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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
(FEE REQUIRED)
For the fiscal year ended March 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(NO FEE REQUIRED)
For the transition period from: to
Commission file number: 1-12932
JAVA CENTRALE, INC.
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(Exact number of Registrant as specified in its charter)
CALIFORNIA 68-0268780
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.
1610 ARDEN WAY, SUITE 145, SACRAMENTO, CALIFORNIA 95815
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (916) 568-2310
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed under 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
the filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's common stock held by
non-affiliates as of June 28, 1996 (based on the closing sale price of the
Common Stock on the National Association of Securities Dealers Automated
Quotation System) was $5,778,630.
As of June 28, 1996 there were outstanding 10,082,980 shares of the
Registrant's Common Stock.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Description of Business.......................................... 3
Item 2. Description of Property.......................................... 15
Item 3. Legal Proceedings................................................ 16
Item 4. Submission of Matters to a Vote of Securities Holders............ 16
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters................................ 17
Item 6. Selected Financial Data.......................................... 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 19
Item 8. Financial Statements and Supplementary Data...................... 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 52
PART III
Item 10. Directors and Executive Officers of the Registrant............... 52
Item 11. Executive Compensation........................................... 54
Item 12. Security Ownership of Certain Beneficial Owners and Management... 58
Item 13. Certain Relationships and Related Transactions................... 60
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K....................................................... 62
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
Java Centrale, Inc., a California corporation (the "Company"), began
operations on March 5, 1992, and operated as a development stage enterprise
through the end of its fiscal year ended March 31, 1993, and commenced
principal operations as of April 1, 1993, at which time it had operating two
franchised cafes. During the Company's first full year of principal
operations, from April 1, 1993 through March 31, 1994, it opened four
additional franchised cafes and two franchised carts. At March 31, 1995, the
Company was operating 14 Company-owned and 12 franchisee-owned cafes, and
three Company-owned and ten franchised carts, and the Company had an
additional 84 signed agreements for as-yet unopened franchisee-owned cafes,
45 of which relate to a single franchisee. At March 31, 1996, the Company
was operating 36 Company-owned cafes, and four Company-owned carts and 56
franchisee-owned cafes, and eight franchisee-owned carts, and the Company had
an additional 90 signed agreements for as-yet unopened franchisee-owned
cafes. During the year ended March 31, 1996, eight Franchise Agreements have
been terminated and refunded by the Company prior to the opening of the cafe.
The Company has also re-acquired five franchisee-owned operating cafes and 58
additional rights for locations under Area Development Agreements.
On November 14, 1994, the Company entered into a Joint Venture Formation
Agreement with Banyan Capital, Limited Partnership, a Delaware Limited
Partnership, Java Southeast Partners, L.P., a Delaware Limited Partnership
("CoffeeCo"), and Java Southeast, Inc., a Delaware Corporation (the "Joint
Venture"), for the development of a minimum of 50 cafes in the State of Florida
over a five-year period, and for rights to other markets on the Eastern
Seaboard. Under the terms of the agreement, the Company expects to contribute
up to 227,983 shares of its newly issued Common Stock to the Joint Venture, in
exchange for up to 18.3% of the Joint Venture's outstanding shares. All Company
shares to be issued as part of this transaction would be subject to various
restrictions on transfer. In exchange for a per cafe fee and an ongoing
management fee, the Joint Venture will obtain an exclusive license for the
Florida market. The Company has also agreed to lend the new venture up to
$250,000, to assist it in the development of individual cafes. The Company and
Coffee Co completed the initial phase of the Joint Venture in July 1995 and the
Company contributed 89,428 common shares. The Joint Venture has opened three
cafes as of March 31, 1996. The Company has advanced $200,000 in December,
1995, and an additional $27,500 in June, 1996. The Company has agreed to
advance an additional $222,500 in 1996 under certain conditions.
On March 30, 1995, the Company completed its acquisition of substantially
all of the assets of Oh-La-La!, Inc., a Delaware corporation headquartered in
Northern California. At the time of this transaction, Oh-La-La! was the
Debtor-in-Possession in a Chapter 11 bankruptcy proceeding. The assets
purchased included tenant improvements, equipment, and goodwill. The
purchase price for the assets acquired was $2,104,000; liabilities in the
amount of $113,000 were assumed as part of the transaction.
On December 31, 1995, the Company acquired 100% of the outstanding shares
of Paradise Bakery, Inc., for $5,375,000 cash and $1,350,000 notes payable of
which $385,000 represented an amount due from Founders Venture, Inc. prior to
the Founders Venture Merger. Paradise Bakery, Inc., operates seven
Company-owned bakery/cafes and 44 franchisee-owned bakery/cafes.
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On January 17, 1996, the Company merged into Paradise Bakery, Inc., 100% of
the outstanding shares of Founder Ventures, Inc., for 431,853 common shares of
the Company. Founder Venture, Inc., operated seven franchisee-owned paradise
bakery/cafes prior to the merger.
On January 17, 1996, the Company acquired certain assets of Venture 88,
Inc., for 74,073 shares of the Company and $153,929 assumption of liabilities
and issued $46,071 in notes payable. The assets acquired were for three
franchisee-owned Paradise Bakery & Cafes prior to the acquisition.
The Company's revenues are currently derived primarily from Company-owned
facilities, initial franchise fees, franchise royalties, equipment sales, and
product overrides on sales to its franchisees. Franchise fees range from
$15,000 to $25,000 per cafe. The Company is entitled to 4-6% of the gross
receipts from each franchised cafe and 2-10% of the gross receipts from each
franchised cart. Product overrides range from 3% to 5% of the total purchases
of coffee from the Company's contract roaster.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Not Applicable.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
JAVA CENTRALE AND OH-LA-LA! BUSINESS
The Company sells over 40 different varieties of whole bean and fresh
ground coffees as well as various flavorful brewed coffees, espresso beverages,
Italian sodas and other upscale beverages. The Company's products are sold to
the consumer exclusively through a system of Company-operated and franchised
European style gourmet coffee cafes, carts and kiosks. In addition to selling
numerous coffees and other specialty beverages, the Company-operated and
franchised cafes offer the consumer a wide selection of gourmet sandwiches,
salads, soups, pastries and desserts and also sell coffee-making equipment and
accessories such as brewers, espresso makers, grinders, mugs and carafes. The
Company's carts and kiosks offer the same selection of espresso based specialty
beverages and italian sodas as are offered in the Company's cafes, as well as
brewed coffees and a selection of morning pastries.
The Company believes that its flavored specialty coffees offer what the
new consumer in the specialty coffee market is looking for. Market research
shows that when new consumers enter the specialty coffee market they begin by
purchasing flavored coffees and flavored coffee products. Based on the
Company's experience in its Company-owned and franchised locations, the
flavored coffee customers move to unflavored coffees and coffee products as
their tastes and preferences mature. Therefore, by offering a wide selection
of flavored, as well as unflavored, coffees and coffee products in its cafes,
carts and kiosks, The Company believes that its products will be more
attractive to the new consumers and that the Company will retain the loyalty
and patronage of the new consumers as their enjoyment of specialty coffee
broadens.
The Company believes that the "cafe" approach of selling its products will
distinguish the Company from its competition in the specialty coffee market
because its competitors focus primarily on retail sales of coffee, coffee
beverages and coffee related items. The Company's cafes offer convenient and
comfortable indoor and outdoor seating which encourages the customers to relax
and enjoy their purchases in the cafe. The Company also believes that the
comfortable and convenient atmosphere of its cafes encourages many of its
customers who frequent the cafes during the business hours of weekdays to return
in the evenings and on
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weekends to relax with their family and friends. Additionally, by offering
gourmet sandwiches, salads, pastries and other food and dessert items, the
Company believes that consumers are attracted into the cafes during various
parts of the day when they might not otherwise frequent the cafe exclusively
for coffee.
PARADISE BAKERY BUSINESS
Paradise Bakery is a company owned and franchisee-owned quick service
restaurant concept designed to meet consumer demands for value, quality, and
taste in a casual and appealing environment. The environment includes mall
locations and in-line cafe locations, as well as, carts and kiosks. Featured
menu items, depending upon the type of location, include as assortment of
bakery products, featuring cookies, muffins, croissants and desserts,
prepared and freshly baked daily at each location, as well as, specialty
soups, salads, and sandwiches.
Paradise has operated a successful and growing business for 19 years. Most
of the existing locations are in high profile upscale areas in California,
Arizona, Colorado, Oregon, Washington, Texas, and Hawaii and operate in shopping
malls and range in size from 450-3700 square feet.
Paradise does not have any direct competition in all areas of its business
given the mix of production, pricing, and positioning. However, it does have
segment competition from various companies providing portions of Paradise's
menu. The Company believes that Paradise does not compete with most other
specialty restaurant providers.
Paradise also intends to introduce a new coffee program, Coffees of
Paradise, in the fourth quarter of 1996 as well as new bakery products,
sandwiches, and salads.
The Company currently operates both Company-owned and franchisee-owned
bakery/cafes. The Company plans to expand the franchisee-owned system by late
1996 by allowing existing franchisees to expand and by developing new
franchises.
In order to facilitate this expansion, the Company began work on renewing
the filing of the Paradise Bakery Uniform Franchise Offering Circular with the
various states agencies. This was necessary as the registrations were not kept
current prior to the time of the acquisition. In June of this year, the Company
completed filings in Texas, Arizona, and Colorado to allow the sale of two
company-owned bakery/cafes and for existing franchisees in Arizona and Colorado
to develop additional locations. The Company projects that the other filings
needed to execute the expansion plan for Paradise Bakery will be completed by
August, 1996.
INDUSTRY OVERVIEW
JAVA CENTRALE AND OH LA LA!
The market in the United States for specialty coffees is growing and
highly fragmented. The market for specialty coffee is discussed in THE
MARKET FOR COFFEE AND TEA: A MARKET INTELLIGENCE REPORT, a study published in
1994 by FIND/SVP, an independent market research firm. According to that
study, which is the source for all market information in this Annual Report
unless otherwise noted, specialty coffees, also known as "gourmet coffees",
include "true" gourmet coffees (Arabica beans sold in whole bean and ground
form) and premium coffees (upscale coffees mass marketed by the leading
coffee companies). The study was published in 1994 using historical
information through 1993. All figures for the years after 1993 are forecasts
contained in that study.
The study indicates that retail sales of specialty coffee increased from
approximately $1
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billion in 1990 to approximately $1.6 billion in 1993. The study projects
that sales of specialty coffee in the United States will reach approximately
$2.1 billion by 1998. The specialty coffee dollar share of the retail market
was 20% in 1990 and 31% in 1993 and is projected by the FIND/SVP study to
be 38% in 1998.
The Company believes that the increasing popularity of specialty coffees
over the last several years can be attributed to five major factors which have
led to the transformation of specialty coffee from a highly specialized and
small segment of the coffee industry in the United States to an independent and
growing sector of the market. These five major factors are: (1) the trend
toward healthy eating, including the reduced consumption of alcoholic beverages,
(2) the availability of automatic drip coffee makers for the home, (3) the
rising price of regular coffee, (4) the rise of the gourmet foods market, and
(5) several technological innovations, including improved decaffeination methods
and the introduction of the one-way valve for coffee packaging, which allows
carbon dioxide to escape but does not permit oxygen to enter, thereby stretching
the shelf life of coffee from just a few days to nearly one year. The Company
believes that the continuing trend towards healthy eating together with a
widening consumer awareness of gourmet coffees, as well as lower prices for, and
greater availability of, a wider variety of beans, will all combine to increase
consumer demand and recognition of the specialty coffee market over the next
several years. Based upon the above-described factors, the Company believes that
there will be continued rapid growth in the specialty coffee market through the
year 2000 and beyond.
PARADISE BAKERY
The bakery/cafe segment is growing in total. The bakery/cafe is made up
of primarily regional operators. The Company believes that the increasing
popularity of the bakery/cafe segment results from the trend of eating
healthier, customers seeking fresh products, the general growth in the
gourmet food markets, and value for freshness. The Company believes the
bakery/cafe segment will continue to grow and that further consolidation of
regional operators will continue.
COMPANY STRATEGY
The Company's objective is to become a leading specialty coffee retailer
and a leading bakery/cafe with fresh baked products through its Company-owned
and franchisee-owned cafes in the United States and Canada. The Company
intends to achieve this goal by selling only the highest quality products by
providing a superior level of customer service and by utilizing a market
strategy which is designed to emphasize the differences between the Company's
products and those of its competitors and to establish a high degree of
customer loyalty and repeat business. Each of the essential elements of this
corporate strategy of the Company is discussed below:
HIGHEST QUALITY COFFEE. The Company believes that its specifications for
the selection, roasting and delivery of its coffee beans and beverages are
among the highest in the coffee industry. The Company believes that its
roasting specifications for each variety of Arabica bean which it offers
provide for roasting of the bean to the degree that accentuates the character
of the individual coffee. Certain coffees have a tendency to have more
fragile characteristics that need to be roasted lighter in order to protect
the integrity of that particular variety, while other coffees having stronger
characteristics that overpower subtle nuances within that variety are
enhanced by a darker level of roasting. Since coffee beans are an
agricultural product that varies from season to season and from farm to farm,
the Company reviews its roasting specifications regularly and, if necessary,
modifies those specifications in order to bring each variety of coffee bean
to its optimum flavor potential.
PRODUCT IS THE CONCEPT. The foundation of Paradise's business is its
deliciously fresh
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products which consist of bakery items, sandwiches and salads. Paradise uses
only the finest ingredients in preparing its food products. In order to
enhance a quality image, we use well known brands as in selected products.
Each day our cookies, muffins, and brownies are prepared from scratch. Our
pastries, cinnamon rolls, pecan rolls, bagels and croissant products are
baked on premise daily. All Paradise fresh baked menu items are
preservative-free and are approved by the Heart Association. Paradise
features certain bakery products that are low in fat, yet rich in nutrients
with no artificial flavors or colors. Our sandwiches and salads are made to
order. The price value relationship is easily understood by our customer,
since we serve generous portions at reasonable prices.
CUSTOMER SERVICE. A basic premise of the Company's business philosophy
is that it serves many customers on many different levels. The Company views
its vendors and suppliers as one level of customers, its franchises and
Company facility managers as another level of customers, and the end
consumer/customer as a third level customer who benefits from the
relationships between the Company and all of its levels of customers.
Therefore, the Company provides the same type of attention and service to
each of these levels as would be expected by the end consumer/customer of the
Company's products.
MERCHANDISING AND MARKETING. The Company has a comprehensive
merchandising, marketing and image program featuring its logo and trademarks
on its signs, cafe interiors, cups, bags, packaging, promotional pieces and
literature. The program is designed to create a distinctive brand image and
brand awareness as well as provide the consumer with repeat customer
incentives. The Company has wide range of literature that gives the customer
a source for information about the origins and characteristics of coffees, as
well as grinding, brewing and storing methods and techniques that the Company
believes will result in the best coffee beverages.
SITE SELECTION. The Company's goal in cafe site selection is to locate
its cafes in high-traffic, high-visibility locations within areas that have
appropriate demographics, other retail business use and residential backup.
EXPANSION/ACQUISITION. The Company's strategy is to focus entirely on
growth through new franchised sites primarily in the western part of the
United States for Java Centrale and both eastern and western parts of the
United States for Paradise.
The Company has had an acquisition strategy by acquiring two brand names,
Oh La La! and Paradise Bakery.
On March 30, 1995 the Company acquired substantially all of the operating
assets of Oh-La-La!, Inc., a Delaware corporation headquartered in San
Francisco, California, operating 14 locations.
On December 31, 1995, the Company acquired 100% of the outstanding stock
of Paradise Bakery, Inc., a Delaware corporation, operating seven
Company-owned and 44 franchisee-owned bakery/cafes. Additionally, on January
1, 1996, the Company acquired 10 Paradise Bakery franchisee-owned
bakery/cafes in two separate agreements. The Company believes that the
acquisition of Paradise Bakery will allow the Company to further enhance the
Company's expansion strategy by franchising and developing Paradise Bakery.
SOURCING. The Company currently obtains its coffees pursuant to the
Producer Agreement between the Company and Coffee Bean International ("CBI"),
an independent roaster. Pursuant to the Producer Agreement, several
different varieties of green coffee beans are purchased, roasted, packaged
and shipped by CBI in accordance with the Company's specifications
specifically detailed in the Producer
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Agreement. All green beans purchased in accordance with the Producer
Agreement are of the Arabica species and the Company believes that the
Arabica beans which are purchased pursuant to the Producer Agreement are
among the best available from each producing region.
RETAIL SALES. The Company sells over 40 different varieties of whole
bean and fresh ground coffees together with rich flavorful brewed coffees,
espresso beverages, Italian sodas and other upscale beverages, through its
system of Company-operated and franchised European style gourmet coffee
cafes, carts and kiosks.
CAFES AND KIOSKS
Distribution of the Company's products is done exclusively through a
system of Company-operated and franchised cafes and kiosks under the three
brand names. As of March 31, 1996, the Company had franchise agreements for
117 cafe franchises and three cart locations in 10 states. As of March 31,
1996, there were 36 Company-owned cafes and four Company-owned carts and 56
franchisee-owned cafes, along with eight franchisee-owned carts in operation
in 15 states. As of March 31, 1996, the Company had received $1,825,500 in
cash representing initial fees under its franchise agreements, and was
entitled to receive an additional $320,000 in cash fees when it completes its
obligations under such agreements, which obligations are expected to be
completed no later than December of 1999. The Company's revenues are
currently derived primarily from Company-owned facilities, initial franchise
fees, franchise royalties, equipment sales, and product overrides on sales to
its franchisees.
DEVELOPMENT TIME. After the signing of a franchise agreement for a
particular location or locations, the amount of time necessary to develop
that location and eventually open and operate the cafe or kiosk varies
depending on several factors including site selection, preparation and
approvals of plans, acquisition of necessary permits, length of construction
period and whether the training of the employees will take place on-site or
off-site. Based on the Company's experience to date, the average development
time of a single-unit cafe franchise has been 4 to 8 months.
In addition to these development factors, multi-unit franchisees are
obligated under their franchise agreements to build cafes based on a three to
five year development schedule in which the majority of the locations are
opened in the first half of the development schedule. In the case of
multi-unit developments, it is necessary to develop real estate relationships
that are likely to provide more than one desirable location and, therefore,
extra time and care is devoted to contracting with the right firm for that
purpose in the market in question. This recruiting process could require an
additional thirty to sixty days. In the case of a single unit franchise where
the territory is a subset of the larger market, the Company typically selects
the most experienced commercial real estate firm that specializes in retail
locations in that defined area. All of these factors affect the Company's
ability to open cafes within a specific time frame. Although the development
of a single franchised or Company-owned cafe will always be subject to these
timing factors, the number of cafes opened in any given month or year will
increase dramatically as additional franchises are sold and leases for
Company locations are signed.
PRODUCT MIX. The Company's Java Centrale cafes sell over 40 different
varieties of whole bean and fresh ground coffees together with rich flavorful
brewed coffees, espresso beverages, Italian sodas and other upscale beverages.
The Company's cafes offer six brewed coffees daily: one light and one dark
varietal, a Java Centrale House Blend, a varietal decaffeinated coffee, a
flavored coffee, and a flavored decaffeinated coffee. In addition, the Company
has developed its own line of contemporary espresso based beverages which are
designed to appeal primarily to younger customers and women. In addition to
selling numerous coffees and other specialty beverages, the cafes offer the
consumer a wide selection of gourmet sandwiches, salads, soups, pastries and
desserts as well as coffee-making equipment and accessories such as brewers,
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espresso makers, grinders, mugs and carafes.
The Company's Java Centrale kiosks offer the full range of espresso based
specialty beverages and Italian sodas offered in the Company's cafes, as well as
brewed coffees and a selection of morning pastries.
Paradise Bakery has developed a brand identity of quality over its 19
years of existence. It uses only the finest ingredients in preparing all
food products. Its bakery line consists of a variety of muffins, cookies,
and brownies, as well as, a line of pastry products, cinnamon and pecan
rolls. Typically, a Paradise store will feature each day, between ten and
twelve sandwiches, three tossed salads, plus three of four pasta type salads,
as well as, three or four varieties of soup/chowder.
PRICING. The Company prices its coffees, menu items and retail goods at
or above the prevailing high-end prices for these items in each of its
markets. The products offered by the Company are of the highest quality and
would command a premium price based on value alone. Additionally, the
Company's research on specialty consumers has shown that they expect to pay a
higher price for specialty food and beverage products and look with suspicion
on products, even products of high quality, that are priced below the market.
This strategy differentiates the Company from many of its retail competitors
that are required to compete on a PRICE ONLY basis. The Company believes
that this pricing strategy assures that necessary margins are protected and
thereby allows the Company and its franchisees to focus primarily on product
quality and service to earn and retain customers.
DESIGN. The Company's Java Centrale cafes are designed to provide the
customer with a modern, comfortable and convenient cafe and meeting place
with a European flair. The design uses a combination of primary colors that
give the cafes a different and distinctive look when compared with the
facilities of the Company's competitors. The Company believes that the
distinctive look of its cafes will help the consumer to more readily remember
its name and its products, thereby resulting in a higher level of repeat
customer business for its cafes.
The Company's Paradise Bakery cafe design has evolved over the years
always adapting to the ever changing consumer needs. Presently, the Paradise
design has a tropical theme utilizing the color palette of light blue, pink
and white. The attractive cafe designs and functional building plans are an
integral part of the Paradise success formula. These designs provide an
exciting environment that supports product display, encourages impulse sales
and provides color efficiency.
Paradise is presently in the process of upgrading its design to meet
today's consumer demands for novel food products and services to meet their
constantly evolving needs and tastes. The most recent design change reflects
a more open, unique eating experience at Paradise by enabling the customer to
come into a tantalizing theatre brimming with irresistible foods and
beverages. The color palette is changing to light, effervescent, bright
fruit and vegetable colors, such as mango, lemon, grape, tomato, and avocado.
Other changes include extensive use of product display, fresh food graphics,
and enhanced graphic communication system.
SUPPLIES. The Company and its franchisees purchase their food, beverages
and supplies only from Company-approved suppliers. All products must meet
the standards and specifications set by the Company. Management of the
Company constantly monitors the quality of the coffee, food, beverages and
other supplies provided to the cafes, carts and kiosks. The Company has been
successful in negotiating national distribution and price concessions from
suppliers for bulk purchases of coffee, food and paper supplies used by the
Company's system of cafes, carts and kiosks. The Company believes that these
arrangements have achieved cost savings, improved
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quality and consistency and helped decrease volatility of coffee, food and
supply costs. The Company believes that essential coffee, food and beverage
products are available or, upon short notice, could be made available from
alternate qualified suppliers.
MANAGEMENT AND EMPLOYEES. Each Company-owned or franchised cafe employs
an average of approximately 15 hourly employees, most of whom work part-time.
The management staff of a typical cafe operated by the Company consists of a
general manger, an assistant manager and one crew leader. A typical
franchised location is managed directly by the franchisee and an assistant
manager and one crew leader. Company cafe managers report to a district
manger, while franchised locations work in conjunction with one of the
Company's franchise field representative. The district mangers or franchise
field representatives are responsible for assuring compliance with the
Company's products and facilities' standards and supervising and assisting in
the implementation of the Company's local cafe marketing programs.
TRAINING. The Company's Java Centrale cafe training program has two
parts. The first part is an intensive two week program at the Company's
training facility in Folsom, California consisting of both classroom and
on-the-job training. The classroom training includes such topics as the
origins of coffee, coffee comparisons, food safety and sanitation, employment
laws and regulations, interviewing and hiring of employees, and systems to
control both food and labor costs. The on-the-job training concentrates on
using the grinding, brewing and espresso making equipment, preparing and
serving the various brewed coffees and espresso beverages, and preparing and
serving the various menu items. In all cases, the in-cafe training
emphasizes the importance of fast and friendly customer service.
The second part of the training takes place at the cafe prior to opening.
The Company's training team works with the franchisee or Company-owned cafe
manager over a thirteen day period to prepare the facility for business and
train the opening crew. The schedule provides for one day of staging and
planning, eight days of crew orientation and training, one day working with
management to take the beginning inventory and prepare the cafe for business,
and the first three days of operations.
The Company's franchise field representatives generally visit each
franchised cafe on a monthly basis. The franchise field representative acts
as a business consultant to franchisees in an effort to ensure that each cafe
and cart is providing the highest quality products and fast, friendly
service. In addition, the field representative assists in developing
business and marketing plans, as well as in the training and development of
the franchisee's staff. In effect, the franchise field representative acts
as the communication link between the Company and each franchisee. The
Company plans to have a ratio of one field representative for each 15 to 20
franchised cafes and carts.
The Paradise training program currently consists of two weeks at the
Company's cafe in Santa Ana, California. The training program will be enhanced
later in 1996 as Paradise Bakery's franchising activity is started.
ADVERTISING AND PROMOTION. Marketing promotions are designed and planned
by the Company's Vice President of Marketing and are implemented after a
committee of the Company's executive officers has approved all promotions. In
the future, production of some marketing materials is expected to be paid for
through a national advertising fund that collects 2% of gross receipts (not
including sales tax) from each franchised cafe. The fund will become active
and collections will commence after the opening of the Company's 25th Java
Centrale cafe, whether Company-owned or franchised. Until that time,
substantially all marketing production costs will be borne directly by the
Company.
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The Company has detailed "Local Cafe Marketing Program" which provides
the franchisee with camera ready artwork, pre-packaged local promotions, a
step-by-step plan for marketing in the cafe's immediate area, and examples of
successful campaigns from other franchisees.
The Company currently collects $164 per month from each Paradise Bakery
location. The advertising funds are being used to develop point of sale
material and local promotion.
FRANCHISE OPERATIONS
STRATEGY. The Company's growth strategy for the next five years is to focus
on the development of franchised cafes of Java Centrale and bakery/cafes of
Paradise Bakery in key metropolitan markets. Based upon the Company's operating
history to date, the Company believes that it can continue to attract
financially and personally qualified franchisees based on the strength of its
cafe and bakery/cafe concepts and the favorable potential returns available from
a relatively low capital investment.
AGREEMENTS. The Company offers single unit Franchise Agreements and
multi-unit Area Development Agreements. The single unit Franchise Agreement
grants to the franchisee an exclusive license to operate a cafe at a
specified location in accordance with the Company's terms and conditions and
to utilize the Company's trademarks, service marks and other rights of the
Company relating to the sale of its items. The term of a Franchise
Agreement for a cafe is ten years, renewable at the option of the franchisee
for successive five year periods, if certain conditions pertaining to such
renewal are met. The Area Development Agreement grants to the franchisee the
right to develop and open a specified number of cafes in a defined geographic
area within a limited period of time and thereafter to operate each cafe in
accordance with the terms and conditions of the Franchise Agreement executed
for each cafe location.
Either party may terminate a Franchise Agreement, or an Area Development
Agreement by giving notice of default in the event the other party breaches or
fails to comply with any of the terms, covenants, conditions or restrictions
applicable to such party, or if such party breaches any warranty or
representation contained in the Franchise Agreement or the Area Development
Agreement. The Company may also terminate a Franchise Agreement or an Area
Development Agreement without notice for several reasons, including among
others, the franchisee's bankruptcy or insolvency, cessation of business,
committing a default within 12 months of curing the same default or committing
repeated defaults, whether or not such defaults are cured after notice. The
franchisee may also terminate a Franchise Agreement in the event there is a
permanent and incurable inability of the Company or an authorized supplier to
supply the products required to be furnished under the Franchise Agreement or in
the event there is a supply interruption that lasts more than 180 days.
Although franchise fees are payable to the Company upon the execution of a
single-unit Franchise Agreement or an Area Development Agreement, the Company
only recognizes such fees as revenue when all material services or conditions
relating to the sale of the franchise have been substantially performed or
satisfied by the Company. See "Note B of Notes to Financial Statements".
FRANCHISE FEES AND ROYALTIES
CAFES. Under the Company's current Franchise Agreement for cafes, each
franchisee is generally required to pay a franchise fee of $25,000. The
franchise fee is generally paid to the Company upon the execution of the
Franchise Agreement and is non-refundable. If the franchisee thereafter
executes another Franchise Agreement for an additional cafe at a different
location, the
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franchisee is generally required to pay a franchise fee of $15,000 for each
such additional cafe location, which franchise fee is non-refundable. If a
franchisee purchases an area pursuant to an Area Development Agreement, the
franchisee must pay an Area Development Fee of $5,000 for each cafe to be
developed in accordance with the Agreement's development schedule. The Area
Development Fee is paid to the Company in full upon the execution of the Area
Development Agreement and is not refundable. In addition to the Area
Development Fee, the Company is entitled to receive a Cafe Fee for each cafe
location to be opened under the terms of the Agreement. The first Cafe Fee
of $20,000 is due upon execution of the Area Development Agreement and is
non-refundable. The subsequent Cafe Fees of $10,000 per location are due
when leases are signed and are non-refundable.
The rights of each cafe, whether opened on an individual basis or by an
area franchise, include the right to operate satellite locations within the
exclusive territory of that cafe. Satellite locations are kiosk or counter
operations located in self-contained facilities where full cafe operation is not
feasible. Facilities occupied by one of franchisee's satellite locations are
governed by the existing Franchise Agreement, and once opened are considered a
part of the franchised business. The Company is generally entitled to a
satellite location opening fee of $3,500 which is paid to the Company upon
approval of the satellite location and is non-refundable.
Each cafe franchisee is generally required to pay the Company on a
weekly/monthly basis a 4%-6% royalty on cafe or satellite location gross
receipts (not including sales tax) and to pay on a weekly basis 2% of the cafe's
gross receipts (not including sales tax) to the Company's national advertising
fund after the Company has 25 cafes in operation, whether Company-owned or
franchised. Each cafe franchisee is also required to spend 2% of its gross
receipts (not including sales tax) on local cafe marketing.
FRANCHISEE SUPPORT SERVICES
SITE SELECTION. The Company assists the franchisee with site selection for
cafes. Through the Company's network of commercial real estate site selectors,
the Company often finds a site that meets its demographic criteria before the
franchisee. In any case, each site must be mutually approved by the franchisee
and the Company before a lease is signed.
CONSTRUCTION AND EQUIPMENT. The Company as of April, 1996, discontinued
operation of the turn-key construction and equipment option to franchisees. The
Company will offer a selected national equipment supplier and assist in the
construction solutions. The Company believes that the change to an outside
third party will allow the franchisee to build the cafe at the best price and
value.
FIELD SUPPORT. The Company maintains a staff of well-trained and
experienced franchise field representatives who help to train franchisees and
assist them in opening new cafes and who monitor the operations of existing
locations. These services are provided as part of the Company's franchise
program.
MARKETING AND ADVERTISING SUPPORT. The Company provides franchisees with a
full range of marketing materials and consumer literature. The Company
regularly prepares and provides to franchisees feature promotions relating to a
specific coffee, beverage, food or retail item. These items, in conjunction
with the Company's Local Cafe Marketing Manual, provide the core of the
marketing and advertising support system. The franchise field representative
and the Company's marketing department work with the franchisee to implement and
monitor the effectiveness of the various promotions.
COMPETITION
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The Company's whole bean coffees compete directly against specialty coffees
sold at retail through supermarkets specialty retailers and a growing number of
specialty coffee stores. The Company's coffee beverages compete directly
against all restaurant and beverage outlets that serve coffee and a growing
number of espresso stands, carts, and stores. Both the Company's whole bean
coffees and coffee beverages compete indirectly against all other coffees on the
market. The Company believes that its customers choose among retailers
primarily on the basis of quality and convenience, and to a lesser extent, on
price.
Management believes that supermarkets pose the greatest competitive
challenge in the whole bean coffee market, in part because supermarkets offer
customers the convenience of not having to make a separate trip to the Company's
stores. A number of nationwide coffee manufacturers, such as Kraft, General
Foods, Procter & Gamble and Nestle are distributing premium coffee products in
supermarkets and those products may serve as substitutes for the Company's
coffees. Regional specialty coffee companies, such as Green Mountain Coffee,
Inc., Hillside Coffee and Sarks, also sell whole bean coffees in supermarkets.
In addition, the Company competes for whole bean coffee sales with other
franchise operators and locally owned specialty coffee stores. There are a
number of competing specialty coffee retailers with significantly more locations
than the Company, such as Starbucks Corporation, which has a total of 800+
retail stores and licensed airport stores located in the United States and
Canada, Gloria Jean's Coffee Bean Corp., a franchisor of approximately 230+
specialty coffee stores located primarily in shopping malls throughout the
United States, Barnie's Coffee and Tea Co., a franchisor with approximately 90
locations in the United States, and The Coffee Beanery Ltd., a franchisor of
specialty coffee stores which operates approximately 165 locations in the United
States.
The Company's primary competitors for beverage sales are restaurants,
shops, and street carts. Although competition in the beverage market is
currently fragmented, a major competitor with substantially greater financial,
marketing, and operating resources than the Company could enter this market at
any time and compete directly against the Company.
The Company competes with fast food chains, major restaurant chains and
other food service related franchisors for franchisees of its cafes, carts and
kiosks. Many franchisors have greater market recognition and greater financial,
marketing and human resources than the Company.
The Company also expects that competition for suitable sites for new stores
to support the Company's planned growth will be significant. The Company
competes against both other specialty retailers and restaurants for these sites,
and there can be no assurance that management will be able to continue to secure
adequate sites at acceptable rent levels.
Competition for the Paradise Bakery comes from a variety of concepts. The
direct competition for Paradise Bakery varies depending on the location of the
stores in shopping malls. Some competition comes from similar concepts, such
as, Au Bon Pain, which is a bakery/cafe concept, or sandwich/salad concepts,
such as Wall Street Deli, located within the area or located close to a Paradise
Bakery. Other types of competitors are strictly bakery product driven, such as,
Cinnabon and Mrs. Fields. What sets Paradise apart from most competitors is
menu mix, positioning, and pricing.
GOVERNMENT REGULATION
The Company is subject to Federal Trade Commission ("FTC") regulation and
state laws
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which regulate the offer and sale of franchises. The Company is also subject
to a number of state laws which regulate substantive aspects of the
franchisor-franchisee relationship. The FTC's Trade Regulation Rule on
Franchising (the "FTC Rule") requires the Company to furnish to prospective
franchisees a franchise offering circular containing information prescribed
in the FTC Rule.
State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship presently exist in a substantial number of
states. Such laws generally require registration of the franchise offering with
state authorities and regulate the franchise relationship by, for example,
requiring the franchisor to deal with its franchisees in good faith, prohibiting
interference with the right of free association among franchisees, limiting the
imposition of standards of performance on a franchisees and regulating
discrimination against franchisees in charges, royalties or fees. Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination provides an opportunity to
cure a default and a repurchase of inventory or other compensation, these
provisions have not had, and are not expected to have, a material effect on the
Company's franchise operations. The Company is not aware of any pending
franchise legislation which, in its view, is likely to significantly affect the
operations of the Company. The Company believes that its operations comply in
all material respects with the FTC Rule and the applicable state franchise laws.
Each Company-owned and franchised cafe and kiosk is subject to licensing
and regulation by a number of governmental authorities, which may include
health, sanitation, safety, fire building and other agencies in the state and
municipality in which the cafe or kiosk is located. Additionally, the food
service industry in general is subject to extensive federal, state and local
government regulations relating to the development and operation of food service
outlets, including laws and regulations relating to building and seating
requirements, the preparation and sale of food, cleanliness, safety in the work
place and accommodations for the disabled. The Company-owned and franchised
cafes which are currently operating are subject to various federal, state and
local laws and regulations, including, without limitation, the Fair Labor
Standards Act, the Americans With Disabilities Act, the Department of
Agriculture, the Food & Drug Administration, and various state agencies.
Difficulties in obtaining or failure to obtain the required licenses or
approvals could adversely affect currently operating cafes and could delay or
prevent the development of a new cafe or kiosk in a particular area or location.
The Company is also subject to federal and state environmental regulations,
but, to date, these regulations have not had and are not expected to have in the
future, any material effect on the Company's operations. More stringent or
varied requirements of local governmental authorities with respect to zoning,
land use and environmental matters could delay or prevent the development of a
new cafe or kiosk in a particular area or location.
The Company is also subject to state and federal labor laws that govern its
relationship with its employees, such as minimum wage requirements, overtime
and working conditions, citizenship requirements and prohibitions against
discrimination. Significant numbers of the Company's food service and
preparation personnel are paid at rates governed by the federal minimum wage
laws. Accordingly, further increases in the minimum wage will increase the
Company's labor costs.
TRADEMARKS
The Company has registered the Java Centrale name and the Paradise Bakery
name and their logos with the United States Department of Commerce Patent and
Trademark Office. The Company currently uses a variety of other trademarks
which it expects to file applications for
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registration beginning in December of 1996. These trademarks are "Centrale
Royale", "The Daily Brews", "For the Luv-a-Java", "Java Jive", "Oh-La-La!",
"Nice 'n Iced", "Splendid Blended" , "Cookie Munchers Paradise", "Paradise
Bakery", "Paradise Bakery Unique Quality", "Cookie Muncher's Paradise A
Unique Bakery", "Paradise Bakery & Cafe", and "Chip Munchers".
EMPLOYEES
As of March 31, 1996, the Company had 22 full time salaried employees and
10 hourly employees at its headquarters location in Sacramento, California. As
of such date, the Company also employed an additional 64 salaried employees and
400 hourly employees in its operations. None of the Company's employees is
represented by a labor union and the Company considers relations with its
employees to be generally good.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Not Applicable.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 7768 square feet of office space in Sacramento,
California, which it utilizes for its corporate headquarters. The Company has a
lease for the facility, which expires in August of 2001.
The Company leases 2,537 square feet of office space in Cost Mesa,
California, which it utilizes for its Paradise corporate headquarters. The
lease expires in February of 1999.
The Company leases 12,011 square feet for six Java Centrale cafes operating
in California, Nevada, Illinois, Texas and Massachusetts, and expires from 2002
to 2005.
The Company assumed leases for 29,999 square feet as part of the Paradise
Bakery Company operation in California and Texas. These leases expire from 1997
to 2002.
As part of its acquisition of assets from Oh-La-La!, Inc. in March of 1995,
the Company assumed 14 leases previously held by Oh-La-La!, Inc.. The leases
assumed, all of which are for cafe locations in the San Francisco Bay Area,
expire at various times between June of 1995 and March of 2004, with additional
extensions for a majority of these leases. All of these leases include
provisions which will require the Company to pay the lessors a percentage of the
Company's gross profits and certain of the operating expenses related to the
properties, in addition to a set minimum monthly lease amount. These 14 leased
properties cover an aggregate of 16,807 square feet, of which 10,946 square feet
represents office and production space. The minimum aggregate rental for all
properties is $1,253,490.
ITEM 3. LEGAL PROCEEDINGS
In January 1996, a franchisee of the Company in Dallas, Texas, and its
owners filed a petition seeking damages and alleging fraud in knowingly
misrepresenting facts concerning the franchise. They also allege violation of
the Texas Business Opportunity Act by making misleading or deceptive acts or
promises, and breach of fiduciary duty in connection with the franchisee's entry
into a lease agreement for the premises. The petition also claimed the Company
committed discriminatory pricing by paying a lower price and/or receiving
rebates for Brand Name Products not available to the franchisee, thereby
resulting in the franchisee receiving a different price for a like kind or
quality of goods. The Company has denied the allegations, and has filed a
separate action against the franchisee in California. Although the proceedings
are still
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at an early stage and no prediction may be made about the potential outcome
of this litigation, the Company and its legal counsel believe that the
plaintiff's claim is without substantial merit and it intends to vigorously
defend itself against this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
[THIS SPACE INTENTIONALLY LEFT BLANK]
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is its only class of equity securities
outstanding. The Common Stock is listed for trading on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") Small
Cap List, under the symbol "JAVC". The following table sets forth, for the
calendar quarterly periods indicated, the range of high and low sale prices
for the Common Stock as reported by NASDAQ since May 10, 1994, the date on
which the Company's shares first became publicly traded. Prior to May 10,
1994, there was no established public trading market for the Company's Common
Stock. All per-share prices given in this Annual Report have been
retroactively adjusted to give effect to the Company's 25% Common Stock
dividend paid July 15, 1994.
HIGH LOW
------ -----
1994
Second quarter (beginning May 10)...................... $5.00 $2.50
Third quarter.......................................... 3.13 1.88
Fourth quarter......................................... 2.88 1.88
1995
First quarter.......................................... 2.63 1.63
Second quarter......................................... 3.13 1.00
Third quarter.......................................... 8.75 2.50
Fourth quarter......................................... 5.44 2.00
1996
First quarter.......................................... 3.25 1.56
Second quarter......................................... 1.63 .75
At June 28, 1996, there were 124 holders of record of the Company"s Common
Stock.
The Company has never paid a cash dividend on its Common Stock, and does
not anticipate paying any dividends in the immediately foreseeable future. As a
California corporation, the payment of dividends by the Company is limited by
California law and subject to the discretion of its Board of Directors. With
certain exceptions, a California corporation may not pay a dividend to its
shareholders unless its retained earnings equal at least the amount of the
proposed dividend. California law further provides that, in the event that
sufficient retained earnings are not available for the proposed distribution, a
corporation may nevertheless make a distribution to its shareholders if it meets
the following two generally stated conditions: (a) the corporation"s assets
equal at least 1.25 times its liabilities, and (b) the corporation"s current
assets equal at least its current liabilities, or if the average of the
corporation"s earnings before taxes on income and before interest expense for
the two preceding fiscal years was less than the average of the corporation"s
interest expense for such fiscal years, then the corporation"s current assets
must equal at least 1.25 times its current liabilities.
ITEM 6. SELECTED FINANCIAL DATA
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The following table sets forth the selected operating results and balance
sheet data of the Company for the periods and as of the dates indicated. The
selected financial data was derived from the Company"s financial statements
which have been audited by Grant Thornton LLP, independent certified public
accountants, and should be read in conjunction with such financial statements
and related notes and "Management"s Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year ended
March 31,
--------------------------
1996(3)(4) 1995 1994
------------- ----------- ------------
<S> <C> <C> <C>
Revenues $ 9,554,800 $ 1,775,670 $ 894,398
Operating expenses 13,592,885 3,810,807 2,133,942
----------- ---------- ----------
Operating loss (4,038,085) (2,035,137) (1,239,544)
Debt conversion expense - (118,953) -
Interest Income (expense), net 71,659 259,907 (1,062)
----------- ---------- ----------
Net loss $(3,966,426) $(1,894,183) $(1,240,606)
----------- ---------- ----------
----------- ---------- ----------
Loss per equivalent common share $ (.61) $ (.42) $ (.53)
----------- ---------- ----------
----------- ---------- ----------
(1)(2)
Common stock and equivalent 6,526,377 4,488,532 2,507,652
common shares outstanding ----------- ---------- ----------
- weighted average ----------- ---------- ----------
</TABLE>
BALANCE SHEET DATA:
March 31,
------------------
1996 (3)(4) 1995
------------ -----------
Working capital (deficit) $ (77,400) $3,787,809
Total assets 16,732,067 7,563,627
Notes payable 4,800,215 809,733
Common stock 15,493,137 9,576,860
Accumulated deficit (8,112,230) (4,145,804)
_______________________
(1) Net loss is adjusted for dividends on the preferred stock of $77,237 ($.03
per common share equivalent) for the period ended March 31, 1994.
(2) For the year ended March 31, 1994, supplemental loss per share, assuming
payment of outstanding debt with proceeds from the public offering of
1,500,000 shares of Common Stock, is not presented since it is not
materially different.
(3) For the year ended March 31, 1996, the Company completed 12 months of
operation from the Oh La La! acquisition dated March 31, 1995. (See
footnote D of the Note to Consolidated Financial Statements.)
(4) For the year ended March 31, 1996, the Company's results include three
months of operation from the Paradise Bakery acquisitions dated December
31, 1995. (See footnotes E and F of the Notes to Consolidated Financial
Statements.)
ITEM 7. MANAGEMENT"S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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GENERAL
The Company began operations on March 5, 1992, and operated as a
development stage enterprise through the end of its fiscal year ended March 31,
1993. As a development stage enterprise, the Company focused its efforts on
financial planning, raising capital, research and development, establishing
sources of supply, developing markets, organizing the corporation, acquiring
assets, and developing its business plan. During this time, the Company
completed the filing of its Uniform Franchise Offering Circulars. The Company
also completed its training facility in Folsom, California, which is now being
used to provide training to franchisees and their key employees in the
operations of franchisee-owned Java Centrale cafes.
As of March 31, 1996, the Company had operating 40 Company-owned locations
and 64 franchisee-owned locations, as compared to 17 Company-owned locations,
and 22 franchisee-owned locations as of March 31, 1995, and three Company-owned
locations and six franchisee-owned locations as of March 31, 1994.
The Company entered into agreements with franchisees to open 33 cafes
during the year ended March 31, 1996, as compared to entering into agreements
with franchisees to open 22 cafes and six carts during the year ended March 31,
1995. The Company entered into agreements to open 55 cafes (including a
franchise agreement for 46 cafes with one franchise under an Area Development
Agreement) and 18 carts during the year ended March 31, 1994.
The Company actually opened 15 franchisee-owned cafes, and three
Company-owned cafes, as compared to opening 11 franchisee-owned cafes and
eight franchisee-owned carts during the year ended March 31, 1995. The
Company opened four franchisee-owned cafes, two franchisee-owned carts, and
no Company-owned cafes or carts during the year ended March 31, 1994.
The Company had one franchisee-owned cafe close in the fiscal years 1996
and 1995.
The Company acquired five cafes from franchisees and operated the cafes
as Company-owned after the purchase during the year ended March 31, 1996, as
compared to none for the year ended March 31, 1995, and March 31, 1994. As
part of these cafe acquisitions the Company also re-acquired the rights to
open 58 cafes in California, Nevada, Illinois, and other eastern states.
On November 14, 1994 the Company entered into a Joint Venture Formation
Agreement with Banyan Capital, Limited Partnership for the development of
fifty cafes in the State of Florida over a five-year period, and for rights
to other markets on the Eastern Seaboard. The Joint Venture Formation
Agreement and related transactions was completed in July, 1995 and as of
March 31, 1996, there were three cafes operating under this agreement.
On March 30, 1995, with bankruptcy court approval, the Company acquired
substantially all the operating assets of Oh-La-La!, Inc. held at the
locations being purchased and certain other operating assets. The tangible
assets and liabilities acquired consist mainly of tenant improvements,
equipment, and loans payable. The purchased locations represent a significant
portion of the Company's revenues and operations.
On December 31, 1995, the Company acquired 100% of the outstanding stock
of Paradise Bakery, Inc. At the time of the acquisition, Paradise Bakery had
7 Company-owned and 44 franchisee-owned bakery/cafes operating in nine
states. On January 1, 1996, the Company acquired through a merger with
Founders Venture, Inc., seven franchisee-owned bakery/cafes operating in
Texas. On January 1, 1996, the Company acquired through an asset purchase
agreement three franchisee-owned bakery/cafes operating in Northern
California. Immediately
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following these three acquisitions, the Company was operating 17
Company-owned and 34 franchisee-owned bakery/cafes. The Company opened one
Company-owned bakery/cafe in the year ended March 31, 1996. These
acquisitions of Paradise bakery/cafe locations will represent a significant
portion of the Company's revenues and operations.
RESULTS OF OPERATIONS
The Company's revenues are currently derived primarily from Company-owned
locations, initial franchise fees, resulting from cafe openings, franchise
royalties, equipment sales, and product overrides on sales to its franchisees.
Franchise fees range from $15,000 to $25,000 per cafe. The Company is entitled
to 4%-6% of the gross receipts from each franchised cafe, and 2%-10% of the
gross receipts from each franchised cart. Product overrides range from 3% to
10% of the total purchase of coffee from the Company's contract roaster.
FISCAL 1996 AS COMPARED TO FISCAL 1995
Total Company revenues for the fiscal year ended March 31, 1996 totaled
$9,555,000, as compared to $1,776,000 for the year ended March 31, 1995, an
increase of $7,779,000, or 438%. The principal components of this increase were
increased revenues amounting to $6,249,000 from Oh La La! purchased locations
and the acquisition of the Paradise Bakery operations as of December 31, 1995.
The Company's revenues from Company-owned retail operations increased by
$7,108,000, to $7,585,000 for the fiscal year ended March 31, 1996, from
$477,000 for the fiscal year ended March 31, 1995. This increase resulted
primarily from $3,424,000 in revenues recognized with the acquisition of the Oh
La La! locations and $2,826,000 in revenues recognized with the acquisition of
the Paradise Bakery locations, additionally an increase of $858,000, or 180%, in
revenues at the Company-owned Java Centrale locations from the addition of five
Company-owned cafes during the 1996 fiscal year.
Revenues from the Company's franchising operations slightly decreased
$3,000, or 1% to $395,000 for the fiscal year ended March 31, 1996, from
$398,000 for the fiscal year ended March 31, 1995, resulting from a decrease in
forfeited franchise fees recognized by the Company during the 1996 fiscal year
of $49,000, as compared to $79,000 received during the 1995 fiscal year.
Revenues from the Company's royalties increased $327,000, or 165%, to
$525,000 for the fiscal year ended March 31, 1996, from $198,000 for the fiscal
year ended March 31, 1995. This increase resulted primarily from the royalties
associated with the acquisition of Paradise Bakery
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amounting to $196,000 and the opening of 15 new franchisee-owned locations
during the 1996 fiscal year.
Revenues from the Company's equipment sales increased $348,000, or 50%,
to $1,050,000 for the fiscal year ended March 31, 1996 from $702,000 for the
fiscal year ended March 31, 1995. This increase resulted primarily from an
increase of 15 franchisee-owned cafe locations opened during the 1996 fiscal
year, as compared to the 11 franchisee-owned cafe locations opened during
fiscal 1995. The Company sells the equipment required to substantially all of
its franchisee-owned locations.
Total expenses for the year ended March 31, 1996 were $13,593,000, an
increase of $9,782,000, or 257%, over expenses of $3,811,000 for the year ended
March 31, 1995. The principal components of the increase in expenses resulted
from $7,126,000 in operating expenses associated with the acquisition of the Oh
La La! locations and the acquisition of Paradise Bakery. Additionally, the
increase resulted from the Company recognizing during the fiscal year end 1996,
a one-time non-recurring expense of $453,000 relating to the issuance of shares
below market pursuant to a consulting agreement to develop acquisitions,
franchising opportunities and consult regarding investment relation matters for
the Company. Additionally, there was an increase in the cost of equipment,
selling, general and administrative expenses, depreciation and amortization and
other operating costs from the addition of Oh La La! and Paradise Bakery.
The cost of food and beverage, labor, and operating costs for the
Company's retail operations increased $6,862,000, for the year ended March
31, 1996, to $7,503,000, as compared to $641,000, for the year ended March
31, 1995. The increase resulted primarily from $5,197,000 in operating costs
associated with the acquisition of the Oh La La! locations and the
acquisition of the Paradise Bakery locations. Additionally, an increase of
$1,288,000 in operating costs associated with the addition of six
Company-owned Java Centrale cafes during the 1996 fiscal year as compared to
the 1995 fiscal year.
The Company's cost of equipment increased by $263,000, or 34%, in the
year ended March 31, 1996, to $1,038,000, as compared to $775,000 for the
year ended March 31, 1995. This increase resulted primarily from the growth
in the Company's opening seven additional franchisee-owned locations during
the year.
Selling, general, and administrative expenses increased $1,910,000, or 81%,
during the year ended March 31, 1996, to $4,261,000 from $2,351,000 during the
1995 fiscal year, primarily because of higher expenses associated with legal,
accounting, consulting, investor relations, and higher expense relating to
franchise recruitment, training, and support, and overall administration
salaries relating to the acquisition of Oh La La! and Paradise Bakery.
Additionally, the increase resulted from the Company recognizing during the
fiscal year end 1996, a one-time non-recurring expense of $453,000 relating to
the issuance of shares below market pursuant to a consulting agreement to
develop acquisitions, franchising opportunities and consult regarding investment
relation matters for the Company.
For the year ended March 31, 1996, the Company had an operating loss of
$4,038,000, a net loss of $3,966,000, and a loss per share of $.61, as
compared to an operating loss of $2,035,000, a net loss of $1,894,000, and a
loss per share of $.42 for the fiscal year ended March 31, 1995. The
increased operating loss and net loss primarily resulted from higher expenses
associated with the Java Centrale system, increased administrative salaries,
legal, accounting, consulting and investor relations, depreciation and
amortization, and increased expenses associated with franchisee recruitment,
support and training and the recognition of $410,000 in losses associated
with cafe and cart closures. Additionally, the increase resulted from the
Company recognizing during the fiscal year end 1996, a one-time non-recurring
expense of $453,000 relating to the issuance of shares below market pursuant
to a consulting agreement to develop acquisitions, franchising opportunities
and consult regarding investment relation matters for the Company.
FISCAL 1995 AS COMPARED TO FISCAL 1994
Total company revenues for the fiscal year ended March 31, 1995, totaled
$1,776,000, as compared to $894,000 for the year ended March 31, 1994, an
increase of $882,000, or 99%. The principal components of this increase were
increased revenues from franchising activities, equipment sales, and Company
retail operations.
21
<PAGE>
The Company's revenues from Company-owned retail operations increased by
$49,000, or 11%, to $477,000 for the fiscal year ended March 31, 1995, from
$428,000 for the fiscal year ended March 31, 1994. This increase resulted
primarily from an increase in revenues at the Company-owned training location
and the addition of three Company-owned coffee carts.
Revenues from the Company's franchising operations increased $292,000, or
275%, to $398,000 for the fiscal year ended March 31, 1995, from $106,000 for
the fiscal year ended March 31, 1994. This increase resulted primarily from the
opening of eight new franchisee-owned locations during the 1995 fiscal year,
raising the total number of franchisee-owned locations open at March 31, 1995,
to 12, as compared to six such locations at March 31, 1994. In addition, the
amount of forfeiting franchisee fees received by the Company during the 1995
fiscal year was $79,000, as compared to none received during the 1994 fiscal
year.
Revenues from the Company's royalties increased $118,000, or 148%, to
$198,000 for the fiscal year ended March 31, 1995, from $80,000 for the fiscal
year ended March 31, 1994. This increase resulted primarily from an increase of
22 franchisee-owned locations operating during the 1995 fiscal year, as compared
to the six franchisee-owned locations operating during the 1994 fiscal year.
Revenues from the Company's equipment sales increased $422,000, or 151%, to
$702,000 for the fiscal year ended March 31, 1995, from $280,000 for the fiscal
year ended March 31, 1994. This increased resulted primarily from an increase
of eight in franchisee-owned locations opened during the 1995 fiscal year, as
compared to the four new locations opened during fiscal 1994. The Company sells
the equipment required to substantially all of its franchisee-owned locations.
Total expenses for the year ended March 31, 1995, were $3,811,000, an
increase of $1,677,000, or 79%, over expenses of $2,134,000 for the year ended
March 31, 1994. The principal components of the increase in expenses were cost
of equipment, selling, general and administrative expenses, and other operating
costs.
The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $158,000, or 33%, for the year ended March 31, 1995,
to $641,000 as compared to $483,000 for the year ended March 31, 1994. The
increase resulted primarily from the costs associated with the Company's three
additional coffee carts and increased costs at the Company's training facility
in Folsom, California.
The Company's costs of equipment increased by $445,000, or 135%, in the
year ended March 31, 1995, to $775,000, as compared to $330,000 for the year
ended March 31, 1994. this increase resulted primarily from the growth in the
Company's operating franchisee-owned locations during the year. Additionally,
the Company experienced higher than anticipated costs associated with the
construction of the four new franchisee-owned locations opened during the year.
Selling, general, and administrative expenses increased $1,103,000, or 88%,
during the year ended March 31, 1995, to $2,351,000 from $1,248,000 during the
1994 fiscal year, primarily because of higher expenses associated with legal,
accounting, consulting, and investor relations as a result of being a public
company and higher expense relating to franchise recruitment, training, and
support and overall administration salaries.
For the year ended March 31, 1995, the Company had an operating loss of
$2,035,000, a net loss of $1,894,000, and a loss per share of $0.42, as compared
to an operating loss of $1,240,000, a net loss of $1,241,000, and a loss per
share of $0.53 for the fiscal year ended March 31, 1994.
22
<PAGE>
The increased operating loss and net loss primarily resulted from higher
expenses associated with being a public company, including increased
administrative salaries, legal, accounting, consulting and investor
relations, and increased expenses associated with franchisee recruitment,
support, and training.
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial capitalization was obtained through the issuance of
2,500,000 shares of no par common stock for $10,000 on March 5, 1992. In
addition, the Company issued 2,950,000 shares of Series A cumulative preferred
stock, in exchange for 2,950,000 shares of no par cumulative preferred stock,
which were subscribed for on March 5, 1992 for proceeds of $590,000, on
March 12, 1993. On March 30, 1993, the Company sold 5,000,000 shares of no par
value redeemable Series B cumulative preferred stock for $1,000,000. The
proceeds from the issuance of all such stock were used for capital acquisitions
and operating costs of the Company during its development stage. On
May 19, 1994, the Company raised $7,288,000 in net proceeds from an initial
public offering of 1,500,000 shares of common stock. Of the 4,291,820 shares
outstanding after the offering, 855,300 were placed in escrow and are subject to
an Escrow Agreement which provides for the release of such shares on or before
March 31, 1999, with earlier release based upon the financial performance of the
Company. See Item 12 'security Ownership of Certain Beneficial Owners and
Management -- Escrow Agreement," below.
The Company used a portion of the proceeds from the initial public offering
to repay long term debt, purchase equipment and furniture, support the operating
losses in developing the Company's operating system, and pay $500,000 as part of
the purchase price to acquire the operating assets of Oh-La-La!, Inc.
On July 15, 1994, the Company paid a 25% stock dividend on its Common Stock
to shareholders of records on June 30, 1994. Prior to the issuance of the
dividend, employees and officers of the Company holding securities, including
warrants and options, waived their rights to receive the stock dividend and also
waived the impact such stock dividend would have on any options or warrants held
by the security holders, including, but not limited to, any anti-dilution
provisions relating to such options and warrants.
In the 1996 fiscal year the Company issued 1,604,692 common shares for
$3,540,722 in proceeds in a series of private placements. The Company also
issued convertible debt in three separate private transactions totaling
$3,500,000. As of March 31, 1996, none of the convertible debt has been
converted into the Company's common stock.
The Company used $5,375,000 of the cash raised through the private
transactions to acquire 100% of the common stock in Paradise Bakery, Inc., on
December 31, 1995. Additionally, as part of the acquisition of Paradise Bakery,
Inc., the Company issued notes to the seller in the amount of $1,350,000. The
Company also issued notes in the amount of $46,071 to the sellers and assumed
$97,950 in debt obligation associated with the asset purchase of the three
Paradise Bakery locations. The Company assumed bank debt in the amount of
$1,085,000 and $24,535 in lease obligations associated with the merger of
Founders Venture, Inc., into Paradise Bakery, Inc.
As of March 31, 1996, the Company had received $144,839 in partial funding
of a lease commitment amounting to $240,000. The Company has received the
remaining portion of this commitment by June 30, 1996.
As part of the purchase price for the assets of Oh La La! acquired by the
Company on March 31, 1995, the Company issued to Oh La La!, Inc. a note payable
of $745,874, and assumed liabilities for tenant improvement loans related to the
properties acquired of $113,306. In January
23
<PAGE>
of 1996, the Company converted a note payable of $745,874 into 234,000 shares
of common stock pursuant to the terms of the note associated with the
acquisition of Oh La La!.
As of March 31, 1996, the Company had no line of credit available to it.
The Company incurred a net loss of $3,966,000 and used net cash of
$2,391,000 in operating activities for the year ended March 31, 1996. The
Company has developed a specific operating plan to meet the ongoing liquidity
needs of the Company's operations both for the year ended March 31, 1997, and
thereafter.
During the quarter ended June 30, 1996, the Company reduced administrative
salaries, certain employee benefit costs and marketing expenses. The Company
has sold two Company-owned cafes and is actively pursuing the sale of assets
associated with the Company's cafe operations. In February of 1996, the Company
completed the expansion and remodeling of key Oh La La! locations which
management believes will increase the operating margins of this division. As of
July 11, 1996, the Company has obtained three separate lines of credit amounting
to $925,000, of which senior management has committed to $175,000. These lines
will secure all the Company's assets. In addition to the operating plan, the
Company will benefit from 12 months of Paradise Bakery operating income during
the year ended March 31, 1997, as compared to three months in the year ended
March 31, 1996.
Management believes that this plan, which is currently being implemented,
is sufficient to meet the Company's liquidity needs for the year ended March 31,
1997, and thereafter.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following 27 pages contain the Company's audited balance sheets as of
March 31, 1996 and 1995, and the related statements of operations, stockholders"
equity (deficit), and cash flows for the years ended March 31, 1996, 1995, and
1994. No supplementary data is required to be filed by the Company by Section
302 of Regulation S-K.
24
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
JAVA CENTRALE, INC.,
AND SUBSIDIARY
March 31, 1996, 1995 and 1994
25
<PAGE>
C O N T E N T S
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 27
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 28
CONSOLIDATED STATEMENTS OF OPERATIONS 29
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY (DEFICIT) 30
CONSOLIDATED STATEMENTS OF CASH FLOWS 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 33
26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
JAVA CENTRALE, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of JAVA CENTRALE,
INC. (A CALIFORNIA CORPORATION) AND SUBSIDIARY as of March 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years ended March 31, 1996 and 1995 and 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Java Centrale,
Inc. and Subsidiary as of March 31, 1996 and 1995, and the consolidated results
of their operations and their consolidated cash flows for the years ended March
31, 1996, 1995 and 1994 in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
- ------------------
Sacramento, California
June 18, 1996
(except for note W, as to which the
date is July 11, 1996)
27
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS
1996 1995
--------------- --------------
CURRENT ASSETS:
Cash $ 1,182,078 $ 3,764,278
Notes receivable - current 485,751 193,129
Accounts receivable 405,574 25,234
Inventories 417,780 176,980
Notes receivable-officer 235,201 -
Prepaid expenses and other 595,285 252,026
--------------- --------------
Total current assets 3,321,669 4,411,647
NOTES RECEIVABLE 1,298,574 406,276
PROPERTY AND EQUIPMENT, NET 5,737,980 1,341,108
INTANGIBLE ASSETS 5,526,203 1,234,893
DEFERRED CHARGES AND OTHER 670,658 126,290
INVESTMENT IN JOINT VENTURE 176,983 43,413
--------------- --------------
$ 16,732,067 $ 7,563,627
--------------- --------------
--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,807,136 $ 458,206
Accrued liabilities 726,244 133,328
Due to related parties 22,637 9,104
Current maturities of long-term
debt 746,785 23,200
Current capital lease obligations 96,267 -
--------------- --------------
Total current liabilities 3,399,069 623,838
DEFERRED REVENUES 1,003,500 689,000
LONG-TERM DEBT 1,171,161 809,733
CONVERTIBLE DEBT 3,500,000 -
CAPITAL LEASES 129,054 -
OTHER LIABILITIES 148,376 10,000
STOCKHOLDERS" EQUITY:
Series B Redeemable Preferred Stock,
$.01 per share per annum
cumulative, convertible, no par
25,000,000 shares authorized - -
Common stock, no par, 25,000,000 shares
authorized, issued and outstanding
shares; 8,533,587 - 1996
and 5,316,820 - 1995 15,493,137 9,576,860
Accumulated deficit (8,112,230) (4,145,804)
--------------- --------------
7,380,907 5,431,056
--------------- --------------
$ 16,732,067 $ 7,563,627
--------------- --------------
--------------- --------------
The accompanying notes are an integral part of these statements.
28
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Company cafe sales $ 7,585,190 $ 476,859 $ 428,438
Franchise operations 394,788 398,000 106,000
Royalties 524,635 198,413 79,570
Sales of equipment and supplies 1,050,187 702,398 280,390
---------------- ------------ ------------
Total revenue 9,554,800 1,775,670 894,398
Cost of company sales:
Food and beverage 2,597,238 222,857 169,903
Labor 2,714,067 265,075 171,493
Direct and occupancy 1,742,044 72,999 116,263
Cost of equipment and supplies 1,038,497 774,984 329,986
Depreciation 227,631 34,865 22,775
Other 222,000 45,256 2,179
---------------- ------------ ------------
Total cost of company sales 8,541,477 1,416,036 812,599
---------------- ------------ ------------
General and administrative expenses 4,261,049 2,351,025 1,248,318
Depreciation and amortization 380,159 43,746 73,026
Loss associated with cart and cafe closures 410,200 - -
---------------- ------------ ------------
Operating loss (4,038,085) (2,035,137) (1,239,545)
---------------- ------------ ------------
Other income (expense):
Interest expense (117,284) (7,247) (31,803)
Interest income 98,295 216,842 6,444
Debt conversion expense - (118,953) -
Other income 90,648 50,312 24,298
---------------- ------------ ------------
Net loss $ (3,966,426) $ (1,894,183) $ (1,240,606)
---------------- ------------ ------------
---------------- ------------ ------------
Net loss per weighted average equivalent
common share outstanding $ (.61) $ (.42) $ (.53)
---------------- ------------ ------------
---------------- ------------ ------------
Equivalent common shares outstanding 6,526,377 4,488,532 2,507,652
---------------- ------------ ------------
---------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Three years ended March 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
------------------------ ------------------------
Shares Amount Shares Amount (Deficit) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1993 7,950,000 $ 1,590,000 2,500,000 $ 10,000 $ (930,029) $ 669,971
Dividends on Series A
preferred stock - - - - (30,712) (30,712)
Dividends on Series B
preferred stock - - - - (50,274) (50,274)
Conversion of Series A
preferred stock to
common stock (2,950,000) (590,000) 91,820 590,000 - -
Net loss - - - - (1,240,606) (1,240,606)
----------- ----------- ----------- ----------- ----------- -----------
Balances, March 31, 1994 5,000,000 1,000,000 2,591,820 600,000 (2,251,621) (651,621)
Initial public offering of
common stock, net
of expenses - - 1,500,000 7,288,407 - 7,288,407
Conversion of Series B
preferred stock to
common stock (5,000,000) (1,000,000) 200,000 1,000,000 - -
Debt conversion expense - - - 118,953 - 118,953
Stock dividend - - 425,000 - - -
Shares issued for
acquisition - - 600,000 569,500 - 569,500
Net loss - - - - (1,894,183) (1,894,183)
----------- ----------- ----------- ----------- ----------- -----------
Balances, March 31, 1995 - - 5,316,820 9,576,860 (4,145,804) 5,431,056
Shares issued for cafe
purchases - - 279,721 466,168 - 466,168
Warrants converted to
common stock - - 300,000 120,000 - 120,000
Note payable converted to
common stock - - 234,000 748,800 - 748,800
Shares issued for acquisitions - - 505,926 467,477 - 467,477
Shares issued for private
offerings, net of expenses - - 1,604,692 3,540,722 - 3,540,722
Shares issued for joint
venture investment - - 89,428 120,166 - 120,166
Shares issued for consulting
expenses - - 203,000 452,944 - 452,944
Net loss - - - - (3,966,426) (3,966,426)
----------- ----------- ----------- ----------- ----------- -----------
Balances, March 31, 1996 - $ - 8,533,587 $15,493,137 $(8,112,230) $ 7,380,907
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
30
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
March 31,
------------------------------------------------------
1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,966,426) $ (1,894,183) $ (1,240,606)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 607,790 78,293 56,894
Debt conversion expense - 118,953 -
Loss associated with cart and cafe closures 410,200 - -
Stock issued for consulting expenses 452,944 - -
Changes in operating assets and liabilities:
Inventories (20,410) (61,722) (18,606)
Deposits and prepaid expenses (318,478) (217,457) 25,908
Accounts payable and accrued liabilities 512,923 288,704 79,021
Payable to related parties (221,668) (8,492) 7,417
Deferred revenue 314,500 18,000 351,000
Accounts receivable 21,768 (111,283) (122,081)
Notes receivable 200,718 (228,776) (169,500)
Deferred charges and other assets (523,570) 143,936 -
Other liabilities 138,376 - -
----------- ----------- -----------
Net cash used in operating activities (2,391,333) (1,874,027) (1,030,553)
Cash flows from investing activities:
Purchase of furniture and equipment (1,432,166) (333,074) (32,138)
Increase in intangible assets (2,225) - (402)
Investment in joint venture (13,404) - -
Cash paid for net assets acquired and other
acquisition expenses (5,554,427) (676,170) -
----------- ----------- -----------
Net cash used in investing activities (7,002,222) (1,009,244) (32,540)
Cash flows from financing activities:
Proceeds from issuing convertible debt 3,500,000 - -
Proceeds from issuing common stock, net 3,540,722 7,288,407 -
Proceeds from (payment) of notes payable (494,206) (678,000) 478,000
Dividends paid on preferred stock - - (80,986)
Expenditures for initial public offering - - (131,343)
Proceeds from capital lease obligations 144,839 - -
Proceeds from warrant conversions 120,000 - -
----------- ----------- -----------
Net cash provided by
financing activities 6,811,355 6,610,407 265,671
----------- ----------- -----------
Net (decrease) increase in cash (2,582,200) 3,727,136 (797,422)
Cash and cash equivalents, beginning of period 3,764,278 37,142 834,564
----------- ---------- -----------
Cash and cash equivalents, end of period $ 1,182,078 $ 3,764,278 $ 37,142
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
31
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year ended
March 31,
----------------------------------------
1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
Cash paid for:
Income taxes $ - $ - $ -
Interest $ 55,006 $ 7,247 $ 22,243
</TABLE>
NON-CASH TRANSACTIONS:
During the year ended March 31, 1996, the Company issued 203,000
shares of common stock valued at $452,944 pursuant to a consulting
agreement. The Company recognized a one-time nonrecurring expense
of $452,944 as a result of issuance of these shares.
During the year ended March 31, 1996, the Company converted its
note payable relating to the acquisition of Oh La La!, Inc., of
$745,874 (face value $932,342) plus accrued interest into 234,000
shares of common stock.
During the year ended March 31, 1996, the Company completed the
initial phase of a joint venture agreement for the development of
the Florida market and issued 89,428 shares of common stock in
exchange for 18.3% of the joint venture's outstanding shares.
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Acquisition of Paradise Bakery, Inc., Founders Venture, Inc. and
Venture 88, Inc., during the year ended March 31, 1996 and
acquisition of Oh La La!, Inc. during the year ended March 31, 1995.
<TABLE>
<CAPTION>
Year ended
March 31,
---------------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash paid $ 5,375,000 $ 500,000
Note payable 1,350,000 745,874
Common stock issued 467,477 569,500
Liabilities assumed 1,960,251 113,306
Costs associated with acquisitions 250,185 176,170
------------ ------------
9,402,913 2,104,850
Fair value of assets acquired (4,994,719) (885,067)
License rights - (100,000)
------------ ------------
Goodwill resulting from acquisitions $ 4,408,194 $ 1,119,783
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996, 1995 and 1994
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
Java Centrale, Inc. (the Company) operates under the brand names of
Java Centrale, Oh La La!, a division of the Company, (acquired in March
1995) and Paradise Bakery, a wholly owned subsidiary of the Company,
(acquired in December 1995). Java Centrale and Oh La La! are primarily in
the business of selling gourmet coffee products along with breakfast and
lunch items. Paradise is primarily in the business of selling freshly
baked cookies, muffins, croissants and provides a full lunch menu. Java
Centrale and Paradise operate both company and franchisee owned locations.
Oh La La! operates both company owned and licensed locations.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements of the Company
follows.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany transactions
are eliminated.
2. REVENUE FROM FRANCHISE SALES
REVENUE FROM AREA FRANCHISE SALES - Franchise fee revenue and costs are
recognized on a pro rata basis as each unit is opened and all material
services or conditions relating to those units have been substantially
performed or satisfied by the Company.
REVENUE FROM INDIVIDUAL FRANCHISE SALES - Franchise fee revenue and costs
from individual franchise sales is recognized when all material services or
conditions relating to the sale have been substantially performed or
satisfied by the Company and the store is opened.
REVENUE FROM EQUIPMENT SALES - Revenue from equipment sales is recognized
when the equipment is delivered to the franchisee.
3. INVENTORIES
Inventories, consisting principally of franchise related supplies and
equipment, are stated at the lower of cost (first-in, first-out method) or
market.
33
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
4. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
computed using the straight-line method over the estimated useful life of
the asset or the lease term, where applicable, whichever is less.
The estimated lives used in determining depreciation and amortization are:
Tenant improvements 6.5 - 10 years
Machinery and equipment 6 - 10 years
Furniture and fixtures 3 - 10 years
5. INTANGIBLE ASSETS
Intangible assets consist of goodwill, organizational costs and license
name. All intangible assets are amortized on a straight line basis over
the following classifications and years:
Goodwill 15 years
Organizational costs 5 years
License rights 10 years
The Company will evaluate its goodwill annually to determine potential
impairment by comparing the carrying value to the undiscounted future cash
flows of the related assets.
6. INCOME TAXES
The Company utilizes an asset and liability approach in accounting for
income taxes. This approach requires the recognition of the deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities. Deferred tax assets and liabilities
are reflected at currently enacted income tax rates applicable to the
period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income
taxes.
34
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. CASH AND CASH EQUIVALENTS
For purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with maturities of three months or
less to be cash equivalents.
8. RECLASSIFICATIONS
Certain reclassifications were made to the 1995 and 1994 financial
statements in order to be in conformity with the 1996 presentation.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash, accounts
receivable, accounts payable and short-term debt approximated fair value as
of March 31, 1996 because of the relatively short maturity of these
instruments. The carrying value of long-term debt approximated fair value
as of March 31, 1996 based upon current market rates for the same or
similar debt issues. As of March 31, 1996, notes receivable with a
carrying value of $2,019,526 had an estimated fair value of $1,897,000
based upon current market rates for notes with similar terms and credit
quality.
10. ESTIMATES USED IN FINANCIAL REPORTING
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
11. STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. That opinion requires that compensation cost related to fixed
stock option plans be recognized only to the extent that the fair value of
the shares at the grant date exceeds the exercise price. Accordingly, the
Company recognizes no compensation expense for its stock option grants.
35
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
12. FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-
LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS 121). SFAS
121 requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of that loss would be
based on the fair value of the assets. SFAS 121 also generally requires
long-lived assets and certain identifiable intangibles to be disposed of,
to be reported at the lower of the carrying amount or the fair value less
cost to sell. SFAS 121 is effective for the Company's 1997 fiscal year
end. The Company has made no assessment of the potential impact of
adopting SFAS 121 at this time.
13. LOSS PER SHARE
Loss per common share is based upon the weighted average number of common
and common equivalent shares outstanding. The computations of loss per
common share have been adjusted for dividend requirements on the preferred
stock of $77,237 ($.03 per common share equivalent) and for the 25% stock
dividend for the year ended March 31, 1994.
For all periods presented, the options, warrants and Series B preferred
stock are anti-dilutive. Accordingly, only the common shares outstanding
are included in the computation of weighted average shares outstanding, and
no fully diluted loss per share is presented.
NOTE C - FRANCHISE OPERATIONS
At March 31, 1996, the Company has commitments from franchisees for 109
franchisee owned cafes and carts which are not yet operational. Under
these commitments, the Company has received $717,500 in nonrefundable
deposits, and notes receivable of $286,000. No revenues have been
recognized in the financial statements related to the cafes and carts not
yet operational. The notes receivable do not bear interest, and are due
within twenty-four months of the note date.
36
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE C - FRANCHISE OPERATIONS - CONTINUED
Related to these commitments, the Company has deferred revenues of
$1,003,500 at March 31, 1996, which will be recognized when the Company
completes its initial commitments to the franchisees and the franchisee
owned store is open for business.
Under the franchise agreement, the Company receives an override on sales of
various coffee products to its franchisees. The Company, under a producer
agreement, currently purchases all of its coffee products from one vendor.
However, management believes that other sources of coffee products are
readily available and that no economic dependency on one vendor exists.
During the year ended March 31, 1996 the Company completed the first phase
of an agreement with another entity to eventually develop cafes in the
State of Florida. The Company contributed restricted common stock to the
joint venture and the joint venture then transferred a minority equity
interest to the Company. The Company does not have significant influence
over the joint venture, therefore, the interest is recorded under the cost
method of accounting.
NOTE D - ACQUISITION OF OH LA LA!, INC.
On March 30, 1995, with bankruptcy court approval, the Company acquired
substantially all the operating assets (excluding cash) of Oh La La!, Inc.
(Oh La La!) held at the locations (leases) being purchased and certain
other operating assets. In connection with this purchase, the Company
issued 600,000 shares of common stock. The tangible assets and liabilities
acquired consist mainly of tenant improvements, equipment, and loans
payable.
The purchase price approximated $2,100,000 consisting of $500,000 cash;
$745,874 note payable (fair value), $569,500 of restricted common stock;
liabilities assumed of $113,306 and $176,000 of acquisition costs.
This transaction was accounted for as a purchase. The purchase price was
allocated to the fair value of Oh La La! assets and liabilities and the
excess of $1,119,783 was allocated to goodwill. The goodwill will be
amortized on the straight-line method over a period of 15 years. The
depreciable assets will be depreciated over a period of 6 to 6.5 years.
The Company also acquired certain licensing agreements including the rights
to use the licensed name of Oh La La! and such rights will be amortized
over a 10 year period.
37
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE E - ACQUISITION OF PARADISE BAKERY, INC.
On December 31, 1995, the Company acquired 100% of the outstanding shares
of Paradise Bakery, Inc., (Paradise), pursuant to the terms of a Stock
Purchase Agreement dated December 14, 1995 between the Company and Chart
House Enterprises, Inc. (Seller). Paradise's operations consist of seven
bakery/cafe operations located in California and 44 franchised bakery/cafe
operations located in California, Washington, Oregon, Arizona, Colorado,
Oklahoma, Texas, Hawaii and Ontario, Canada. The locations will continue
to be operated under the name of Paradise Bakery.
The purchase price approximated $6,725,000 consisting of $5,375,000 in cash
and $1,350,000 in a note payable.
The transaction was accounted for as a purchase. The purchase price was
allocated to the fair value of Paradise's assets and liabilities and the
excess of $3,691,649 was allocated to goodwill. The goodwill will be
amortized on the straight-line method over a period of 15 years. The
depreciable assets will be depreciated over the remaining useful life on a
straight line basis. The assets and liabilities will be held in Paradise
Bakery, Inc., as a wholly-owned subsidiary of the Company.
NOTE F - ACQUISITION OF FOUNDERS VENTURES, INC.
On January 17, 1996, the Company merged with Founders Ventures, Inc.
(Founders) pursuant to the terms of a merger agreement dated December 15,
1995. The consideration paid by the Company consisted of 431,853 shares of
the Company.
The transaction was accounted for as a purchase. The purchase price was
allocated to the fair value of Founder's assets and liabilities and the
excess of $626,741 was allocated to goodwill. The goodwill will be
amortized on the straight-line method over a period of 15 years. The
depreciable assets will be depreciated over the remaining useful life on a
straight line basis. The assets and liabilities will be held in Paradise
Bakery, Inc., a wholly-owned subsidiary of the Company.
NOTE G - PROFORMA RESULTS OF OPERATIONS DUE TO SIGNIFICANT ACQUISITIONS
Following is unaudited proforma information which discloses the effect on
earnings of the acquisitions described in notes E and F. This information
is presented as if the acquisitions had occurred at the beginning of the
periods presented.
38
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE G - PROFORMA RESULTS OF OPERATIONS DUE TO SIGNIFICANT ACQUISITIONS -
CONTINUED
Because the companies have different year ends, the consolidated proforma
information shown below includes operations for the years ended December
31, 1995 and 1994 for both Paradise and Founders and March 31, 1996 and
1995 for the Company.
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Year ended March 31,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Total revenues $ 16,693,385 $ 11,667,144
Net loss $ (3,676,520) $ (1,306,986)
Loss per share $ (.53) $ (.26)
Weighted average shares outstanding 6,929,731 4,994,458
</TABLE>
NOTE H - PROPERTY AND EQUIPMENT
Property and equipment at March 31, consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Office furniture and equipment $ 361,873 $ 182,271
Tenant improvements 3,196,634 688,285
Cafe equipment 2,798,701 429,159
Cart equipment - 191,746
------------ ------------
6,357,208 1,491,461
Less accumulated depreciation and amortization (619,228) (150,353)
------------ ------------
$ 5,737,980 $ 1,341,108
------------ ------------
------------ ------------
</TABLE>
39
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE I - NOTES RECEIVABLE
Notes receivable at March 31, consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Equipment billings receivable $ 317,880 $ 329,405
Advertising fees receivable 60,000 -
Franchise fees receivable 286,000 270,000
Notes from franchisees 920,445 -
Note from joint venture 200,000 -
------------ ------------
1,784,325 599,405
Less current portion 485,751 193,129
------------ ------------
$ 1,298,574 $ 406,276
------------ ------------
------------ ------------
</TABLE>
NOTE J - INTANGIBLE ASSETS
Intangible assets at March 31, 1996 consist of the following:
<TABLE>
<CAPTION>
Accumulated
Cost Amortization Net
-----------------------------------------------------------
<S> <C> <C> <C>
Goodwill $ 5,575,006 $ 143,338 $ 5,431,668
Organizational cost 35,658 31,123 4,535
License rights 100,000 10,000 90,000
------------ ---------- ------------
Total $ 5,710,664 $ 184,461 $ 5,526,203
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
Intangible assets at March 31, 1995 consist of the following:
<TABLE>
<CAPTION>
Accumulated
Cost Amortization Net
-----------------------------------------------------------
<S> <C> <C> <C>
Goodwill $ 1,119,783 $ - $ 1,119,783
Organizational cost 32,733 17,623 15,110
License rights 100,000 - 100,000
------------ ---------- ------------
Total $ 1,252,516 $ 17,623 $ 1,234,893
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
40
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE K - ACCRUED LIABILITIES
Accrued liabilities at March 31, consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Accrued payroll $ 243,948 $ 35,192
Accrued payroll taxes 142,973 16,450
Other 339,323 81,686
----------- ----------
$ 726,244 $ 133,328
----------- ----------
----------- ----------
</TABLE>
NOTE L - RELATED PARTIES
The Company paid to Baycor Ventures, Inc. (Baycor), a principal
shareholder, management fees of $6,000 per month for the period from April
1, 1993 through January 31, 1994. On January 15, 1994, one of the
principal shareholders of Baycor became Chairman of the Board of the
Company. As part of this individual's employment agreement, the monthly
management fees to Baycor were discontinued effective January 31, 1994.
The employment agreement provides for annual compensation of $75,000 during
the year ended March 31, 1995. Effective January 1, 1996 through March 31,
1996, annual compensation increased to $138,000.
The Company reimburses Baycor for travel and entertainment expenses
incurred by officers of Baycor on behalf of the Company. Baycor is a
wholly owned subsidiary of Baycor Capital Inc., of Alberta, Canada which
owns several other Canadian corporations.
At March 31, 1996, the Company had notes outstanding of $185,000 and
$50,200 to the Chairman of the Board and a vice president of the Company,
respectively.
The following presents the related party activities described above:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Compensation to chairman $ 94,328 $ 75,000 $ -
Management fees - - 60,000
Expense reimbursement 58,944 - -
Dividends - - 24,674
Bonus 35,000 - -
Interest (income) expense (4,401) 7,247 31,803
----------- ---------- ----------
$ 183,871 $ 82,247 $ 116,477
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
41
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE M - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt at March 31, consists of the following:
1996 1995
<S> <C>
Note payable to Chart House Enterprises, Inc.
The note bears interest at ten percent per annum
and is payable interest only for the first twelve
months beginning February 1, 1996, and thereafter
principal payments shall be payable in eight equal
quarterly payments in amounts sufficient to fully
amortize the entire principal balance over a period
of eight quarters. The note is collateralized by
franchisee note receivables. $ 965,000 $ -
Note payable to Chart House Enterprises, Inc., due
April 30, 1997. The note bears interest at ten
percent per annum and is payable quarterly in
arrears. The note is collateralized by certain
Company owned stores. 385,000 -
Loan payable to Sanwa Bank, due March 31, 1996.
The loan bears interest at 9.3125% and is
collateralized by certain Company owned stores. 350,000 -
Tenant improvement loans with terms calling for
monthly principal and interest payments over a
period ranging from one to ten years with interest
rates ranging from 7.5 to 11 percent. 217,946 87,059
Note payable to Oh La La! in connection with the acquisi-
tion of Oh La La! The note (face value $932,342)
plus accrued interest at 6% per annum is due March
30, 1997. The amount due plus accrued interest may
be paid with Company common stock, as determined
based on the weighted average trading price for 20 con-
secutive trading days or cash at the Company's option.
The note provides for, at the Company's option, conver-
sion into common stock of the Company if the common
stock of the Company has a closing price in excess of
$4.00 per share for 20 consecutive days at any time
during the period ending March 30, 1997. - 745,874
----------- -----------
1,917,946 832,933
Less current maturity 746,785 23,200
----------- -----------
$ 1,171,161 $ 809,733
----------- -----------
----------- -----------
</TABLE>
42
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE M - LONG-TERM DEBT - CONTINUED
Maturities of long-term debt as of March 31, 1996 are as follows:
Year ending March 31,
1997 $ 746,785
1998 828,595
1999 322,623
2000 15,173
2001 4,770
-----------
$ 1,917,946
------------
------------
NOTE N - PREFERRED STOCK
On March 5, 1992, the Company authorized 5,000,000 shares of no par
cumulative preferred stock. During the period ended March 31, 1993, the
Company issued 2,950,000 shares for $590,000. On March 12, 1993, the
articles of incorporation were amended and restated to authorize 25,000,000
shares of no par cumulative preferred stock, 10,000,000 shares of Series A
and 15,000,000 shares of Series B. The original 2,950,000 shares
subscribed for March 5, 1992 were exchanged on March 12, 1993 for 2,950,000
shares of the new Series A no par cumulative preferred stock.
On March 30, 1993, 5,000,000 shares of Series B no par cumulative
convertible preferred stock were issued for $1,000,000.
On March 3, 1994, the Company's Board of Directors approved the conversion
of 2,950,000 Series A preferred shares into 91,820 shares of common stock,
the cancellation of all authorized and unissued Series A preferred shares,
the amendment of the conversion rate on the Series B preferred stock from
0.03425 to .04, and authorized the Company to issue up to 25,000,000 shares
of no par value cumulative Preferred Stock. The Company's Board of
Directors, without further approval of the holders of Common Shares, may
issue from time to time the authorized and unissued shares of Preferred
Stock in one or more series, and may determine as to each series the
dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, sinking funds and any other
rights, preferences, privileges and restrictions applicable to each such
series of Preferred Stock.
43
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE N - PREFERRED STOCK - CONTINUED
On May 19, 1994, immediately preceding the closing of the initial public
offering of 1,500,000 shares of Common Stock, 5,000,000 shares of the
Company's Series B Preferred Stock (all issued and outstanding shares) were
converted into 200,000 shares of the Company's Common Stock, pursuant to
the instructions of the holders of the Preferred Stock. Since the
conversion rate was amended, this resulted in a debt conversion expense of
$118,953.
RIGHTS OF THE HOLDERS
The holders of Preferred Stock shall be entitled to receive dividends and
any other distribution when and as declared by the Board of Directors of
the Company out of the assets of the Company that are legally available
therefore, at the rate of $0.01 per share per annum and no more, prior to
the payment of any distributions to holders of the Common Shares.
Dividends on the Preferred Stock shall be payable semi-annually on
September 30 and March 31 of each year. In the event of any liquidation,
dissolution, or winding up of the Company, either voluntarily or
involuntarily, the holders of Preferred Stock shall receive an amount equal
to $.20 per share and all accrued and unpaid dividends, before any amount
shall be paid to the holders of the Common Shares.
The holders of Preferred Stock shall be entitled to vote only upon failure
of the Company to pay dividends if the Company is legally entitled to make
such payment. The Preferred Stock shall be convertible and may also be
redeemed at any time after March 31, 1995, at the request of the holder or
the Company, at an amount equal to 110% of the contributed capital per
share of Preferred Stock plus all accrued and unpaid dividends. In
addition, on or before March 31, 1995, the Company may redeem the Preferred
Stock at an amount equal to 115% of contributed capital per share plus all
accrued and unpaid dividends in the event of a change of control of the
Company or a public offering of the Common Shares. There was no Preferred
Stock issued or outstanding at March 31, 1995 and 1996.
NOTE O - CONVERTIBLE DEBT
The Company issued through private placements, convertible notes in the
amount of $3,500,000. The first note in the amount of $2,000,000 is due on
December 15, 1997 with interest payable quarterly beginning on March 15,
1996 at the rate of 8% per year. The note is convertible into common stock
of the Company after February 28, 1996 under certain terms and conditions.
As of June 18, 1996, $1,010,000 had been converted into 1,192,844 common
shares.
44
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE O - CONVERTIBLE DEBT - CONTINUED
The second series of notes in the amount of $1,500,000 are due on January
29, 1998 with interest payable quarterly beginning on March 15, 1996 at the
rate of 8% per year. These are convertible into common stock of the
Company after April 12, 1996 under certain terms and conditions.
The investors have the option to convert any part of the outstanding and
unpaid principal amount of the notes at any time, or from time to time, at
the conversion price stipulated in the note agreement.
NOTE P - STOCKHOLDERS' EQUITY
1. COMMON STOCK
On March 5, 1992, the Company authorized 100,000,000 shares of no par
common stock. On March 3, 1994, the Board of Directors declared a 2.5 for
1 stock split of its issued common stock and approved the reduction of the
authorized common stock from 100,000,000 shares to 25,000,000 shares. All
share and per share data have been retroactively restated to reflect this
stock split.
2. INITIAL PUBLIC OFFERING
On May 19, 1994 the Company completed an initial public offering of
1,500,000 shares of newly issued Common Stock for proceeds of $7,288,407,
net of expenses.
3. STOCK DIVIDEND
On June 8, 1994, the Company declared a 25% stock dividend on its Common
Stock, without par value, to be payable on July 15, 1994 to shareholders of
record on June 30, 1994. On or prior to June 10, 1994, employees and
officers holding securities, including warrants and options, waived their
rights to receive the stock dividend and also waived the impact such stock
dividend would have on any options or warrants held by the security
holders, including, but not limited to, any anti-dilution provisions
relating to such options and warrants.
45
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE P - STOCKHOLDERS' EQUITY - CONTINUED
On December 11, 1995, the Company declared a dividend in the form of a
Stock Purchase Warrant exercisable from January 17, 1996 to March 15, 1996.
The dividend provided one full warrant for each ten shares of the Company's
common stock outstanding as of December 31, 1995. Each warrant entitles
the holder to purchase from the Company one share of the Company's common
stock at a purchase price of $3.00 per share. The warrants, which are
transferable, could be exercised to purchase a total of 702,500 shares of
common stock.
4. ISSUANCE OF ADDITIONAL COMMON SHARES
During the year ended March 31, 1996, the Company completed certain private
placements of common shares resulting in the issuance of 1,604,692 common
shares for net proceeds of $3,540,722.
During the year ended March 31, 1996, the Company issued 203,000 common
shares valued at $452,944 pursuant to a consulting agreement to develop
strategic acquisitions, identify Java Centrale franchise opportunities and
consult regarding investor relations matters for the Company.
5. JOINT VENTURE FORMATION AGREEMENT
On November 14, 1994 the Company entered into an agreement with Banyan
Capital, Limited Partnership, Java Southeast Partners, L.P., and Java
Southeast, Inc. to develop the Florida market. Pursuant to the terms of
the agreement, the Company issued 89,428 shares of common stock in exchange
for 18.3% of the joint venture's outstanding shares.
6. ACQUISITIONS OF JAVA CENTRALE FRANCHISES
During the year ended March 31, 1996, the Company completed the
acquisitions of five Java Centrale franchised cafes. The Company
acquired all of the operating assets (excluding cash) held at the
various locations. In connection with these purchases, the Company
issued 279,721 shares of restricted common stock valued at $466,168,
assumed $133,968 in long-term debt and canceled franchisee receivables
of $106,303. The tangible assets acquired consists of tenant
improvements and equipment.
46
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE P - STOCKHOLDERS' EQUITY - CONTINUED
7. CONVERSION OF NOTE PAYABLE
In March 1996 the Company issued 234,000 common shares by exercising its
right to convert a note payable of $745,874 (face value $932,342) related
to the acquisition of substantially all the assets of Oh La La!, Inc., into
common shares at a price of $4.00 per share.
8. CONVERSION OF WARRANTS
In November 1995, warrants were exercised for 300,000 shares of common
stock for proceeds of $120,000. The warrants were initially granted to
Baycor in connection with amounts loaned to the Company.
NOTE Q - STOCK OPTIONS AND WARRANTS
1. INCENTIVE STOCK OPTION PLAN
Effective November 1993, the Company adopted a stock option plan, wherein
options to purchase 500,000 shares of common stock may be granted to
officers, key employees and non-employee directors of the Company. The
exercise price of these options may not be less than 100% of the fair
market value of the common stock of the Company at the time of the grant.
Options granted under the plan become exercisable in whole or in part from
time to time as determined by the Board of Directors or the stock option
plan committee. In no event shall any option become exercisable earlier
than the date six months following the date on which the option is granted.
47
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE Q - STOCK OPTIONS AND WARRANTS - CONTINUED
The Company granted options to purchase shares of its common stock as
follows:
<TABLE>
<CAPTION>
Number Option
Shares price
---------- -------------
<S> <C> <C>
Shares under option at March 31, 1994 198,750 $ 3.00
Granted 100,000 $2.12 - 3.00
Exercised - -
---------- ------------
Shares under option at March 31, 1995 298,750 $2.12 - 3.00
Granted 1,100,000 $1.75 - 2.00
Exercised - -
Terminated (298,750) $2.12 - 3.00
---------- ------------
Outstanding at March 31, 1996 1,100,000 $1.75 - 2.00
Exercisable at March 31, 1996 87,000 $1.75 - 2.00
</TABLE>
2. WARRANTS
In July 1993, the Company granted warrants to purchase 225,000 shares of
common stock at $1.60 per share to management consultants. The warrants
expire at the end of five years.
In May 1994, the Company granted warrants to purchase 150,000 shares of
common stock at $9.90 per share to the underwriter group involved with the
initial public offering.
In August 1994, the Company granted warrants to purchase 50,000 shares of
common stock at $3.50 per share to investor relations specialists. The
warrants expire August 1996.
In March 1995, in connection with the acquisition of Oh La La!, the Company
issued warrants to purchase 150,000 shares of common stock at $3.50 and
50,000 shares of common stock at $4.00 per share. The warrants expire
March 30, 1997.
In July 1995, the Company granted warrants to purchase 682,000 shares of
common stock at $2.58 per share for consulting services. The warrants
expire in July 1997.
48
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE Q - STOCK OPTIONS AND WARRANTS - CONTINUED
In August 1995, the Company granted warrants to purchase 150,000 shares of
common stock at $1.50 per share for consulting services. The warrants
expire in August 2002.
In January 1996, the Company granted warrants to purchase 100,000 shares of
common stock at $2.75 per share for consulting services. The warrants
expire in January 2001.
NOTE R - LEASE COMMITMENTS, RENT EXPENSE, AND DEPOSIT
The Company has entered into a thirty-six month lease of office space for
its corporate headquarters commencing on January 1, 1994, and ending
December 31, 1996. Monthly lease payments of $3,860 commenced on January
1, 1994 in accordance with the lease terms. In October 1994, additional
space was leased which increased monthly lease payments to $5,994. The
security deposits in the amounts of $3,860 and $2,134 will apply to the
last month's rent of the lease term.
On June 29, 1992, the Company entered into a lease for their corporate
cafe/training facility for a term of ten years. Rent commenced January 26,
1993 and will end February 1, 2003.
In connection with the acquisitions of Oh La La! and Paradise, the Company
acquired operating leases to operate its stores and office facilities. The
leases expire from 1995 through 2005.
Future minimum rents are as follows for each of the years ending March 31,:
<TABLE>
<CAPTION>
Capital Operating
Lease Lease
---------- ------------
<S> <C> <C>
1997 $ 117,606 $ 1,253,490
1998 42,240 1,236,168
1999 42,240 1,090,232
2000 42,240 984,876
2001 38,720 720,676
Thereafter 6,514 906,806
---------- ------------
Future minimum lease payments 289,560 $ 6,192,248
------------
------------
Amounts representing interest 64,239
----------
Present value of minimum lease payments $ 225,321
----------
----------
</TABLE>
49
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE R - LEASE COMMITMENTS, RENT EXPENSE, AND DEPOSIT - CONTINUED
All amounts due under capital lease obligations are for cafe equipment with
a net book value of approximately $226,075.
In addition to minimum rents, the Company is required to pay its share of
taxes, insurance, common area maintenance, and percentage rents of 1% to 2%
of sales.
Rent expense included in these financial statements for facilities leased
by the Company is $1,214,064, $114,090, and $79,911 for the applicable
years ended March 31, 1996, 1995 and 1994, respectively.
NOTE S - INCOME TAXES
As of March 31, 1996, the Company has accumulated net operating losses of
approximately $7,000,000. These losses can be carried forward and applied
against future income of the Company for federal and state income tax
purposes. The net operating losses will begin to expire in 2008. Under
U.S. tax rules, the Company, as a result of the Paradise acquisition is
subject to certain limitations as to the use of net operating losses in any
one year. A valuation allowance totally offsets the balance of the deferred
tax asset related to these net operating losses.
1996 1995
----------- ------------
Deferred tax assets:
Net operating losses $ 2,800,000 $ 1,500,000
Temporary differences:
Franchise fees collected 287,000 168,000
Depreciation and other 20,000 8,000
Valuation allowance (3,107,000) (1,676,000)
----------- ------------
$ - $ -
----------- ------------
----------- ------------
NOTE T - LOSS ON DISPOSAL OF CART PROGRAM
During the year ended March 31, 1996, the Company closed one company cafe
in Texas and sold 5 company carts to a single franchisee in California
resulting in a loss of $410,200.
50
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JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996, 1995 and 1994
NOTE U - COMMITMENTS
The Company has employment agreements with five key employees, with annual
salary requirements totaling $460,000. Annual increases are tied to
economic indicators, and include potential bonuses at the discretion of the
Board of Directors. The Company also maintains key man life insurance
policies on the chief executive officer and the senior vice-president-
operations. The Company is listed as the sole beneficiary of these
policies, with total face value of $1,600,000.
The Company is involved in litigation in the normal course of business.
Management believes that such litigation is without merit and the
disposition of such litigation would not have a material effect on the
Company.
NOTE V - THE COMPANY'S OPERATING PLAN
The Company incurred a net loss of $3,966,426 and used cash of $2,391,333
in operating activities for the year ended March 31, 1996. The Company has
developed a specific operating plan to meet the ongoing liquidity needs of
the Company's operations both for the year ended March 31, 1997 and
thereafter.
During the quarter ended June 30, 1996, the Company reduced administrative
salaries, certain employee benefit costs and marketing expenses. The
Company has sold two Company owned cafes and is actively pursuing the sale
of assets associated with the Company's cafe operations. In February of
1996, the Company completed the expansion and remodeling of key Oh La La!
locations which management believes will increase the operating margins of
this division. In addition to the operating plan, the Company will benefit
from 12 months of Paradise Bakery operating income during the year ended
March 31, 1997 as compared to 3 months in the year ended March 31, 1996.
Management believes that this plan, which is currently being implemented,
is sufficient to meet the Company's liquidity needs for the year ended
March 31, 1997, and thereafter.
NOTE W - SUBSEQUENT EVENT
As of July 11, 1996, the Company has obtained three separate lines of
credit amounting to $925,000, one of which is from senior management in the
amount of $175,000. All of the Company's assets will be collateralized
under the terms of these lines.
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION WITH COMPANY
---- --- ----------------------
Richard D. Shannon. . . . 50 Director, Chairman of the Board
Gary C. Nelson. . . . . . 53 Director, President and Chief Executive
Officer
Bradley B. Landin . . . . 45 Director, Senior Vice President
Operations
Thomas A. Craig . . . . . 63 Vice President -- Marketing and Real
Estate
Steven J. Orlando . . . . 45 Vice President, Chief Financial
Officer and Secretary
Kevin R. Baker. . . . . . 47 Director
Richard D. Shannon has been a Director of the Company since its
incorporation in March 1992 and became Chairman in January 1994. Mr.
Shannon also served as Secretary of the Company from its inception until
January 1994. Mr. Shannon currently devotes approximately 80% of his time
to his duties with the Company. In February 1990, Mr. Shannon, together
with Kevin R. Baker, also a Director of the Company, founded Baycor Capital
Inc. ("Baycor Capital"), a private merchant bank based in Calgary, Canada.
Baycor Capital owns 100% of the issued and outstanding shares of Baycor
Ventures, the largest single shareholder of the Company. Mr. Shannon is
also the President of Baycor Ventures. Mr. Shannon is a director of a
number of privately held companies in Canada. During the period 1978
through 1989, Mr. Shannon practiced law at Burnet, Duckworth & Palmer, a
Calgary-based law firm which operated joint venture offices in Ottawa, New
York, Hong Kong, London and Geneva. Mr. Shannon graduated from the
University of Alberta, Canada where he obtained a BA in Economics and an
LLB from the Faculty of law.
Gary C. Nelson, a founding shareholder of the Company, has been a Director,
President and Chief Executive Officer of the Company since its
incorporation in March 1992. During the period from November 1991 until
the Company's incorporation in March 1992, Mr. Nelson devoted his time to
the planning development and initial funding of the Company's incorporation
and commencement of operations. From September 1990 through October 1991
Mr. Nelson was both Senior Vice President and President International
Division and a founding shareholder of CNY International, a company which
was formed to acquire and operate the
52
<PAGE>
retail businesses of American Confectionery Corporation. From March 1990
until August 1990, Mr. Nelson was Vice President of American Confectionery
Corporation, a company which both owned and franchised over two hundred
candy and yogurt outlets. From February 1983 until February 1990, Mr.
Nelson was a founding shareholder and served as President and Chief
Executive Officer of publicly traded J. Higby's, Inc. and its privately
held predecessor, Gamma Industries, whose business was franchising
J. HIGBY'S YOGURT AND TREAT SHOPPES in the United States and
internationally in Canada and five countries in southeast Asia. Mr. Nelson
holds a BA in Business Administration from the California State University,
Sacramento.
Bradley B. Landin, a founding shareholder has been a Director and Vice
President Operations of the Company since its incorporation in March 1992.
From September 1990 until February 1992, Mr. Landin was Vice President
International Division of CNY International, a company which was formed to
acquire and operate the retail businesses of American Confectionery
Corporation. From March 1990 through August 1990, Mr. Landin was Vice
President International Development of American Confectionery Corporation,
which both owned and franchised over two hundred candy and yogurt outlets.
From September 1986 until February 1990, Mr. Landin held various positions
with publicly traded J. Higby's Inc., the franchisor of J. HIGBY'S YOGURT
AND TREAT SHOPPES where he was responsible for franchised and company-owned
operations, product development, store planning and turn-key construction
and equipment programs. Mr. Landin did undergraduate work in business at
both Loyola University in Chicago and the University of Wisconsin, Green
Bay Campus.
Thomas A Craig, a founding shareholder, has been Vice-President--Marketing
and Real Estate of the Company since its incorporation in March 1992. Mr.
Craig has 29 years of experience in advertising, design, marketing and real
estate. From November 1987 until the incorporation of the Company in March
1992, he was associated with Century 21, a real estate brokerage firm in
Carmichael, California specializing in the sale and leasing of new and
existing commercial properties. From May 1962 through July 1987 Mr. Craig
served as president of two advertising and marketing firms located in
Sacramento, California. Mr. Craig is a graduate of the Hollywood Center of
Art and Design in Hollywood, California.
Steven J. Orlando has been the Company's Chief Financial Officer since July
of 1994. Since 1988, Mr. Orlando has acted as a business consultant to
various companies in the Sacramento and Los Angeles, California areas and
served as the President of RJN Enterprises, a private investment company.
From 1977 to 1988, Mr. Orlando was the Chief Financial Officer for Sierra
Spring Water Company, a publicly traded bottled water company based in
Sacramento, California, with operations in several regions around the
country. Mr. Orlando received a B.S degree in accounting from California
State University, Sacramento, in 1974, and has been a Certified Public
Accountant since 1977. In addition to his responsibilities with the
Company, Mr. Orlando also serves as a director of and consultant to various
companies, including RJN Enterprises, a private investment company based in
Sacramento, California, and Pacific Crest Capital, a Thrift and Loan
Company based in Los Angeles, California.
Kevin R. Baker has been a Director of the company since its incorporation
in March 1992. Since February 1990, Mr. Baker has been the President of
Baycor Capital, a private merchant bank based in Canada, which is the
parent corporation of Baycor Ventures, the majority shareholder of the
Company. Baycor Capital holds interests in a diversified portfolio of
companies and assets in Canada and the United States. During the period
1971 to January 1990, Mr. Baker practiced law at MacKimmie Matthews and
Burnet, Duckworth & Palmer, two law firms in Calgary, Canada. Mr. Baker is
a director of a private number of companies in Canada. Mr. Baker is also a
principal in a number of ventures in the oil and gas, real estate,
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<PAGE>
oil field service and hospitality industries. Mr. Baker also owns an 850
seat restaurant in Calgary that has been in operation for more than 20
years. Mr. Baker graduated from the University of Alberta, Canada where he
obtained a BA in Economics and an LLB from the Faculty of Law.
Two of the Company's directors and officers, Gary C. Nelson and Bradley B.
Landin, were former vice presidents of American Confectionery Corporation
and/or of a subsidiary thereof (collectively, "ACC"). Their duties
involved only the retail, franchising and marketing operations of ACC.
They had no responsibility for ACC's candy manufacturing business, which it
carried on through Pacific Candy Company, another subsidiary. In September
1990, they participated in a successful management buy-out of ACC's retail
and franchising operations, which included Morrow's Fine Candies, House of
Almond's, the House of Almond's Catalog, and J. HIGBY'S YOGURT AND TREAT
SHOPPES. They both resigned from ACC to help run the new enterprise. ACC
thereafter remained in business only as a candy manufacturer, through
Pacific Candy Company, and under substantially different management.
Approximately six months after Mr. Nelson and Mr. Landin resigned, ACC and
its subsidiaries all filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code (Case Nos. SB-91-13970, 13971 and 13972,
U.S. Bankruptcy Court, Central District of California, filed April 12,
1991). The candy-manufacturing business encountered liquidity problems in
1991, leading ACC to seek protection from creditors. Mr. Nelson and Mr.
Landin had no part in that decision or in the problems of the candy
business which led to it. On June 16, 1992, ACC's plan of reorganization
was confirmed and approved by the bankruptcy court. As of that date, ACC
emerged from its Chapter 11 bankruptcy proceedings and has now resumed
operations as a national wholesale candy manufacturer.
Directors of the Company are elected at each annual meeting of the
shareholders of the Company and hold office until the next annual meeting;
provided, however, that if any annual meeting is not held or the directors
are not elected at any annual meeting, they may be elected at any special
shareholders' meeting held for that purpose. Each director, including a
director elected to fill a vacancy or elected at a special shareholders'
meeting, holds office until the expiration of the term for which elected
and until a successor has been elected and qualified. Officers of the
Company are appointed by its Board of Directors, and serve at the pleasure
of the Board.
The Company is not aware of any family relationship, among its Directors
and/or executive officers.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to, as well as any other compensation paid to or earned by, the Company's
Chief Executive Officer and the four most highly compensated executive
officers other than the Chief Executive Officer during each of the fiscal
years ended March 31, 1994, 1995 and 1996. The Company's President and
Chief Executive Officer, Mr. Gary C. Nelson, was the only officer of the
Company whose total annual salary and bonus exceeded $100,000 during the
1994 and 1995 fiscal years. The Company's President and Chief Executive
Officer, Mr. Gary C. Nelson, the Company's Chief Financial Officer, Mr.
Steven J. Orlando, and the Company's Chairman of the Board, Mr. Richard
Shannon, were the officers of the Company whose total annual salary and
bonus exceeded $100,000 during the 1996 fiscal year.
54
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------- --------------------------
AWARDS
---------------------------
SECURITIES
NAME OF INDIVIDUAL OTHER RESTRICTED UNDERLYING ALL
AND PRINCIPAL FISCAL ANNUAL STOCK OPTIONS/ OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS(#) COMPENSATION
------------------------ ------- -------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary C. Nelson 1996 $158,065 $35,000 $ -0- None 167,000 $ -0-
President (Chief 1995 $147,538 -0- -0- None -0- -0-
Executive Officer) 1994 $111,250 -0- -0- None 87,500 -0-
Steven J. Orlando 1996 $ 97,050 $35,000 $ -0- None 175,000 $ -0-
Chief Financial
Officer
Richard Shannon 1996 $ 94,328 $35,000 $ -0- None 174,250 $ -0-
Chairman of the
Board
</TABLE>
COMPENSATION PURSUANT TO PLANS
STOCK OPTION PLAN. Effective November 1993, the Board of Directors of
the Company (the "Board") adopted the Java Centrale, Inc. Stock Option Plan
(the "Stock Option Plan"). Under the terms of the Stock Option Plan,
options to purchase up to 500,000 Common Shares may be granted to officers,
key employees and non-employee directors of the Company. In September
1995, the Company proposed to shareholders an amendment to increase the
option plan to 1,250,000 common shares. The amendment was approved and the
Company has amended the plan to a total of 1,250,000 common shares. Under
the Stock Option Plan, the Board, or a committee appointed by the Board, is
authorized to grant options which are intended to qualify as incentive
stock options under Section 422 of the Internal Revenue Code ("incentive
stock options") to employees (including employee-directors) of the Company,
and to grant options not intended to qualify as incentive stock options
("non-qualifying stock options") to employees and non-employee directors of
the Company, and to determine the participants, the number of options to be
granted and other terms and provisions of each option.
The exercise price of any incentive stock option granted under
the Stock Option Plan may not be less than 100 percent of the fair
market value of the Common Shares of the Company at the time of the
grant. In the case of incentive stock options granted to holders of
more than ten percent of the voting power of the Company, the exercise
price may not be less than 110% of the fair market value of the Common
Shares, nor shall the option by its terms be exercisable more than 5
years after the date the option is granted.
Under the terms of the Stock Option Plan, the aggregate fair
market value (determined at the time of grant) of shares issuable upon
exercise of incentive stock options exercisable for the first time
during any one calendar year may not exceed $100,000. Options granted
under the Stock Option Plan become exercisable in whole or in part
from time to time as determined by the Board of the committee;
provided, however, that in no event may any option become exercisable
earlier than the date six months following the date on which the
option is granted. Options granted under the Stock Option Plan may
have a maximum term of ten years from the date of grant. The option
price must be paid in full on the date of exercise, and is payable in
cash or in Common Shares of the Company having a fair market value on
the date the option is exercised equal to the option price.
55
<PAGE>
As of March 31, 1995, the Company had granted options to purchase
298,750 Common Shares, at prices ranging from $2.12 to $3.00 per
share, to employees of the Company in accordance with the Stock Option
Plan.
As of March 31, 1996, the Company had granted options to purchase
1,100,000 common shares, at prices ranging from $1.75 to $2.00 per
share, to employees of the Company in accordance with the Stock Option
Plan.
EMPLOYMENT AGREEMENTS
The Company entered into a three-year employment agreement in
February 1994 with Richard D. Shannon. The Company amended this
agreement effective January 1, 1996, increasing the base salary to
$137,388 per year and extending the term two years to January 31,
1999. The Company further amended this agreement in May of 1996
reducing the base salary to $96,172. Under certain conditions based
on the Company's performance the base salary will be reinstated.
Pursuant to the employment agreement, Mr. Shannon will act as Chairman
of the company, will serve on the Board of Directors and will be
entitled to receive, among other things, (a) during the first year
thereof, a base salary of $75,000, (b) during the second and third
years thereof, a base salary in an amount equal to the amount of the
previous year's salary plus the greater of (i) 7% of the base salary
in effect for the previous 12 month period and (ii) the percentage
increase in the Consumer Price Index for the prior 12-month period as
reported by the United States Department of Labor (the "Department of
Labor"), (c) during each year thereof, a bonus, equal to the amount
determined by the Board of Directors, under such incentive
compensation plan as shall be adopted by the Board of Directors of the
Company, and (d) such options to purchase Common Shares of the Company
as may be granted pursuant to the terms of the Stock Option Plan. The
employment agreement between the Company and Mr. Shannon does not
require him to spend more than 80% of his time on Company business.
The Company entered into a three year employment agreement in
February 1994 with Gary C. Nelson. The Company amended this agreement
effective January 1, 1996, extending the term two years to January 31,
1999. The Company further amended this agreement in May of 1996
reducing the base salary to $116,207. Under certain conditions based
on the Company's performance the base salary will be reinstated.
Pursuant to the employment agreement, Mr. Nelson will act as President
and Chief Executive Officer of the Company, will serve on the Board of
Directors and will be entitled to receive, among other things, (a)
during the first year thereof, a base salary of $145,000, (b) during
the second and third years thereof, a base salary in an amount equal
to the amount of the previous year's salary plus the greater of (i) 7%
of the base salary in effect for the previous 12 month period and (ii)
the percentage increase in the Consumer Price Index for the prior 12-
month period as reported by the Department of Labor, (c) during each
year thereof, a bonus, equal to the amount determined by the Board of
Directors of the Company under such incentive compensation plan as
shall be adopted by the Board of Directors of the Company, and (d)
such options to purchase Common shares of the Company as may be
granted pursuant to the terms of the Stock Option Plan.
The Company entered into a three-year employment agreement in
February 1994 with Bradley B. Landin. The Company amended this
agreement in May of 1996 reducing the base salary to $73,274. Under
certain conditions based on the Company's performance the base salary
will be reinstated. Pursuant to the employment agreement, Mr. Landin
will act as Senior Vice President Operations of the Company, will
serve on the Board of Directors and will be
56
<PAGE>
entitled to receive among other things, (a) during the first year thereof,
a base salary of $80,000, (b) during the second and third years thereof, a
base salary in an amount equal to the amount of the previous year's salary
plus the greater of (i) 7% of the base salary in effect for the previous 12
month period and (ii) the percentage increase in the Consumer Price Index
for the prior 12-month period as reported by the Department of Labor, (c)
during each year thereof, a bonus, equal to the amount determined by the
Board of Directors of the Company under such incentive compensation plan as
shall be adopted by the Board of Directors of the Company, and (d) such
options to purchase Common Shares of the Company as may be granted pursuant
to the terms of the Stock Option Plan.
The Company entered into a three-year employment agreement in
February 1994 with Thomas A. Craig. The Company amended this agreement
in May of 1996 reducing the base salary to $73,274. Under certain
conditions based on the Company's performance the base salary will be
reinstated. Pursuant to the employment agreement, Mr. Craig will act
as Vice President -- Marketing and Real Estate of the Company, and
will be entitled to receive, among other things, (a) during the first
year thereof, a base salary of $80,000, (b) during the second and
third years thereof, a base salary in an amount equal to the amount of
the previous year's salary plus the greater of (i) 7% of the base
salary in effect for the previous 12 month period and (ii) the
percentage increase in the Consumer Price Index for the prior 12-month
period as reported by the Department of Labor, (c) during each year
thereof, a bonus, equal to the amount determined by the Board of
Directors of the Company under such incentive compensation plan as
shall be adopted by the Board of Directors of the Company, and (d)
such options to purchase Common Shares of the Company as may be
granted pursuant to the terms of the Stock Option Plan.
The Company entered into a three-year employment agreement in
July of 1994 with Steven J. Orlando. The Company amended this
agreement effective January 1, 1996, increasing the base salary to
$117,000 per year and extending the term two years to July 15, 1999.
The Company further amended this agreement in May of 1996 reducing the
base salary to $81,900. Under certain conditions based on the
Company's performance the base salary will be reinstated. Pursuant to
the employment agreement, Mr. Orlando will act as Vice President --
Chief Financial Officer of the Company, and will be entitled to
receive, among other things, (a) during the first year thereof, a base
salary of $80,000, (b) during the second and third years thereof, a
base salary in an amount equal to the amount of the previous year's
salary plus the greater of (i) 7% of the base salary in effect for the
previous 12 month period and (ii) the percentage increase in the
Consumer Price Index for the prior 12-month period as reported by the
Department of Labor, (c) during each year thereof, a bonus, equal to
the amount determined by the Board of Directors of the Company under
such incentive compensation plan as shall be adopted by the Board of
Directors of the Company, and (d) such options to purchase Common
Shares of the Company as may be granted pursuant to the terms of the
Stock Option Plan.
COMPENSATION OF DIRECTORS
Directors of the Company do not currently receive any
compensation for serving as Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
The Company does not maintain a Compensation Committee, as such.
All decisions
57
<PAGE>
relating to the compensation of its executive officers are made by the
Company's Board of Directors, which includes as Directors Richard D.
Shannon, the Company's Chairman of the Board, Gary C. Nelson, its President
and Chief Executive Officer, and Bradley B. Landin, its Senior Vice
President -- Operations, all of whom are Company Employees. Mr. Shannon,
along with Kevin R. Baker, the fourth member of the Company's Board also
serves as a Director and executive officer of Baycor Capital, a private
merchant bank based in Calgary, Canada, which is the parent corporation of
Baycor Ventures, the majority shareholder of the Company. See Item 13,
"Certain Relationships and Related Transactions", below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of June 28, 1996, the number
and percentage of shares of the Company's outstanding common stock
beneficially owned, directly or indirectly, by (a) any person (or
"group" as that term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act")) who or which is known to
the Company to be the beneficial owner of more than five percent of
the Company's Common Stock, based on information filed by such persons
with the Securities and Exchange Commission, (b) each of the Company's
Directors and the executive officers identified in Item 11, above, and
the Company's Directors and executive officers as a group. The shares
listed as "beneficially owned" are determined under Securities and
Exchange Commission Rules, and do not necessarily indicate ownership
for any other purpose. In general, beneficial ownership includes
shares over which such principal shareholder, director, or executive
officer has sole or shared voting or investment power and shares which
such person has the right to acquire within 60 days of June 28, 1996.
Unless otherwise indicated, the persons listed have sole voting and
investment powers of the shares beneficially owned. Management is
not aware of any arrangements which may, at a subsequent date, result
in a change of control of the Company.
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL PERCENT OF CLASS
OWNERSHIP
----------------- --------------- -----------------
Baycor Ventures, Inc.(1) 1,811,266 17.7%
1550, 3800 Howard Hughes Avenue
Las Vegas, NV 89109
Kevin R. Baker(2) 1,811,266 17.7
2000, 335-8th Avenue, S.W.
Calgary, Alberta
Canada T2P 1C9
Thomas A Craig(3) 220,027 2.2
1610 Arden Way, Suite 299
Sacramento, CA 95819
Bradley B Landin(4) 154,000 1.5
1610 Arden Way, Suite 299
Sacramento, CA 95819
Gary C. Nelson(5) 838,427 8.2
1610 Arden Way, Suite 299
Sacramento, CA 95819
58
<PAGE>
Steven J. Orlando 62,500 0.6
1610 Arden Way, Suite 299
Sacramento, CA 95819
Richard D. Shannon(6) 1,828,016 17.9
2000, 335-8th Avenue, S.W.
Calgary, Alberta
Canada T2P 1C9
All Directors and Officers 3,102,970 30.4%
as a Group (6 persons) --------- -----
--------- -----
_____________________________
(1) Does not include 125,000 shares held by Baycor Ventures, Inc.
("Baycor") but subject to options in favor of Messrs. Nelson, Craig
and Landin.
(2) Includes shares owned by Baycor, a corporation of which Mr. Baker
is an officer, Director, and 50% stockholder.
(3) Includes 21,000 shares available to Mr. Craig upon the exercise of
stock options issued by Baycor on outstanding Company shares presently
owned by Baycor.
(4) Includes 15,000 shares available to Mr. Landin upon the exercise of
stock options issued by Baycor on outstanding Company shares presently
owned by Baycor.
(5) Includes 89,000 shares available to Mr. Nelson upon the exercise
of stock options issued by Baycor on outstanding Company shares
presently owned by Baycor.
(6) Includes shares owned by Baycor, a corporation of which Mr.
Shannon is an officer, Director, and 50% stockholder.
(7) Includes an aggregate of 132,150 shares issuable upon the
excercise of outstanding stock options on authorized and unissed
Company shares.
59
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Baycor Ventures, Inc. ("Baycor"), the Company's largest single
shareholder, has entered into a series of transactions with the
Company since it was incorporated in March of 1992.
Any future transactions between the Company and its officers,
directors, principal stockholders or other affiliates will be on terms
no less favorable to the Company than could be obtained from
unaffiliated third parties on an arms-length basis and will be
approved by a majority of the Company's disinterested directors. Any
loans to officers, directors, principal stockholders or affiliates of
any of them will be made for bona fide business purposes, will be on
terms no less favorable than could be obtained from unaffiliated third
parties, and will be approved by a majority of the Company's
disinterested directors.
In September 1995, the Company advanced to Baycor a loan in the
amount of $185,000. The loan has a two year term at a rate of
principal plus 2% in interest and is all due and payable at the end of
two years.
In May 1995, the Company advanced to Bradley Landin, Vice
President Operations and Director a loan in the amount of $59,000.
The loan has a term of five years at a rate of principal plus 1% in
interest with monthly principal and interest payments of $1,200.
In July 1996, Baycor, Gary Nelson, President and Chief Executive
Officer, and Steven J. Orlando, Chief Financial Officer, agreed to
loan the company $175,000 from time to time as needed until April
1997, when the line of credit will be due and payable. The lenders
will receive a general lien on Java Centrale assets and will be at an
interest rate of principal plus 2% per annum.
ESCROW AGREEMENT
Pursuant to an Amended and Restated Security Escrow Agreement
(the "Escrow Agreement"), by an between each of Baycor, Gary C.
Nelson, Thomas A. Craig, Bradley B. Landin, Richard D. Shannon,
Richard M.H. Thompson & Associates, Inc. and the Manry Company (such
entities and persons being hereinafter collectively referred to as the
"Security Holders"), the Company, the Representative and American
Stock Transfer & Trust Company, as escrow agent (the "Escrow Agent"),
Baycor Ventures, Gary C. Nelson and Bradley B. Landin, directors and
officers of the Company and Thomas A. Craig, an officer of the
Company, placed an aggregate of 855,300 of their currently outstanding
Common Shares in escrow (the "Escrowed Shares") in connection with the
Company's public offering of its Common Stock in May of 1994.
The Escrow Agreement provides that the Escrowed Shares shall be
released to the Security Holders and no longer governed by the terms
and provisions of the Escrow Agreement as follows:
(a) If the Company achieves, during the two fiscal years of the
Company ending March 31, 1995 and March 31, 1996, respectively, an
average annual net earnings per common share on a fully diluted basis,
calculated in accordance with GAAP, of at least $.30 per common share,
then two-thirds (66 2/3%) of the Escrowed Shares will be released to
the Security Holders and will no longer be subject to the Escrow
Agreement;
(b) If (i) two-thirds (66 2/3%) of the Escrowed Shares are
released in accordance with the provisions of paragraph (a), above,
and (ii) the Company has achieved during the fiscal year of the
Company ending March 31, 1997, an annual net earnings per common share
on fully diluted basis, calculated in accordance with GAAP, of at
least $.60 per common share, then the remaining third (33 1/3%) of the
Escrowed Shares will be released to the Security Holders and no longer
be subject to the Escrow Agreement;
(c) Notwithstanding the provisions of paragraphs (a) and (b),
above, if the Company has achieved, during the three fiscal years of
the Company ending March 31, 1995, March 31, 1996 and March 31, 1997,
respectively, an average annual net earnings per common share on a
fully diluted basis, calculated in accordance with GAAP, of at least
$.40 per common share, then all (100%) of the Escrowed Shares will be
released to the Security Holders and no longer be subject to the
Escrow Agreement;
(d) If (i) one-third (33 1/3%) of the Escrowed Shares remain
subject to the terms and provisions of the escrow created by the
Escrow Agreement as a result of the failure of the Company's annual
net earnings per common share to
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<PAGE>
satisfy the requirements set forth in paragraphs (b) or (c), above, and
(ii) the Company achieves, during the fiscal year of the Company ending
March 31, 1998, an annual net earnings per common share on a fully diluted
basis, calculated in accordance with GAAP, of at least $.40 per common
share, then the remaining third (33 1/3%) of the Escrowed Shares will be
released to the Security Holders and no longer governed by the terms and
provisions of the Escrow Agreement;
(e) Notwithstanding any of the other provisions of the Escrow
Agreement, if the Company achieves, during the four fiscal years of the
Company ending March 31, 1995, March 31, 1996, March 31, 1997 and March
1998, respectively, an average annual net earnings per common share on a
fully diluted basis, calculated in accordance with GAAP, of at least $.40
per common share, all (100%) of the Escrowed Shares will be released to the
Security Holders and no longer subject to the Escrow Agreement; and
(f) Any Escrowed Shares which have not been previously released
to the Security Holders in accordance with the provisions of the
Escrow Agreement will then be released, and no longer subject to the
Escrow Agreement.
If any Security Holder exercises warrants or options to acquire additional
Common Shares of the Company (the "Additional Shares"), one-third (33 1/3%) of
such Additional Shares must immediately be delivered to the Escrow Agent, and
will be held and released pursuant to the Escrow Agreement as if they were
original Escrowed Shares.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The Company's Balance Sheets as of March 31, 1996 (the end
of its most recent fiscal year), and the related statements of
operations, stockholders' equity (deficit) and cash flows for the
years ended March 31, 1996, 1995 and 1994, are included herewith under
Item 8, "Financial Statements and Supplementary Data," above.
2. FINANCIAL STATEMENT SCHEDULES.
None.
(b) CURRENT REPORTS ON FORM 8-K.
The Company filed the following Reports on Form 8-K during the
fourth quarter of its fiscal 1996
On January 17, 1996, reporting its merger of Founder Ventures,
Inc., into Paradise Bakery, Inc., including the financial statements
and proforma financial information required to be filed in connection
with the merger of Founder Ventures, Inc.
(c) EXHIBITS.
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The following documents are included or incorporated by reference
in this Annual Report.
Exhibits marked with an asterisk (*) represent management
contracts or compensatory plans or arrangements.
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
2.1 Stock Purchase Agreement dated December 14, 1995 between Java
Centrale, Inc. and Chart House Enterprises, Inc. (filed as Exhibit
2.3 to the Registrant's Registration Statement on Form 8-K dated
December 31, 1995, and by this reference incorporated herein.)
2.2 Merger Agreement dated December 15, 1995, between Java Centrale,
Inc., Paradise Bakery, Inc. and Founders Venture, Inc. (filed as
Exhibit 2.4 to the Registrant's Registration Statement on Form 8-K
dated January 17, 1996, and by this reference incorporated herein.)
3.1. Amended and Restated Articles of Incorporation (filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994, and by this reference incorporated herein).
3.2 Bylaws, as amended January 10, 1995 (filed as Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1994, and by this reference incorporated herein).
4.1 Warrants issued by the Company to Richard M.H. Thompson & Associates,
Inc. (filed as Exhibit No. 4.1 to the Registrant's Registration
Statement on Form S-1 dated March 17, 1994 (Commission File No. 33-
76528), and by this reference incorporated herein).
4.2 Warrants issued by the Company to The Manry Company (filed as Exhibit
No. 4.2 to the Registrant's Registration Statement on Form S-1 dated
March 17, 1994 (Commission File No. 33-76528), and by this reference
incorporated herein).
4.3 Warrants issued by the Company to Argent Securities, Inc. (filed as
Exhibit No. 4.5 to the Registrant's Registration Statement on Form
S-1 dated March 17, 1994 (Commission File No. 33-76528), and by this
reference incorporated herein).
4.4* Amended and Restated Security Escrow Agreement by and between the
Company and each of Baycor Ventures, Inc., Gary C. Nelson, Thomas A.
Craig, Bradley B. Landin, Richard D. Shannon, Richard M.H. Thompson
& Associates, Inc., The Manry Company, American Stock Transfer &
Trust Company, and Argent Securities, Inc. (filed as Exhibit No. 4.6
to Amendment No. 1 to the Registrant's Registration Statement on
Form S-1 dated March 17, 1994 (Commission File No. 33-76528), and by
this reference incorporated herein).
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4.5* Java Centrale, Inc. 1993 Stock Option Plan (filed as Exhibit No.
10.33 to the Registrant's Registration Statement on Form S-1 dated
March 17, 1994 (Commission File No. 33-76528), and by this reference
incorporated herein).
4.6* Incentive Stock Option Agreement between the Registrant and Stephen
J. Orlando, dated August 15, 1994, (filed as Exhibit No. 4.6 to the
Registrant Annual Report on form 10-K for the year ended March 31,
1995, and by this reference incorporated herein).
4.7* Stock Purchase Warrant Agreement between the Registrant and Oh-La
-La!, Inc., dated March 30, 1995, (filed as Exhibit No. 4.7 to the
Registrant Annual Report on form 10-K for the year ended March 31,
1995, and by this reference incorporated herein).
4.8 Series B Stock Purchase Warrant, issued to Oh-La-La!, Inc. pursuant to
the Stock Purchase Warrant Agreement between the Registrant and Oh-
La-La!, Inc. dated March 30, 1995, (filed as Exhibit No. 4.8 to the
Registrant Annual Report on form 10-K for the year ended March 31,
1995, and by this reference incorporated herein).
4.9 Series C Stock Purchase Warrant, issued to Oh-La-La!, Inc. pursuant to
the Stock Purchase Warrant Agreement between the Registrant and Oh-
La-La!, Inc. dated March 30, 1995, (filed as Exhibit No. 4.9 to the
Registrant Annual Report on form 10-K for the year ended March 31,
1995, and by this reference incorporated herein).
4.10 Consulting Agreement between Java Centrale, Inc. and Franchise
Development Corporation, dated as of July 2, 1995 (filed as Exhibit
4.1 to the Registrant's Registration Statement on Form S-8 dated
August 28, 1995, and by this reference incorporated herein.)
4.11 Consulting Agreement between Java Centrale, Inc. and Alcott Simpson &
Co., dated as of July 2, 1995 (filed as Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 dated August 28,
1995, and by this reference incorporated herein.)
4.12 Amendment No. 1 to Consulting Agreement between Registrant and Alcott
Simpson & Co, Inc., dated as of July 2, 1995 (filed as Exhibit 4.8
to the Registrant's Registration Statement on Form S-8 dated October
23, 1995, and by this reference incorporated herein.)
4.13 Stock Purchase Warrant, dated as of July 2, 1995, issued by the
Registrant to Alcott Simpson & Co, Inc., (filed as Exhibit 4.9 to
the Registrant's Registration Statement on Form S-8 dated October
23, 1995, and by this reference incorporated herein.)
4.14 Note Purchase Agreement, dated January 22, 1996, between the
Registrant and Gross Foundation, Inc. (filed as Exhibit No. 4.1 to
the Registrant's Registration Statement on Form S-3 dated February
21, 1996, [Commission File No.333-1526], and by this reference
incorporated herein.)
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<PAGE>
4.15 Form of Convertible Note, dated January 29, 1996, issued to Gross
Foundation, Inc. (filed as Exhibit No. 4.2 to the Registrant's
Registration Statement on Form S-3 dated February 21, 1996,
[Commission File No.333-1526], and by this reference incorporated
herein.)
4.16 Registration Rights Agreement, dated January 22, 1996, between the
Registrant and Gross Foundation, Inc., (filed as Exhibit No. 4.3 to
the Registrant's Registration Statement on Form S-3 dated February
21, 1996, [Commission File No.333-1526], and by this reference
incorporated herein.)
4.17 Note Purchase Agreement, dated January 22, 1996, between the
Registrant and Santina Holding, Inc. (filed as Exhibit No. 4.4 to
the Registrant's Registration Statement on Form S-3 dated February
21, 1996, [Commission File No.333-1526], and by this reference
incorporated herein.)
4.18 Form of Convertible Note, dated January 29, 1996, issued to Santina
Holding, Inc., (filed as Exhibit No. 4.5 to the Registrant's
Registration Statement on Form S-3 dated February 21, 1996,
[Commission File No.333-1526], and by this reference incorporated
herein.)
4.19 Registration Rights Agreement, dated January 22, 1996, between the
Registrant and Santina Holding, Inc. (filed as Exhibit No. 4.6 to
the Registrant's Registration Statement on Form S-3 dated February
21, 1996, [Commission File No.333-1526], and by this reference
incorporated herein.)
4.20 Stock Purchase Agreements covering the issuance of 876,000 common
shares for net proceeds to the Company of $3,561,837 (filed as
Exhibit No. 10(3) to the Registrant's Registration Statement on Form
10-Q dated September 30, 1995, and by this reference incorporated
herein.)
4.21* Incentive Stock Option Agreement between the Company and its
officers, Steven J. Orlando for 100,000 shares at $2.00, Gary C.
Nelson for 140,000 shares at $2.20, Thomas A. Craig for 50,000
shares at $2.00, Bradley B. Landin for 50,000 shares at $2.00, and
Richard D. Shannon for 163,000 shares at $2.20, all dated October
27, 1995, are omitted, as they are identical in form to previous
agreements filed as Exhibit 4.6 to the Company's Annual Report or
Form 10-K dated June 27, 1995, which by this reference are
incorporated, (filed as Exhibit No. 10.19 to the Registrant's
Registration Statement on Form 10-Q dated December 31, 1995, and by
this reference incorporated herein.)
4.22* Incentive Stock Option Agreement between the Company and its
officers, Steven J. Orlando for 75,000 shares at $1.75, Gary C.
Nelson for 27,000 shares at $1.93, Thomas A. Craig for 15,000 shares
at $1.75, Bradley B. Landin for 20,000 shares at $1.75 and Richard
D. Shannon for 11,250 shares at $1.93 all dated May 11, 1995, are
omitted, as they are identical in form to previous agreements filed
as Exhibit No. 4.6 to the Company's Annual Report or Form 10-K dated
June 27, 1995, which by this reference are incorporated herein
(filed as Exhibit No. 10 to the Registrant's Registration Statement
on Form 10-Q dated June 30, 1995, and by this reference incorporated
herein.)
4.23 Note Purchase Agreement, dated December 15, 1995, between the
Registrant and
64
<PAGE>
Legong Investments, N.V., (filed as Exhibit No. 4.1 to the
Registrant's Registration Statement on Form S-3 dated January 2,
1996, [Commission File No.333-42], and by this reference
incorporated herein.)
4.24 Form of Convertible Note, dated December 15, 1995, between Registrant
and Legong Investments, N.V., (filed as Exhibit No. 4.2 to the
Registrant's Registration Statement on Form S-3 dated January 2,
1996, [Commission File No.333-42], and by this reference
incorporated herein.)
4.25 Registration Rights Agreement, dated December 15, 1995, between the
Registrant and Legong Investment, N.V., (filed as Exhibit No. 4.3 to
the Registrant's Registration Statement on Form S-3 dated January 2,
1996, [Commission File No.333-42], and by this reference
incorporated herein.)
4.26 Stock Purchase Warrant, dated as June 12, 1996, issued by the
Registrant to Growth Science Venture, Inc., (filed as Exhibit No.
4.2 to the Registrant's Registration Statement on Form S-8 dated
June 28, 1996, [Commission File No.333-07261], and by this reference
incorporated herein.)
4.27 Stock Purchase Warrant, dated as June 12, 1996, issued by the
Registrant to Hayden Group, (filed as Exhibit No. 4.4 to the
Registrant's Registration Statement on Form S-8 dated June 28, 1996,
[Commission File No.333-07261], and by this reference incorporated
herein.)
4.28 Stock Purchase Warrant, dated as June 12, 1996, issued by the
Registrant to Meyers, Pollick, Robbins, Inc., (filed as Exhibit No.
4.6 to the Registrant's Registration Statement on Form S-8 dated
June 28, 1996, [Commission File No.333-07261], and by this reference
incorporated herein.)
10.1* Employment Agreement, dated February 1, 1994, between the Registrant
and Richard D. Shannon (filed as Exhibit No. 10.28 to the
Registrant's Registration Statement on Form S-1 dated March 17, 1994
(Commission File No. 33-76528), and by this reference incorporated
herein).
10.2* Employment Agreement, dated February 1, 1994, between the Registrant
and Gary C. Nelson (filed as Exhibit No. 10.29 to the Registrant's
Registration Statement on Form S-1 dated March 17, 1994 (Commission
File No. 33-76528), and by this reference incorporated herein).
10.3* Employment Agreement, dated February 1, 1994, between the Registrant
and Bradley B. Landin (filed as Exhibit No. 10.30 to the
Registrant's Registration Statement on Form S-1 dated March 17, 1994
(Commission File No. 33-76528), and by this reference incorporated
herein).
10.4* Employment Agreement, dated February 1, 1994, between the Registrant
and Thomas A Craig (filed as Exhibit No. 10.31 to the Registrant's
Registration Statement on Form S-1 dated March 17, 1994 (Commission
File No. 33-76528), and by this reference incorporated herein).
10.5* Employment Agreement, dated June 30, 1994, between the Registrant and
Steven J. Orlando (filed as Exhibit No. 10.46 to the Registrant's
Quarterly Report on
65
<PAGE>
Form 10-Q for the quarter ended June 30, 1994, and by this reference
incorporated herein).
10.6* Java Centrale, Inc. Incentive Compensation Plan (filed as Exhibit No.
10.34 to the Registrant's Registration Statement on Form S-1 dated
March 17, 1994 (Commission File No. 33-76528), and by this reference
incorporated herein).
10.7 Joint Venture Formation Agreement, dated November 14, 1994, among the
Registrant, Chamberlin Capital Corp, Java Southeast Partners, L.P.,
and Java Southeast, Inc., and amendments thereto, (filed as Exhibit
No. 10.7 to the Registrant Annual Report on form 10-K for the year
ended March 31, 1995, and by this reference incorporated herein).
10.8 Asset Purchase Agreement, dated as of February 15, 1995, between the
Registrant and Oh-La-La!, Inc. (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated March 30, 1995, and by
this reference incorporated herein).
10.9 First Amendment to Asset Purchase Agreement, dated March 30, 1995,
between the Registrant and PSSS, Inc. (filed as Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated March 30, 1995, and by
this reference incorporated herein).
10.10 Authorized Producer Agreement, dated as of May 1, 1995, between the
Registrant and Coffee Bean International, (filed as Exhibit No.
10.10 to the Registrant Annual Report on form 10-K for the year
ended March 31, 1995, and by this reference incorporated herein).
10.11 Lease effective September 1, 1995 between the Company and California
Birch Associates (filed as Exhibit No. 10(1) to the Registrant's
Registration Statement on Form 10-Q dated September 30, 1995, and by
this reference incorporated herein.)
10.12 Lease effective August 15, 1995 between the Company and Palmdale
SISOS G.P. (filed as Exhibit No. 10(2) to the Registrant's
Registration Statement on Form 10-Q dated September 30, 1995, and by
this reference incorporated herein.)
10.13* Indemnification Agreements, dated October 16, 1995, between the
Registrant and Richard Shannon, Chairman of the Board; Gary C.
Nelson, President; Steven J. Orlando, Chief Financial Officer;
Bradley B. Landin, Vice President; Thomas A. Craig, Vice President;
Kevin Baker, Director, and Baycor Venture, Inc., the single largest
shareholder.
10.14* Employment Agreement, dated January 1, 1996, between the Registrant
and Ty Peabody.
10.17 Asset Purchase Agreement, dated December 15, 1995, between the
Registrant, Paradise Bakery, Inc. and Venture 88, Inc.
11. Statement re Computation of Per Share Earnings (Loss)
21. Subsidiaries of the Registrant.
(d) EXCLUDED FINANCIAL STATEMENTS
Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: July __, 1996 JAVA CENTRALE, INC.
By: /s/
-------------------------------------
Gary C. Nelson
President and Chief Executive Officer
And By: /s/
---------------------------------------
Steven J. Orlando
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ July , 1996
- ----------------------------------------
Kevin R. Baker, Director
/s/ July , 1996
- ----------------------------------------
Bradley B. Landin, Director
/s/ July , 1996
- ----------------------------------------
Gary C. Nelson, President and Director
/s/ July , 1996
- ----------------------------------------
Richard D. Shannon,
Director and Chairman of the Board
67
<PAGE>
INDEX TO EXHIBITS
Exhibits marked with an asterisk (*) represent management contracts or
compensatory plans or arrangements.
Exhibit
Number Description
------- -----------
10.13* Indemnification Agreements, dated October 16, 1995, between the
Registrant and Richard Shannon, Chairman of the Board; Gary C.
Nelson, President; Steven J. Orlando, Chief Financial Officer;
Bradley B. Landin, Vice President; Thomas A. Craig, Vice
President; Kevin Baker, Director, and Baycor Venture, Inc., the
single largest shareholder.
10.14* Employment Agreement, dated January 1, 1996, between the
Registrant and Ty Peabody.
10.17 Asset Purchase Agreement, dated January 17, 1996, between the
Registrant and Venture 88, Inc.
11. Statement Re Computation of Per Share Earnings (Loss)
21. Subsidiaries of the Registrant.
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<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
by and between JAVA CENTRALE, INC., a California corporation (the "Company") and
Bradley B. Landin, an individual resident of the State of California and a
Director and/or officer of the Company ("Mr. Landin"), this 17th day of October,
1995.
R E C I T A L S
A. Mr. Landin is currently serving as a Director and/or officer of the
Company, and the Company wishes him to so serve it. In addition, the Company
may in the future wish to have Mr. Landin serve as a director and/or officer of
one or more other corporations, partnerships, subsidiaries, joint ventures, or
other enterprises, or to serve in some capacity with respect to an employee
benefit plan, for the Company's convenience or to represent the Company's
interests.
B. In accordance with Article VI of the Company's Articles of
Incorporation, and Article VI of its Bylaws, the Company is authorized to enter
into indemnification agreements with, and to indemnify, its officers and
Directors.
C. In order to provide Mr. Landin with an incentive to continue to
perform his present services to the Company, and to accept such future
responsibilities as the Company may in the future offer him, the Company wishes
to enter into this Agreement and to offer Mr. Landin the indemnifications herein
provided.
D. In consideration of the Company's entering into this Agreement, Mr.
Landin is willing to continue to serve the Company in his present capacity or
capacities, and to give consideration to serving the Company in such other
capacities as the Company may request in the future.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which is by all parties
hereto acknowledged, the parties do agree as follows.
1. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, formal or informal, whether brought in
the name of the Company or otherwise and whether of a civil, criminal,
administrative, or investigative nature, by reason of the fact that Mr. Landin
was or is an officer, director, or agent of the Company, or any of its parent or
<PAGE>
subsidiary corporations or other entities, or was or is serving at the request
of the Company as an officer, director, general, limited, or managing partner,
employee, or agent of another enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement is to be provided hereunder.
(b) The term "Expenses" includes, without limitation, attorneys'
fees, disbursements, and retainers; costs of suit and costs of appeal;
accounting and witness fees; travel and deposition costs; expenses of
investigations, judicial or administrative proceedings, and appeals; amounts
paid in settlement by or on behalf of Mr. Landin; and any expenses of
establishing a right to indemnification, pursuant to this Agreement or
otherwise, including reasonable compensation for the time spent by Mr. Landin
himself in connection with the investigation, defense, or appeal of any
Proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party.
2. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify
Mr. Landin if he is a party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (other than a Proceeding by or in the name
of the Company to procure a judgment in its favor), against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Landin in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted by California law (as in effect on
the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted or withheld action in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to a criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful; PROVIDED, HOWEVER, that any settlement of a
Proceeding must be approved in writing by the Company.
3. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company shall indemnify Mr. Landin if he is a party to, or is threatened to be
made a party to, or is otherwise involved in, any Proceeding by or in the name
of the Company to procure a judgment in its favor, against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Landin in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted under California law (as in effect
on the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company;
PROVIDED, HOWEVER, that any settlement of a Proceeding must be approved in
writing by the Company.
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<PAGE>
4. CONCLUSIVE PRESUMPTION REGARDING STANDARDS OF CONDUCT.
(a) Mr. Landin shall be conclusively presumed to have met the standards of
conduct provided in the following paragraph for indemnification pursuant to this
Agreement UNLESS a determination that he has not met such standards is made by
(a) the Board of Directors by a majority vote of a quorum thereof consisting of
directors who were or are not parties to the Proceeding due to which a claim is
made pursuant to this Agreement, (b) the Company's shareholders, by a majority
vote of a quorum thereof consisting of shareholders who are not parties to such
a Proceeding, (c) independent counsel, selection of whom has been approved by
Mr. Landin in writing, in a written opinion, or (d) a court of competent
jurisdiction.
(b) The standard of conduct applicable to all determinations as to the
eligibility of Mr. Landin for indemnification hereunder shall be that, at the
relevant time or times and in connection with the relevant actions or failures
to act, any such actions or omissions by Mr. Landin were taken or omitted in
good faith and in a manner reasonably believed to be in the best interests of
the Company, or in the case of a criminal proceeding that Mr. Landin had no
reasonable cause to believe that his conduct was unlawful.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that Mr. Landin has been
successful in defense of any Proceeding, or in defense of any claim, issue, or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, Mr. Landin shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by California
law.
6. ADVANCEMENT OF EXPENSES. The expenses incurred by Mr. Landin in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of Mr. Landin to the
fullest extent permitted by California law; PROVIDED, HOWEVER, that Mr. Landin
shall undertake in writing to repay any advances if it is ultimately determined
that he is or was not entitled to such indemnification.
7. PARTIAL INDEMNIFICATION. If Mr. Landin is entitled under any portion
of this Agreement to indemnification by the Company for a portion of the
Expenses, judgments, fines, penalties, or ERISA excise taxes actually and
reasonably incurred by him in connection with any Proceeding, but not, however,
for the total amount of his Expenses, judgments, fines, penalties, or ERISA
excise taxes, the Company shall nevertheless indemnify Mr. Landin for the
portion of the Expenses, judgments, fines, penalties, and ERISA excise taxes to
which he is entitled.
-3-
<PAGE>
8. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Within a reasonable period of time after receipt by Mr. Landin of
notice of the commencement of any Proceeding, Mr. Landin shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company thereof in writing. The failure to so notify the Company, however,
will not relieve the Company from any liability which it may have to Mr. Landin
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement
is not paid by the Company within thirty (30) days of receipt of the written
notice described in paragraph (a), above, the rights provided by this Agreement
shall be enforceable by Mr. Landin in any court of competent jurisdiction.
Neither the failure of the directors or shareholders of the Company or its
independent legal counsel to have made a determination prior to the commencement
of such action that indemnification or advances are proper in the circumstances
because Mr. Landin has met the applicable standard of conduct, if any, nor an
actual determination by the directors or shareholders of the Company or
independent legal counsel that Mr. Landin has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption for the
purpose of such an action that Mr. Landin has not met the applicable standard of
conduct in fact.
(c) If, but only if, Mr. Landin shall prevail in any Proceeding to
enforce his right to indemnification or advances hereunder as described in the
foregoing paragraph, then Mr. Landin's Expenses incurred in connection with such
a Proceeding shall, except as otherwise provided in Section 9, below, also be
indemnified by the Company.
(d) With respect to any proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish
the Company may assume the defense thereof, with counsel satisfactory to Mr.
Landin. After notice from the Company to Mr. Landin of its election to assume
the defense of a Proceeding, the Company will not be liable to Mr. Landin under
this Agreement for any Expenses subsequently incurred by Mr. Landin in
connection with the defense thereof, other than as provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on Mr. Landin without his written consent. Mr. Landin shall have the
right to employ his own counsel in any Proceeding, but the fees and expenses of
such counsel incurred after notice from the Company of its assumption of the
defense of the Proceeding shall be at the expense of Mr. Landin, unless (i) the
employment of counsel by Mr. Landin has been authorized by the Company, in
writing, (ii) Mr. Landin shall have reasonably concluded that there may be a
conflict of interest between the Company and Mr. Landin in the conduct of the
defense of a Proceeding, or (iii) the Company shall not in fact
-4-
<PAGE>
have engaged counsel to assume the defense of a Proceeding; in each of which
cases the fees and expenses of Mr. Landin's counsel shall be advanced by the
Company. The Company shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Company or as to which Mr. Landin
has concluded that there may be a conflict of interest between the Company
and Mr. Landin.
9. LIMITATIONS ON INDEMNIFICATION. Anything to the contrary in this
Agreement notwithstanding, no payments pursuant to this Agreement shall be made
by the Company:
(a) To indemnify or advance funds to Mr. Landin for Expenses with
respect to Proceedings initiated or brought voluntarily by Mr. Landin and not by
way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statue or
law or otherwise as required under California law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) To indemnify Mr. Landin for any Expenses, judgments, fines,
penalties, or ERISA excise taxes sustained in any Proceeding for which payment
is actually made to Mr. Landin under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify Mr. Landin for any Expenses, judgments, fines, or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by Mr. Landin of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state, or local statutory law; or
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
10. MAINTENANCE OF LIABILITY INSURANCE. In reliance upon the provisions
of its Articles of Incorporation and Bylaws, the Company may, in the sole
discretion of its Board of Directors, obtain and maintain directors' and
officers' liability insurance ("D&O Insurance"). This Agreement shall not be
construed as requiring the Company to obtain any such D&O Insurance, however, or
to maintain any such policy if once obtained.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which Mr.
Landin may be entitled under the Company's Articles of Incorporation or Bylaws,
any agreement, any vote of the Company's shareholders or disinterested
directors, any provision of California law, or otherwise, both as to action in
his
-5-
<PAGE>
official capacity and as to action in another capacity on behalf of the
Company while holding such office.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California which govern
contracts entered into by California residents in California to be performed in
California, without regard to the choice of law provisions thereof.
(b) AMENDMENTS AND WAIVERS. This Agreement may be amended or modified
only with the mutual written consent of the Company and Mr. Landin.
Notwithstanding the foregoing, any covenant, condition, or consideration
contained in this Agreement may be waived, or a breach thereof may be excused as
to that party individually, by a writing signed by the party or parties directly
entitled to the benefits thereof or remedies therefor.
(c) BINDING EFFECT; SUCCESSORS AND HEIRS. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns (including any direct or
indirect successor by merger, purchase, consolidation, or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs, and
personal legal representatives (collectively, the "Successors"). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective Successors any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
(d) PARTIAL VALIDITY; ENFORCEMENT. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of the other
provisions of this Agreement shall not in any way be affected or impaired
thereby, and (ii) such provision or provisions shall be reformed, without
further action by the parties hereto, to and only to the extent necessary to
give effect to the intent of such provision or provisions when applied to such
particular facts and circumstances.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all agreements between the parties, written or oral, regarding the same.
(f) NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other
-6-
<PAGE>
parties. Such notice shall be deemed effectively given upon (i)
personal delivery to the party to be notified, (ii) three (3) days after it has
been deposited with the United States Post Office, by registered or certified
mail, return receipt requested, postage prepaid, (iii) the next business day
after it has been deposited with an overnight courier such as Federal Express,
or (iv) when delivered by facsimile or electronic transmission, upon sender's
receipt of a confirmation of receipt of facsimile or electronic transmission
(whether written, verbal, or otherwise).
(g) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and entered into by
the undersigned parties hereto, intending to be bound hereby, on the date and
year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By: ________________________
Gary C. Nelson
Its President
MR. LANDIN ____________________________
Bradley B. Landin
-7-
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
by and between JAVA CENTRALE, INC., a California corporation (the "Company") and
Kevin R. Baker, an individual resident of the State of California and a Director
and/or officer of the Company ("Mr. Baker"), this 17th day of October, 1995.
R E C I T A L S
A. Mr. Baker is currently serving as a Director and/or officer of the
Company, and the Company wishes him to so serve it. In addition, the Company
may in the future wish to have Mr. Baker serve as a director and/or officer of
one or more other corporations, partnerships, subsidiaries, joint ventures, or
other enterprises, or to serve in some capacity with respect to an employee
benefit plan, for the Company's convenience or to represent the Company's
interests.
B. In accordance with Article VI of the Company's Articles of
Incorporation, and Article VI of its Bylaws, the Company is authorized to enter
into indemnification agreements with, and to indemnify, its officers and
Directors.
C. In order to provide Mr. Baker with an incentive to continue to perform
his present services to the Company, and to accept such future responsibilities
as the Company may in the future offer him, the Company wishes to enter into
this Agreement and to offer Mr. Baker the indemnifications herein provided.
D. In consideration of the Company's entering into this Agreement, Mr.
Baker is willing to continue to serve the Company in his present capacity or
capacities, and to give consideration to serving the Company in such other
capacities as the Company may request in the future.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which is by all parties
hereto acknowledged, the parties do agree as follows.
1. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, formal or informal, whether brought in
the name of the Company or otherwise and whether of a civil, criminal,
administrative, or investigative nature, by reason of the fact that Mr. Baker
was or is an officer, director, or agent of the Company, or any of its parent or
<PAGE>
subsidiary corporations or other entities, or was or is serving at the request
of the Company as an officer, director, general, limited, or managing partner,
employee, or agent of another enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement is to be provided hereunder.
(b) The term "Expenses" includes, without limitation, attorneys'
fees, disbursements, and retainers; costs of suit and costs of appeal;
accounting and witness fees; travel and deposition costs; expenses of
investigations, judicial or administrative proceedings, and appeals; amounts
paid in settlement by or on behalf of Mr. Baker; and any expenses of
establishing a right to indemnification, pursuant to this Agreement or
otherwise, including reasonable compensation for the time spent by Mr. Baker
himself in connection with the investigation, defense, or appeal of any
Proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party.
2. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify
Mr. Baker if he is a party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (other than a Proceeding by or in the name
of the Company to procure a judgment in its favor), against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Baker in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted by California law (as in effect on
the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted or withheld action in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to a criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful; PROVIDED, HOWEVER, that any settlement of a
Proceeding must be approved in writing by the Company.
3. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company shall indemnify Mr. Baker if he is a party to, or is threatened to be
made a party to, or is otherwise involved in, any Proceeding by or in the name
of the Company to procure a judgment in its favor, against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Baker in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted under California law (as in effect
on the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company;
PROVIDED, HOWEVER, that any settlement of a Proceeding must be approved in
writing by the Company.
-2-
<PAGE>
4. CONCLUSIVE PRESUMPTION REGARDING STANDARDS OF CONDUCT.
(a) Mr. Baker shall be conclusively presumed to have met the standards of
conduct provided in the following paragraph for indemnification pursuant to this
Agreement UNLESS a determination that he has not met such standards is made by
(a) the Board of Directors by a majority vote of a quorum thereof consisting of
directors who were or are not parties to the Proceeding due to which a claim is
made pursuant to this Agreement, (b) the Company's shareholders, by a majority
vote of a quorum thereof consisting of shareholders who are not parties to such
a Proceeding, (c) independent counsel, selection of whom has been approved by
Mr. Baker in writing, in a written opinion, or (d) a court of competent
jurisdiction.
(b) The standard of conduct applicable to all determinations as to the
eligibility of Mr. Baker for indemnification hereunder shall be that, at the
relevant time or times and in connection with the relevant actions or failures
to act, any such actions or omissions by Mr. Baker were taken or omitted in good
faith and in a manner reasonably believed to be in the best interests of the
Company, or in the case of a criminal proceeding that Mr. Baker had no
reasonable cause to believe that his conduct was unlawful.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that Mr. Baker has been
successful in defense of any Proceeding, or in defense of any claim, issue, or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, Mr. Baker shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by California
law.
6. ADVANCEMENT OF EXPENSES. The expenses incurred by Mr. Baker in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of Mr. Baker to the fullest
extent permitted by California law; PROVIDED, HOWEVER, that Mr. Baker shall
undertake in writing to repay any advances if it is ultimately determined that
he is or was not entitled to such indemnification.
7. PARTIAL INDEMNIFICATION. If Mr. Baker is entitled under any portion
of this Agreement to indemnification by the Company for a portion of the
Expenses, judgments, fines, penalties, or ERISA excise taxes actually and
reasonably incurred by him in connection with any Proceeding, but not, however,
for the total amount of his Expenses, judgments, fines, penalties, or ERISA
excise taxes, the Company shall nevertheless indemnify Mr. Baker for the portion
of the Expenses, judgments, fines, penalties, and ERISA excise taxes to which he
is entitled.
-3-
<PAGE>
8. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Within a reasonable period of time after receipt by Mr. Baker of
notice of the commencement of any Proceeding, Mr. Baker shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company thereof in writing. The failure to so notify the Company, however,
will not relieve the Company from any liability which it may have to Mr. Baker
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement
is not paid by the Company within thirty (30) days of receipt of the written
notice described in paragraph (a), above, the rights provided by this Agreement
shall be enforceable by Mr. Baker in any court of competent jurisdiction.
Neither the failure of the directors or shareholders of the Company or its
independent legal counsel to have made a determination prior to the commencement
of such action that indemnification or advances are proper in the circumstances
because Mr. Baker has met the applicable standard of conduct, if any, nor an
actual determination by the directors or shareholders of the Company or
independent legal counsel that Mr. Baker has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption for the
purpose of such an action that Mr. Baker has not met the applicable standard of
conduct in fact.
(c) If, but only if, Mr. Baker shall prevail in any Proceeding to
enforce his right to indemnification or advances hereunder as described in the
foregoing paragraph, then Mr. Baker's Expenses incurred in connection with such
a Proceeding shall, except as otherwise provided in Section 9, below, also be
indemnified by the Company.
(d) With respect to any proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish
the Company may assume the defense thereof, with counsel satisfactory to Mr.
Baker. After notice from the Company to Mr. Baker of its election to assume the
defense of a Proceeding, the Company will not be liable to Mr. Baker under this
Agreement for any Expenses subsequently incurred by Mr. Baker in connection with
the defense thereof, other than as provided below. The Company shall not settle
any Proceeding in any manner which would impose any penalty or limitation on Mr.
Baker without his written consent. Mr. Baker shall have the right to employ his
own counsel in any Proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense of the
Proceeding shall be at the expense of Mr. Baker, unless (i) the employment of
counsel by Mr. Baker has been authorized by the Company, in writing, (ii) Mr.
Baker shall have reasonably concluded that there may be a conflict of interest
between the Company and Mr. Baker in the conduct of the defense of a Proceeding,
or (iii) the Company shall not in fact have engaged
-4-
<PAGE>
counsel to assume the defense of a Proceeding; in each of which cases the
fees and expenses of Mr. Baker's counsel shall be advanced by the Company.
The Company shall not be entitled to assume the defense of any Proceeding
brought by or on behalf of the Company or as to which Mr. Baker has concluded
that there may be a conflict of interest between the Company and Mr. Baker.
9. LIMITATIONS ON INDEMNIFICATION. Anything to the contrary in this
Agreement notwithstanding, no payments pursuant to this Agreement shall be made
by the Company:
(a) To indemnify or advance funds to Mr. Baker for Expenses with
respect to Proceedings initiated or brought voluntarily by Mr. Baker and not by
way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statue or
law or otherwise as required under California law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) To indemnify Mr. Baker for any Expenses, judgments, fines,
penalties, or ERISA excise taxes sustained in any Proceeding for which payment
is actually made to Mr. Baker under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify Mr. Baker for any Expenses, judgments, fines, or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by Mr. Baker of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state, or local statutory law; or
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
10. MAINTENANCE OF LIABILITY INSURANCE. In reliance upon the provisions
of its Articles of Incorporation and Bylaws, the Company may, in the sole
discretion of its Board of Directors, obtain and maintain directors' and
officers' liability insurance ("D&O Insurance"). This Agreement shall not be
construed as requiring the Company to obtain any such D&O Insurance, however, or
to maintain any such policy if once obtained.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which Mr.
Baker may be entitled under the Company's Articles of Incorporation or Bylaws,
any agreement, any vote of the Company's shareholders or disinterested
directors, any provision of California law, or otherwise, both as to action in
his
-5-
<PAGE>
official capacity and as to action in another capacity on behalf of the
Company while holding such office.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California which govern
contracts entered into by California residents in California to be performed in
California, without regard to the choice of law provisions thereof.
(b) AMENDMENTS AND WAIVERS. This Agreement may be amended or modified
only with the mutual written consent of the Company and Mr. Baker.
Notwithstanding the foregoing, any covenant, condition, or consideration
contained in this Agreement may be waived, or a breach thereof may be excused as
to that party individually, by a writing signed by the party or parties directly
entitled to the benefits thereof or remedies therefor.
(c) BINDING EFFECT; SUCCESSORS AND HEIRS. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns (including any direct or
indirect successor by merger, purchase, consolidation, or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs, and
personal legal representatives (collectively, the "Successors"). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective Successors any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
(d) PARTIAL VALIDITY; ENFORCEMENT. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of the other
provisions of this Agreement shall not in any way be affected or impaired
thereby, and (ii) such provision or provisions shall be reformed, without
further action by the parties hereto, to and only to the extent necessary to
give effect to the intent of such provision or provisions when applied to such
particular facts and circumstances.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all agreements between the parties, written or oral, regarding the same.
(f) NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other
-6-
<PAGE>
parties. Such notice shall be deemed effectively given upon (i) personal
delivery to the party to be notified, (ii) three (3) days after it has been
deposited with the United States Post Office, by registered or certified
mail, return receipt requested, postage prepaid, (iii) the next business day
after it has been deposited with an overnight courier such as Federal
Express, or (iv) when delivered by facsimile or electronic transmission, upon
sender's receipt of a confirmation of receipt of facsimile or electronic
transmission (whether written, verbal, or otherwise).
(g) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and entered into by
the undersigned parties hereto, intending to be bound hereby, on the date and
year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By: ________________________
Gary C. Nelson
Its President
MR. BAKER ____________________________
Kevin R. Baker
-7-
<PAGE>
-8-
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
by and between JAVA CENTRALE, INC., a California corporation (the "Company") and
Steven J. Orlando, an individual resident of the State of California and a
Director and/or officer of the Company ("Mr. Orlando"), this 17th day of
October, 1995.
R E C I T A L S
A. Mr. Orlando is currently serving as a Director and/or officer of the
Company, and the Company wishes him to so serve it. In addition, the Company
may in the future wish to have Mr. Orlando serve as a director and/or officer of
one or more other corporations, partnerships, subsidiaries, joint ventures, or
other enterprises, or to serve in some capacity with respect to an employee
benefit plan, for the Company's convenience or to represent the Company's
interests.
B. In accordance with Article VI of the Company's Articles of
Incorporation, and Article VI of its Bylaws, the Company is authorized to enter
into indemnification agreements with, and to indemnify, its officers and
Directors.
C. In order to provide Mr. Orlando with an incentive to continue to
perform his present services to the Company, and to accept such future
responsibilities as the Company may in the future offer him, the Company wishes
to enter into this Agreement and to offer Mr. Orlando the indemnifications
herein provided.
D. In consideration of the Company's entering into this Agreement, Mr.
Orlando is willing to continue to serve the Company in his present capacity or
capacities, and to give consideration to serving the Company in such other
capacities as the Company may request in the future.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which is by all parties
hereto acknowledged, the parties do agree as follows.
1. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, formal or informal, whether brought in
the name of the Company or otherwise and whether of a civil, criminal,
administrative, or investigative nature, by reason of the fact that Mr. Orlando
was or is an officer, director, or agent of the Company, or any of its parent or
<PAGE>
subsidiary corporations or other entities, or was or is serving at the request
of the Company as an officer, director, general, limited, or managing partner,
employee, or agent of another enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement is to be provided hereunder.
(b) The term "Expenses" includes, without limitation, attorneys'
fees, disbursements, and retainers; costs of suit and costs of appeal;
accounting and witness fees; travel and deposition costs; expenses of
investigations, judicial or administrative proceedings, and appeals; amounts
paid in settlement by or on behalf of Mr. Orlando; and any expenses of
establishing a right to indemnification, pursuant to this Agreement or
otherwise, including reasonable compensation for the time spent by Mr. Orlando
himself in connection with the investigation, defense, or appeal of any
Proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party.
2. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify
Mr. Orlando if he is a party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (other than a Proceeding by or in the name
of the Company to procure a judgment in its favor), against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Orlando in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted by California law (as in effect on
the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted or withheld action in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to a criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful; PROVIDED, HOWEVER, that any settlement of a
Proceeding must be approved in writing by the Company.
3. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company shall indemnify Mr. Orlando if he is a party to, or is threatened to be
made a party to, or is otherwise involved in, any Proceeding by or in the name
of the Company to procure a judgment in its favor, against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Orlando in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted under California law (as in effect
on the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company;
PROVIDED, HOWEVER, that any settlement of a Proceeding must be approved in
writing by the Company.
-2-
<PAGE>
4. CONCLUSIVE PRESUMPTION REGARDING STANDARDS OF CONDUCT.
(a) Mr. Orlando shall be conclusively presumed to have met the standards
of conduct provided in the following paragraph for indemnification pursuant to
this Agreement UNLESS a determination that he has not met such standards is made
by (a) the Board of Directors by a majority vote of a quorum thereof consisting
of directors who were or are not parties to the Proceeding due to which a claim
is made pursuant to this Agreement, (b) the Company's shareholders, by a
majority vote of a quorum thereof consisting of shareholders who are not parties
to such a Proceeding, (c) independent counsel, selection of whom has been
approved by Mr. Orlando in writing, in a written opinion, or (d) a court of
competent jurisdiction.
(b) The standard of conduct applicable to all determinations as to the
eligibility of Mr. Orlando for indemnification hereunder shall be that, at the
relevant time or times and in connection with the relevant actions or failures
to act, any such actions or omissions by Mr. Orlando were taken or omitted in
good faith and in a manner reasonably believed to be in the best interests of
the Company, or in the case of a criminal proceeding that Mr. Orlando had no
reasonable cause to believe that his conduct was unlawful.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that Mr. Orlando has been
successful in defense of any Proceeding, or in defense of any claim, issue, or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, Mr. Orlando shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by California
law.
6. ADVANCEMENT OF EXPENSES. The expenses incurred by Mr. Orlando in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of Mr. Orlando to the
fullest extent permitted by California law; PROVIDED, HOWEVER, that Mr. Orlando
shall undertake in writing to repay any advances if it is ultimately determined
that he is or was not entitled to such indemnification.
7. PARTIAL INDEMNIFICATION. If Mr. Orlando is entitled under any portion
of this Agreement to indemnification by the Company for a portion of the
Expenses, judgments, fines, penalties, or ERISA excise taxes actually and
reasonably incurred by him in connection with any Proceeding, but not, however,
for the total amount of his Expenses, judgments, fines, penalties, or ERISA
excise taxes, the Company shall nevertheless indemnify Mr. Orlando for the
portion of the Expenses, judgments, fines, penalties, and ERISA excise taxes to
which he is entitled.
-3-
<PAGE>
8. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Within a reasonable period of time after receipt by Mr. Orlando of
notice of the commencement of any Proceeding, Mr. Orlando shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company thereof in writing. The failure to so notify the Company, however,
will not relieve the Company from any liability which it may have to Mr. Orlando
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement
is not paid by the Company within thirty (30) days of receipt of the written
notice described in paragraph (a), above, the rights provided by this Agreement
shall be enforceable by Mr. Orlando in any court of competent jurisdiction.
Neither the failure of the directors or shareholders of the Company or its
independent legal counsel to have made a determination prior to the commencement
of such action that indemnification or advances are proper in the circumstances
because Mr. Orlando has met the applicable standard of conduct, if any, nor an
actual determination by the directors or shareholders of the Company or
independent legal counsel that Mr. Orlando has not met the applicable standard
of conduct, shall be a defense to the action or create a presumption for the
purpose of such an action that Mr. Orlando has not met the applicable standard
of conduct in fact.
(c) If, but only if, Mr. Orlando shall prevail in any Proceeding to
enforce his right to indemnification or advances hereunder as described in the
foregoing paragraph, then Mr. Orlando's Expenses incurred in connection with
such a Proceeding shall, except as otherwise provided in Section 9, below, also
be indemnified by the Company.
(d) With respect to any proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish
the Company may assume the defense thereof, with counsel satisfactory to Mr.
Orlando. After notice from the Company to Mr. Orlando of its election to assume
the defense of a Proceeding, the Company will not be liable to Mr. Orlando under
this Agreement for any Expenses subsequently incurred by Mr. Orlando in
connection with the defense thereof, other than as provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on Mr. Orlando without his written consent. Mr. Orlando shall have
the right to employ his own counsel in any Proceeding, but the fees and expenses
of such counsel incurred after notice from the Company of its assumption of the
defense of the Proceeding shall be at the expense of Mr. Orlando, unless (i) the
employment of counsel by Mr. Orlando has been authorized by the Company, in
writing, (ii) Mr. Orlando shall have reasonably concluded that there may be a
conflict of interest between the Company and Mr. Orlando in the conduct of the
defense of a Proceeding, or (iii) the Company shall
-4-
<PAGE>
not in fact have engaged counsel to assume the defense of a Proceeding; in
each of which cases the fees and expenses of Mr. Orlando's counsel shall be
advanced by the Company. The Company shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company or as to
which Mr. Orlando has concluded that there may be a conflict of interest
between the Company and Mr. Orlando.
9. LIMITATIONS ON INDEMNIFICATION. Anything to the contrary in this
Agreement notwithstanding, no payments pursuant to this Agreement shall be made
by the Company:
(a) To indemnify or advance funds to Mr. Orlando for Expenses with
respect to Proceedings initiated or brought voluntarily by Mr. Orlando and not
by way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statue or
law or otherwise as required under California law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) To indemnify Mr. Orlando for any Expenses, judgments, fines,
penalties, or ERISA excise taxes sustained in any Proceeding for which payment
is actually made to Mr. Orlando under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify Mr. Orlando for any Expenses, judgments, fines, or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by Mr. Orlando of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state, or local statutory law; or
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
10. MAINTENANCE OF LIABILITY INSURANCE. In reliance upon the provisions
of its Articles of Incorporation and Bylaws, the Company may, in the sole
discretion of its Board of Directors, obtain and maintain directors' and
officers' liability insurance ("D&O Insurance"). This Agreement shall not be
construed as requiring the Company to obtain any such D&O Insurance, however, or
to maintain any such policy if once obtained.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which Mr.
Orlando may be entitled under the Company's Articles of Incorporation or Bylaws,
any agreement, any vote of the Company's shareholders or disinterested
directors, any provision of California law, or otherwise, both as to action in
his
-5-
<PAGE>
official capacity and as to action in another capacity on behalf of the
Company while holding such office.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California which govern
contracts entered into by California residents in California to be performed in
California, without regard to the choice of law provisions thereof.
(b) AMENDMENTS AND WAIVERS. This Agreement may be amended or modified
only with the mutual written consent of the Company and Mr. Orlando.
Notwithstanding the foregoing, any covenant, condition, or consideration
contained in this Agreement may be waived, or a breach thereof may be excused as
to that party individually, by a writing signed by the party or parties directly
entitled to the benefits thereof or remedies therefor.
(c) BINDING EFFECT; SUCCESSORS AND HEIRS. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns (including any direct or
indirect successor by merger, purchase, consolidation, or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs, and
personal legal representatives (collectively, the "Successors"). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective Successors any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
(d) PARTIAL VALIDITY; ENFORCEMENT. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of the other
provisions of this Agreement shall not in any way be affected or impaired
thereby, and (ii) such provision or provisions shall be reformed, without
further action by the parties hereto, to and only to the extent necessary to
give effect to the intent of such provision or provisions when applied to such
particular facts and circumstances.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all agreements between the parties, written or oral, regarding the same.
(f) NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other
-6-
<PAGE>
parties. Such notice shall be deemed effectively given upon (i) personal
delivery to the party to be notified, (ii) three (3) days after it has been
deposited with the United States Post Office, by registered or certified
mail, return receipt requested, postage prepaid, (iii) the next business day
after it has been deposited with an overnight courier such as Federal
Express, or (iv) when delivered by facsimile or electronic transmission, upon
sender's receipt of a confirmation of receipt of facsimile or electronic
transmission (whether written, verbal, or otherwise).
(g) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and entered into by
the undersigned parties hereto, intending to be bound hereby, on the date and
year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By: ________________________
Gary C. Nelson
Its President
MR. ORLANDO ___________________________
Steven J. Orlando
-7-
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
by and between JAVA CENTRALE, INC., a California corporation (the "Company") and
Gary C. Nelson, an individual resident of the State of California and a Director
and/or officer of the Company ("Mr. Nelson"), this 17th day of October, 1995.
R E C I T A L S
A. Mr. Nelson is currently serving as a Director and/or officer of the
Company, and the Company wishes him to so serve it. In addition, the Company
may in the future wish to have Mr. Nelson serve as a director and/or officer of
one or more other corporations, partnerships, subsidiaries, joint ventures, or
other enterprises, or to serve in some capacity with respect to an employee
benefit plan, for the Company's convenience or to represent the Company's
interests.
B. In accordance with Article VI of the Company's Articles of
Incorporation, and Article VI of its Bylaws, the Company is authorized to enter
into indemnification agreements with, and to indemnify, its officers and
Directors.
C. In order to provide Mr. Nelson with an incentive to continue to
perform his present services to the Company, and to accept such future
responsibilities as the Company may in the future offer him, the Company wishes
to enter into this Agreement and to offer Mr. Nelson the indemnifications herein
provided.
D. In consideration of the Company's entering into this Agreement, Mr.
Nelson is willing to continue to serve the Company in his present capacity or
capacities, and to give consideration to serving the Company in such other
capacities as the Company may request in the future.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which is by all parties
hereto acknowledged, the parties do agree as follows.
1. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, formal or informal, whether brought in
the name of the Company or otherwise and whether of a civil, criminal,
administrative, or investigative nature, by reason of the fact that Mr. Nelson
was or is an officer, director, or agent of the Company, or any of its parent or
<PAGE>
subsidiary corporations or other entities, or was or is serving at the request
of the Company as an officer, director, general, limited, or managing partner,
employee, or agent of another enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement is to be provided hereunder.
(b) The term "Expenses" includes, without limitation, attorneys'
fees, disbursements, and retainers; costs of suit and costs of appeal;
accounting and witness fees; travel and deposition costs; expenses of
investigations, judicial or administrative proceedings, and appeals; amounts
paid in settlement by or on behalf of Mr. Nelson; and any expenses of
establishing a right to indemnification, pursuant to this Agreement or
otherwise, including reasonable compensation for the time spent by Mr. Nelson
himself in connection with the investigation, defense, or appeal of any
Proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party.
2. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify
Mr. Nelson if he is a party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (other than a Proceeding by or in the name
of the Company to procure a judgment in its favor), against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Nelson in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted by California law (as in effect on
the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted or withheld action in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to a criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful; PROVIDED, HOWEVER, that any settlement of a
Proceeding must be approved in writing by the Company.
3. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company shall indemnify Mr. Nelson if he is a party to, or is threatened to be
made a party to, or is otherwise involved in, any Proceeding by or in the name
of the Company to procure a judgment in its favor, against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Nelson in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted under California law (as in effect
on the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company;
PROVIDED, HOWEVER, that any settlement of a Proceeding must be approved in
writing by the Company.
-2-
<PAGE>
4. CONCLUSIVE PRESUMPTION REGARDING STANDARDS OF CONDUCT.
(a) Mr. Nelson shall be conclusively presumed to have met the standards of
conduct provided in the following paragraph for indemnification pursuant to this
Agreement UNLESS a determination that he has not met such standards is made by
(a) the Board of Directors by a majority vote of a quorum thereof consisting of
directors who were or are not parties to the Proceeding due to which a claim is
made pursuant to this Agreement, (b) the Company's shareholders, by a majority
vote of a quorum thereof consisting of shareholders who are not parties to such
a Proceeding, (c) independent counsel, selection of whom has been approved by
Mr. Nelson in writing, in a written opinion, or (d) a court of competent
jurisdiction.
(b) The standard of conduct applicable to all determinations as to the
eligibility of Mr. Nelson for indemnification hereunder shall be that, at the
relevant time or times and in connection with the relevant actions or failures
to act, any such actions or omissions by Mr. Nelson were taken or omitted in
good faith and in a manner reasonably believed to be in the best interests of
the Company, or in the case of a criminal proceeding that Mr. Nelson had no
reasonable cause to believe that his conduct was unlawful.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that Mr. Nelson has been
successful in defense of any Proceeding, or in defense of any claim, issue, or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, Mr. Nelson shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by California
law.
6. ADVANCEMENT OF EXPENSES. The expenses incurred by Mr. Nelson in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of Mr. Nelson to the
fullest extent permitted by California law; PROVIDED, HOWEVER, that Mr. Nelson
shall undertake in writing to repay any advances if it is ultimately determined
that he is or was not entitled to such indemnification.
7. PARTIAL INDEMNIFICATION. If Mr. Nelson is entitled under any portion
of this Agreement to indemnification by the Company for a portion of the
Expenses, judgments, fines, penalties, or ERISA excise taxes actually and
reasonably incurred by him in connection with any Proceeding, but not, however,
for the total amount of his Expenses, judgments, fines, penalties, or ERISA
excise taxes, the Company shall nevertheless indemnify Mr. Nelson for the
portion of the Expenses, judgments, fines, penalties, and ERISA excise taxes to
which he is entitled.
-3-
<PAGE>
8. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Within a reasonable period of time after receipt by Mr. Nelson of
notice of the commencement of any Proceeding, Mr. Nelson shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company thereof in writing. The failure to so notify the Company, however,
will not relieve the Company from any liability which it may have to Mr. Nelson
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement
is not paid by the Company within thirty (30) days of receipt of the written
notice described in paragraph (a), above, the rights provided by this Agreement
shall be enforceable by Mr. Nelson in any court of competent jurisdiction.
Neither the failure of the directors or shareholders of the Company or its
independent legal counsel to have made a determination prior to the commencement
of such action that indemnification or advances are proper in the circumstances
because Mr. Nelson has met the applicable standard of conduct, if any, nor an
actual determination by the directors or shareholders of the Company or
independent legal counsel that Mr. Nelson has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption for the
purpose of such an action that Mr. Nelson has not met the applicable standard of
conduct in fact.
(c) If, but only if, Mr. Nelson shall prevail in any Proceeding to
enforce his right to indemnification or advances hereunder as described in the
foregoing paragraph, then Mr. Nelson's Expenses incurred in connection with such
a Proceeding shall, except as otherwise provided in Section 9, below, also be
indemnified by the Company.
(d) With respect to any proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish
the Company may assume the defense thereof, with counsel satisfactory to Mr.
Nelson. After notice from the Company to Mr. Nelson of its election to assume
the defense of a Proceeding, the Company will not be liable to Mr. Nelson under
this Agreement for any Expenses subsequently incurred by Mr. Nelson in
connection with the defense thereof, other than as provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on Mr. Nelson without his written consent. Mr. Nelson shall have the
right to employ his own counsel in any Proceeding, but the fees and expenses of
such counsel incurred after notice from the Company of its assumption of the
defense of the Proceeding shall be at the expense of Mr. Nelson, unless (i) the
employment of counsel by Mr. Nelson has been authorized by the Company, in
writing, (ii) Mr. Nelson shall have reasonably concluded that there may be a
conflict of interest between the Company and Mr. Nelson in the conduct of the
defense of a Proceeding, or (iii) the Company shall not in fact
-4-
<PAGE>
have engaged counsel to assume the defense of a Proceeding; in each of which
cases the fees and expenses of Mr. Nelson's counsel shall be advanced by the
Company. The Company shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Company or as to which Mr. Nelson
has concluded that there may be a conflict of interest between the Company
and Mr. Nelson.
9. LIMITATIONS ON INDEMNIFICATION. Anything to the contrary in this
Agreement notwithstanding, no payments pursuant to this Agreement shall be made
by the Company:
(a) To indemnify or advance funds to Mr. Nelson for Expenses with
respect to Proceedings initiated or brought voluntarily by Mr. Nelson and not by
way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statue or
law or otherwise as required under California law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) To indemnify Mr. Nelson for any Expenses, judgments, fines,
penalties, or ERISA excise taxes sustained in any Proceeding for which payment
is actually made to Mr. Nelson under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify Mr. Nelson for any Expenses, judgments, fines, or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by Mr. Nelson of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state, or local statutory law; or
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
10. MAINTENANCE OF LIABILITY INSURANCE. In reliance upon the provisions
of its Articles of Incorporation and Bylaws, the Company may, in the sole
discretion of its Board of Directors, obtain and maintain directors' and
officers' liability insurance ("D&O Insurance"). This Agreement shall not be
construed as requiring the Company to obtain any such D&O Insurance, however, or
to maintain any such policy if once obtained.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which Mr.
Nelson may be entitled under the Company's Articles of Incorporation or Bylaws,
any agreement, any vote of the Company's shareholders or disinterested
directors, any provision of California law, or otherwise, both as to action in
his
-5-
<PAGE>
official capacity and as to action in another capacity on behalf of the
Company while holding such office.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California which govern
contracts entered into by California residents in California to be performed in
California, without regard to the choice of law provisions thereof.
(b) AMENDMENTS AND WAIVERS. This Agreement may be amended or modified
only with the mutual written consent of the Company and Mr. Nelson.
Notwithstanding the foregoing, any covenant, condition, or consideration
contained in this Agreement may be waived, or a breach thereof may be excused as
to that party individually, by a writing signed by the party or parties directly
entitled to the benefits thereof or remedies therefor.
(c) BINDING EFFECT; SUCCESSORS AND HEIRS. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns (including any direct or
indirect successor by merger, purchase, consolidation, or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs, and
personal legal representatives (collectively, the "Successors"). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective Successors any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
(d) PARTIAL VALIDITY; ENFORCEMENT. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of the other
provisions of this Agreement shall not in any way be affected or impaired
thereby, and (ii) such provision or provisions shall be reformed, without
further action by the parties hereto, to and only to the extent necessary to
give effect to the intent of such provision or provisions when applied to such
particular facts and circumstances.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all agreements between the parties, written or oral, regarding the same.
(f) NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other
-6-
<PAGE>
parties. Such notice shall be deemed effectively given upon (i) personal
delivery to the party to be notified, (ii) three (3) days after it has been
deposited with the United States Post Office, by registered or certified
mail, return receipt requested, postage prepaid, (iii) the next business day
after it has been deposited with an overnight courier such as Federal
Express, or (iv) when delivered by facsimile or electronic transmission, upon
sender's receipt of a confirmation of receipt of facsimile or electronic
transmission (whether written, verbal, or otherwise).
(g) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and entered into by
the undersigned parties hereto, intending to be bound hereby, on the date and
year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By: __________________________
Steven J. Orlando
Its Vice President and
Chief Financial Officer
MR. NELSON ____________________________
Gary C. Nelson
-7-
<PAGE>
-8-
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
by and between JAVA CENTRALE, INC., a California corporation (the "Company") and
Richard D. Shannon, an individual resident of the State of California and a
Director and/or officer of the Company ("Mr. Shannon"), this 17th day of
October, 1995.
R E C I T A L S
A. Mr. Shannon is currently serving as a Director and/or officer of the
Company, and the Company wishes him to so serve it. In addition, the Company
may in the future wish to have Mr. Shannon serve as a director and/or officer of
one or more other corporations, partnerships, subsidiaries, joint ventures, or
other enterprises, or to serve in some capacity with respect to an employee
benefit plan, for the Company's convenience or to represent the Company's
interests.
B. In accordance with Article VI of the Company's Articles of
Incorporation, and Article VI of its Bylaws, the Company is authorized to enter
into indemnification agreements with, and to indemnify, its officers and
Directors.
C. In order to provide Mr. Shannon with an incentive to continue to
perform his present services to the Company, and to accept such future
responsibilities as the Company may in the future offer him, the Company wishes
to enter into this Agreement and to offer Mr. Shannon the indemnifications
herein provided.
D. In consideration of the Company's entering into this Agreement, Mr.
Shannon is willing to continue to serve the Company in his present capacity or
capacities, and to give consideration to serving the Company in such other
capacities as the Company may request in the future.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which is by all parties
hereto acknowledged, the parties do agree as follows.
1. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, formal or informal, whether brought in
the name of the Company or otherwise and whether of a civil, criminal,
administrative, or investigative nature, by reason of the fact that Mr. Shannon
was or is an officer, director, or agent of the Company, or any of its parent or
<PAGE>
subsidiary corporations or other entities, or was or is serving at the request
of the Company as an officer, director, general, limited, or managing partner,
employee, or agent of another enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement is to be provided hereunder.
(b) The term "Expenses" includes, without limitation, attorneys'
fees, disbursements, and retainers; costs of suit and costs of appeal;
accounting and witness fees; travel and deposition costs; expenses of
investigations, judicial or administrative proceedings, and appeals; amounts
paid in settlement by or on behalf of Mr. Shannon; and any expenses of
establishing a right to indemnification, pursuant to this Agreement or
otherwise, including reasonable compensation for the time spent by Mr. Shannon
himself in connection with the investigation, defense, or appeal of any
Proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party.
2. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify
Mr. Shannon if he is a party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (other than a Proceeding by or in the name
of the Company to procure a judgment in its favor), against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Shannon in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted by California law (as in effect on
the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted or withheld action in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to a criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful; PROVIDED, HOWEVER, that any settlement of a
Proceeding must be approved in writing by the Company.
3. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company shall indemnify Mr. Shannon if he is a party to, or is threatened to be
made a party to, or is otherwise involved in, any Proceeding by or in the name
of the Company to procure a judgment in its favor, against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Shannon in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted under California law (as in effect
on the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company;
PROVIDED, HOWEVER, that any settlement of a Proceeding must be approved in
writing by the Company.
-2-
<PAGE>
4. CONCLUSIVE PRESUMPTION REGARDING STANDARDS OF CONDUCT.
(a) Mr. Shannon shall be conclusively presumed to have met the standards
of conduct provided in the following paragraph for indemnification pursuant to
this Agreement UNLESS a determination that he has not met such standards is made
by (a) the Board of Directors by a majority vote of a quorum thereof consisting
of directors who were or are not parties to the Proceeding due to which a claim
is made pursuant to this Agreement, (b) the Company's shareholders, by a
majority vote of a quorum thereof consisting of shareholders who are not parties
to such a Proceeding, (c) independent counsel, selection of whom has been
approved by Mr. Shannon in writing, in a written opinion, or (d) a court of
competent jurisdiction.
(b) The standard of conduct applicable to all determinations as to the
eligibility of Mr. Shannon for indemnification hereunder shall be that, at the
relevant time or times and in connection with the relevant actions or failures
to act, any such actions or omissions by Mr. Shannon were taken or omitted in
good faith and in a manner reasonably believed to be in the best interests of
the Company, or in the case of a criminal proceeding that Mr. Shannon had no
reasonable cause to believe that his conduct was unlawful.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that Mr. Shannon has been
successful in defense of any Proceeding, or in defense of any claim, issue, or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, Mr. Shannon shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by California
law.
6. ADVANCEMENT OF EXPENSES. The expenses incurred by Mr. Shannon in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of Mr. Shannon to the
fullest extent permitted by California law; PROVIDED, HOWEVER, that Mr. Shannon
shall undertake in writing to repay any advances if it is ultimately determined
that he is or was not entitled to such indemnification.
7. PARTIAL INDEMNIFICATION. If Mr. Shannon is entitled under any portion
of this Agreement to indemnification by the Company for a portion of the
Expenses, judgments, fines, penalties, or ERISA excise taxes actually and
reasonably incurred by him in connection with any Proceeding, but not, however,
for the total amount of his Expenses, judgments, fines, penalties, or ERISA
excise taxes, the Company shall nevertheless indemnify Mr. Shannon for the
portion of the Expenses, judgments, fines, penalties, and ERISA excise taxes to
which he is entitled.
-3-
<PAGE>
8. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Within a reasonable period of time after receipt by Mr. Shannon of
notice of the commencement of any Proceeding, Mr. Shannon shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company thereof in writing. The failure to so notify the Company, however,
will not relieve the Company from any liability which it may have to Mr. Shannon
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement
is not paid by the Company within thirty (30) days of receipt of the written
notice described in paragraph (a), above, the rights provided by this Agreement
shall be enforceable by Mr. Shannon in any court of competent jurisdiction.
Neither the failure of the directors or shareholders of the Company or its
independent legal counsel to have made a determination prior to the commencement
of such action that indemnification or advances are proper in the circumstances
because Mr. Shannon has met the applicable standard of conduct, if any, nor an
actual determination by the directors or shareholders of the Company or
independent legal counsel that Mr. Shannon has not met the applicable standard
of conduct, shall be a defense to the action or create a presumption for the
purpose of such an action that Mr. Shannon has not met the applicable standard
of conduct in fact.
(c) If, but only if, Mr. Shannon shall prevail in any Proceeding to
enforce his right to indemnification or advances hereunder as described in the
foregoing paragraph, then Mr. Shannon's Expenses incurred in connection with
such a Proceeding shall, except as otherwise provided in Section 9, below, also
be indemnified by the Company.
(d) With respect to any proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish
the Company may assume the defense thereof, with counsel satisfactory to Mr.
Shannon. After notice from the Company to Mr. Shannon of its election to assume
the defense of a Proceeding, the Company will not be liable to Mr. Shannon under
this Agreement for any Expenses subsequently incurred by Mr. Shannon in
connection with the defense thereof, other than as provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on Mr. Shannon without his written consent. Mr. Shannon shall have
the right to employ his own counsel in any Proceeding, but the fees and expenses
of such counsel incurred after notice from the Company of its assumption of the
defense of the Proceeding shall be at the expense of Mr. Shannon, unless (i) the
employment of counsel by Mr. Shannon has been authorized by the Company, in
writing, (ii) Mr. Shannon shall have reasonably concluded that there may be a
conflict of interest between the Company and Mr. Shannon in the conduct of the
defense of a Proceeding, or (iii) the Company shall
-4-
<PAGE>
not in fact have engaged counsel to assume the defense of a Proceeding; in
each of which cases the fees and expenses of Mr. Shannon's counsel shall be
advanced by the Company. The Company shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company or as to
which Mr. Shannon has concluded that there may be a conflict of interest
between the Company and Mr. Shannon.
9. LIMITATIONS ON INDEMNIFICATION. Anything to the contrary in this
Agreement notwithstanding, no payments pursuant to this Agreement shall be made
by the Company:
(a) To indemnify or advance funds to Mr. Shannon for Expenses with
respect to Proceedings initiated or brought voluntarily by Mr. Shannon and not
by way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statue or
law or otherwise as required under California law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) To indemnify Mr. Shannon for any Expenses, judgments, fines,
penalties, or ERISA excise taxes sustained in any Proceeding for which payment
is actually made to Mr. Shannon under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify Mr. Shannon for any Expenses, judgments, fines, or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by Mr. Shannon of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state, or local statutory law; or
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
10. MAINTENANCE OF LIABILITY INSURANCE. In reliance upon the provisions
of its Articles of Incorporation and Bylaws, the Company may, in the sole
discretion of its Board of Directors, obtain and maintain directors' and
officers' liability insurance ("D&O Insurance"). This Agreement shall not be
construed as requiring the Company to obtain any such D&O Insurance, however, or
to maintain any such policy if once obtained.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which Mr.
Shannon may be entitled under the Company's Articles of Incorporation or Bylaws,
any agreement, any vote of the Company's shareholders or disinterested
directors, any provision of California law, or otherwise, both as to action in
his
-5-
<PAGE>
official capacity and as to action in another capacity on behalf of the
Company while holding such office.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California which govern
contracts entered into by California residents in California to be performed in
California, without regard to the choice of law provisions thereof.
(b) AMENDMENTS AND WAIVERS. This Agreement may be amended or modified
only with the mutual written consent of the Company and Mr. Shannon.
Notwithstanding the foregoing, any covenant, condition, or consideration
contained in this Agreement may be waived, or a breach thereof may be excused as
to that party individually, by a writing signed by the party or parties directly
entitled to the benefits thereof or remedies therefor.
(c) BINDING EFFECT; SUCCESSORS AND HEIRS. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns (including any direct or
indirect successor by merger, purchase, consolidation, or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs, and
personal legal representatives (collectively, the "Successors"). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective Successors any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
(d) PARTIAL VALIDITY; ENFORCEMENT. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of the other
provisions of this Agreement shall not in any way be affected or impaired
thereby, and (ii) such provision or provisions shall be reformed, without
further action by the parties hereto, to and only to the extent necessary to
give effect to the intent of such provision or provisions when applied to such
particular facts and circumstances.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all agreements between the parties, written or oral, regarding the same.
(f) NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other
-6-
<PAGE>
parties. Such notice shall be deemed effectively given upon (i) personal
delivery to the party to be notified, (ii) three (3) days after it has been
deposited with the United States Post Office, by registered or certified
mail, return receipt requested, postage prepaid, (iii) the next business day
after it has been deposited with an overnight courier such as Federal
Express, or (iv) when delivered by facsimile or electronic transmission, upon
sender's receipt of a confirmation of receipt of facsimile or electronic
transmission (whether written, verbal, or otherwise).
(g) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and entered into by
the undersigned parties hereto, intending to be bound hereby, on the date and
year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By: ________________________________
Gary C. Nelson
Its President
MR. SHANNON _______________________________
Richard D. Shannon
-7-
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
by and between JAVA CENTRALE, INC., a California corporation (the "Company") and
Thomas A. Craig, an individual resident of the State of California and a
Director and/or officer of the Company ("Mr. Craig"), this 17th day of October,
1995.
R E C I T A L S
A. Mr. Craig is currently serving as a Director and/or officer of the
Company, and the Company wishes him to so serve it. In addition, the Company
may in the future wish to have Mr. Craig serve as a director and/or officer of
one or more other corporations, partnerships, subsidiaries, joint ventures, or
other enterprises, or to serve in some capacity with respect to an employee
benefit plan, for the Company's convenience or to represent the Company's
interests.
B. In accordance with Article VI of the Company's Articles of
Incorporation, and Article VI of its Bylaws, the Company is authorized to enter
into indemnification agreements with, and to indemnify, its officers and
Directors.
C. In order to provide Mr. Craig with an incentive to continue to perform
his present services to the Company, and to accept such future responsibilities
as the Company may in the future offer him, the Company wishes to enter into
this Agreement and to offer Mr. Craig the indemnifications herein provided.
D. In consideration of the Company's entering into this Agreement, Mr.
Craig is willing to continue to serve the Company in his present capacity or
capacities, and to give consideration to serving the Company in such other
capacities as the Company may request in the future.
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which is by all parties
hereto acknowledged, the parties do agree as follows.
1. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, formal or informal, whether brought in
the name of the Company or otherwise and whether of a civil, criminal,
administrative, or investigative nature, by reason of the fact that Mr. Craig
was or is an officer, director, or agent of the Company, or any of its parent or
<PAGE>
subsidiary corporations or other entities, or was or is serving at the request
of the Company as an officer, director, general, limited, or managing partner,
employee, or agent of another enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement is to be provided hereunder.
(b) The term "Expenses" includes, without limitation, attorneys'
fees, disbursements, and retainers; costs of suit and costs of appeal;
accounting and witness fees; travel and deposition costs; expenses of
investigations, judicial or administrative proceedings, and appeals; amounts
paid in settlement by or on behalf of Mr. Craig; and any expenses of
establishing a right to indemnification, pursuant to this Agreement or
otherwise, including reasonable compensation for the time spent by Mr. Craig
himself in connection with the investigation, defense, or appeal of any
Proceeding or action for indemnification for which he is not otherwise
compensated by the Company or any third party.
2. INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company shall indemnify
Mr. Craig if he is a party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (other than a Proceeding by or in the name
of the Company to procure a judgment in its favor), against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Craig in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted by California law (as in effect on
the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted or withheld action in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to a criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful; PROVIDED, HOWEVER, that any settlement of a
Proceeding must be approved in writing by the Company.
3. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company shall indemnify Mr. Craig if he is a party to, or is threatened to be
made a party to, or is otherwise involved in, any Proceeding by or in the name
of the Company to procure a judgment in its favor, against all Expenses,
judgments, fines, penalties, and ERISA excise taxes actually and reasonably
incurred by Mr. Craig in connection with the defense or settlement of such a
Proceeding, to the fullest extent permitted under California law (as in effect
on the date of this Agreement and to such greater extent as applicable law may
hereafter permit), if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company;
PROVIDED, HOWEVER, that any settlement of a Proceeding must be approved in
writing by the Company.
-2-
<PAGE>
4. CONCLUSIVE PRESUMPTION REGARDING STANDARDS OF CONDUCT.
(a) Mr. Craig shall be conclusively presumed to have met the standards of
conduct provided in the following paragraph for indemnification pursuant to this
Agreement UNLESS a determination that he has not met such standards is made by
(a) the Board of Directors by a majority vote of a quorum thereof consisting of
directors who were or are not parties to the Proceeding due to which a claim is
made pursuant to this Agreement, (b) the Company's shareholders, by a majority
vote of a quorum thereof consisting of shareholders who are not parties to such
a Proceeding, (c) independent counsel, selection of whom has been approved by
Mr. Craig in writing, in a written opinion, or (d) a court of competent
jurisdiction.
(b) The standard of conduct applicable to all determinations as to the
eligibility of Mr. Craig for indemnification hereunder shall be that, at the
relevant time or times and in connection with the relevant actions or failures
to act, any such actions or omissions by Mr. Craig were taken or omitted in good
faith and in a manner reasonably believed to be in the best interests of the
Company, or in the case of a criminal proceeding that Mr. Craig had no
reasonable cause to believe that his conduct was unlawful.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that Mr. Craig has been
successful in defense of any Proceeding, or in defense of any claim, issue, or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, Mr. Craig shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by California
law.
6. ADVANCEMENT OF EXPENSES. The expenses incurred by Mr. Craig in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of Mr. Craig to the fullest
extent permitted by California law; PROVIDED, HOWEVER, that Mr. Craig shall
undertake in writing to repay any advances if it is ultimately determined that
he is or was not entitled to such indemnification.
7. PARTIAL INDEMNIFICATION. If Mr. Craig is entitled under any portion
of this Agreement to indemnification by the Company for a portion of the
Expenses, judgments, fines, penalties, or ERISA excise taxes actually and
reasonably incurred by him in connection with any Proceeding, but not, however,
for the total amount of his Expenses, judgments, fines, penalties, or ERISA
excise taxes, the Company shall nevertheless indemnify Mr. Craig for the portion
of the Expenses, judgments, fines, penalties, and ERISA excise taxes to which he
is entitled.
-3-
<PAGE>
8. INDEMNIFICATION PROCEDURE; DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) Within a reasonable period of time after receipt by Mr. Craig of
notice of the commencement of any Proceeding, Mr. Craig shall, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company thereof in writing. The failure to so notify the Company, however,
will not relieve the Company from any liability which it may have to Mr. Craig
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement
is not paid by the Company within thirty (30) days of receipt of the written
notice described in paragraph (a), above, the rights provided by this Agreement
shall be enforceable by Mr. Craig in any court of competent jurisdiction.
Neither the failure of the directors or shareholders of the Company or its
independent legal counsel to have made a determination prior to the commencement
of such action that indemnification or advances are proper in the circumstances
because Mr. Craig has met the applicable standard of conduct, if any, nor an
actual determination by the directors or shareholders of the Company or
independent legal counsel that Mr. Craig has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption for the
purpose of such an action that Mr. Craig has not met the applicable standard of
conduct in fact.
(c) If, but only if, Mr. Craig shall prevail in any Proceeding to
enforce his right to indemnification or advances hereunder as described in the
foregoing paragraph, then Mr. Craig's Expenses incurred in connection with such
a Proceeding shall, except as otherwise provided in Section 9, below, also be
indemnified by the Company.
(d) With respect to any proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish
the Company may assume the defense thereof, with counsel satisfactory to Mr.
Craig. After notice from the Company to Mr. Craig of its election to assume the
defense of a Proceeding, the Company will not be liable to Mr. Craig under this
Agreement for any Expenses subsequently incurred by Mr. Craig in connection with
the defense thereof, other than as provided below. The Company shall not settle
any Proceeding in any manner which would impose any penalty or limitation on Mr.
Craig without his written consent. Mr. Craig shall have the right to employ his
own counsel in any Proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense of the
Proceeding shall be at the expense of Mr. Craig, unless (i) the employment of
counsel by Mr. Craig has been authorized by the Company, in writing, (ii) Mr.
Craig shall have reasonably concluded that there may be a conflict of interest
between the Company and Mr. Craig in the conduct of the defense of a Proceeding,
or (iii) the Company shall not in fact have engaged
-4-
<PAGE>
counsel to assume the defense of a Proceeding; in each of which cases the
fees and expenses of Mr. Craig's counsel shall be advanced by the Company.
The Company shall not be entitled to assume the defense of any Proceeding
brought by or on behalf of the Company or as to which Mr. Craig has concluded
that there may be a conflict of interest between the Company and Mr. Craig.
9. LIMITATIONS ON INDEMNIFICATION. Anything to the contrary in this
Agreement notwithstanding, no payments pursuant to this Agreement shall be made
by the Company:
(a) To indemnify or advance funds to Mr. Craig for Expenses with
respect to Proceedings initiated or brought voluntarily by Mr. Craig and not by
way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statue or
law or otherwise as required under California law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) To indemnify Mr. Craig for any Expenses, judgments, fines,
penalties, or ERISA excise taxes sustained in any Proceeding for which payment
is actually made to Mr. Craig under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify Mr. Craig for any Expenses, judgments, fines, or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by Mr. Craig of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state, or local statutory law; or
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
10. MAINTENANCE OF LIABILITY INSURANCE. In reliance upon the provisions
of its Articles of Incorporation and Bylaws, the Company may, in the sole
discretion of its Board of Directors, obtain and maintain directors' and
officers' liability insurance ("D&O Insurance"). This Agreement shall not be
construed as requiring the Company to obtain any such D&O Insurance, however, or
to maintain any such policy if once obtained.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which Mr.
Craig may be entitled under the Company's Articles of Incorporation or Bylaws,
any agreement, any vote of the Company's shareholders or disinterested
directors, any provision of California law, or otherwise, both as to action in
his
-5-
<PAGE>
official capacity and as to action in another capacity on behalf of the
Company while holding such office.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California which govern
contracts entered into by California residents in California to be performed in
California, without regard to the choice of law provisions thereof.
(b) AMENDMENTS AND WAIVERS. This Agreement may be amended or modified
only with the mutual written consent of the Company and Mr. Craig.
Notwithstanding the foregoing, any covenant, condition, or consideration
contained in this Agreement may be waived, or a breach thereof may be excused as
to that party individually, by a writing signed by the party or parties directly
entitled to the benefits thereof or remedies therefor.
(c) BINDING EFFECT; SUCCESSORS AND HEIRS. This Agreement shall be binding
upon and inure to the benefit of, and shall be enforceable by, the parties
hereto and their respective successors and assigns (including any direct or
indirect successor by merger, purchase, consolidation, or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs, and
personal legal representatives (collectively, the "Successors"). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective Successors any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
(d) PARTIAL VALIDITY; ENFORCEMENT. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of the other
provisions of this Agreement shall not in any way be affected or impaired
thereby, and (ii) such provision or provisions shall be reformed, without
further action by the parties hereto, to and only to the extent necessary to
give effect to the intent of such provision or provisions when applied to such
particular facts and circumstances.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all agreements between the parties, written or oral, regarding the same.
(f) NOTICES. Any notice required or permitted under this Agreement shall
be given in writing and shall be addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other
-6-
<PAGE>
parties. Such notice shall be deemed effectively given upon (i) personal
delivery to the party to be notified, (ii) three (3) days after it has been
deposited with the United States Post Office, by registered or certified
mail, return receipt requested, postage prepaid, (iii) the next business day
after it has been deposited with an overnight courier such as Federal
Express, or (iv) when delivered by facsimile or electronic transmission, upon
sender's receipt of a confirmation of receipt of facsimile or electronic
transmission (whether written, verbal, or otherwise).
(g) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and entered into by
the undersigned parties hereto, intending to be bound hereby, on the date and
year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By: ________________________
Gary C. Nelson
Its President
MR. CRAIG ____________________________
Thomas A. Craig
-7-
<PAGE>
EXHIBIT 10.14
JAVA CENTRALEING
CORPORATE JAVAGRAM
TO: Mr. Ty Peabody
FROM: Gary Nelson, President, Java Centrale, Inc.
DATE: July 12, 1996
RE: Employment
- -------------------------------------------------------------------------------
It is expressly understood that this letter does not constitute an employment
contract, but is instead an outline as to how we intend to proceed with
your employment agreement for the position at Paradise Bakery. All previous
letters and correspondence are superseded by this outline.
TERM SHEET
Title: President and COO
Initial Bonus: Bonus for position - $25,000
Salary: $102,000 year 1, $117,000 year 2, $132,000 year 3
Bonus: Target EBITDA - year 1, 2 and 3 to be determined with
President and CFO of Java Centrale.
Achieve less than 90% No Payment
Achieve 90% - 100% 25% of Salary Bonus
Achieve over 100% 50% of Salary Bonus
Achieve over 120% To be determined
Health Insurance/ Standard Plan of Java Centrale/Paradise - Full health
Disability: insurance for family - Employment contribution not to
exceed $125 per month.
Automobile: A mid-priced, leased car with cellular phone shall be
provided including insurance, maintenance and
operating expenses. Lease payment not to exceed
$425/month
Warrants: 100,000 shares granted at $2.75 effective at date of
employment. Warrants exercisable at any time over 5
years, underlying shares to be registered by June 30,
1996.
Severance Package: 12 months at $8,333 per month upon termination,
except no severance for termination for cause as
outlined in the employment agreement.
<PAGE>
Expenses: Remittance of approved expenses.
Agreement: Employment contract mutually acceptable to both
parties to be approved by the Board of Directors of
Java Centrale, Inc.
Transaction Fee: $75,000 January 31, 1996 - $100,000 March 31, 1996.
2
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
JAVA CENTRALE, INC.
AND
VENTURE 88, INC.
DATED AS OF DECEMBER 15, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Basic Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Purchase and Sale of Assets . . . . . . . . . . . . . . . . . . 5
(b) Assumption of Liabilities . . . . . . . . . . . . . . . . . . . 6
(c) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Deliveries at the Closing . . . . . . . . . . . . . . . . . . . 7
(f) Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(g) Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . 7
(h) Investigation Period. . . . . . . . . . . . . . . . . . . . . . 8
3. Representations and Warranties of the Seller . . . . . . . . . . . . 8
(a) Organization, Standing and Power. . . . . . . . . . . . . . . . 9
(b) Authorization of Transaction. . . . . . . . . . . . . . . . . . 9
(c) Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Financial Statements. . . . . . . . . . . . . . . . . . . . . . 9
(e) Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 10
(f) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . 10
(h) Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . 10
(i) Intellectual Property . . . . . . . . . . . . . . . . . . . . . 10
(j) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(k) Real Property Lease . . . . . . . . . . . . . . . . . . . . . . 11
(l) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(m) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . 13
(n) Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . 13
(o) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(p) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(q) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(r) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . 14
(s) Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(t) Environment, Health, and Safety . . . . . . . . . . . . . . . . 15
(u) Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . . 16
(v) Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(w) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . 17
(x) Exemption from Registration . . . . . . . . . . . . . . . . . . 17
(y) Designation . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4. Representations and Warranties of the Buyer. . . . . . . . . . . . . 18
(a) Organization of the Buyer . . . . . . . . . . . . . . . . . . . 18
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Authorization of Transaction. . . . . . . . . . . . . . . . . . 18
(e) Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . 19
(f) Financial Statements. . . . . . . . . . . . . . . . . . . . . . 19
(g) Events Subsequent to Most Recent Fiscal Year End. . . . . . . . 19
(h) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(i) Environment, Health, and Safety . . . . . . . . . . . . . . . . 20
(j) Securities Exchange Act Compliance. . . . . . . . . . . . . . . 20
(k) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . 20
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TABLE OF CONTENTS
(CONTINUED)
PAGE
----
(l) Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(m) Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . . 20
5. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . 21
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Notices and Consents. . . . . . . . . . . . . . . . . . . . . . 21
(c) Operation of Business . . . . . . . . . . . . . . . . . . . . . 21
(d) Preservation of Business. . . . . . . . . . . . . . . . . . . . 21
(e) Full Access . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(f) Notice of Developments. . . . . . . . . . . . . . . . . . . . . 22
(g) Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(h) Foreign Person Affidavit. . . . . . . . . . . . . . . . . . . . 22
(i) 1994 Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(j) NASDAQ Additional Listing Application . . . . . . . . . . . . . 22
(k) The Buyer's Securities Exchange Act Filings . . . . . . . . . . 23
6. Conditions to Obligation to Close. . . . . . . . . . . . . . . . . . 23
(a) Conditions to Obligation of the Buyer . . . . . . . . . . . . . 23
(b) Conditions to Obligations of the Seller . . . . . . . . . . . . 24
7. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Termination of Agreement. . . . . . . . . . . . . . . . . . . . 25
(b) Effect of Termination . . . . . . . . . . . . . . . . . . . . . 26
8. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Obligation of the Seller to Indemnify. . . . . . . . . . . . . 26
9. Survival of Representations and Warranties . . . . . . . . . . . . . 29
10. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 30
(c) Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . 30
(d) Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 31
(f) Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(g) Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(h) Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . 31
(i) Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(j) Number and Gender . . . . . . . . . . . . . . . . . . . . . . . 31
(k) Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 31
(l) Effect of Waiver. . . . . . . . . . . . . . . . . . . . . . . . 31
(m) Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 31
(n) Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(o) Binding Nature. . . . . . . . . . . . . . . . . . . . . . . . . 32
(p) No Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . 32
(q) Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 32
(r) Press Releases and Announcements. . . . . . . . . . . . . . . . 32
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of
December 15, 1995, by and between Java Centrale, Inc., a California corporation
(the "Buyer"), and Venture 88, Inc., a California corporation (the "Seller").
The Buyer and the Seller may be collectively referred to herein as the
"Parties."
R E C I T A L S
A. This Agreement contemplates a transaction in which the Buyer will
cause one of its wholly-owned subsidiaries to purchase three Paradise Bakery
stores, located in Concord, Pleasanton, and Fairfield, California, respectively
(collectively, the "Stores"), from the Seller, in return for certain securities
of the Buyer (the "Acquisition"). The assets to be acquired by the Buyer are
listed in Exhibit "A" and the liabilities to be assumed by the Buyer are listed
in Exhibit "B." No other assets or liabilities of the Seller are intended to be
transferred by the consummation of this Agreement.
B. The Acquisition is part of a series of transactions with related and
unrelated parties that includes the merger (the "Paradise Merger") of a
wholly-owned subsidiary of Buyer ("Buyer Subsidiary") into Paradise Bakery,
Inc., a Delaware corporation (the "Paradise Bakery"), and the merger of Founders
Venture, Inc., a Delaware corporation ("Founders"), into Paradise Bakery (the
"Founders Merger").
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"Acquired Assets" means all of the Seller's rights, title, and interest to
and in (i) the Stores, and all of the fixtures, assets, inventory, leases, and
property appurtenant thereto, and (ii) certain other assets of the Seller
attached to or used in connection with the Stores, all as more fully described
in Exhibit "A."
"Acquisition" has the meaning set forth in Recital B, above.
"Adverse Consequences" means all charges, complaints, notices, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens,
losses, expenses, and fees, including all attorneys' fees and court costs in any
court or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before an arbitrator.
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"Affiliate" has the meaning set forth in the regulations promulgated under
the Securities Exchange Act.
"Affiliate" has the meaning set forth in the regulations promulgated under
the Securities Exchange Act.
"Allocation Schedule" has the meaning set forth in Section 2(f), below.
"Assumed Liabilities" means certain specific liabilities in connection with
the Stores, including only those described in Exhibit "B."
"Bank of America" means Bank of America National Trust and Savings
Association.
"Bank of America Loan" means the 1994 loan to the Seller from Bank of
America, NT & SA, in the original principal amount of $200,000.
"Bank of America Loan Principal Prepayment" means the prepayment of 75% of
the unpaid outstanding principal balance of the Bank of America Loan as of the
Closing Date.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could reasonably form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Buyer Financial Statements" has the meaning set forth in Section 4(e)
below.
"Buyer's Common Stock" means the common stock, $.01 par value per share, of
the Buyer.
"Buyer Subsidiary" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan,
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(c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or
(d) Employee Welfare Benefit Plan or material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended, and
Florida Hazardous Materials Emergency Response and Community Right-to-Know Act
of 1988, as amended.
"Financial Statements" has the meaning set forth in Section 3(d) below.
"Founders" has the meaning set forth in the preface above.
"Founders Indemnification Escrow Agreement" has the meaning set forth in
Section 8(a) below.
"Founders Merger" has the meaning set forth in the preface above.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnitee" has the meaning set forth in Section 8(c) below.
"Indemnitor" has the meaning set forth in Section 8(c) below.
"Intellectual Property" means all (a) patents, patent applications, patent
disclosures, and improvements thereto, (b) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (c) copyrights and registrations and
applications for registration thereof, (d) mask works and registrations and
applications for registration thereof, (e) computer software, data, and
documentation, (f) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), (g) other proprietary rights, and (h) copies and tangible
embodiments thereof (in whatever form or medium).
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"Java Share Price" means $3.375.
"Knowledge" means actual knowledge after reasonable investigation.
"Law(s)" shall mean any statute, regulation, rule, judgment, ordinance,
order, decree, stipulation, injunction, charge, or other restrictions of any
federal, state, or local government, governmental agency, or court.
"Liability" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Effect" means (a) an adverse effect of $25,000 or more
upon the business, operations, properties, assets or condition (financial or
otherwise) of (i) any of the Stores individually, (ii) all of the Stores
collectively, or (iii) the Buyer, as the context requires, or (b) the impairment
in any material respect of the ability of any of the Stores to operate in the
Ordinary Course of Business. In determining whether any individual event would
result in a Material Adverse Effect, notwithstanding that such event does not of
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
3(e) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 3(e)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(e)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Outstanding Indebtedness of the Seller" means (a) the unpaid principal
amount of those equipment leases which are being assumed by the Buyer as part of
the Assumed Liabilities and (b) 75% of the unpaid principal balance of the Bank
of America Loan, plus all accrued and unpaid interest thereon, as of the Closing
Date.
"Paradise Bakery" has the meaning set forth in the preface above.
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"Paradise Merger" has the meaning set forth in Recital B, above.
"Party" has the meaning set forth in the preface above.
"Purchase Price" has the meaning set forth in Section 2(d) below.
"Purchase Shares" has the meaning set forth in Section 2(d) below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) construction, mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and payable,
(c) liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Stores" has the meaning set forth in Recital A, above.
"Subsidiary" means any corporation with respect to which another specified
corporation has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
capital stock, franchise, profits, withholding, social security, unemployment,
disability, personal property, stamp, excise, occupation, sales, use, transfer,
value added, alternative minimum, estimated, or other tax, including any
interest, penalty, or addition thereto, whether disputed or not.
"Third-Party Claim" has the meaning set forth in Section 8(c) below.
1. BASIC TRANSACTION.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
Section 2.
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(b) ASSUMPTION OF LIABILITIES. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to assume and become responsible
for all of the Assumed Liabilities at the Closing. The Buyer will not assume
any other obligation or Liability of the Seller not included within the
definition of Assumed Liabilities.
(c) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Buyer's
counsel, Rosenblum, Parish & Isaacs, PC, in San Francisco, California, on a
mutually agreeable date on or before January 15, 1995, commencing at 11:00 a.m.
local time (the "Closing Date"), or at such later time as the Buyer and the
Seller shall agree. A pre-closing shall be held on the business day immediately
preceding the Closing Date at the same location and beginning at 10:00 a.m.
local time. To the extent practical, the Parties shall try to handle as much of
the Closing by mail as they reasonably can.
(d) PURCHASE PRICE. The purchase price for the Acquired Assets (the
"Purchase Price") shall be and include (i) the Buyer's assumption of the Assumed
Liabilities, plus (ii) 74,073 shares of the Buyer's Common Stock (the "Purchase
Shares"), which shall be delivered to the Seller at the Closing, subject to the
following additional conditions :
(i) ADJUSTMENTS. In addition to any adjustment of the Purchase
Price which may be required pursuant to Section 2(g), below, the following
additional adjustments to the Purchase Price shall be made.
(A) The Buyer shall assume the responsibility of paying any
California sales tax in connection with the Acquisition.
(B) As an offset to the Purchase Price, the Buyer will,
within ten (10) business days after the Closing Date, pay to the Seller an
amount of cash equal to (1) all cash on hand at the Stores as of the close of
business on the Closing Date plus (2) the cash value of all inventory held at
the Stores as of the close of business on the Closing Date, in each case as
determined by the Buyer on the basis of its own inventory review of the Stores.
(C) If and to the extent that the Seller's Outstanding
Indebtedness is less than $200,000, then the Purchase Price shall also include
an unsecured promissory note from the Buyer to the Seller for the amount by
which such Outstanding Indebtedness is less than $200,000 . The promissory note
shall (1) bear interest at 6%, (2) be payable in four equal quarterly payments
of principal plus accrued interest, and (3) be prepayable in whole or in part at
any time without penalty.
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(D) If and to the extent that the Buyer's Outstanding
Indebtedness on the Closing Date exceeds $200,000, then the Purchase Shares
shall be decreased by that number of shares of the Buyer's common stock which is
determined by dividing (1) the amount by which the Seller's Outstanding
Indebtedness at the Closing Date exceeds $200,000, divided by (2) the Java Share
Price.
(ii) LOCK-UP. For a period of two (2) years following the
Closing Date, the shares of Buyer's Common Stock representing the Purchase
Price, as adjusted if applicable, will not be offered for sale, sold, or
otherwise transferred or disposed of, directly or indirectly, in any manner
whatsoever, without the prior written consent of the Buyer.
(e) DELIVERIES AT THE CLOSING. At the Closing,
(i) The Seller will (A) deliver to the Buyer the various
certificates, instruments, and documents referred to in Section 6(a) below, and
(B) execute, acknowledge (if appropriate), and deliver to the Buyer
(1) assignments in the form attached hereto as Exhibit "C" and (2) such other
instruments of sale, transfer, conveyance, and assignment as the Buyer and its
counsel reasonably may request; and
(ii) The Buyer will (A) deliver to the Seller the various
certificates, instruments, and documents referred to in Section 6(b) below,
(B) execute and deliver to the Seller an assumption of the Assumed Liabilities
in the form attached hereto as Exhibit "D;" and (C) deliver to the Seller
certificates representing the shares of the Buyer's Common Stock specified in
Section 2(d) above.
(f) ALLOCATION. The Parties agree to value the Buyer's Common Stock
representing the Purchase Price and allocate the Purchase Price (and all other
capitalized costs) among the Acquired Assets for tax purposes in accordance with
a mutually and reasonably acceptable allocation schedule to be delivered at the
Closing (the "Allocation Schedule").
(g) RISK OF LOSS. The Seller assumes all risk of material loss or
damage to the Acquired Assets up to the Closing Date. If material loss or
damage to the Acquired Assets occurs, the Buyer shall have the option to
terminate this Agreement and, if the Buyer does so, all rights and obligations
of the Parties shall terminate without liability to either Party. Within ten
(10) calendar days after receiving written notice from Seller of material loss
or damage to the Acquired Assets, Buyer shall notify Seller of its decision to
terminate this Agreement. If Buyer does not timely notify Seller of its
decision to terminate, this Agreement shall remain in full force and effect;
however, the Purchase Price shall be adjusted at the Closing to reflect such
loss or damage to the extent that such loss or damage is not payable from
insurance with respect to which the insurer has already agreed to the existence
and amount of the coverage and the Seller assigns to the Buyer at the Closing
the right to such insurance proceeds. If the Parties are unable to agree on
the
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materiality or the amount of said adjustment, the dispute shall be
determined by a panel consisting of an independent appraiser selected by each
of the Parties and a third appraiser selected by the other two appraisers,
and that determination shall be binding on both Parties. The Parties shall
each pay one-half of the expenses incurred in connection with any such
appraisal.
(h) INVESTIGATION PERIOD. The Buyer shall have a period of twenty
(20) business days after its receipt of all requested materials (the
"Investigation Period") in order to conduct such due diligence investigation of
the Acquired Assets and Assumed Liabilities as the Buyer deems necessary or
desirable in its sole discretion. During the Investigation Period, the Seller
shall allow the Buyer access to all information and sites pertaining to the
Acquired Assets and Assumed Liabilities that the Buyer deems necessary to
perform its due diligence investigation. The Seller shall provide the Buyer
with copies of all documents in its possession or subject to its control
relating to the Acquired Assets and the Assumed Liabilities that are reasonably
requested by the Buyer and in the control of the Seller. The Buyer shall have
access to, and the Seller shall provide copies of, all books and records of the
Seller relating to the Acquired Assets and Assumed Liabilities. The Seller
shall use its reasonable best efforts to make available to the Buyer the
personnel of the Seller and any outside consultants who have been employed by
the Seller with respect to the Acquired Assets or the Assumed Liabilities for
consultation upon notice from the Buyer. The Buyer agrees that it will hold in
confidence and shall not divulge to any other person, or use for its benefit,
any non-public information concerning the Seller, except as may be necessary
(i) to obtain any required consents for this transaction or (ii) comply with any
request by any regulatory authority or any statute, rule, regulation or order of
a court of competent jurisdiction. If this Agreement is terminated for any
reason, the Buyer shall return to the Seller all documents received from the
Seller or its representatives that contain non-public information and destroy
all analyses, compilations, studies and other documents prepared for internal
use that include non-public information. The Buyer, in its sole and absolute
discretion, shall have the right to terminate the proposed transaction upon
written notice to the Seller at any time during the Investigation Period. If
the Buyer terminates the proposed transaction in such manner, this Agreement
shall be of no further force and effect and all rights and obligations of the
parties hereto shall terminate without liability to any party.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
3.
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(a) ORGANIZATION, STANDING AND POWER. The Seller is a corporation
duly organized, validly existing and in good standing under the Laws of
California and is in good standing and qualified to do business under the laws
of each jurisdiction in which the nature of its business or leasing of its
properties requires such qualification, where the failure to be so qualified
would have a Material Adverse Effect. The Seller has full corporate power and
authority to carry on the business in which it is engaged and to own and use the
properties owned, leased and used by it. True, complete and correct copies of
the Seller's Articles of Incorporation and Bylaws are attached as Exhibit "E."
(b) AUTHORIZATION OF TRANSACTION. The Seller has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Without limiting the generality of the foregoing, the
Board of Directors of the Seller has duly authorized the execution, delivery,
and performance of this Agreement by the Seller. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions, subject to the effect of (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights and remedies of creditors generally and (ii) general principles of
equity.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will
(i) violate any Law to which the Seller is subject or any provision of the
charter or bylaws of any of the Seller or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Seller is a
party or by which it is bound or to which any of its assets is subject, or
result in the imposition of any Security Interest upon any of its assets. The
Seller need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency for
the Parties to consummate the transactions contemplated by this Agreement.
(d) FINANCIAL STATEMENTS. Attached hereto as Exhibit "F" are the
following financial statements of the Seller (collectively the "Financial
Statements"): (i) audited consolidated balance sheets and statements of income,
changes in stockholders' equity, and cash flows as of and for the fiscal year
ended December 31, 1994 (the "Most Recent Fiscal Year End"); and (ii) unaudited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flows (the "Most Recent Financial Statements") as of and for
the eleven months ended November 30, 1995 (the "Most Recent Fiscal Month End").
The Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, are correct and
complete in all material respects, and are
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consistent with the books and records of the Seller (which books and records
are correct and complete in all material respects); PROVIDED, HOWEVER, that
the Most Recent Financial Statements are subject to normal year-end
adjustments (which will not be material).
(e) UNDISCLOSED LIABILITIES. In connection with the Acquired Assets,
Seller has no Liability (and there is no Basis for any present or future Adverse
Consequence against Seller giving rise to any Liability), except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet,
(ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which relates to any breach of contract,
breach of warranty, tort, infringement, or violation of law or arose out of any
Adverse Consequence, other than in the Ordinary Course of Business) and
(iii) Liabilities actually disclosed in the footnotes to Venture 88's audited
financial statements as of the Most Recent Fiscal Year End and for the period
then ended.
(f) TAX MATTERS. The Seller has filed all Tax reports and returns
that it is required to file. All such reports and returns were correct and
complete in all material respects. All Taxes owed by the Seller (whether or not
shown on any report or return) have been paid. The Seller currently is not the
beneficiary of any extension of time within which to file any report or return.
There are no Security Interests on any of the Acquired Assets that arose in
connection with any failure (or alleged failure) to pay any tax, and the Seller
has no Knowledge of any Basis for the imposition of such a Security Interest in
the future.
(g) TITLE TO ASSETS. The Seller has good and marketable title to all
of the Acquired Assets, free and clear of any Security Interest or restriction
on transfer, except as otherwise described in Exhibit "G."
(h) TANGIBLE ASSETS. Each of the Acquired Assets that is a tangible
asset has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
(i) INTELLECTUAL PROPERTY. The Seller uses, pursuant to licenses
contained in the franchise agreements for the Stores, Intellectual Property
owned by Paradise Bakery. The Seller does not own or use any other material
Intellectual Property with respect to the Acquired Assets.
(j) INVENTORY. None of the inventory of the Seller comprising part
of the Acquired Assets is obsolete, damaged, or defective to such an extent as
to cause a Material Adverse Effect, subject only to the reserve for inventory
write-down set forth in the Most Recent Balance Sheet as adjusted for the
passage of time
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through the Closing Date in accordance with the past custom and
practice of the Seller.
(k) REAL PROPERTY LEASE. Section 3(k) of the Disclosure Schedule
lists and describes briefly all real property leased or subleased to or by the
Seller in connection with the Acquired Assets. The Seller has delivered to Buyer
correct and complete copies of the leases and subleases listed in Section 3(k)
of the Disclosure Schedule. With respect to each lease and sublease listed in
Section 3(k) of the Disclosure Schedule, except as otherwise disclosed therein:
(i) the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(ii) there is no guarantee of the lease or sublease by any of
the shareholders of the Seller or, to the Knowledge of the Seller, any other
third party;
(iii) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the Closing;
(iv) to the Knowledge of the Seller, no party to the lease or
sublease is in breach or default thereof in any material respect, and no event
has occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(v) to the Knowledge of the Seller, no party to the lease or
sublease has repudiated any provision thereof;
(vi) to the Knowledge of the Seller, there are no disputes, oral
agreements, or forbearance programs in effect as to the lease or sublease;
(vii) with respect to each sublease, the representations and
warranties set forth in subsections (i) through (ii) above are true and correct
with respect to the underlying lease;
(viii) the Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(ix) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and permits)
required in connection with the operation thereof and have been operated and
maintained in accordance with applicable Laws, where the failure to obtain such
approvals or comply with applicable Laws would have a Material Adverse Effect;
and
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(x) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities.
(l) CONTRACTS.
(i) Section 3(1) of the Disclosure Schedule lists the following
contracts, agreements, and other written arrangements to which the Seller is a
party in connection with the Acquired Assets:
(A) any area development agreement or franchise agreement;
(B) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $5,000 per annum;
(C) any written arrangement (or group of related written
arrangements) for the purchase or sale of food, supplies, products, or other
personal property or for the furnishing or receipt of services, that either
calls for performance over a period of more than three (3) months or involves
more than the sum of $25,000; or
(D) any written arrangement concerning partnership or joint
venture;
(E) any written arrangement (or group of related written
arrangements) under which the Seller has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) either (1) indebtedness
(including capitalized lease obligations) involving more than $25,000 or (2) a
Security Interest on any of its assets, tangible or intangible;
(F) any written arrangement concerning confidentiality or
noncompetition;
(G) any written arrangement with any of its directors,
officers, or employees in the nature of a collective bargaining agreement,
employment agreement, or severance agreement;
(H) any written arrangement under which the consequences of
a default or termination could have a Material Adverse Effect; or
(I) any other written arrangement (or group of related
arrangements) either involving more than $25,000 or not entered into in the
Ordinary Course of Business.
(ii) The Seller has delivered to the Buyer a correct and complete
copy of each written arrangement listed in Section 3(l) of the Disclosure
Schedule (as amended to date). With respect to each written arrangement so
listed: (A) the written
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arrangement is legal, valid, binding, enforceable, and in full force and
effect; (B) the written arrangement will continue to be legal, valid,
binding, and enforceable and in full force and effect on identical terms
following the Closing; (C) to the Knowledge of the Seller, no party is in
breach or default, and no event has occurred which with notice or lapse of
time, or both, would constitute a breach or default or permit termination,
modification, or acceleration, under the written arrangement; and (D) to the
Knowledge of the Seller, no party has repudiated any provision of the written
arrangement. The Seller is not a party to any binding verbal contract,
agreement, or other arrangement which, if reduced to written form, would be
required to be listed in Section 3(l) of the Disclosure Schedule under the
terms of this Section 3(l).
(m) ACCOUNTS RECEIVABLE. All accounts receivable of the Seller in
connection with the Acquired Assets are reflected properly on its books and
records, are valid receivables subject to no set-offs or counterclaims, are
presently current and collectible, and will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve for bad debts
set forth in the Most Recent Balance Sheet as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Seller.
(n) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Seller which grant any other party the direct or
indirect power or authority to convey, manage, or otherwise affect any of the
Acquired Assets.
(o) INSURANCE.
(i) Section 3(o) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) with respect to any of the Acquired Assets to
which the Seller has been a party, a named insured, or otherwise the beneficiary
of coverage at any time since its formation:
(A) the name, address, and telephone number of the agent;
(B) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(C) the policy number and the period of coverage;
(D) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage; and
(E) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
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(ii) With respect to each such insurance policy: (A) the policy
is legal, valid, binding, enforceable, and currently in full force and effect;
(B) neither the Seller nor, to the Knowledge of the Seller, any other party is
in breach or default in any material respect (including with respect to the
payment of premiums or the giving of notices), and, to the Knowledge of the
Seller, no event has occurred which, with notice or the lapse of time or both,
would constitute such a breach or default in any material respect or permit
termination, modification, or acceleration, under the policy; and (C) to the
Knowledge of the Seller, no party to the policy has repudiated any provision
thereof.
(iii) The Seller has been covered since inception by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. Section 3(o) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Seller.
(p) LITIGATION. Section 3(p) of the Disclosure Schedule sets forth
each instance in which the Seller (A) is subject to any Adverse Consequence with
respect to any of the Acquired Assets, or (B) is a party or, to the Knowledge of
the Seller, is threatened to be made a party to any Adverse Consequence with
respect to any of the Acquired Assets. The Seller has no reason to believe that
any other Adverse Consequence with respect to any of the Acquired Assets may be
brought or threatened against the Seller.
(q) EMPLOYEES. To the Knowledge of any of the directors, officers
and employees of the Seller with responsibility for employment matters of the
Seller, no key employee or group of employees employed at any of the Stores has
any plans to terminate employment upon the consummation of the transactions
contemplated by this Agreement. The Seller is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes with
any of its employees employed at any of the Stores. The Seller has not
committed any unfair labor practice in connection with any such employees. The
Seller has no Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees employed
at any of the Stores.
(r) EMPLOYEE BENEFITS. The Seller does not have any Employee Benefit
Plan that is a defined benefit plan. The Seller does not have any unfunded
liability with respect to any Employee Benefit Plan. There is no Basis for any
successor liability to accrue to the Buyer in connection with any Employee
Benefit Plan of the Seller.
(s) GUARANTIES. Except as disclosed in Section 3(s) of the
Disclosure Schedule, the Seller is not a guarantor of or otherwise liable for
any Liability or obligation (including indebtedness) of any other person in
connection with the Acquired Assets that would, in the event of any past or
future occurrence (including the
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passage of time) relative to such guarantee or liability, constitute or
result in a Material Adverse Effect or a direct or indirect claim or lien on
any of the Acquired Assets.
(t) ENVIRONMENT, HEALTH, AND SAFETY.
(i) The Seller and its respective predecessors and Affiliates
have complied with all Laws applicable to any of the Acquired Assets concerning
the environment, public health and safety, except where such failure to comply
will not have a Material Adverse Effect, and no Adverse Consequence has been
filed or commenced against the Seller alleging any failure to comply with any
such Law where such Adverse Consequence or failure so to comply would have a
Material Adverse Effect.
(ii) In connection with any of the Acquired Assets, the Seller
has no Liability (and, to the Knowledge of the Seller, there is no Basis related
to the past or present operations, properties, or facilities of the Seller and
its respective predecessors and Affiliates for any Adverse Consequence against
the Seller giving rise to any Liability) under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clear
Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances
Control Act of 1976, the Refuse Act of 1899, or the Emergency Planning and
Community Right-to-Know Act of 1986 (each as amended), or any other Law
concerning release or threatened release of hazardous substances, public health
and safety, pollution, or protection of the environment, except for such
Liability that would not constitute a Material Adverse Effect.
(iii) In connection with any of the Acquired Assets, the Seller
and, to the Knowledge of the Seller, its respective predecessors and Affiliates
have not handled or disposed of any substance, arranged for the disposal of any
substance, or owned or operated any property or facility in any manner that
could form the Basis for any Adverse Consequence for damage to any site,
location, or body of water (surface or subsurface), or for illness or personal
injury, except for any such Liability or Adverse Consequence that would not
constitute a Material Adverse Effect.
(iv) In connection with any of the Acquired Assets, the Seller
has no Liability for (and the Seller has not exposed any employee to) any
substance or condition that could form the Basis for any Adverse Consequence for
any illness of or personal injury to any employee, except for any such Liability
or Adverse Consequence that would not constitute a Material Adverse Effect.
(v) With respect to the Acquired Assets, the Seller has obtained
and been in compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and has complied
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained in, all
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federal, state, local, and foreign laws (including rules, regulations, codes,
plans, judgments, orders, decrees, stipulations, injunctions, and charges
thereunder) relating to public health and safety, worker health and safety, and
pollution or protection of the environment, including Laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes, except for any such noncompliance that
would not constitute a Material Adverse Effect.
(vi) To the Knowledge of the Seller, all properties and equipment
used by the Seller in connection with any of the Acquired Assets have been free
of asbestos, PCB's, methylene chloride, trichloroethylene, and any other
Extremely Hazardous Substances.
(vii) Any and all product labeling of the Seller in connection
with any of the Acquired Assets has been in conformity with applicable Laws in
all material respects.
(viii) To the Knowledge of the Seller, no pollutant, contaminant,
or chemical, industrial, hazardous, or toxic material or waste ever has been
buried, stored, spilled, leaked, discharged, emitted, or released on any real
property that the Seller, in connection with any of the Acquired Assets, leases
or ever has owned or leased during the period of such ownership or leasing, and
the Seller is not aware of any such occurrence thereon at any other time.
(u) LEGAL COMPLIANCE.
(i) The Seller has complied with all Laws with respect to the
Acquired Assets, and no Adverse Consequence with respect to the Acquired Assets
has been filed or commenced against the Seller alleging any failure to comply
with any such Law that could have a Material Adverse Effect.
(ii) The Seller has not:
(A) made or agreed to make any contribution, payment, or
gift of funds or property to any governmental official, employee, or agent where
either the contribution, payment, or gift or the purpose thereof was illegal
under the Law;
(B) established or maintained any unrecorded fund or asset
for any purpose, or made any false entries on any books or records for any
reason; or
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(C) made or agreed to make any contribution, or reimbursed
any political gift or contribution made by any other person, to any candidate
for federal, state, local, or foreign public office.
(iii) The Seller filed in a timely manner all reports, documents,
and other materials it was required to file (and the information contained
therein was correct and complete in all material respects) under all applicable
Laws with respect to any of the Acquired Assets where the failure so to file
would have a Material Adverse Effect.
(iv) The Seller has possession of all records and documents with
respect to any of the Acquired Assets that it was required to retain under all
applicable Laws.
(v) DISCLOSURE. The representations and warranties contained in this
Section 3 do not contain any untrue statements of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
(w) BROKERS' FEES. The Seller has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer would become
liable or obligated.
(x) EXEMPTION FROM REGISTRATION.
(i) The Seller acknowledges that the Purchase Shares will be
issued in accordance with an exemption from the registration requirements under
the Securities Act and that the Purchase Shares cannot be sold, assigned,
transferred, hypothecated, or otherwise disposed of, unless (A) the Purchase
Shares are included in a registration statement filed with, and declared
effective by, the SEC, or (B) in the opinion of counsel reasonably satisfactory
to the Buyer, an exemption from the registration requirements is available.
(ii) The Seller further acknowledges that, for the Purchase
Shares to be sold, absent inclusion in an effective registration statement or
the applicability of some other exemption from such registration requirements,
the Seller would have to comply with Rule 144, promulgated under the Securities
Act, which Rule, as currently in effect, requires among other things, the
satisfaction of a two-year holding period.
(iii) The Seller also acknowledges and agrees that (A) the Buyer
is under no obligation to include any of the Purchase Shares in any registration
statement that may be filed by the Buyer with the SEC, (B) the certificates
evidencing the Purchase Shares will bear an appropriate restrictive legend, and
(C) a stop transfer notation will be placed on the books and records of the
Buyer's transfer agent.
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(y) DESIGNATION. The Seller acknowledges that the Buyer shall have
the right, at its sole discretion, to designate that the Seller convey the
Acquired Assets and the Assumed Liabilities directly to any wholly owned
subsidiary of the Buyer, including without limitation Paradise Bakery, should
the Paradise Merger take place.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4),
except as set forth in the Disclosure Schedule. The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 4.
(a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the Laws of Florida.
The Buyer is in good standing and qualified to do business under the laws of
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties requires such qualification where the failure to be so
qualified would have a material adverse effect. The Buyer has full corporate
power and authority to carry on the business in which it is engaged and to own
and use the properties owned, leased and used by it.
(b) CAPITALIZATION. The authorized capitalization of the Buyer
consists of 25,000,000 shares of no par value preferred stock, of which no
shares are outstanding at the date of this Agreement, and 25,000,000 shares of
no par value common stock, of which 7,024,815 shares are outstanding at the date
of this Agreement. To the Knowledge of the Buyer, all outstanding shares have
been duly authorized, validly issued, and are fully paid and non-assessable, and
all such shares were issued in compliance in all material respects with
applicable federal and state securities law. Except as set forth (1) in the
Buyer's Financial Statements or (ii) in Section 4(d) of the Disclosure Schedule,
there are no outstanding or presently authorized securities, warrants,
preemptive rights, subscription rights, options or related commitments or
agreements of any nature to issue any of the Buyer's securities.
(c) PURCHASE SHARES. Upon issuance, the Purchase Shares will be duly
authorized, validly issued, fully paid, and nonassessable.
(d) AUTHORIZATION OF TRANSACTION. The Buyer has full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder, neither of which requires the approval of the Buyer's
shareholders. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions, subject to the effect of (i) bankruptcy, insolvency, reorganization,
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moratorium or other similar laws affecting the rights and remedies of creditors
generally and (ii) general principles of equity.
(e) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Law to which the Buyer is subject or any provision of its
Articles of Incorporation or bylaws or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject. Except
for compliance with certain notice filing provisions under the California and
federal securities laws, the Buyer does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency for the Parties to consummate the transactions
contemplated by this Agreement.
(f) FINANCIAL STATEMENTS. Attached hereto as Section 4(f) of the
Disclosure Schedule are the following financial statements of the Buyer
(collectively the "the Buyer Financial Statements"): audited consolidated
balance sheets and statements of income, changes in stockholders' equity, and
cash flows as of and for the fiscal year ended March 31, 1995, and unaudited
consolidated balance sheets and statements of income and cash flows as of and
for the six months ended September 30, 1995. The Buyer Financial Statements
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, are correct and complete in all material
respects, and are consistent with the books and records of the Buyer (which
books and records are correct and complete in all material respects); PROVIDED,
HOWEVER, that the financial statements as of and for the six months ended
September 30, 1995 are subject to normal year-end adjustments (which will not be
material).
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
March 31, 1995, the end of the Buyer's most recent fiscal year, there has not
been any change in the assets, Liabilities, business, financial condition,
operations, results of operations, or, to the Knowledge of the Buyer, future
prospects of the Buyer taken as a whole that, either individually or together
with other changes, has caused, or to the Knowledge of Buyer is likely to cause,
a Material Adverse Effect.
(h) LITIGATION. Except as set forth in the Buyer's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995 or any of its subsequent
Quarterly Reports on Form 10-Q, the Buyer (i) is not subject to any Adverse
Consequence that would have a material adverse effect, and (ii) is not a party
or, to the Knowledge of the Buyer, is not threatened to be made a party to any
Adverse Consequence that would have a material adverse effect.
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(i) ENVIRONMENT, HEALTH, AND SAFETY. To the Knowledge of the Buyer,
there are no (A) claims of violation by the Buyer of any federal, state, or
local environmental protection laws and regulations where such violation would
have a material adverse effect, and the Buyer has not received any notice of
such violation; and (B) material capital expenditures required for compliance
with any federal, state, or local laws or regulations now in force relating to
an Extremely Hazardous Substance.
(j) SECURITIES EXCHANGE ACT COMPLIANCE. Except as described in
Section 4(j) of the Disclosure Schedule, the Buyer has timely filed all
documents required to be filed by it with the SEC pursuant to the Securities
Exchange Act since June 1, 1994. None of such documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they made, not misleading, provided that information
as of a later date shall be deemed to modify information as of an earlier date.
(k) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
(l) DISCLOSURE. The representations and warranties contained in this
Section 4 do not contain any untrue statements of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
(m) LEGAL COMPLIANCE.
(i) The Buyer has complied in all material respects with all
Laws, and no Adverse Consequence has been filed or commenced against The Buyer
alleging any failure to comply with any such Law that could have a material
adverse effect.
(ii) The Buyer has not:
(A) made or agreed to make any contribution, payment, or
gift of funds or property to any governmental official, employee, or agent where
either the contribution, payment, or gift or the purpose thereof was illegal
under the Law;
(B) established or maintained any unrecorded fund or asset
for any purpose, or made any false entries on any books or records for any
reason; or
(C) made or agreed to make any contribution, or reimbursed
any political gift or contribution made by any other person, to any candidate
for federal, state, local, or foreign public office.
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(iii) Since June 1, 1994, the Buyer has filed in a timely manner
all reports, documents, and other materials it was required to file (and the
information contained therein was correct and complete in all material respects)
under all applicable Laws where the failure so to file would have a Material
Adverse Effect.
(iv) Since June 1, 1994, the Buyer has possession of all material
records and documents that it is required to retain under all applicable Laws,
except where the failure so to retain would not have a Material Adverse Effect.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
to consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 6 below).
(b) NOTICES AND CONSENTS. The Seller will give any notices to third
parties, and the Seller will use its reasonable best efforts to obtain any third
party consents, that the Buyer may request in connection with the matters
pertaining to the Acquired Assets and/or the Assumed Liabilities disclosed or
required to be disclosed in the Disclosure Schedule. Each of the Parties will
take any additional action that may be reasonably necessary, proper, or
advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of government agencies, and third
parties that it may be required to give, make, or obtain. Without limiting the
generality of the foregoing, the Seller will use its reasonable best efforts to
obtain the required consents of the landlords of the Stores to the assignments
to the Buyer of the leases for the Stores; and the Seller agrees to pay any and
all reasonable charges or costs imposed by any of such landlords in connection
with obtaining such consents.
(c) OPERATION OF BUSINESS. In connection with the Acquired Assets,
the Seller will not engage in any practice, take any action, embark on any
course of inaction, or enter into any transaction outside the Ordinary Course of
Business.
(d) PRESERVATION OF BUSINESS. In connection with the Acquired Assets
and the Assumed Liabilities, the Seller will keep its business substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers and employees.
(e) FULL ACCESS. The Seller will permit representatives of the Buyer
to have full access at all reasonable times, and in a manner so as not to
interfere with normal business operations of the Seller, to all premises,
properties, books, records, contracts,
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Tax records, and documents of the Seller pertaining to the Acquired Assets
and the Assumed Liabilities.
(f) NOTICE OF DEVELOPMENTS. The Seller will give prompt written
notice to the Buyer of (i) any material developments affecting the Acquired
Assets or Assumed Liabilities and (ii) any occurrence or event rendering any of
the Seller's representations and warranties in Section 3 of this Agreement
inaccurate, incorrect or incomplete in any material respect. The Buyer will
give prompt written notice to the Seller of (A) any materially adverse
developments affecting the assets, Liabilities, business, financial condition,
operations, results of operations or future prospects of the Buyer and (B) any
occurrence or event rendering any of the Buyer's representations and warranties
inaccurate, incorrect or incomplete in any material respect. Each Party will
give prompt written notice to the other of any material development affecting
the ability of the Parties to consummate the transactions contemplated by this
Agreement. No disclosure by any Party pursuant to this Section 5(f), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. Prior to the Closing, the Seller will not
(i) solicit, initiate, or encourage the submission of any proposal or offer from
any person relating to any (A) liquidation, dissolution, or recapitalization,
(B) merger or consolidation, (C) acquisition or purchase of securities or
assets, or (D) similar transaction or business combination involving the Seller
or (ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. The Seller will notify the Buyer immediately if any person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) FOREIGN PERSON AFFIDAVIT. The Seller shall, upon request of the
Buyer, furnish to the Buyer on or before Closing a sworn Affidavit stating under
penalty of perjury that Seller is not a "foreign person" as such term is defined
in Code Section 1445(f)(3) or such other evidence that the Buyer is not required
to withhold taxes from the Purchase Price as the Buyer may reasonably determine
to meet the requirements of Code Section 1445(b)(4) and Code Section 1445(b)(5).
(i) 1994 AUDIT. Upon the execution and delivery of this Agreement,
the Seller shall immediately engage independent certified public accountants to
audit its financial statements as of, and for the two years ended, December 31,
1994. The Seller shall provide the Buyer with a copy of such audited financial
statements immediately after Founders' receipt thereof.
(j) NASDAQ ADDITIONAL LISTING APPLICATION. The Buyer will cause to
be prepared and filed with the National Association of Securities Dealers, Inc.,
an Additional Listing Application for the Purchase Shares as soon as practicable
after the execution and
22
<PAGE>
delivery of this Agreement, but in no event later than 15 calendar days
before the Closing Date.
(k) THE BUYER'S SECURITIES EXCHANGE ACT FILINGS. Until Closing, the
Buyer will send to Founders via regular mail copies of all periodic reports
filed by the Buyer with the SEC pursuant to the requirements of Section 13(a) of
the Securities Exchange Act.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of each and all of the following
conditions (PROVIDED, HOWEVER, that the Buyer may waive any condition specified
in this Section 6(a) if it executes a writing so stating at or prior to the
Closing):
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no Adverse Consequence shall be pending or threatened,
wherein an unfavorable determination would (A) prevent consummation of any of
the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Buyer to own, operate, or
control the Acquired Assets, except where such adverse determination as to
clause (C) would not constitute a Material Adverse Effect;
(iv) the Seller shall have delivered to the Buyer a certificate
(without qualification as to knowledge or materiality or otherwise, except as to
Section 6(a)(iii), which may be qualified to the Knowledge of the Seller) to the
effect that each of the conditions specified above in Section 6(a)(i)-(iii) is
satisfied in all respects;
(v) Buyer's receipt of audited financial statements of Seller as
of December 31, 1994, and for the year then ended, which shall be reasonably
acceptable to Buyer and shall not materially differ from the unaudited financial
statements as of such date and for such period that Seller has previously
delivered to Buyer;
(vi) consents of the respective landlords of the Stores to the
assignments to the Buyer of the respective leases for the Stores, on terms and
conditions that are reasonably satisfactory to the Buyer;
(vii) the consummation of the Paradise Merger no later than the
business day before the Closing Date;
23
<PAGE>
(viii) the closing of the Founders Merger no later than the
Closing Date;
(ix) the 1988 loan to the Seller from Bank of America in the
original principal amount of $875,000 shall have been paid in full;
(x) the Bank of America Loan Principal Prepayment shall have been
made by the Buyer on the Closing Date, with the Seller having paid all accrued
interest thereon to the date of the payment thereof, and Bank of America shall
have released the Stores from the lien of the security documents collateralizing
the Bank of America Loan;
(xi) the execution and delivery by the Parties to each other of
an Allocation Schedule reasonably acceptable to the Buyer;
(xii) approval by the Board of Directors of Seller of the
transactions contemplated by this Agreement;
(xiii) the Buyer shall have received from counsel to the Seller
an opinion with respect to the matters set forth in Exhibit "H" attached hereto,
addressed to the Buyer and dated as of the Closing Date; and
(xiv) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer.
(b) CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions (PROVIDED,
HOWEVER, that the Seller may waive any condition specified in this Section 6(b)
if it executes a writing so stating at or prior to the Closing:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no Adverse Consequence shall be pending or threatened,
wherein an unfavorable determination would (A) prevent consummation of any of
the transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation;
(iv) the Buyer shall have delivered to the Seller a certificate
(without qualification as to knowledge or materiality
24
<PAGE>
or otherwise, except as to Section 6(b)(iii), which may be qualified to the
Knowledge of the Buyer) to the effect that each of the conditions specified
above in Section 6(b)(i)-(iii) is satisfied in all respects;
(v) approval by the Board of Directors of the Buyer of the
transactions contemplated by this Agreement;
(vi) none of the landlords of the Seller shall have imposed
unreasonable costs or terms in connection with its consent to the Acquisition;
(vii) the Bank of America Loan Principal Prepayment shall have
been made by the Buyer on the Closing Date, with the Seller having paid all
accrued interest thereon to the date of the payment thereof, and Bank of America
shall have released the Stores from the lien of the security documents
collateralizing the Bank of America Loan;
(viii) the execution and delivery by the Parties to each other of
an Allocation Schedule reasonably acceptable to the Seller;
(ix) the Seller shall have received from counsel to the Buyer an
opinion with respect to the matters set forth in Exhibit "I" attached hereto,
addressed to the Seller and dated as of the Closing Date; and
(x) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below.
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing.
(ii) The Buyer may terminate this Agreement
(A) by giving written notice to the Seller at any time
prior to the Closing if the Seller is in breach of any representation, warranty,
or covenant contained in this Agreement in any material respect and fails to
cure such breach within five (5) calendar days of notice thereof from the Buyer;
PROVIDED, HOWEVER, that if the Buyer does not terminate this Agreement because
of any disclosed breach by the Seller and chooses to consummate the transactions
contemplated by this Agreement, then the Buyer shall be deemed to have waived
such disclosed breach for the purposes of this Agreement;
25
<PAGE>
(B) by giving written notice to the Seller on or before the
expiration of the Investigation Period in accordance with Section 2(h) of this
Agreement if the Buyer is not reasonably satisfied with the results of its due
diligence investigation regarding the Acquired Assets and the Assumed
Liabilities; or
(C) by giving written notice to the Seller at any time
prior to the Closing if the Closing shall not have occurred on or before the
3Oth day following the date of this Agreement by reason of the failure of any
condition precedent under Section 6(a) hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) The Seller may terminate this Agreement
(A) by giving written notice to the Buyer at any time prior
to the Closing if the Buyer is in breach of any representation, warranty, or
covenant contained in this Agreement in any material respect and fails to cure
such breach within five (5) calendar days of notice thereof from the Seller;
PROVIDED, HOWEVER, that if the Seller does not terminate this Agreement because
of any disclosed breach by the Buyer and chooses to consummate the transactions
contemplated by this Agreement, then the Seller shall be deemed to have waived
such disclosed breach for the purposes of this Agreement; or
(B) by giving written notice to the Buyer at any time prior
to the Closing if the Closing shall not have occurred on or before the 30th day
following the date of this Agreement by reason of the failure of any condition
precedent under Section 6(b) hereof (unless the failure results primarily from
the Seller itself breaching any representation, warranty, or covenant contained
in this Agreement).
(iv) This Agreement shall automatically terminate when and if the
agreement with respect to either the Founders Merger or the Paradise Merger is
terminated.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 7(a) above, all obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
8. INDEMNIFICATION.
(a) OBLIGATION OF THE SELLER TO INDEMNIFY. The Seller hereby
indemnifies and holds harmless the Buyer and the Buyer's directors, officers,
employees, and agents in respect of any and all Adverse Consequences incurred by
Buyer in connection with each and all of the following; PROVIDED, HOWEVER, that
such indemnification (A) shall be limited in aggregate amount to (1) the
26
<PAGE>
product of (x) the number of shares of the Buyer's Common Stock subject to the
Indemnification Escrow Agreement to be entered into between the Buyer and the
shareholders of Founders in connection with the Founders Merger (the "Founders
Indemnification Escrow Agreement"), multiplied by (y) the Java Share Price, less
(2) the amount of any indemnification that the Buyer actually realizes in
connection with the Founders Merger and (B) shall not be available for the first
$10,000 to which the Buyer would otherwise be entitled to indemnification in the
aggregate pursuant to the Founders Indemnification Escrow Agreement:
(i) Any misrepresentation or breach of any warranty made by the
Seller in this Agreement or in any Schedule, Exhibit, or other document attached
hereto or delivered to the Buyer by the Seller or any officer of the Seller in
connection with the transactions contemplated hereby.
(ii) The breach of any covenant, agreement, or obligation of the
Seller contained in this Agreement or any Schedule or Exhibit hereto or any
other instrument specifically contemplated by this Agreement.
(iii) Any misrepresentation contained in any statement in writing
or certificate furnished by an officer of the Seller pursuant to this Agreement
or in connection with the transactions contemplated by this Agreement.
(iv) Unless and to the extent they are Assumed Liabilities, any
unpaid liability, obligation or claim for Taxes owed by the Seller which could
affect or constitute a lien or claim with respect to the Acquired Assets with
respect to any period ending on or before the Closing Date.
(v) Any misrepresentation in or omission from any list, Schedule,
Exhibit, certificate or other instrument required to be furnished or
specifically contemplated to have been furnished pursuant to this Agreement to
the Buyer or its authorized representatives.
(vi) Unless and to the extent they are Assumed Liabilities, any
and all payments due and owing by the Seller to its employees who leave the
Seller's employ and become employees of the Buyer with respect to periods of
employment up to the Closing insofar as such payments relate to salary, bonuses,
compensation, vacation pay, sick leave, retirement benefits and/or fringe
benefits as shown on the various employee benefit plans which the Seller
currently maintains and any other forms of remuneration owed by the Seller to
its employees.
(vii) Unless and to the extent they are Assumed Liabilities, the
operation of the business of the Stores prior to the Closing Date.
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<PAGE>
(b) OBLIGATIONS OF THE BUYER. The Buyer hereby indemnifies and holds
harmless the Seller in respect of any and all Adverse Consequences incurred by
the Seller in connection with each and all of the following:
(i) Any misrepresentation or breach of any warranty made by the
Buyer in this Agreement or in any Schedule, Exhibit, or other document attached
hereto or delivered to the Seller by the Buyer or any officer of the Buyer in
connection with the transactions contemplated hereby.
(ii) The breach of any covenant, agreement, or obligation of the
Buyer contained in this Agreement or any Schedule or Exhibit hereto or any other
instrument specifically contemplated by this Agreement.
(iii) Any misrepresentation contained in any statement in writing
or certificate furnished by an officer of the Buyer pursuant to this Agreement
or in connection with the transactions contemplated by this Agreement.
(iv) The failure to pay or perform any of the Assumed
Liabilities.
(v) The operation of the business of the Stores after the Closing
Date.
(c) METHOD OF ASSERTING CLAIMS FOR INDEMNIFICATION. Whenever any
claims shall arise for indemnification hereunder, the party seeking
indemnification (the "Indemnitee") shall promptly notify the other party (the
"Indemnitor") of the claim and, when known, the facts constituting the basis
for such claim. If any claim for indemnification hereunder results from or
is in connection with any claim or Adverse Consequence by a person who is
not a party to this Agreement (the "Third-Party Claim"), such notice shall
also specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnitee shall give the other party
prompt notice of any such claim and the Indemnitor shall undertake the
defense thereof by representatives of its own choosing, reasonably
satisfactory to the Indemnitee, at the expense of the Indemnitor. The
Indemnitee shall have the right to participate in any such defense of a
Third-Party Claim with advisory counsel of its own choosing, at its own
expense. If the Indemnitor fails to defend within a reasonable time after
notice of any such Third-Party Claim, the Indemnitee or any subsidiary or
affiliate of the Indemnitee shall have the right to undertake the defense,
compromise, or settlement of such Third-Party Claim on behalf and for the
account of the Indemnitor, at the Indemnitor's expense and risk. The
Indemnitor shall not, without the Indemnitee's written consent, settle or
compromise any such ThirdParty Claim or consent to entry of any judgment that
does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to Indemnitee of an unconditional release
28
<PAGE>
from all liability in respect of such Third-Party Claim. Notwithstanding any
provision herein to the contrary, failure of Indemnitee to give any notice
required by this Section shall not constitute a waiver of Indemnitee's right to
indemnification or a defense to any claim by Indemnitee hereunder.
(d) MEANS OF INDEMNIFICATION. All indemnification hereunder shall be
effected upon demand (i) if the Buyer is the Indemnitor, by prompt payment of
cash, delivery of a cashier's check or wire transfer in the amount of the
indemnification liability or (ii) if the Seller is the Indemnitor, pursuant to
the terms of the Founders Indemnification Escrow Agreement.
(e) SURVIVAL OF RIGHTS TO INDEMNIFICATION.
(i) The indemnities contained herein shall survive the Closing
and any investigation made in connection with the transactions contemplated by
this Agreement for a period of two (2) years.
(ii) In addition to the foregoing provision of this paragraph
(e), and notwithstanding anything else in this Agreement to the contrary, the
Seller shall remain liable with respect to any Adverse Consequence, whether or
not asserted or commenced, relating to the Acquired Assets which has arisen
prior to the Closing Date; PROVIDED that, as to any such Adverse Consequence as
to which the Buyer first obtains knowledge after the Closing Date, the Seller
receives written notice of such Adverse Consequence promptly after the Buyer has
knowledge thereof; and PROVIDED, FURTHER, that, as to each such Adverse
Consequence, the Seller has complete and exclusive authority to investigate,
process, defend and settle such Adverse Consequence.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the respective parties contained in this
Agreement shall survive the Closing for a period of two years.
10. MISCELLANEOUS.
(a) NOTICES.
(i) All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person or sent by overnight delivery, confirmed telecopy or prepaid
first class registered or certified mail, return receipt requested, to the
following addresses, or such other addresses as are given to the other parties
to this Agreement in the manner set forth herein:
29
<PAGE>
(A) If to the Seller, to:
Venture 88, Inc.
580 Cemetery Lane
Aspen, Colorado 81611
Attn.: Daniel E. Patterson, President
Telephone Number: (303) 544-0202
Telecopier Number: (303) 544-0302
With a courtesy copy to:
K. C. Schaaf, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1500
Newport Beach, California 92660
Telephone Number: (714) 725-4000
Telecopier Number: (714) 725-4100
(B) If to the Buyer, to:
Java Centrale, Inc.
1610 Arden Way, Suite 299
Sacramento, California 95815
Attn.: Steven J. Orlando
Telephone Number: (916) 568-2310
Telecopier Number: (916) 568-6446
with a courtesy copy to:
Philip S. Boone, Jr., Esq.
C/o Rosenblum, Parish & Isaacs, PC
555 Montgomery Street, 15th Floor
San Francisco, California 94111
Telephone Number: (415) 421-8232
Telecopier Number: (415) 397-5383
(ii) Any such notices shall be effective when delivered in person
or sent by telecopy, one business day after being sent by overnight delivery or
three (3) business days after being sent by registered or certified mail. Any
of the foregoing addresses may be changed by giving notice of such change in the
foregoing manner, except that notices for changes of address shall be effective
only upon receipt.
(b) FURTHER ASSURANCES. At any time, and from time to time, each
Party will execute such additional instruments and take such action as may be
reasonably requested by the other Party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
(c) COSTS AND EXPENSES. The Buyer agrees to pay its own costs and
expenses incurred in negotiating this Agreement and consummating the
transactions described herein. Such costs and expenses of the Seller are being
paid by Founders pursuant to the terms of the agreement concerning the Founders
Merger.
30
<PAGE>
(d) TIME. Time is of the essence.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
It supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
(f) AMENDMENT. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of any such amendment, supplement or
modification is sought.
(g) ASSIGNMENT. Except as provided in Section 3(y), above, this
Agreement may not be assigned by any party hereto without the prior written
consent of the other party.
(h) CHOICE OF LAW. This Agreement will be interpreted, construed and
enforced in accordance with the internal laws of the State of California,
without reference to the choice of laws provisions thereof.
(i) HEADINGS. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) NUMBER AND GENDER. Words used in this Agreement, regardless of
the number and gender specifically used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context indicates is appropriate.
(k) CONSTRUCTION. The parties hereto and their respective legal
counsel participated in the preparation of this Agreement; therefore, this
Agreement shall be construed neither against nor in favor of any of the parties
hereto, but rather in accordance with the fair meaning thereof.
(l) EFFECT OF WAIVER. The failure of any party at any time or times
to require performance of any provision of this Agreement will in no manner
affect the right to enforce the same. The waiver by any party of any breach of
any provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
(m) SEVERABILITY. The invalidity, illegality or unenforceability of
any provision or provisions of this Agreement will not affect any other
provision of this Agreement, which will remain in full force and effect, nor
will the invalidity, illegality or unenforceability of a portion of any
provision of this Agreement-affect the balance of such provision. In the event
that any one or more of the provisions contained in this Agreement
31
<PAGE>
or any portion thereof shall for any reason be held to be invalid, illegal or
unenforceable in any respect, this Agreement shall be reformed, construed and
enforced as if such invalid, illegal or unenforceable provision had never been
contained herein.
(n) ENFORCEMENT.
(i) Should it become necessary for any party to institute legal
action to enforce the terms and conditions of this Agreement, the successful
party will be awarded reasonable attorneys' fees at all trial and appellate
levels, expenses and costs.
(ii) The parties hereto acknowledge and agree that any party's
remedy at law for a breach or threatened breach of any of the provisions of this
Agreement would be inadequate and such breach or threatened breach shall be per
se deemed as causing irreparable harm to such party. Therefore, in the event of
such breach or threatened breach, the parties hereto agree that, in addition to
any available remedy at law, including but not limited to monetary damages, an
aggrieved party, without posting any bond, shall be entitled to obtain, and the
offending party agrees not to oppose the aggrieved party's request for,
equitable relief in the form of specific enforcement, temporary restraining
order, temporary or permanent injunction, or any other equitable remedy that may
then be available to the aggrieved party. In particular, and not by way of
limitation of any of the foregoing provisions of this paragraph, the parties
hereto agree that, in the event of a breach of the provisions of Section 5(g) of
this Agreement by the Seller, the Buyer will be irreparably damaged in an amount
that cannot be ascertained. Therefore, in the event of such breach, the Seller
shall be subject to injunctive relief in favor of the Buyer, in addition to any
other remedies available to the Buyer, including monetary damages.
(o) BINDING NATURE. This Agreement will be binding upon and will
inure to the benefit of any successor or successors of the parties hereto.
(p) NO THIRD-PARTY BENEFICIARIES. No person shall be deemed to
possess any third-party beneficiary right pursuant to this Agreement. It is the
intent of the parties hereto that no direct benefit to any third party is
intended or implied by the execution of this Agreement.
(q) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
(r) PRESS RELEASES AND ANNOUNCEMENTS. Neither of the Parties shall
make any public disclosure or press release concerning the subject matter of
this Agreement without the prior consent of the other. In each such instance,
such consent shall not be unreasonably withheld. Notwithstanding the foregoing,
the Buyer shall be permitted to make such public disclosure without
32
<PAGE>
such consent if its counsel deems such disclosure necessary to comply with
applicable federal and/or state laws.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER: JAVA CENTRALE, INC.
a California corporation
By: /S/ GARY C. NELSON
___________________________________
Gary C. Nelson
Its President
SELLER: VENTURE 88, INC.
a California corporation
By: /S/ DANIEL E. PATTERSON
___________________________________
Daniel E. Patterson
Its President
33
<PAGE>
JAVA CENTRALE, INC. EXHIBIT 11
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Year Ended March 31,
--------------------------------------------------------
1996 1995 1994
--------------- --------------- --------------
<S> <C> <C> <C>
Weighted average number of common
shares outstanding 6,526,377 4,488,532 2,507,652
--------------- --------------- --------------
--------------- --------------- --------------
Net Loss $ (3,966,426) $ (1,894,183) $ (1,240,606)
Preferred stock dividend requirement - - -
Series A Preferred dividend requirement - - (27,237)
Series B Preferred dividend requirement - - (50,000)
--------------- --------------- --------------
Adjusted net loss-common shareholders $ (3,966,426) $ (1,894,183) $ (1,317,843)
--------------- --------------- --------------
--------------- --------------- --------------
Net loss per weighted average
equivalent common share outstanding (2) $(.61) $(.42) $(.53)
--------------- --------------- --------------
--------------- --------------- --------------
Share months outstanding
--------------------------------------------------------
1996 1995 1994
--------------- --------------- --------------
Calculation of weighted average shares
outstanding (2)
Balance at beginning of period
March 5, 1992 - 2,500,000 shares 27,500,000
March 3, 1994 - 2,591,820 shares 31,101,840 31,101,840 2,591,820
May 10, 1994 - 1,875,000 shares 22,500,000 20,118,750
May 19, 1994 - 250,000 shares 3,000,000 2,601,794
March 30, 1995 - 600,000 shares 7,200,000 40,000
July 7, 1995 - 83,594 shares 736,548
August 28, 1995 - 403,000 shares 2,861,844
August 30, 1995 - 100,000 shares 703,560
September 8, 1995 - 124,567 shares 839,544
September 12, 1995 - 250,000 shares 1,652,052
September 20, 1995 - 326,000 shares 2,068,536
September 27, 1995 - 95,000 shares 580,932
October 19, 1995 - 5,834 shares 31,452
October 25, 1995 - 20,000 shares 103,896
November 8, 1995 - 300,000 shares 1,402,272
December 17, 1995 - 302,083 shares 1,042,824
January 4, 1996 - 426,609 shares 1,220,208
January 17, 1996 - 505,926 shares 1,230,864
March 20, 1996 - 40,000 shares 14,460
March 30, 1996 - 234,000 shares 7,692
March 31, 1996 - 154 shares -
Options outstanding (1) (1) (1)
Series B redeemable Preferred Stock - - (1)
Warrants outstanding (1) (1) (1)
--------------- --------------- --------------
Total 78,316,524 53,862,384 30,091,820
--------------- --------------- --------------
--------------- --------------- --------------
Weighted average number of common
shares outstanding 6,526,377 4,488,532 2,507,652
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
(1) Not calculated as anti-dilutive.
(2) All share and per share data have been retroactively restated to reflect
the 2.5 to 1 stock split.
(3) Shares issued on May 10, 1994 and May 19, 1994 have been restated to
reflect the 25% stock dividend.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Java Centrale has only one subaidiary, Paradise Bakery, Inc., a Delaware
corporation.
