons having business relations with the
Sellers with respect to the Stores.
g. NON-COMPETE. Except as set forth in
SCHEDULE 4(G), Sellers shall not own, operate, license or franchise any retail
locations in the United States that sell prepared coffee beverages and/or food
items (whole beans only and the existing locations and licensing agreements
listed in SCHEDULE 4(G) excepted) for a period of five (5) years from Closing.
Notwithstanding, Sellers may prepare or license the preparation and distribution
of coffee beverages with the Sellers' names and/or marks within the indoor
premises of its current and future wholesale customers whose principal business
is not the retail sale and/or preparation of coffee beans and/or prepared coffee
beverages nor the operation of a retail coffee establishment, provided that such
preparation and distribution is not towards the effort of creating a retail
presence so as to avoid the aforesaid restriction. However, Sellers shall not
sell to nor license a wholesale customer which purchases whole beans for the
purpose of obtaining the right to sell coffee beverages in order to avoid the
restriction contained herein.
h. CONFIDENTIALITY. Purchaser and Sellers
shall hold in strict confidence (i) all documents and information obtained from
the other Parties hereto, their employees, agents and/or independent
contractors, (ii) the nature and content of this Agreement and all discussions
between Purchaser and Sellers
6
<PAGE>
regarding the transactions contemplated herein, whether prior to or after the
execution of this Agreement and (iii) the fact that Sellers and Purchaser have
entered into this Agreement (all of the above shall collectively be referred to
herein as "Confidential Information"), and shall not disclose or convey any of
such Confidential Information to any other person, provided that Purchaser and
Sellers may disclose Confidential Information (x) to such of their affiliates,
shareholders, employees, attorneys, accountants and financial advisors as is
reasonable to facilitate consummation of the transactions contemplated by this
Agreement, (y) to the extent any such disclosure is required by law and (z) to
landlords and other third parties as necessary to facilitate obtaining such
parties' consent to the transfer of Assets hereunder.
i. SELLERS TO OPERATE IN ORDINARY COURSE OF
BUSINESS. During the period from the date of this Agreement to the Closing Date,
Sellers shall (i) carry on the Business and conduct their operations of the
Assets and the Stores only in the ordinary and usual course of business
consistent with past practices, (ii) use their best efforts to (A) preserve
intact the Assets and the Stores, (B) keep available the services of their
officers and employees and (C) preserve existing relationships with licensors,
suppliers, distributors, customers, landlords and others having business
relationships with Sellers with respect to the Business, (iii) not waive any
right of substantial value related to the Business, and (iv) communicate on a
regular and frequent basis with one or more designated representatives of
Purchaser to report material operational matters and to report the general
status of ongoing operations of the Business. Prior to the Closing Date and
except as may be first approved by the Purchaser or as is otherwise permitted or
required by this Agreement, Sellers shall refrain from entering into or amending
or terminating any material contract or commitment with respect to the Business,
except in the ordinary course of business.
j. CERTAIN DEFAULTS. Sellers will give prompt
notice to Purchaser of:
(i) any notice of default received
subsequent to the date of this Agreement and prior to the Closing Date under any
lease, instrument or agreement to which it is a party or by which it is bound,
which default would, if not remedied, result in a material adverse effect on the
Business, Assets or operation of any particular Store or which would render
materially incomplete or untrue any representation made herein; and
(ii) any suit, action or proceeding
instituted or, to the knowledge of Sellers, threatened against or affecting
Sellers, the Business or the Assets subsequent to the date of this Agreement and
prior to the Closing Date which, if adversely
7
<PAGE>
determined, would result in a material adverse effect on the Business, Assets or
operation of any particular Store or which would render materially incorrect any
representation made herein.
k. ADDITIONAL ACTIONS. (i) Subject to the
terms and conditions of this Agreement, the parties hereto agree to use all
reasonable efforts to take, or cause to be taken, all reasonable action and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as reasonably
practicable. Such obligation shall include without limitation such efforts of
each of the parties, prior to the Closing Date, to obtain, to be effective
either at the Closing Date or as soon as practicable thereafter, any required
consents with respect to, or novations of, any contracts, agreements, plans,
leases, instruments, licenses, arrangements or commitments of Sellers in effect
prior to the Closing Date. In case at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest Purchaser with full title to all properties, assets,
rights, approvals, immunities and franchises of Sellers, the proper officers,
directors or employees of each party to this Agreement shall take all such
necessary action.
(ii) Sellers shall use their reasonable
best efforts to obtain consents from the landlords of the Stores, in which the
landlords approve the assignment of the Stores from the Sellers to the Purchaser
(the "Lease Assignments"). The Lease Assignments shall be in the form and
substance of EXHIBIT D hereto.
5. CONDITIONS TO CLOSING, CLOSING AND DELIVERIES AT
CLOSING.
a. CONDITIONS TO PURCHASER'S OBLIGATIONS.
Subject to the terms of Paragraph 5(c) below, the obligation of Purchaser to
consummate the transactions contemplated hereunder is expressly contingent upon
the satisfaction, or written waiver by Purchaser in its sole discretion, of the
following conditions precedent:
(i) Purchaser shall have received duly
executed originals of the following documents: (A) the opinion of Sellers'
counsel, Ballard Spahr Andrews & Ingersoll, dated as of the Closing Date, in the
form and substance of EXHIBIT B hereto, and (B) Bills of Sale for the Assets in
the form and substance of EXHIBIT C hereto.
(ii) Sellers shall have performed in all
material respects the obligations required under this Agreement to be performed
by them at or prior to the Closing, and Sellers shall
8
<PAGE>
have provided Purchaser an Officer's Certificate to such effect at Closing.
(iii) The representations and warranties
of the Sellers contained herein shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of such time, except
to the extent that a different time is specifically stated in such
representations and warranties, and Sellers shall have provided to Purchaser an
Officer's Certificate to such effect at Closing.
(iv) No temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated by this Agreement shall have been
issued by any federal, state or foreign court or other governmental or
regulatory authority and remain in effect, and no litigation seeking the
issuance of such an order or injunction, or seeking substantial damages against
Purchaser or Sellers if the transactions contemplated by this Agreement are
consummated, shall be pending which, in the good faith judgment of Sellers and
Purchaser, has a reasonable probability of resulting in such order, injunction
or substantial damages. In the event any such order or injunction shall have
been issued, each party agrees to use its reasonable efforts to have any such
injunction lifted.
(v) No federal, state, local or foreign
statute, rule or regulation shall have been enacted which would make the
consummation of the transactions contemplated by this Agreement illegal.
(vi) Since the date hereof, there shall
not have been instituted and be continuing or threatened against any Seller, any
claim, action or proceeding related to the Business or the Assets, which if
determined adversely to such Seller could reasonably result in a material
adverse effect on the Business, the Assets or the operation of any particular
Store.
(vii) No material adverse change shall
have occurred related to the Business or the Assets or the operation of any
particular Store.
(viii) Except for Lease Assignments not
obtained from landlords on or before the Closing Date, any and all other
consents, assignments and releases required from third parties relating to
contracts, licenses and other agreements and instruments that are part of the
Assets shall have been obtained in form and substance satisfactory to Purchaser.
(ix) Sellers shall have delivered a final
version of SCHEDULE 1(A) which shall set forth the Assets to be transferred
pursuant to this Agreement and such final version of SCHEDULE 1(A)
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shall not differ from the version of SCHEDULE 1(A) delivered on the date hereof
if such difference results in a reduction in the value of the Assets being
transferred hereunder by more than $2,500 or adversely affects the potential
future operations of any Store by more than $2,500.
(x) Sellers shall have provided to
Purchaser a duly executed Officer's Certificate certifying that the conditions
set forth in Paragraphs 5(a)(iv), (v), (vi), (vii), (viii) and (ix) have been
satisfied.
b. CONDITIONS TO SELLERS' OBLIGATIONS. Subject
to the terms of Paragraph 5(c) below, the obligations of Sellers to consummate
the transactions contemplated hereunder are expressly contingent upon the
satisfaction, or written waiver by Sellers in their sole discretion, of the
following conditions precedent:
(i) Sellers shall have received duly
executed originals of the Assumption Agreement in the form and substance of
EXHIBIT A hereto.
(ii) Purchaser shall have performed in
all material respects its obligations required under this Agreement to be
performed by it at or prior to the Closing, and Purchaser shall have provided to
Sellers an Officer's Certificate to such effect at Closing.
(iii) The representations and warranties
of Purchaser contained herein shall be true and correct in all material respects
at and as of the Closing Date as if made at and as of such time, except to the
extent that a different time is specifically stated in such representations and
warranties, and Purchaser shall have provided to Sellers an Officer's
Certificate to such effect at Closing.
c. LOCATION OF CLOSING AND CLOSING DATE.
Unless otherwise agreed to by the Parties, the consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place on March 27,
1996, or such later date as is agreed to by the Parties in writing (the "Closing
Date"), (i) at the offices of Ballard Spahr Andrews & Ingersoll, 1225 17th
Street, Suite 2300, Denver, Colorado 80202, or (ii) such other place as agreed
to by the parties or (iii) with the consent of the parties by exchange of
telecopied signature pages, with original manually executed signature pages to
follow by Federal Express delivery to each of the parties promptly after the
Closing.
d. DELIVERIES AT CLOSING.
(i) Sellers shall execute and deliver or
cause to be executed and delivered, as the case may be, to Purchaser at
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Closing the following, each of which must be reasonably satisfactory in form and
substance to Purchaser, (A) the Bills of Sale for the Assets, (B) the opinion of
Sellers' counsel, dated as of the Closing Date, (C) the Officer's Certificate
described in Paragraphs 5(a)(ii) and (iii) above, (D) the Officer's Certificate
described in Paragraph 5(a)(x) above, (E) certified copies of resolutions of the
Board of Directors of each Seller approving the execution and delivery of this
Agreement and consummation of all of the transactions contemplated hereby, duly
certified by an officer of each Seller and (F) all other documents or
certificates required to be delivered to Purchaser under the provisions of this
Agreement.
(ii) Purchaser shall execute and deliver,
or cause to be executed and delivered, as the case may be, to Sellers at Closing
the following, each of which must be reasonably satisfactory in form and
substance to Sellers and their legal counsel (A) the Assumption Agreement, (B)
the Officer's Certificate described in Paragraphs 5(b)(ii) and (iii) above, (C)
a certified copy of resolutions of the Board of Directors of Purchaser approving
the execution and delivery of this Agreement and consummation of all of the
transactions contemplated hereby, duly certified by an officer of Purchaser and
(D) all other documents or certificates required to be delivered to Sellers
under the provisions of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Brothers, jointly and severally, and Bars and Retail,
severally, make the following representations and warranties to Purchaser, with
the knowledge that all such representations and warranties made by Sellers
shall, subject to Paragraph 9(a) below, survive execution of this Agreement, and
with the full knowledge that Purchaser is entering into and consummating this
Agreement in full reliance thereon.
a. DUE INCORPORATION AND AUTHORIZATION. Each
of the Sellers (i) has been duly incorporated, is validly existing and is in
good standing under the laws of the State of Delaware, (ii) is in good standing
in every jurisdiction in which the nature of the business conducted by it or the
character of the properties owned or leased by it makes such qualification
necessary, except where the failure to be in good standing does not have a
material adverse effect on the operation of any particular Store or on each
Seller's Business taken as a whole, and (iii) has the full power and authority
to enter into this Agreement and the documents referenced herein and to
consummate the transactions contemplated herein and otherwise to perform its
obligations hereunder. This Agreement has been duly authorized and executed by
each of the Sellers and constitutes the legal, valid and binding obligation of
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each of the Sellers, enforceable against each Seller in accordance with its
terms.
b. VIOLATION. The execution and delivery of
this Agreement by each of the Sellers, the assignment of the Leases and the
consummation of the sale of the Assets contemplated hereby do not and will not
(i) violate any provision of the Certificate of Incorporation or by-laws of any
of the Sellers, (ii) violate any material court or administrative order,
process, judgment or decree to which any of the Sellers is a party or by which
any of them (or any of their respective properties or assets) is bound or (iii)
except as disclosed on SCHEDULE 6(B), violate any provision of, or result in the
acceleration of or entitle any party to accelerate (whether after notice or
lapse of time or both) any obligation under, or result in the creation or
imposition of any material lien, charge, pledge, security interest or other
encumbrance upon the property of any of the Sellers pursuant to any provision
of, any mortgage, lien, lease, agreement, license, or instrument to which any of
the Sellers is a party.
c. CONSENTS. Except as disclosed on SCHEDULE
6(C) hereto, no consent or approval by or of, or any notification or filing
with, any person (governmental or private) is required in connection with the
execution, delivery and performance by Sellers of this Agreement or the
consummation of the transactions contemplated hereby.
d. SCHEDULE OF ASSETS. SCHEDULE 1(A) is true,
complete and correct in all material respects. All of the Assets are in
satisfactory condition and repair for the requirements of the Business as now
being conducted ordinary wear and tear excepted. There are no proceedings
affecting any of the Assets pending or, to the knowledge of Sellers, threatened
which may reasonably be expected to adversely curtail the use of the Assets for
the purpose for which they were acquired or the purpose for which they are now
used. Sellers are in possession of all Assets leased to them by others.
e. ENCUMBRANCES. Except as disclosed on
SCHEDULE 6(E) hereto, at Closing, each Seller shall have good and marketable
title to (or a valid leasehold or contractual interest in) its Assets, free and
clear of any and all liens, claims, encumbrances, debts or other adverse claims
or rights of any kind.
f. MISSTATEMENTS AND OMISSIONS. No
representation or warranty by Sellers in this Agreement and/or any Exhibit,
addendum or attachment hereto contains any untrue statement of a material fact,
or omits any material fact necessary to make the statements contained therein
not misleading.
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g. LITIGATION. Except as disclosed on
SCHEDULE 6(G), there is no action, suit or proceeding pending or, to Sellers'
knowledge, contemplated in or before any licensing, taxing or other governmental
body or any court of law or arbitrator which could result in the avoidance of
any term or condition hereunder, or create any liability on the part of
Purchaser for the actions or operations of the Assets or Stores either on or
before or following the Closing Date, or which challenges the right or ability
of Sellers to enter into this Agreement and perform their obligations hereunder,
or which relates in any manner to the Assets or the Business. Except as
disclosed on SCHEDULE 6(G), to the knowledge of Sellers, there is no reasonable
basis for a claim, action or proceeding against or relating to Sellers, the
Assets or the Business which, if adversely determined, could, individually or in
the aggregate, reasonably be expected to result in a material adverse effect on
the Business, Assets or the operation of any particular Store. There is not in
existence any order, judgment or decree of any court or other tribunal or other
agency enjoining or requiring Sellers to take any action of any kind with
respect to the Business or the Assets.
h. FINANCIAL INFORMATION. Sellers have
previously delivered to Purchaser the financial information set forth on
SCHEDULE 6(H) hereto with respect to the Assets and the Stores (the "Financial
Statements"). The Financial Statements are true, correct and complete and have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as
otherwise noted therein and subject (in the case of interim financial statements
referred to above) to year-end audit adjustments.
i. ORDINARY COURSE OF BUSINESS. Except as set
forth in SCHEDULE 6(I) hereto, since January 1, 1995, (i) each Seller has
operated its Assets and its Stores in the ordinary course, consistent with past
practice, (ii) there has not been any change in the operations or condition,
financial or otherwise, of the Business, including the Assets and the Stores,
other than changes, none of which, individually or in the aggregate, has been
materially adverse to each Seller's Assets or the operation of any particular
Store, and (iii) there has not been any material Asset sold or disposed of
(except inventory sold in the ordinary course of business), any material Asset
mortgaged, pledged or subjected to any lien, charge or other encumbrance.
j. COMPLIANCE WITH LAWS.
(i) Except as disclosed on SCHEDULE 6(J),
each Seller has complied and the Business has been operated in compliance with
all applicable federal, state and local laws and regulations, including, without
limitation, Environmental Laws and the Americans with Disabilities Act of 1990,
and all applicable
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foreign laws and regulations relating to the operation of the Business, its
Assets and its Stores, except where failure to comply with such laws and
regulations would not have a material adverse effect on the Business or each
Seller's operation of its Assets and its Stores, taken as a whole, or a material
adverse effect as to the continued operation of any particular Store by
Purchaser from and after the Closing Date. For purposes of this Agreement, the
term "Environmental Laws" shall mean any federal, state or local statute,
ordinance, rule, regulation, order, consent decree, judgment or common-law
doctrine, and provisions and conditions of permits, licenses and other operating
authorizations relating to (i) pollution or protection of the environment, (ii)
exposure of persons, including employees, to toxic or hazardous substances or
other products, raw materials, chemicals or other substances, (iii) protection
of the public health or welfare from the effects of by- products, wastes,
emissions, discharges or releases of chemical substances from industrial or
commercial activities or (iv) regulation of the manufacture, use or introduction
into commerce of chemical substances, including, without limitation, their
manufacture, formulation, labeling, distribution, transportation, handling,
storage and disposal.
(ii) Each Seller, its employees or agents
have not caused or, to such Seller's knowledge, allowed the generation,
treatment, storage, release or disposal of hazardous substances except in
compliance with all Environmental Laws. Each Seller, its employees or agents
have not received any written notice or, to the knowledge of such Seller, any
other communication, from any governmental authority alleging or concerning any
violation by such Seller of, or responsibility or liability of such Seller
under, any Environmental Law. There are no pending, or to the knowledge of each
Seller, threatened, claims, suits, proceedings or investigations with respect to
the Business or the Assets alleging or concerning any violation of or
responsibility or liability under any Environmental Law, nor does any Seller
have any knowledge of any fact or condition which might reasonably be expected
to give rise to such a claim, suit, proceeding or investigation. Each Seller is
in possession of all material approvals, permits and licenses from all
governmental authorities under statutes and regulations relating to the
environment and to workplace health and safety with respect to the operation of
the Business; there are no pending or, to the knowledge of each Seller,
threatened, actions, proceedings or investigations seeking to revoke or deny
renewal of any of such approvals, permits and licenses; and each Seller has no
knowledge of any fact or condition which would reasonably be expected to give
rise to any action, proceeding or investigation to revoke or deny renewal of
such approvals, permits or licenses.
k. INVENTORIES. All of the inventories
included in the Financial Statements are usable and salable in the ordinary
course of business, except for items of obsolete materials and
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materials of below-standard quality, all of which have been written off or
written down to fair market value on the Financial Statements and in accordance
with generally accepted accounting principles and except for such lack of
usability and salability as would not have a material adverse affect on the
value of the inventory. No inventory has been pledged as collateral.
l. PERMITS AND LICENSES. Except as disclosed
on SCHEDULE 6(L), each Seller has all permits, governmental licenses,
registrations and approvals (collectively, "Approvals") necessary to carry on
the Business as operated at its Stores (as presently conducted) as required by
law or the rules and regulations of any federal, state, county or local
association, corporation or governmental agency, body, instrumentality or
commission having jurisdiction over them, except where the failure to have any
such Approvals would not have a material adverse affect on each Seller's
operation of its Stores, taken as a whole, or a material adverse effect as to
the continued operation of any particular Store by Purchaser from and after the
Closing Date.
m. MATERIAL CONTRACTS. SCHEDULE 6(M) hereto
sets forth a list of all material contracts and agreements, whether oral or
written, to which each of the Sellers is a party with respect to the Business.
With respect to such contracts, except as set forth in SCHEDULE 6(M), Sellers
(with respect to the contracts to which each is a party) are not in breach
thereof or default thereunder and, to the best knowledge of Sellers, there does
not exist under any such contract any event which, with the giving of notice or
the lapse of time, would constitute such a breach or default, except for such
breaches, defaults and events as to which requisite waivers or consents have
been obtained or as to which do not or would not have a material adverse affect
on the Business or the operation of any particular Store.
n. LABOR MATTERS. SCHEDULE 6(N) hereto sets
forth all labor union and collective bargaining agreements and all employment or
consulting contracts to which any Seller is a party and which are related to the
Business.
o. TAXES. Each Seller has paid or accrued for
all applicable income, social security, withholding, sales, unemployment
insurance, and other taxes of any kind relating to the Business due through the
Closing Date, and each Seller has properly filed all required tax returns and
applicable regulatory filings as provided by law which are due to be filed as of
the Closing Date and shall file on a timely basis all such returns and filings,
and shall make all related payments, required to be filed or made by such Seller
with respect to the Assets and the Stores following the Closing Date. All such
filings were true, correct and complete when made.
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p. OTHER TRANSACTIONS. Sellers, individually
and in the aggregate, have not entered into any unterminated contract to sell
(other than this Agreement) the Assets or the Stores, or any portion thereof.
q. LEASES AND REAL PROPERTY. Except as
disclosed on SCHEDULE 6(Q), the Leases are in full force and effect as written
and the Sellers are in full compliance therewith. SCHEDULE 6(Q) lists each lease
of real property related to the Business (including, without limitation, the
Leases) under which any Seller is a lessee, lessor, sublessee or sublessor, as
so designated therein. All leases, easements and other real property interests
held by each Seller are valid and subsisting and, except as disclosed on
SCHEDULE 6(Q), each Seller is not in default thereunder. No Seller owns any real
property used in the Business.
r. ABSENCE OF UNDISCLOSED LIABILITIES. Except
as disclosed in the Financial Statements, no Seller has any material liabilities
or obligations (contingent or otherwise) relating to the Business or the Assets.
s. FULL DISCLOSURE. All instruments,
agreements and other documents delivered or to be delivered, or made available,
to Purchaser pursuant to this Agreement are complete and correct in all material
respects. No representation or warranty made by Sellers in this Paragraph 6 or
the Schedules to this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact required to be
stated herein or therein necessary to make the statements on behalf of Sellers
in this Paragraph 6 and the Schedules to this Agreement, in light of the
circumstances in which they are made, not misleading.
7. EXCLUSION OF WARRANTIES.
a. NO WARRANTIES. Provided that nothing in
this Paragraph 7(a) shall be deemed to limit the effect of the other covenants,
representations and warranties made by Sellers in Paragraph 6, Paragraph 7(b) or
elsewhere herein, the Parties agree that all FF&E shall be in good operating
condition on the Closing Date, and are otherwise sold pursuant to this Agreement
"AS IS".
EXCEPT AS TO THE OPERATING CONDITION ON THE DAY OF CLOSING,
THERE ARE NO WARRANTIES WITH RESPECT TO THE FF&E WHICH EXTEND BEYOND THE
DESCRIPTION UPON THE FACE HEREOF. EXCEPT AS PROVIDED ELSEWHERE IN THIS
AGREEMENT, SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, THOSE WITH RESPECT TO THE CONDITION OF
THE ASSETS, THEIR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WITH
RESPECT TO PATENT INFRINGEMENT OR THE LIKE.
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Except as provided in this Agreement, Sellers shall
have no liability to Purchaser for any claim, loss or damage as a result of (i)
any non-operating deficiency or defect in the FF&E, (ii) the use or performance
of the FF&E or (iii) any interruption or loss of service or of use of the FF&E.
b. LIMITED WARRANTY. The Sellers hereby
warrant that all Assets, including, without limitation, all FF&E and buildouts
in the Stores, are in good operating condition as of the Closing Date, and
Purchaser shall have a period of six (6) months from the Closing Date to notify
Seller of any nonconforming Assets pursuant to this warranty. In the event that
Purchaser determines and establishes that any of such Assets were not in good
operating condition as of the Closing Date, Sellers shall reimburse Purchaser
within five (5) business days of Sellers' receipt of the reimbursement request
for any of Purchaser's reasonable costs related to repairing or replacing such
defective items. Sellers shall not be obligated to reimburse Purchaser for any
repairs and/or replacements of such items if such repair and/or replacement
shall cost less than one hundred dollars ($100) per item, except that the
Sellers shall reimburse Purchaser for any such repairs and/or replacements which
aggregate in excess of five hundred dollars ($500) in any one Store. All
equipment and construction warranties applicable to the Assets shall, to the
extent assignable, be assigned by the Sellers at Closing to Purchaser.
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser makes the following representations and
warranties to Sellers, with the knowledge that all such representations and
warranties made by Purchaser shall, subject to Paragraph 9(a) below, survive
execution of this Agreement, and with full knowledge that Sellers are entering
into and consummating this Agreement in full reliance thereon.
a. DUE INCORPORATION AND AUTHORIZATION.
Purchaser (i) has been duly incorporated, is validly existing and is in good
standing under the laws of the State of Delaware, (ii) is in good standing in
every jurisdiction in which the nature of the business conducted by it or the
character of the properties owned or leased by it makes such qualification
necessary, except where the failure to be in good standing does not have a
material adverse effect on Purchaser's business taken as a whole, and (iii) has
the full power and authority to enter into this Agreement and to consummate the
transactions contemplated herein and otherwise to perform its obligations
hereunder. This Agreement has been duly authorized and executed by the Purchaser
and constitutes the legal, valid and binding obligation of Purchaser enforceable
against it in accordance with its terms.
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b. VIOLATION. The execution and delivery of
this Agreement by the Purchaser, the acceptance of the valid assignment of the
Leases, the consummation of the purchase of the Assets and the assumption of the
Assumed Liabilities contemplated hereby will not (i) violate any provision of
the articles of incorporation or by-laws of the Purchaser or (ii) violate any
material court or administrative order, process, judgment or decree to which
either Purchaser is a party or by which Purchaser is bound.
c. CONSENTS. No consent or approval by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by Purchaser of this
Agreement or the consummation of the transactions contemplated hereby, other
than those consents which have been obtained.
d. MISSTATEMENTS AND OMISSIONS. No
representation or warranty of Purchaser in this Agreement and/or any Exhibit,
addendum or attachment hereto, contains any untrue statement of a material fact,
or omits any material fact necessary to make the statements contained therein
not misleading.
e. LITIGATION. Purchaser is not aware of any
action, suit or proceeding pending or contemplated in or before any licensing,
taxing or other governmental body or any court of law which could result in the
avoidance of any term or condition hereunder or which challenges the right or
ability of Purchaser to enter into this Agreement and perform its obligations
hereunder.
f. FINANCING. There is no financing
contingency which may prohibit or delay Purchaser's ability to close the
transactions contemplated hereby.
9. INDEMNIFICATION.
a. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Regardless of any investigations of any Party made prior to the Closing, all
representations and warranties made by Sellers and Purchaser herein shall
survive the Closing hereunder for a period of one (1) year following the Closing
Date, and any claim with respect to the inaccuracy of any such representation or
warranty must be made during such one-year period; provided, however, that the
representations and warranties contained in Paragraphs 6(d), 6(e), 6(j) and 6(o)
hereof shall survive the closing until expiration of applicable statutes of
limitation.
b. AGREEMENT TO INDEMNIFY.
(i) Subject to the limitations set forth
in this Paragraph 9, from and after the Closing, Brothers, jointly and
severally, and Bars and Retail, severally, agree to indemnify,
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defend and hold Purchaser and its directors, officers, employees and agents
harmless from and against any and all demands, claims, losses, damages, costs
and expenses of any kind, including without limitation interest, costs,
penalties and reasonable attorneys' fees (collectively, "Damages"), asserted
against, resulting from, imposed upon or incurred or suffered by Purchaser and
its directors, officers, employees and agents as a result of or arising from (A)
the Nonassumed Liabilities, (B) the Assumed Liabilities on or prior to the
Closing Date and (C) any inaccuracy in or breach or nonfulfillment in any
material respect of any representation, warranty, covenant or agreement of
Sellers contained in this Agreement.
(ii) Subject to the limitations set forth
in this Paragraph 9, Purchaser agrees to indemnify, defend and hold Sellers
harmless from and against any and all Damages, asserted against, resulting from,
imposed upon or incurred or suffered by Sellers as a result of or arising from
(A) the Assumed Liabilities after the Closing Date and (B) any inaccuracy in or
breach or nonfulfillment in any material respect of any representation,
warranty, covenant or agreement of Purchaser contained in this Agreement.
(iii) For purposes of this Paragraph 9,
all Damages shall be computed net of (A) any insurance proceeds actually
received by the indemnified party with respect thereto and (B) any amounts
recovered from any third parties based on claims the indemnified party has
against such third parties which reduce the Damages that would otherwise be
sustained. Each indemnified party agrees to use reasonable efforts to pursue any
claims or rights it may have against any third party, or otherwise cooperate
with the indemnifying party, so as to reduce the amount of Damages otherwise
incurred by such indemnified party.
c. PROCEDURE FOR INDEMNIFICATION.
(i) In the event that any indemnified
party receives written notice of the commencement of any action or proceeding,
the assertion of any claim by a third party or the imposition of any penalty or
assessment for which indemnity may be sought pursuant to this Paragraph 9 (a
"Third Party Claim"), and such indemnified party intends to seek indemnity
pursuant to this Paragraph 9, such indemnified party shall promptly provide the
indemnifying party with written notice of such Third Party Claim (provided that
failure to provide such notice shall not effect the indemnified party's right to
indemnity hereunder), and such indemnifying party shall, upon receipt of such
notice, be entitled to participate in or, at the indemnifying party's option,
assume the defense, appeal or settlement of such Third Party Claim with respect
to which such indemnity has been invoked with counsel of its choosing, subject
to the consent of the indemnified party, which consent shall not be unreasonably
withheld, and such
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indemnified party shall fully cooperate with the indemnifying party in
connection therewith; PROVIDED that such indemnified party shall be entitled to
employ counsel to represent such indemnified party if, in such indemnified
party's reasonable judgment, a conflict of interest between the indemnifying
party and the indemnified party exists in respect of such Third Party Claim and
in that event the fees and expenses of such separate counsel after the date on
which the indemnifying party assumes the defense shall be paid by the
indemnified party. In the event that the indemnifying party fails to assume the
defense, appeal or settlement of such Third Party Claim within twenty (20) days
after receipt of written notice thereof from such indemnified party, such
indemnified party shall have the right to undertake the defense or appeal of or
settle or compromise such Third Party Claim on behalf of, at the expense of, and
for the account and risk of the indemnifying party. The indemnifying party shall
not settle or compromise any Third Party Claim without such indemnified party's
prior written consent, which shall not be unreasonably withheld, unless the
terms of such settlement or compromise release such indemnified party from any
and all liability with respect to such Third Party Claim.
(ii) Any indemnifiable claim that is not
a Third Party Claim shall be asserted by the party entitled to indemnification
hereunder by written notice to the indemnifying party in compliance with the
terms of this Agreement. If the indemnifying party does not respond to such
notice within sixty (60) days, it shall have no further right to contest the
validity of such claim.
d. LIMITATIONS ON INDEMNIFICATION. Sellers
shall not be liable for Damages under Paragraph 9(b)(i), and Purchaser shall not
be liable for Damages under Paragraph 9(b)(ii), unless the aggregate amount of
Damages for which Sellers or Purchaser, as the case may be, would, but for the
provisions of this Paragraph 9(d), be liable exceeds, on an aggregate basis,
$10,000 and then only to the extent of any such excess; provided, that such
limitation shall not be applicable to Seller's limited warranty, set forth in
Paragraph 7(b). The aggregate liability of Sellers, on the one hand, and
Purchaser, on the other hand, under this Paragraph 9 shall in no event exceed
the Purchase Price.
e. REMEDIES EXCLUSIVE. The remedies provided
in this Paragraph 9 shall be exclusive and shall preclude assertion by an
indemnified party of any other rights or the seeking of any and all other
remedies against an indemnifying party for claims based on this Agreement.
f. PAYMENTS. Payments of all amounts owing by
any indemnifying party pursuant to this Paragraph 9 relating to a Third Party
Claim shall be made within fifteen (15) days after the latest of (i) the
settlement of such Third Party Claim, (ii) the
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expiration of the period for appeal of a final adjudication of such Third Party
Claim or (iii) the expiration of the period for appeal of a final adjudication
of the indemnifying party's liability to the indemnified party under this
Agreement. Payments of all amounts owing by any indemnifying party other than
for a Third Party Claim shall be made within fifteen (15) days after the later
of (i) the expiration of the 60-day indemnity notice period set forth in
Paragraph 9(c)(ii) or (ii) the expiration of the period for appeal of a final
adjudication of the indemnifying party's liability to the indemnified party
under this Agreement.
10. TRANSFER; RISK OF LOSS.
a. TRANSFER OF ASSETS AND ASSUMPTION OF ASSUMED
LIABILITIES. Purchaser shall take over and assume management and operational
control of the Stores, shall acquire legal and beneficial ownership of the
Assets related to such Stores, and shall assume, acquire, take over and become
responsible for the Assumed Liabilities related thereto as of the end of the day
on the Closing Date.
b. RISK OF LOSS. Sellers shall retain all risk
of destruction, loss or damage due to fire or other casualty with respect to
each Store and its related Assets through the Closing Date.
11. CERTAIN TRANSITION PROVISIONS.
a. TAXES AND RENTS. Taxes, rents and all other
charges due under the Leases shall be paid by Sellers through the last day of
the month in which the Closing occurs, without reimbursement by Purchaser. All
utility and telephone services to the Stores premises shall be discontinued in
Sellers' names within a reasonable period following the Closing and Sellers
shall no longer be responsible for payment of the related charges effective, in
each case, on and as of the close of business on the last day of the month in
which the Closing occurs.
b. PRE-CLOSING CREDITS. Purchaser shall
reimburse Sellers within ten (10) business days of receipt of any retroactive
credits or other amounts (excluding security deposits) which all or partially
relate to any period prior to Closing (for example, a real estate tax credit
arising after the Closing that relates to the period nine (9) months before and
three (3) months after Closing will be reimbursed by Purchaser to Sellers to the
extent of seventy-five percent (75%) of such credit received by Purchaser).
c. POST-CLOSING CHARGES. Sellers shall
reimburse Purchaser within ten (10) business days after receiving written notice
from Purchaser of any charges which all or partially relate to any period prior
to Closing and which are not Assumed
21
<PAGE>
Liabilities (for example, a real estate tax charge received from a landlord
after the Closing that relates to the period nine (9) months before and three
(3) months after Closing will be reimbursed by Sellers to the extent of
seventy-five percent (75%) of the bill).
d. SUPPLY AGREEMENT. Commencing on the Closing
Date and continuing for a period of six (6) months thereafter, Sellers hereby
agree to supply to the Purchaser and the Stores whole coffee beans on
substantially the same terms and conditions (i.e., quantity of beans, quality of
beans, type of beans and delivery terms) as Sellers provided such whole coffee
beans to the Stores immediately prior to the Closing; PROVIDED, HOWEVER, that
the price of such whole coffee beans to the Purchaser and/or the Stores shall be
Sellers' cost for such beans plus ten percent (10%) (F.O.B. the Sellers'
shipping dock or any third party coffee supplier's shipping dock, as the case
may be), or if less, such lower cost for such beans as is offered by Brothers to
its other coffee bar stores. Sellers shall not be responsible or liable to the
Purchaser and/or the Stores for any damages suffered by the Purchaser and/or the
Stores for late delivery or non-delivery of such beans if such damages are
attributable solely to the actions or inactions of third parties unrelated to
the Sellers.
e. PERSONNEL SUPPORT. For a period of up to
two (2) months following the Closing, Sellers shall make the administrative
personnel listed on Schedule 11(e) available to Purchaser during normal business
hours upon reasonable notice, at Purchaser's option and at Purchaser's sole cost
and expense, for not in excess of an aggregate of five (5) hours per week, to
answer questions and otherwise assist in the transition.
12. TAXES AND EXPENSES. All sales, transfer, use and similar
taxes and recording and similar fees incurred in connection with the sale,
conveyance or transfer of the Assets to Purchaser, to the extent required by the
respective governmental authorities, shall be paid in full by Sellers. Sellers
shall also be responsible for any and all fees charged by the landlords in their
review and/or processing of the Leases and the Lease Assignments.
13. PUBLIC ANNOUNCEMENTS. Sellers and Purchaser shall consult
with each other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to such consultation, except to the extent required by law.
22
<PAGE>
14. MISCELLANEOUS.
a. WAIVER. Failure of a Party to insist upon
the strict performance of any covenant, term, condition, warranty, guarantee or
indemnification of this Agreement or to exercise any right or remedy accruing
therefrom, shall not constitute a waiver by such Party of any unremedied breach
or the performance of any such covenant, term, condition, warranty, guarantee or
indemnification. A waiver shall be effective only upon a written instrument
executed by all of the Parties. Any waiver of any breach shall not affect or
alter this Agreement, but rather each and every covenant, term, condition,
warranty, guarantee and indemnification shall continue in full force and effect
with respect to any other then existing or subsequent breach thereof.
b. EXPENSES AND ABSENCE OF COMMISSIONS.
Purchaser and Sellers each agree to bear their own legal, accounting, and other
expenses in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby. Purchaser and Sellers also
acknowledge and warrant to each other that none of them has incurred any
liability for commissions, finder's fees, or similar claims in connection with
this transaction, except that Sellers shall be responsible for and hereby
indemnify Purchaser against all of the fees of Donaldson, Lufkin & Jenrette in
connection herewith.
c. NOTICES. All notices, demands, or other
communications given under this Agreement shall be in writing, and shall be
effective either when hand-delivered, or one (1) day after sent by Federal
Express or such comparable overnight delivery service, or three (3) days after
mailed postage prepaid, certified or registered mail, return receipt requested,
(i) to Purchaser at Foster Brothers Corporation, Attention: Kent Foster, 5550
Friendship Boulevard, Suite 260, Chevy Chase, Maryland, 20815, Telephone No.
(301) 656-9800 and Telecopy No. (301) 656-9801; (ii) to Guarantor at Mr. Kent
Foster, c/o Global Communications Systems Incorporated, 5550 Friendship
Boulevard, Suite 260, Chevy Chase, Maryland, 20815, Telephone No. (301) 656-5858
and Telecopy No. (301) 656-3718; and (iii) to the Sellers at 2255 Glades Road,
Suite 100E, Boca Raton, Florida 33431, Attention: Donald D. Breen, President and
Chief Executive Officer, Telephone No. (407) 995-2638 and Telecopy No. (407)
241-6690, with a copy to John L. Ruppert, Esq., Ballard Spahr Andrews &
Ingersoll, 1225 17th Street, Suite 2300, Denver, Colorado 80202, Telephone No.
(303) 299-7313 and Telecopy No. (303) 296-3956.
d. ASSIGNABILITY AND BENEFIT. All of the terms
of this Agreement shall be binding upon and inure to the benefit of, and be
enforceable by, the respective legal representatives, and the successors and
permitted assigns of the Sellers, Purchaser and Guarantor. Notwithstanding the
above, this Agreement shall not be
23
<PAGE>
assignable by any Party without the prior written consent of all of the other
Parties, which consent may be withheld by a Party in its sole discretion;
provided, however, that Sellers may assign their rights, but not their
obligations, under this Agreement to the principal lender under Brothers'
revolving credit or term loan facility and; provided that a reincorporation by
any party shall not be deemed an assignment.
e. CONSTRUCTION. This Agreement is being
delivered in the State of Colorado, and shall be construed and enforced in
accordance with the laws of such jurisdiction. Captions used in this Agreement
are for convenience of reference only, do not constitute a part of this
Agreement and will not be deemed to limit, characterize or any way affect any
provision of this Agreement. All provisions of this Agreement will be enforced
and construed as if no caption had been used in this Agreement.
f. ENTIRE AGREEMENT. This Agreement, together
with all Schedules and Exhibits hereto which are incorporated herein by this
reference, contains all of the agreements and understandings between the parties
hereto, and no oral agreements or written correspondence shall be held to affect
the provisions hereof. All subsequent changes and modifications to be valid
shall be by written instrument executed by each of the Sellers and Purchaser. If
for any reason any provision of this Agreement should be declared void, illegal
or invalid, such declaration shall not affect the validity of the remainder of
this Agreement, which shall continue in force as if executed with the void,
illegal or invalid provision eliminated. The Parties agree to accept and be
bound by facsimile signatures, with originals to follow by overnight mail.
g. COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original and all of
which counterparts taken together shall constitute one and the same Agreement.
h. ATTORNEYS' FEES. If any Party shall bring
any action, suit, counterclaim or appeal for any relief against any other Party,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "Action"), the prevailing party shall be entitled to
recover as part of any such Action its reasonable attorneys' fees and costs,
including any fees and costs incurred in bringing and prosecuting such Action
and/or enforcing any order, judgment, ruling or award granted as part of such
Action. "Prevailing party" within the meaning of this Paragraph includes,
without limitation, a party who agrees to dismiss an Action upon the other
party's payment of all or a portion of the sums allegedly due or performance of
the covenants allegedly breached, or who obtains substantially the relief sought
by it.
24
<PAGE>
i. GUARANTOR'S GUARANTY. By joining in this
Agreement, Guarantor guarantees to Sellers the full and prompt payment and
performance (not just collection) by Purchaser of all of Purchaser's covenants
and obligations under this Agreement, including, without limitation, any
obligation to indemnify Sellers. If Purchaser does not perform a covenant or
obligation under this Agreement, the Guarantor shall promptly perform the
covenant or obligation. This guaranty of Guarantor is an absolute, irrevocable,
primary, continuing, unconditional and unlimited guaranty of performance and
payment, and is not a guaranty of collection. This guaranty shall remain in full
force and effect (and shall remain in effect notwithstanding any amendment to
this Agreement) until all of Purchaser's obligations, including, without
limitation, Purchaser's indemnification obligations, have been paid, observed,
performed or discharged in full. The Guarantor has full capacity, power and
authority to enter into this Agreement and to carry out the covenants and
agreements specifically made by the Guarantor in this Agreement, and this
Agreement is binding on the Guarantor and enforceable against the Guarantor in
accordance with the terms of this Agreement.
* * * * * * * *
25
<PAGE>
IN WITNESS WHEREOF, Sellers and Purchaser have caused this
Agreement to be signed as of the date first set forth above.
BROTHERS COFFEE BARS, INC.
By: /s/ DONALD D. BREEN
---------------------------------------
Name (Print): DONALD D. BREEN
Title: President
BROTHERS GOURMET COFFEES, INC.
By: /s/ DONALD D. BREEN
---------------------------------------
Name (Print): DONALD D. BREEN
Title: President
BROTHERS RETAIL CORP.
By: /s/ DONALD D. BREEN
---------------------------------------
Name (Print): DONALD D. BREEN
Title: President
FOSTER BROTHERS CORPORATION
By: /s/ KENT S. FOSTER
---------------------------------------
Name (Print): Kent S. Foster
Title: President
KENT FOSTER
By: /s/ KENT S. FOSTER
---------------------------------------
Name (Print): Kent Foster
26
EXHIBIT 10.2
FOURTH AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS
THIS FOURTH AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS, dated as of
March 29, 1996 (this "Fourth Amendment"), is made by and between
BROTHERS GOURMET COFFEES, INC., a Delaware corporation with its
principal offices in Boca Raton, Florida (the "Borrower"); and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking
association with its principal offices in Charlotte, North Carolina ("First
Union"), in its capacity as a lender under the Loan Agreement described below
together with the other financial institutions now or hereafter set forth on
ANNEX 1 to the Loan Agreement (collectively, the "Lenders"); FIRST UNION, as
Agent for the Lenders to the extent described in ARTICLE XII of the Loan
Agreement (in such capacity, the "Agent"); and
FIRST UNION, as issuing bank for the letters of credit to be issued
pursuant to the Loan Agreement (in such capacity, the "Issuing Bank").
RECITALS
A. Pursuant to a Loan Agreement dated as of December 16, 1993, by and
between the Borrower, the Lenders, the Agent and the Issuing Bank (as amended
hereby, by the First Amendment to Loan Agreement dated as of December 22, 1993,
the Second Amendment to Loan Agreement and Loan Documents dated as of May 1,
1995, the Third Amendment to Loan Agreement and Loan Documents dated as of
September 26, 1995 (the "Third Amendment") and as otherwise amended, restated,
renewed, extended, modified, supplemented or replaced from time to time, the
"Loan Agreement"), the Lenders established in favor of the Borrower a revolving
credit facility in the initial amount of up to $43,000,000 (which was increased
to $53,000,000 in accordance with the Third Amendment), and agreed to make
Revolving Loans pursuant thereto. The Revolving Loans are secured by a first
priority lien on certain Collateral pledged by the Borrower Affiliates. All
capitalized terms used herein and not defined herein shall have the meanings
assigned to them in the Loan Agreement.
B. The Revolving Loans mature on March 31, 1996. The Borrower has
requested that the Lenders extend the maturity date, and the Lenders have so
agreed on the terms and conditions set forth herein.
C. To so extend the facility, it is necessary for the parties to enter
into this Fourth Amendment and to execute the other documents contemplated
hereby.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of these premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
AMENDMENTS TO LOAN AGREEMENT
1.1. NEW DEFINITIONS. The following defined terms are hereby
added to the Loan Agreement:
"Fourth Amendment" shall mean the Fourth Amendment to Loan Agreement
and Loan Documents, dated March 29, 1996, between the Borrower, the Lenders, the
Agent and the Issuing Bank.
"Fourth Amendment Closing Date" shall mean March 29, 1996.
"Lease Settlement Costs" shall mean the costs incurred by any Borrower
Affiliate in the termination or "buying out" of any leases for "dark" or unbuilt
retail locations.
"Stockholders Equity" shall mean, for any Person at any time, the
stockholders equity of such Person at such time determined in accordance with
Generally Accepted Accounting Principles.
1.2. REVISED DEFINITIONS. The following terms defined in the
Loan Agreement are hereby amended as follows:
"Net Cash Proceeds" shall be amended to include, in clause (a) thereof,
any Lease Settlement Costs associated with such Prepayment Event.
"Revolving Loan Termination Date" shall mean the earliest of (i) June
28, 1996,; (ii) the date of termination by the Required Lenders after the
occurrence and during the continuance of an Event of Default; (iii) such date of
termination as is mutually agreed upon by the Lenders and the Borrower; and (iv)
the date after all Obligations have been paid in full and the Lenders are no
longer obligated to make Advances or Revolving Loans hereunder.
"Tranche A Revolving Credit Commitment" shall mean, at any time for any
Lender, the amount set forth opposite such Lender's name on ANNEX 1 to the
Fourth Amendment under the heading "Tranche A Revolving Credit Commitment," as
such amount may be reduced from time to time pursuant to the terms of this
Agreement.
"Loan Documents" shall be deemed to include the Fourth Amendment.
1.3. REDUCTION IN REVOLVING LINE OF CREDIT. The maximum
principal amount available to the Borrower under the Revolving Line of Credit
pursuant to ARTICLE II of the Loan Agreement shall be decreased to $13,500,000,
consisting of a total Tranche A Revolving Credit Commitment of $13,500,000. All
references in the Loan Agreement to $53,000,000, $43,000,000 or $40,000,000 as
the maximum amount available under the Revolving Line of Credit shall be deemed
to be $13,500,000, which shall be deemed to be the "Total Revolving Credit
Commitment." All Tranche A Revolving Loans made to the Borrower under the
Revolving Line of Credit as reduced hereby shall continue to be considered
Revolving Loans under the Loan Agreement, and all provisions in the Loan
Agreement applicable to the Revolving Line of Credit shall be applicable to such
loans, except as otherwise specifically provided herein. The parties acknowledge
that all Tranche B Revolving Loans have previously been repaid in full and that
the Tranche B Revolving Credit Commitment has previously been terminated.
Accordingly, all references in the Loan Agreement to Tranche B Revolving Loans,
the Tranche B Revolving Credit Commitment, the Tranche B Base Rate, the Tranche
B Facility Fee, and the Tranche B Revolving Credit
-2-
<PAGE>
Note shall be deemed to be deleted from the Loan Agreement. Otherwise, the terms
of ARTICLE II of the Loan Agreement shall remain unchanged, except as follows.
(a) SECTION 2.6 of the Loan Agreement shall be deleted in its
entirety and replaced with the following:
2.6 REVOLVING LINE OF CREDIT FACILITY FEE. During the term of
the Revolving Line of Credit, the Borrower shall pay to the Agent, for the
ratable benefit of the Lenders, a facility fee at the rate of (i) three-eights
of one percent (0.375%) per annum on the average daily undisbursed portion of
the total Tranche A Revolving Credit Commitments. Such facility fee shall accrue
from and include the date hereof to and including the Revolving Loan Termination
Date and shall be payable (a) on the last Business Day of each fiscal quarter of
the Borrower, and (b) on the Revolving Loan Termination Date.
(b) SECTION 2.8 of the Loan Agreement shall be deleted in its
entirety and replaced with the following:
2.8 USE OF PROCEEDS. The proceeds of the Revolving Loans will be
used by the Borrower solely to provide for working capital for, and for the
general corporate purposes of, the Borrower and its Subsidiaries.
1.4. PREPAYMENTS; COMMITMENT REDUCTIONS. The Borrower confirms
that, as contemplated by SECTIONS 2.4(D) and 2.5(C) of the Loan Agreement
(specifically, as amended by the Third Amendment), (i) the Borrower will prepay
the Tranche A Revolving Loans in part in amounts equal to any Net Cash Proceeds
received at any time and from time to time, immediately upon receipt of any such
Net Cash Proceeds, and (ii) all such prepayments shall reduce the Tranche A
Commitments of the Lenders.
1.5. REVOLVING CREDIT COMMITMENT. ANNEX 1 to the Loan Agreement
is hereby deleted in its entirety and is replaced by ANNEX 1 attached to the
Fourth Amendment.
1.6. COVENANT AMENDMENTS. The following provisions under ARTICLE
VIII are hereby amended as follows:
(a) CAPITAL EXPENDITURES. SECTION 8.7 is hereby deleted in its
entirety and is replaced with the following:
8.7 CAPITAL EXPENDITURES. Make or incur any
Capital Expenditures, except that the Borrower may make
Capital Expenditures in connection with its wholesale
business not to exceed $1,000,000 in the aggregate for the
period from the Fourth Amendment Closing Date through the
Revolving Loan Termination Date (it being understood that
any Lease Settlement Costs shall not be counted as Capital
Expenditures for purposes of this restriction).
(b) OTHER FINANCIAL COVENANTS. The texts of SECTIONS 8.8, 8.9
and 8.10 are hereby deleted in their entirety (the texts of SECTIONS 8.9 and
8.10 being replaced with the statement "This Section Intentionally Left Blank"),
and SECTION 8.8 is hereby replaced with the following:
-3-
<PAGE>
8.8 STOCKHOLDERS EQUITY. Permit the Stockholders
Equity of the Borrower and its Subsidiaries on a
consolidated basis to be less than $65,000,000 at any time
(to be calculated monthly and reported to the Lenders
pursuant to SECTION 7.3(A)).
(c) NEW LEASES. SECTION 8.22 of the Loan Agreement is hereby
deleted in its entirety and is replaced with the following:
8.22 NEW LEASES. Enter into any new leases for or
undertake construction of or otherwise commit capital to any
real property or improvements thereon (except for repairs in
the ordinary course of business), it being understood that
any Lease Settlement Costs shall not be restricted for
purposes of this provision.
ARTICLE II
LOAN DOCUMENT AMENDMENTS
2.1. GENERAL AMENDMENTS TO DOCUMENTS. The parties hereby agree that:
(i) Any reference herein or in any of the Loan Documents to
the Loan Agreement or any of the other Loan Documents shall mean the
Loan Agreement or such other Loan Document as amended by the First
Amendment, the Second Amendment, the Third Amendment and this Fourth
Amendment, and as it may be further amended, modified, restated or
supplemented from time to time.
(ii) Any reference herein or in any of the Loan Documents to
the Loan Documents shall be deemed to include the documents delivered
to the Lenders pursuant to ARTICLE IV of this Fourth Amendment, as
such documents may be further amended, modified, restated or
supplemented from time to time.
(iii) As used in any of the Loan Documents, "hereinafter,"
"hereto," "hereof," and words of similar import shall, unless the
context otherwise requires, mean such Loan Document after amendment
by this Fourth Amendment.
ARTICLE III
FEES
3.1. EXTENSION FEE. The Borrower shall pay to the Lenders, in
consideration of the Lenders' agreement to the foregoing, an extension fee equal
to the sum of $270,000, which amount shall be due and payable on the Fourth
Amendment Closing Date.
ARTICLE IV
CLOSING; CONDITIONS TO CLOSING
4.1. CLOSING. The closing of the transactions described herein shall
take place upon the full execution of this Fourth Amendment on the Fourth
Amendment Closing Date.
-4-
<PAGE>
4.2. CONDITIONS TO CLOSING. The obligations of the Agent and the
Lenders to enter into this Fourth Amendment and to extend credit under the terms
of the Loan Agreement, as amended hereby, are subject to the satisfaction of all
of the following conditions precedent:
(a) LOAN DOCUMENTS. The following documents shall have been
duly authorized, executed and delivered by the Borrower Affiliate that
is a party thereto, shall be in form and substance satisfactory to the
Agent, no default shall exist thereunder and the Agent shall have
received a fully executed copy thereof:
(1) This Fourth Amendment;
(2) A consent to this Fourth Amendment, in form
and substance reasonably satisfactory to the
Lenders, from each of the Subsidiaries that
is a party to any Subsidiary Guaranty
Document;
(3) A warrant providing for the purchase of the
Class B Common Stock of the Borrower
substantially in the form of EXHIBIT A to
this Fourth Amendment;
(4) A certificate of each of the chief executive
officer and chief financial officer of the
Borrower to the effect that the
representations and warranties of the
Borrower contained herein and in the Loan
Agreement are true and correct as of the
date hereof, except insofar as any such
representation or warranty relates solely to
a prior date and except as detailed in such
certificates;
(5) A certificate of the secretary or an
assistant secretary of each of the Borrower
and any Subsidiary that is a party to any
the Subsidiary Guaranty Document regarding
corporate resolutions (for the Borrower's
secretary's certificate only) and incumbency
of officers of such Borrower Affiliate; and
(6) All documents, financing statements and
other filings or recordations necessary to
perfect or continue the perfection of the
security interests of the Agent, for the
benefit of the Lenders, in the Collateral.
(b) OTHER CLOSING DOCUMENTS. The Agent shall also have
received copies of the following, each of which shall be in form and
substance satisfactory to the Agent:
(1) Consents of all parties required for the
transactions contemplated by this Fourth
Amendment; and
(2) A legal opinion from Ballard Spahr Andrews &
Ingersoll, counsel to the Borrower
Affiliates.
(c) OTHER DOCUMENTS. The Agent shall have received such other
documents, certificates and opinions as the Agent may reasonably
request in connection with this Fourth Amendment, each in form and
substance satisfactory to the Agent.
(d) FEE. The Lenders shall have received the fee referred to
in SECTION 3.1 hereof.
-5-
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
5.1. COMPLIANCE WITH LOAN AGREEMENT. After giving effect to this Fourth
Amendment, the Borrower is in compliance with all terms and provisions set forth
in the Loan Agreement to be observed or performed by it except as set forth in
EXHIBIT B to this Fourth Amendment, which exhibit sets forth certain violations
which the Lenders hereby waive as of the date hereof. Borrower acknowledges that
such waiver is limited specifically to the violations listed in such exhibit,
and that such waiver does not constitute a waiver of any subsequent violations
of these or any other provisions of the Loan Agreement or Loan Documents.
5.2. REPRESENTATIONS IN LOAN AGREEMENT. After giving effect to this
Fourth Amendment, the representations and warranties of the Borrowers set forth
in the Loan Agreement are true and correct in all material respects as of the
date hereof, except insofar as any such representation or warranty relates
solely to a prior date and except as set forth in the certificates delivered
pursuant to SECTION 4.2(A)(4) of this Fourth Amendment.
5.3. NO EVENT OF DEFAULT. No Event of Default, nor any event that upon
notice, lapse of time or both would become an Event of Default, has occurred and
is continuing, except as set forth in EXHIBIT B to this Fourth Amendment.
5.4. CONTINUING SECURITY INTERESTS. All Loans and advances by the
Lenders to the Borrower under the Loan Agreement continue to be secured by the
security interest of the Agent, for the benefit of the Lenders, in all of the
Collateral granted under the Loan Agreement or other Loan Documents, and nothing
herein will affect the validity, perfection or enforceability of such security
interests.
ARTICLE VI
GENERAL
6.1. FULL FORCE AND EFFECT. This Fourth Amendment is limited as
specified and shall not constitute a modification, acceptance or waiver of any
other provision of the Loan Agreement. Except as expressly amended hereby, the
Loan Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof.
6.2. APPLICABLE LAW. This Fourth Amendment shall be governed by and
construed in accordance with the internal laws and judicial decisions of the
State of North Carolina.
6.3. COUNTERPARTS. This Fourth Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
6.4. EXPENSES. The Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Fourth Amendment, including, without limitation, all reasonable
attorneys' fees.
-6-
<PAGE>
6.5. RELEASE. The Borrower hereby releases and discharges the Agent and
each of the Lenders, their directors, officers, agents, and employees, from any
and all causes of action, suits, claims, demands, liabilities and obligations
whatsoever, in law or in equity, whether the same are now known or unknown or
whether the facts on which the same are based are now known or unknown, which
they ever had, now have or hereafter may have by reason of any matter, act or
omission whatsoever occurring on or before the date of this Fourth Amendment,
except for any claims arising out of any wanton or willful misconduct or gross
negligence on the part of the Agent or any Lender.
6.6. FURTHER ASSURANCE. The Borrower shall execute and deliver to the
Agent such documents, certificates and opinions as the Agent may reasonably
request to effect the amendment contemplated by this Fourth Amendment and to
continue the existence, perfection and first priority of the Agent's security
interests in the Collateral.
6.7. HEADINGS. The headings of this Fourth Amendment are for the
purposes of reference only and shall not affect the construction of this Fourth
Amendment.
6.8. FINAL AGREEMENT. This Fourth Amendment, together with the Loan
Agreement and the other Loan Documents, is the final expression of the agreement
between the Borrower and the Lenders relating to the subject matter thereof, and
may not be contradicted by evidence of any prior or contemporaneous oral
agreement between the Lenders and the Borrower.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed and delivered by their duly authorized officers all as
of the date first above written.
BROTHERS GOURMET COFFEES, INC.
By: /s/ DONALD D. BREEN
------------------------------------
Donald D. Breen, President
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, AS AGENT
By: /s/ [ILLEGIBLE]
------------------------------------
Title: SVP
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, AS LENDER
By: /s/ [ILLEGIBLE]
------------------------------------
Title: SVP
-7-
<PAGE>
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, AS ISSUING BANK
By: /s/ [ILLEGIBLE]
------------------------------------
Title: SVP
-8-
<PAGE>
CONSENT AND WAIVER
The undersigned, as guarantors of the Obligations of Brothers Gourmet Coffees,
Inc. (the "Company") under the Loan Agreement, dated as of December 16, 1993,
between the Company and First Union National Bank of North Carolina (in its
capacity as Lender, Agent and Issuing Bank), as amended (the "Loan Agreement"),
hereby consent to the foregoing Fourth Amendment to Loan Agreement and Loan
Documents and further waive any defense to their guaranty liability occasioned
by such amendment. Such consent and waiver is made as of the date and year first
written above.
BROTHERS RETAIL CORPORATION
By: /s/ DONALD D. BREEN
--------------------------------------
Donald D. Breen, President
BROTHERS COFFEE BARS, INC.
By: /s/ DONALD D. BREEN
--------------------------------------
Donald D. Breen, President
MARYLAND CLUB FOODS, INC.
By: /s/ DONALD D. BREEN
--------------------------------------
Donald D. Breen, President
BROTHERS RUNWAY COMPANY
By: /s/ DONALD D. BREEN
--------------------------------------
Donald D. Breen, President
-9-
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<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> MAR-29-1996
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