SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 21, 1997
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Coffee People, Inc.
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(Exact name of registrant as specified in its charter)
Oregon 0-21397 93-1073218
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(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
15100 SW Koll Parkway, Suite J, Beaverton, Oregon 97006
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(503) 672-9603
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<PAGE>
ITEM 5. OTHER EVENTS.
On April 21, 1997, Coffee People, Inc., an Oregon corporation ("Coffee
People") entered into a definitive agreement to acquire 15 retail specialty
coffee stores located in Phoenix and Tucson, Arizona, and a related coffee bean
wholesale business, for a purchase price of approximately $8.2 million, plus the
cost of inventory to be purchased at closing. The stores are owned and operated
by Coffee Plantation, Inc., an Arizona corporation ("Coffee Plantation").
Coffee People intends to finance $6 million of the purchase price for
the stores with a 5-year term loan from its primary lender, upon the terms and
conditions set forth in a loan agreement, a copy of which is attached to this
Report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
2.1 Press Release, dated April 22, 1997, announcing the proposed
acquisition of the assets of Coffee Plantation by Coffee People.
2.2 Assets Purchase Agreement, dated April 21, 1997, between Coffee
People, Coffee Plantation and Second Cup, Inc. (omitting all
schedules and exhibits*).
2.3 Amendment No. 1 to Business Loan Agreement, dated April 21, 1997
between Bank of America NT & SA and Coffee People.
* A list of all schedules and exhibits is provided with the Assets
Purchase Agreement. The undersigned Registrant hereby agrees to
furnish supplementally to the Commission a copy of any omitted
schedule or exhibit to the Assets Purchase Agreement upon
request.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COFFEE PEOPLE, INC.
(Registrant)
Date: April 25, 1997 By: /s/Kenneth B. Ross
-------------------- ---------------------------------------
Kenneth B. Ross
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Page
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2.1 Press Release, dated April 22, 1997, announcing the
proposed acquisition of the assets of Coffee Plantation
by Coffee People.
2.2 Assets Purchase Agreement, dated April 21, 1997,
between Coffee People, Coffee Plantation and Second
Cup, Inc. (omitting all schedules and exhibits*).
2.3 Amendment No. 1 to Business Loan Agreement, dated April
21, 1997 between Bank of America NT & SA and Coffee
People.
* A list of all schedules and exhibits is provided with the Assets Purchase
Agreement. The undersigned Registrant hereby agrees to furnish
supplementally to the Commission a copy of any omitted schedule or exhibit
to the Assets Purchase Agreement upon request.
FOR IMMEDIATE RELEASE
FOR MORE INFORMATION, CONTACT:
KEN ROSS DOLORES CHENOWETH
CHIEF FINANCIAL OFFICER INVESTOR RELATIONS
503-672-3300 503-291-1924
COFFEE PEOPLE'S FIRST QUARTER RESULTS REFLECT EXPANSION;
COMPANY ANNOUNCES ACQUISITION OF 15 STORES IN ARIZONA
PORTLAND, OREGON...April 22, 1997 -- Coffee People, Inc. (NASDAQ: MOKA), a
specialty coffee retailer and operator of coffee houses, today reported a loss
of $.06 per share for the quarter ended March 31, 1997 on higher revenue of $3.2
million. The company also announced that it has a definitive agreement to
acquire 15 Coffee Plantation stores in Arizona. The stores to be acquired had
annual sales of $8.2 million in the most recent fiscal year.
Coffee People's revenue for the quarter was up 12.2 percent from the
comparable 1996 quarter. Higher costs and expenses related to adding new stores
resulted in a net loss of $190,000, or $.06 per share, compared to net income of
$66,000, or $.03 per share, in the same year ago quarter.
"Our quarterly results characterize the dynamic of growth in our
business -- incurring expenses to open and operate new stores, while having to
wait for sales at these new locations to ramp up," said Jim Roberts, chief
executive officer. The company has opened 11 stores in the last seven months,
including one store opened in the Los Angeles area this week. Two additional
stores are due to open in Chicago during the second quarter.
"The majority of the increased revenue was contributed by the three new
stores added in the fourth quarter of 1996," said Roberts. "The average length
of operation for the seven new stores opened during the first quarter of 1997
was slightly more than three weeks so we did not benefit from the full effect of
this expansion during the quarter."
"Five of our new stores are located in first-time markets for Coffee
People -- Colorado and southern California," Roberts explained. "And it takes
time to increase awareness, establish a customer base and realize full revenue
potential of stores in new markets."
-more-
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Comparable store sales for the 19 stores open in both the 1997 and
1996 first quarters rose 3.5 percent, due primarily to a price increase in
September 1996 on coffee beverages. Average store sales for the 15 neighborhood
and drive-through stores open for the full 1997 quarter were $151,000 with an
average contribution margin of 14.3 percent.
"We have been executing on our plan to add approximately 30 new stores
in selected markets by the end of 1997," said Roberts. "When combined with the
13 new stores opened or announced since our initial public offering in September
1996, the pending acquisition of the 15 Coffee Plantation stores brings us
virtually to that goal."
The company will acquire 13 Coffee Plantation stores in Phoenix and
two in Tucson. "Coffee Plantation is a leader in the Arizona specialty coffee
marketplace and its stores are predominately in high-profile and high-traffic
locations," said Roberts. "The store base is a mix of large coffee houses,
neighborhood units and kiosk stores."
Roberts said that Arizona ranked high on Coffee People's list of
markets to enter as part of its expansion program. "Acquiring these operating,
profitable stores allows us to grow rapidly without having to invest in new
stores and wait for sales to build."
Coffee Plantation, in operation since 1989, offers a similar menu to
Coffee People stores but also provides a limited lunch and light snack menu of
soups, salads, sandwiches and other items at some larger locations.
The proposed cash acquisition, the price of which was not disclosed,
is anticipated to close in May 1997. It would bring to 47 the total number of
Coffee People locations as compared to the 19 stores in operation at the time
the company completed its initial public offering.
"Our major focus for the remainder of 1997 will be on assimilating
this pending acquisition and on improving sales at our newest stores," Roberts
said. "We also expect to continue looking for opportunities to develop
additional stores."
In business since 1983, Coffee People currently has 30 outlets open
and two under construction in Oregon; southern California; Denver, Colorado, and
Chicago, Illinois including coffee houses, drive-through Motor Mokas(R) and Aero
Moka(R) kiosks at the Portland International Airport. The company's stores
feature a menu of more than 200 coffee drinks, shakes, pastries and other
coffee-related products.
This news release contains forward-looking statements that involve a
number of risks and uncertainties. Actual results may differ materially from
projected results. For a complete discussion of the risks associated with
forward-looking information, refer to the Risk Factors contained in the
company's 10-K-SB for 1996 and the Registration Statement on Form SB-2 as filed
with the Securities and Exchange Commission effective September 25, 1996.
ASSETS PURCHASE AGREEMENT
AMONG
COFFEE PEOPLE, INC.,
THE COFFEE PLANTATION, INC.,
AND
THE SECOND CUP INC.
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TABLE OF CONTENTS
Page
----
1. Purchase and Sale................................................ 1
2. Excluded Assets.................................................. 3
3. No Assumption by Buyer of Seller's Liabilities................... 3
4. Purchase Price................................................... 4
5. Payment of Purchase Price........................................ 5
6. Covenant Not to Compete.......................................... 6
7. License to Name.................................................. 7
8. Representations and Warranties of Seller and Shareholder......... 7
9. Representations and Warranties of Buyer.......................... 14
10. Covenants By Seller.............................................. 15
11. Covenants By Buyer............................................... 16
12. Conditions To Buyer's Obligations................................ 17
13. Conditions to Seller's Obligations............................... 18
14. Closing.......................................................... 19
15. Indemnification.................................................. 21
16. Termination Provisions........................................... 22
17. Risk of Loss..................................................... 23
18. Post-Closing Cooperation......................................... 23
19. Announcements.................................................... 23
20. Miscellaneous.................................................... 24
Exhibit A - Asset Acquisition Statement
Exhibit B - License Agreement
Exhibit C - Supply Agreement
<PAGE>
ASSETS PURCHASE AGREEMENT
Among: COFFEE PEOPLE, INC.,
an Oregon corporation "Buyer"
And: THE COFFEE PLANTATION, INC.
an Arizona corporation "Seller"
And: THE SECOND CUP INC.
a Delaware corporation "Shareholder"
Dated: APRIL 21, 1997
RECITALS
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A. Seller owns and operates 15 retail specialty coffee stores, operating
under the name Coffee Plantation, in different locations in the state of Arizona
(the "Stores").
B. One of the Stores, located at the University of Arizona Main Gate, in
Tucson, Arizona, was recently constructed and began operations on or about April
12, 1997 (the "New Store").
C. Shareholder is the sole owner of the capital stock of Seller.
D. Buyer desires to purchase, and Seller agrees to sell, the Stores and
certain assets associated with the operation of the Stores and the Seller's
coffee bean wholesale business upon the terms and conditions set forth herein.
AGREEMENT
---------
1. PURCHASE AND SALE. On the Closing Date (as defined below) Seller will
sell, convey, assign, transfer and deliver to Buyer, and Buyer will purchase
from Seller, all of the assets of Seller that are used in connection with the
operation of the Stores, and the assets used in connection with the Seller's
coffee bean wholesale business as listed on Schedule 1.9, wherever located other
than the Excluded Assets, as defined in Section 2 below (collectively, the
"Assets"). The Assets shall include, without limitation, the following:
1.1. FIXED ASSETS. All of the equipment, machinery, furniture,
furnishings, fixtures, leasehold improvements, computers, displays, signage and
all other personal property used or located in any and all of the Stores, or
Seller's administrative office in Tempe, Arizona as of the date of this
Agreement and as of Closing.
<PAGE>
1.2. LEASES. All of Seller's interest in the leases under which the
Seller leases the premises on and at which the Stores are operated and at which
Seller's administrative office in Tempe, Arizona is located (the "Leases"), and
all rights thereunder (except as specifically excluded in Section 2 below). All
of the Leases are listed on Schedule 1.2 to this Agreement.
1.3. RECORDS. All lists, books, and records relating to the Stores
listed on Schedule 1.3 and all employee wage histories, operating data and other
records of the Stores (the "Records").
1.4. INTANGIBLES. All of Seller's right, title and interest in and to
the name "Coffee Plantation," all trademarks, trade names, logos and other
intangible assets used in the business of the Stores, including without
limitation those listed on Schedule 8.11, and all goodwill associated therewith
and other intangibles used or associated with the Business, including the letter
agreement, dated March 29, 1996, with Shamrock Foods Company, a copy of which is
attached to Schedule 8.11.
1.5. RECIPES AND FORMULAS. All of Seller's right, title and interest
in and to the recipes and formulas for coffee and other products sold in the
Stores that are owned and used exclusively by Seller. Such recipes and formulas
are listed on Schedule 1.5 hereto.
1.6. INVENTORIES. All inventories and supplies on hand at the Stores
on the Closing Date, and packaging and labels used in the Stores related to such
inventories, not to exceed a twelve-month supply based on historic usage for the
preceding twelve months, located at the Gloria Jean's Castroville facility
(collectively, the "Inventories"). The Inventories shall not include any
supplies bearing the name "Paradiso", all of which shall be retained by Seller.
1.7. PREPAID EXPENSES. Those certain lease security deposits and
prepaid expenses directly attributable to operations at the Stores and approved
by Buyer as listed on Schedule 1.7 (the "Prepaid Expenses").
1.8. COMMITMENTS. The benefit of those commitments (the "Commitments")
listed on Schedule 1.8.
1.9. WHOLESALE BUSINESS ASSETS. Those Assets listed on Schedule 1.9,
relating to Seller's wholesale coffee bean business, and Seller's rights and
obligations under the agreement with A.J. Fine Foods, Inc., dated November 21,
1996, a copy of which is attached to Schedule 1.9 (the "Wholesale Assets").
<PAGE>
2. EXCLUDED ASSETS. Notwithstanding the foregoing, the parties agree that
the following are expressly excluded from this purchase and sale and are not
included in the Assets (collectively, the "Excluded Assets"):
2.1. CASH. Any of the Seller's cash and cash equivalents, other than
cash on hand at the Stores at the close of business on the day preceding the
Closing Date (the "Cash Floats").
2.2. ACCOUNTS RECEIVABLE. Any of Seller's accounts receivable or notes
receivable. Buyer agrees to forward to Seller all payments on account of
accounts receivable or notes receivable received by Buyer after Closing
forthwith upon receipt of same. Buyer will afford reasonable cooperation to the
Seller in collecting such receivables.
2.3. TENANT INDUCEMENTS. Those certain awards and entitlements under
the Leases, specifically identified on Schedule 2.3. Buyer shall forward to
Seller all payments received by Buyer after Closing on account of such awards
and entitlements, forthwith upon receipt of same.
2.4. PARADISO. For greater certainty, the parties confirm that the
Buyer will have no right to use the name "Paradiso" or the recipe for the coffee
referred to as "Paradiso" from and after the Closing Date; provided that Buyer
shall have a reasonable amount of time, not to exceed 30 days after Closing, to
change menu boards and signage at the Stores and Buyer is hereby granted a
nonexclusive, royalty-free license to the name "Paradiso," restricted to this
purpose.
2.5. TAX RECOVERIES. Any sales tax recoveries, rebates or refunds with
respect to the operations of Seller during the period prior to the Closing Date
and the $1,000 performance bond posted in respect of the occupancy permit for
the New Store (collectively, "Tax Refunds"). The Buyer agrees to forthwith pay
to the Seller any Tax Refunds received by Buyer.
2.6. CERTAIN OFFICE EQUIPMENT. The equipment located at the
administrative office in Tempe listed in Schedule 2.6.
3. NO ASSUMPTION BY BUYER OF SELLER'S LIABILITIES.
3.1. LIABILITIES. Buyer is not and is not to be deemed to be a
successor of Seller's business, it being expressly understood that Buyer is only
acquiring the Assets. Buyer has not and does not assume or agree to assume any
liability or obligation whatsoever of Seller or Shareholder, except for Seller's
obligations under the Leases and the Commitments arising after the Closing Date.
Seller and Shareholder shall jointly and severally indemnify and hold Buyer
harmless from and against any liability or obligation of Seller not expressly
assumed by Buyer pursuant to this section.
<PAGE>
3.2. INSURANCE. Buyer shall make arrangements for its own insurance
coverage commencing on the Closing Date, including workers' compensation,
property and casualty, and general liability insurance. Seller will maintain its
current liability and worker's compensation insurance coverage through the
Closing Date.
3.3. EMPLOYEES. Buyer shall extend to all of Seller's employees at
each of the Stores an offer of employment with Buyer, on substantially the same
terms and conditions as were in effect prior to the Closing, for hiring in
accordance with Buyer's standard hiring practices. Seller expressly retains all
employment obligations and liabilities (including, but not limited to, accrued
wages, vacation and sick leave) arising up to, but not including, the Closing
Date. Seller will notify employees prior to the Closing that as of such date
they shall cease to be Seller's employees and will be offered employment by
Buyer, which notification shall be subject to Buyer's prior written approval. At
least seven days prior to the Closing Date, the Buyer shall notify the Seller of
the identity of the non-Store employees who Buyer intends to employ following
the Closing.
3.4. PRORATIONS. All expenses under the Leases and utility type
charges related to the Stores shall be prorated as of the Closing Date. The
parties agree to negotiate in good faith to properly resolve all required
prorations as soon as possible following the Closing Date and to pay all amounts
due as a result of the prorations at the time payment is made pursuant to
Section 5.3.
4. PURCHASE PRICE. The purchase price for the Assets (the "Purchase Price")
will be the sum of the Base Purchase Price, the New Store Price, the Inventories
Price, the Wholesale Purchase Price, and the Prepaid Expenses Purchase Price,
all as defined below:
4.1. BASE PURCHASE PRICE. The purchase price for the Assets (other
than the New Store, Inventories, Wholesale Assets and Prepaid Expenses) (the
"Base Purchase Price") shall be Eight Million Dollars (U.S.) ($8,000,000), plus
the amount of the Cash Floats.
<PAGE>
4.2. NEW STORE PURCHASE PRICE. Buyer shall pay Seller an amount equal
to one-half of the capitalizable construction and pre-opening costs (net of
allowances for tenant improvements), as determined in a manner consistent with
past practice, associated with building and opening the New Store (such one-half
amount being the "New Store Purchase Price"), all as shown on the books and
records of Seller based on invoices actually paid to unrelated third parties
before and after Closing; provided, however, that the New Store Purchase Price
shall not exceed $186,000 (U.S.).
4.3. INVENTORIES PURCHASE PRICE. The purchase price for the
Inventories (the "Inventories Purchase Price") shall be Seller's actual FIFO
costs, including freight, paid to its suppliers. Prices paid to Gloria Jean's,
or any other affiliate of Seller, shall be no greater than costs that would be
negotiated between unaffiliated third parties, and prices for coffee shall be
based on the price list attached to the Supply Agreement (as defined in Section
12.12 below). Buyer and Seller shall agree on the Inventories Purchase Price
based on an inventory to be taken and priced jointly by representatives of Buyer
and Seller on the Closing Date.
4.4. PREPAID EXPENSES PURCHASE PRICE. Buyer shall pay to Seller the
amount of the Prepaid Expenses, as set forth on Schedule 1.7 (the "Prepaid
Expenses Purchase Price").
4.5. WHOLESALE BUSINESS PURCHASE PRICE. The purchase price for the
Wholesale Assets shall be the adjusted book value of the Wholesale Assets, as
set forth in Schedule 1.9 (the "Wholesale Purchase Price").
4.6. FORM 8594. At the Closing, Buyer and Seller shall mutually
execute and deliver a completed Internal Revenue Service Form 8594 entitled
"Asset Acquisition Statement under Section 1060," in the form of Exhibit A
setting forth an agreed-upon allocation of the Purchase Price. Each party agrees
to use the allocation set forth in Exhibit A for federal, state and other tax
purposes.
5. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid in United
States dollars as follows:
5.1. CASH AT CLOSING. The Base Purchase Price, New Store Purchase
Price, Wholesale Purchase Price and Prepaid Expenses Purchase Price shall be
paid in full at Closing by certified or cashier's check or by wire transfer in
accordance with instructions delivered by Seller not later than three days prior
to Closing.
<PAGE>
5.2. INVENTORIES PURCHASE PRICE. At Closing, Buyer shall pay Seller an
amount equal to 90 percent of the Inventories Purchase Price (the "Estimated
Payment"), calculated based on the Inventories as at March 8, 1997 (and assuming
that the Inventories on the Closing Date are equal to those on such date),
payable in the manner set forth in Section 5.1.
5.3. ADJUSTMENT. On the 30th day after the Closing Date (the
"Adjustment Date") Buyer and Seller shall agree upon the following calculations
(i) the amount by which the Inventories Purchase Price exceeds or is
less than the Estimated Payment, determined in accordance with
Sections 4.3 and 5.2;
(ii) the amount of any prorations determined in accordance with
Section 3.4;
(iii) the amount, if any, by which the New Store Purchase Price is
less than the $186,000 paid by the Buyer on Closing; and
(iv) the amount, if any, by which the Prepaid Expenses on the Closing
Date differs from the amount paid in respect of Prepaid Expenses
at the Closing.
The net amount of (i), (ii), (iii) and (iv) payable by the Buyer to the Seller
or the Seller to the Buyer, as the case may be, shall be calculated and paid
together with simple interest calculated at the rate of 5 percent per annum from
the Closing Date to the date of payment. If no Agreement is reached by the 30th
day after Closing, the parties shall refer their dispute to KPMG Peat Marwick
LLP (the "Arbitrator"), which shall make a final determination of the amounts
payable under clauses (i) through (iv) above within 60 days of the Closing Date.
The determination of the Arbitrator shall be final and binding on the parties.
All payments to be made under this section shall be made, together with the
interest as set forth herein, by certified or cashier's check or by wire
transfer, no later than 10 days following agreement by the parties or
determination by the Arbitrator, whichever is applicable. Any amounts not in
dispute shall be paid on the Adjustment Date. The cost of the arbitrator shall
be shared equally by the Buyer and the Seller.
6. COVENANT NOT TO COMPETE. For no additional consideration, Seller,
Shareholder and Shareholder's indirect parent company, The Second Cup Ltd.,
agree that for a period of 18 months after the Closing Date, none of them shall
directly or indirectly own an interest in, operate or otherwise participate in
any business engaged in the retail sale of coffee or coffee-based drinks in the
state of Arizona. Nothing in the preceding sentence shall:
<PAGE>
(i) affect in any way the operation of the chain currently known
as "Gloria Jean's,"
(ii) prohibit any of the Seller, the Shareholder or the
Shareholder's indirect parent company from acquiring a chain of retail stores in
which:
(a) less than 25% of the store locations at the time of such
acquisition are located in the State of Arizona; or
(b) less than 40% of the sales dollars in the 12 month period
preceding the acquisition are in respect of coffee or coffee-based drinks; or
(iii) prohibit any of the Seller, the Shareholder or the
Shareholder's indirect parent company from entering into a distribution
agreement for coffee or coffee-based drinks with an entity which has less than
25% of its distribution outlets at the time of such agreement located in the
State of Arizona.
7. LICENSE TO NAME. Buyer agrees to grant Seller a royalty-free
nonexclusive license to the name Coffee Plantation and related logos and trade
names, in the form of Exhibit B, for use during the license period in connection
with the operation by Seller of retail coffee stores in the states of Texas and
California (the "License Agreement").
8. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER. Seller and
Shareholder jointly and severally represent and warrant to Buyer as follows:
8.1. ORGANIZATION AND VALID EXISTENCE. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona. Shareholder is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Seller has all requisite
corporate power and authority to own and lease property and to conduct its
business as presently conducted. Shareholder owns all of the capital stock of
Gloria Jean's, Inc., a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware.
8.2. AUTHORITY RELATIVE TO AGREEMENT. The execution, delivery and
performance of this Agreement by Seller and Shareholder have been duly and
effectively authorized by all necessary corporate action of Seller and
Shareholder and their respective boards of directors and shareholders. This
Agreement has been duly executed by Seller and Shareholder and is a valid,
legally binding and enforceable obligation of Seller and Shareholder, subject
only to the effect of bankruptcy, insolvency or other laws affecting creditors'
rights generally.
<PAGE>
8.3. EFFECT OF AGREEMENT. The execution, delivery and performance of
this Agreement by Seller and Shareholder and the consummation of the
transactions contemplated hereby will not conflict with or result in a breach or
termination of any provision of, or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon any of the Assets pursuant to
any indenture, mortgage, deed of trust, lease, contract, agreement or other
instrument to which Seller or Shareholder is a party, or by which Seller or
Shareholder or any of the Assets is bound, and will not result in a violation of
the Seller's or Shareholder's Certificates of Incorporation or Bylaws.
8.4. TITLE TO ASSETS. Seller has good and marketable title to all of
the Assets, including the right to transfer the Assets to Buyer hereunder free
and clear of any and all claims, liens, encumbrances, conditions, assessments or
restrictions, except for construction liens, workers liens, and materialmen
liens arising in connection with the construction of the New Store, all of which
liens shall be removed by Seller in accordance with Section 10.9.
8.5. CONDITION OF ASSETS. The Assets constitute all of the assets
owned, leased or used by Seller in operating the Stores and the Seller's coffee
bean wholesale business. Except as set forth in Schedule 8.5, to the Seller's
knowledge the Assets are in good condition and working order (ordinary wear and
tear excepted) and are suitable for continued use in the Stores in the manner in
which they currently are being used. Except as set forth in Schedule 8.5, all
structures, fixtures, equipment and machinery conform in all material respects
to applicable health, sanitation, fire and related laws and regulations, safety,
labor, zoning and building laws and ordinances; and Seller has not received any
notification within the last three years of any material violation of any
applicable ordinance or regulation of health and safety, building, zoning or
other law regulating the operation of a public eating establishment.
8.6. STORE LEASES. All of the Leases (copies of which have been
provided to Buyer) are in good standing and are valid, binding and enforceable
in accordance with their respective terms. Subject to receipt of all necessary
consents to complete the transaction contemplated hereby, all of the Leases will
continue to be valid, binding and enforceable immediately after Closing, and,
subject to the receipt of all necessary consents to complete the transaction
contemplated hereby, there exists no default by Seller or event which with the
passage of time or giving of notice or both could result in a default under any
of the Leases.
<PAGE>
8.7. PREPAID EXPENSES. The Prepaid Expenses have been fully paid and
no additional payments are required with respect to any of such items for the
time period for which they have been paid. With respect to lease security
deposits comprising part of the Prepaid Expenses, Seller has taken no action,
nor do any circumstances exist, that would impair the ability of Buyer to
recover such deposits at such time as they are due to be refunded.
8.8. FINANCIAL INFORMATION. Buyer has been provided with Shareholder's
balance sheet at June 29, 1996 and March 8, 1997, and with Seller's balance
sheets and income statements at and for the fiscal years ended June 24, 1995 and
June 29, 1996 (the "Financial Statements"). The Financial Statements, in all
material respects, (i) are consistent with the books and records of Seller and
Shareholder, as applicable; (ii) were prepared in accordance with generally
accepted accounting principles consistently applied; and (iii) fairly and
accurately present Seller's and Shareholder's assets and liabilities and results
of operations as of the dates and for the periods indicated. Buyer also has been
provided with Seller's monthly store operating statements for each of the
Stores, setting forth for each month from June 24, 1995 through and including
March 8, 1997, revenues and expenses at the store level (the "Store Operating
Statements"). Buyer confirms receipt of the Financial Statements and Store
Operating Statements. The Store Operating Statements were in all material
respects prepared on a consistent basis in accordance with Seller's books and
records, and fairly and accurately reflect the results of operations for each of
the Stores and for the periods identified therein.
8.9. CONTRACTS. Seller is not in default under any contract, agreement
or commitment that would in any way materially and adversely affect any of the
Assets.
8.10. INVENTORIES. The Inventories are of good and merchantable
quality and are usable and saleable in the ordinary course of business, with all
Inventories saleable at prices at or in excess of their FIFO costs. Except as
disclosed on Schedule 8.10, there are no outstanding purchase orders for
inventory to be delivered to any of the Stores which have not been fully paid
and there will be no such purchase orders outstanding on the Closing Date.
8.11. INTELLECTUAL PROPERTY. Schedule 8.11 lists all of Seller's
trademarks, trade names, service marks and other proprietary rights used in
connection with the Stores, other than licenses to readily available software
(the "Intellectual Property"). Seller owns all of the Intellectual Property free
and clear of any liens, claims, security interests or encumbrances. No claims
(including any request to enter into a license agreement) have been asserted
(and are outstanding) or threatened by any person (i) to the effect that any
activity conducted in connection with any of the Stores infringes on any
trademark, service mark, trade name or any other proprietary rights; (ii)
against the use by Seller of any of the Intellectual Property; or (iii)
challenging or questioning the validity or effectiveness of any of the
Intellectual Property; and to Seller's knowledge there is no valid basis for any
such claim.
<PAGE>
8.12. EMPLOYEES. On or before the Closing Date, Seller will take all
appropriate steps to pay all liabilities to its employees who are engaged in the
operations of the Stores, including without limitation accrued wages, vacation
pay, sick pay, termination pay and any payments under any employee benefit or
pension programs, as may be required. Schedule 8.12 sets forth the names of all
employees currently employed at the Stores, and the wage or salary of each such
employee. Seller and Shareholder further represent and warrant that except as
disclosed on Schedule 8.12, there is no pension or other deferred benefit
program for Seller's employees, that neither Seller nor such employees are
subject to any employment or collective bargaining agreement, and that to the
knowledge of Seller and Shareholder, there are no efforts to unionize such
employees. Except as disclosed in Schedule 8.12, there are no written agreements
pertaining to any of Seller's Store employees and all of such employees are
employees at will, whose employment is terminable at any time without payment of
any severance or other benefit, other than earned but unpaid wages and accrued
benefits, vacation pay and leave. Schedule 8.12 lists and describes generally
any health and welfare, pension, profit sharing, or other employee benefit plan
maintained by Seller and applicable to any of the employees engaged in
operations of the Stores.
8.13. LITIGATION. Except as disclosed in Schedule 8.13, there is no
litigation, claim, proceeding, assessment, fine, penalty or governmental
investigation threatened or, to the Seller's knowledge, pending against (i)
Seller with respect to the Assets or the Stores, or (ii) any of the Assets or
the Stores.
8.14. TAX MATTERS.
(a) Seller and Shareholder have filed with the appropriate United
States, state and local governmental agencies all tax returns and reports known
by either of them to be required to be filed by them and have paid, or made
provision for the payment of, all taxes which have become due and payable.
<PAGE>
(b) All such returns and reports are accurate and complete in all
material respects and Seller and Shareholder have paid in full or made adequate
provision for all taxes, interest, penalties, assessments or deficiencies shown
to be due on such tax returns or reports or claimed to be due by any taxing
authority or otherwise due and owing.
(c) Seller has withheld all employment taxes and paid the same to
government authorities as required under applicable laws and regulations.
8.15. ENVIRONMENTAL MATTERS.
(a) None of either Seller, nor to the knowledge of Seller, any
previous owner, lessee, tenant, occupant or user of any real property on which
any of the Stores is located (the "Property") used, generated, manufactured,
treated, handled, refined, processed, released, discharged, stored or disposed
of any Hazardous Materials (as defined below) on, under or in the Property, or
transported any Hazardous Materials to or from the Property, in violation of any
Environmental Law (as defined below). To the knowledge of Seller, no underground
tanks or underground deposits of Hazardous Materials exist on, under or in any
of the Property.
(b) Seller has kept and maintained the Property and conducted its
business in compliance in all material respects with all applicable
Environmental Laws, then in effect, relating to environmental conditions,
industrial hygiene or Hazardous Materials on, under or in such Property. To the
knowledge of Seller, no event has occurred and no condition exists on any
Property that could subject Seller or the Property to any material restrictions
on occupancy, transferability or use under any Environmental Laws.
(c) No oral or written notification of a "release" (as defined in
42 U.S.C. ss. 9601(22)) of a Hazardous Material has been filed by or on behalf
of the Seller and, to the knowledge of Seller, no site or facility now or
previously owned, operated or leased by Seller is listed or proposed for listing
on the National Priorities List promulgated pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, and
the rules and regulations promulgated thereunder ("CERCLA") or any similar state
or local list of sites requiring investigation or clean up.
(d) To Seller's knowledge, no liens have arisen under or pursuant
to any Environmental Law on any Property, and no action of any federal, state or
local governmental authority has been taken or, to the knowledge of Seller, is
in process which could subject any of such properties to such liens, and Seller
would not be required to place any notice or restriction relating to the
presence of Hazardous Materials at any Property in any deed to such real
property.
<PAGE>
(e) "Hazardous Material" shall mean: (i) "hazardous substance" or
"toxic substances", as defined by the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), 42 U.S.C. ss.9501 et seq.; (ii)
"hazardous waste", as defined by the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. ss.6902 et seq., (iii) any pollutant or contaminant or
hazardous, dangerous or toxic chemicals, materials, or substances within the
meaning of any other applicable federal, state, or local law, regulation,
ordinance, or requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material, all as amended or
hereafter amended; (iv) more than 100 gallons of crude oil or any fraction
thereof which is liquid at standard conditions of temperature and pressure (60
degrees Fahrenheit and 14.7 pounds per square inch absolute); (v) any
radioactive material, including any source, special nuclear or by-product
material as defined at 42 U.S.C. ss.2011 et seq., as amended or hereafter
amended; and (vi) asbestos or PCB's in any form or condition.
(f) "Environmental Law" shall mean any statute, rule, regulation,
order or permit of any federal, state or local governmental authority currently
in effect which relates to the regulation or protection of human health, safety
or the environment or to emissions, discharges, releases or threatened releases
of pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, soil, surface water, ground water, wetlands, land or subsurface
strata), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes.
8.16. BOOKS AND RECORDS. The books, records and work papers of Seller
are complete and correct in all material respects, have been maintained in
accordance with good business practices and accurately reflect in all material
respects the basis for the balance sheets, income and other financial statements
of Seller.
8.17. PERMITS. Schedule 8.17 lists all permits, licenses, grants,
clearances, concessions or other governmental authorizations and approvals
required by any governmental authority to conduct the operations at the Stores,
as currently being conducted, other than those permits, licenses, grants,
clearances, concessions, authorizations or approvals for which the failure to
have would not have a material adverse effect on any of the Stores
(collectively, the "Permits"). Seller has obtained all Permits and such Permits
are currently in full force and effect, Seller is in compliance in all material
respects with all of the Permits and there are no proceedings threatened which
might result in the revocation, cancellation or suspension of the Permits.
Operation of each of the Stores is in conformity with all applicable zoning or
similar laws and ordinances, none of which is temporary or conditional in
nature, other than where non-conformance would not have a material adverse
effect on the Stores.
<PAGE>
8.18. CONSENTS.
(a) No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local government authority is required to be obtained by
Seller in connection with the consummation of the transactions contemplated by
this Agreement.
(b) Except as set forth in Schedule 8.18, no consent or approval
by any third party is required to be obtained by the Seller in connection with
the execution and delivery by Seller of this Agreement or the consummation by
Seller of the transactions contemplated by this Agreement, including without
limitation the assignment to and assumption by Buyer of the Leases.
8.19. ABSENCE OF MATERIAL CHANGES. Except as disclosed on Schedule
8.19, since June 29, 1996, and through the Closing Date, there have not been:
(a) Any material adverse change in the financial condition of
Seller or the cash flows or other operating results of any of the Stores;
(b) Any damage, destruction or loss to or of any of the Assets
which are material to the operation of the Stores;
(c) Any mortgage, pledge, lien or other encumbrance or security
interest created on any of the Assets, tangible or intangible, other than in
respect of the construction of the New Store (which liens shall be removed by
Seller in accordance with Section 10.9);
(d) Any sale or transfer of any of the material Assets, or any
transaction not in the ordinary course of business;
<PAGE>
(e) Any rights transferred or granted under any concessions,
leases, licenses, agreements, trademarks, trade names or copyrights with respect
to any of the Intellectual Property;
(f) Any wage or salary increase to any employee engaged in the
operation of any of the Stores, except increases in the ordinary course of
business not exceeding 6 percent; and
(h) Any change in the products offered in the Stores or the
prices applicable thereto, excluding any general price increase not exceeding
five percent implemented on not more than one occasion and excluding the
possible phaseout of the "Paradiso" brand.
8.20. SUPPLIERS. Schedule 8.20 contains an accurate and complete list
of the names of the 10 largest suppliers of the Stores for the period of the
current fiscal year through April 14, 1997, listing (except with respect to
Gloria Jean's) the dollar value of all purchases from each such supplier during
such period. All such suppliers have been paid in accordance with standard
business practices and none of such suppliers has indicated to Seller that it
will not continue to supply the Stores after Closing.
8.21. DEFINITION OF KNOWLEDGE. Facts or information within the
"knowledge" of Seller or "to the knowledge of Seller," or any equivalent phrase
as used in this Agreement, shall include facts known, or which should have been
known after due inquiry, by any of the directors or officers of Seller,
Shareholder or Shareholder's indirect parent, The Second Cup Ltd. or any
district manager of Seller.
9. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Seller and Shareholder as follows:
9.1. CORPORATE STATUS. Buyer is a corporation duly organized and
validly existing under the laws of the State of Oregon.
9.2. AUTHORITY RELATIVE TO AGREEMENT. The execution, delivery and
performance of this Agreement by Buyer have been duly and effectively authorized
by all necessary corporate action. This Agreement has been duly executed by
Buyer and is a valid, legally binding and enforceable obligation of Buyer,
subject only to the effect of bankruptcy, insolvency or other laws affecting
creditors' rights generally.
9.3. EFFECT OF AGREEMENT. The execution, delivery and performance of
this Agreement by Buyer and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or termination of any
provision of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any of the properties or assets of Buyer
pursuant to any indenture, mortgage, deed of trust, lease, contract, agreement
or other instrument to which Buyer is a party, or by which Buyer or any of its
assets or properties are bound, and will not result in a violation of Buyer's
Articles of Incorporation or Bylaws.
<PAGE>
9.4. EFFECT OF AGREEMENT.
(a) No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority is required to be obtained by
Buyer in connection with the consummation of the transactions contemplated by
this Agreement.
(b) No consent or approval by any third party is required to be
obtained by Buyer in connection with the execution and delivery by Buyer of this
Agreement or the consummation by Buyer of the transactions contemplated by this
Agreement.
9.5. FINANCING. Buyer has made arrangements to have in place all
financing necessary to consummate the transactions contemplated by this
Agreement.
10. COVENANTS BY SELLER. Seller and Shareholder jointly and severally agree
that, except as Buyer may otherwise consent in writing, during the period
between the execution of this Agreement and the Closing they will and will cause
Seller to:
10.1. OPERATE IN NORMAL COURSE. Operate the Stores and the related
wholesale business in the ordinary course consistent with past practices and, to
the extent consistent with such operation, use their best efforts to preserve
the Assets and Seller's goodwill and relationships with all of its employees,
suppliers and customers. Without limiting the foregoing, Seller will not change
any of its product offerings or prices or the hours of operation of the Stores
except as expressly contemplated by this Agreement, and except for changes that
would not have a material adverse effect on operations or cash flows of the
Stores.
10.2. EMPLOYMENT MATTERS. Make no employment agreements with respect
to employees of the Business, or pay or agree to pay any increase in salary or
benefits or bonuses to any employees of the Business.
10.3. MAINTAIN ASSETS. Maintain the Assets in a good and saleable
condition, and maintain the current insurance on all of the Assets.
<PAGE>
10.4. MAINTAIN BOOKS AND RECORDS. Maintain Seller's books, accounts
and records in the usual, regular and ordinary manner on a basis consistent with
prior practices and permit Buyer reasonable access thereto during regular
business hours.
10.5. NO DISPOSITION. Make no disposition of any Assets except in the
ordinary course of business.
10.6. NOTICE. Promptly notify Buyer in writing of the existence or
happening of any fact, event or occurrence which may materially alter any
representation or warranty herein or impair the satisfaction of any condition.
10.7. INTERFERENCE WITH AGREEMENT. Not undertake any act which would
frustrate the proposed purchase of the Assets on the Closing Date.
10.8. INFORMATION. Provide to Buyer on request information concerning
the operations of the Stores and any other information reasonably requested by
Buyer which will be helpful in the transition of the ownership of the Stores to
Buyer, and provide to Buyer and its accountants and other representatives
reasonable access to the Stores and its employees, books and records, contracts
and other information during normal business hours.
10.9. NEW STORE CONSTRUCTION. Pay all accounts to contractors properly
due and payable in connection with the construction of the New Store, and obtain
and deliver to Buyer as soon as practicable releases or waivers of all
potentially valid contractor liens, workers liens and materialmen's liens which
may have arisen in connection with the construction of the New Store.
11. COVENANTS BY BUYER. Buyer agrees that, except as Seller may otherwise
consent in writing, during the period between the execution of this Agreement
and the Closing it will:
11.1. NOTICE. Promptly notify Seller in writing of the existence or
happening of any fact, event or occurrence which may materially alter any
representation or warranty of Buyer herein or impair the satisfaction of any
condition.
11.2. CONSENTS. Assist and cooperate with the Seller in the Seller's
efforts to obtain all consents necessary to complete the transaction
contemplated herein.
11.3. INTERFERENCE WITH AGREEMENTS. Not undertake any act which would
frustrate the proposed sale of the Assets on the Closing Date.
<PAGE>
12. CONDITIONS TO BUYER'S OBLIGATIONS. The obligations of Buyer under this
Agreement are subject to the satisfaction at or prior to the Closing of each of
the following conditions, unless expressly waived in writing by Buyer:
12.1. REPRESENTATIONS TRUE. The representations and warranties of
Seller and Shareholder contained herein shall be true and correct in all
material respects as of the Closing Date.
12.2. COMPLIANCE WITH COVENANTS. Seller and Shareholder shall have
complied with all covenants and conditions contained in this Agreement to be
performed or complied with by them at or prior to the Closing.
12.3. DELIVERY OF TRANSFER DOCUMENTS. Seller shall have delivered such
agreements, instruments and documents requested by the Buyer as shall be
reasonably necessary or convenient to transfer title and interest to the Assets
and to consummate the transactions contemplated by this Agreement.
12.4. CERTIFICATE. Seller and Shareholder shall have furnished to
Buyer a certificate, dated the Closing Date, signed by Seller's President and
Shareholder's President to the effect that (i) the conditions specified in this
Section 12 have been complied with, (ii) each of the representations and
warranties by Seller and Shareholder in this Agreement are true and correct in
all material respects as of the Closing Date, and (iii) all covenants to be
performed by Seller prior to or at Closing have been fully performed.
12.5. NO THREATENED ACTION. There shall not be any actual or
threatened action or proceeding by or before any court or other governmental
body or agency which will seek to restrain, prohibit or invalidate the
transactions contemplated by this Agreement or which would materially adversely
affect the right of the Buyer to own the Assets.
12.6. NO MATERIAL ADVERSE CHANGE. Between the date of this Agreement
and the Closing Date there shall not have been a material adverse change in the
condition or operating cash flows of the Stores or in the condition of any
material Assets.
12.7. CONSENTS TO LEASE ASSIGNMENTS. Seller shall have delivered to
Buyer the written consents of the lessor or sublessor, as the case may be, to
the assignment to Buyer of each of the Leases, and estoppel certificates from
each such lessors or sublessors, other than from the lessor of the two Arizona
State University cart locations, who will be sent notice generally describing
the transactions contemplated by the Agreement in a form agreed upon by the
parties, in all cases in form and substance reasonably acceptable to Buyer.
<PAGE>
12.8. OTHER THIRD-PARTY CONSENTS. Seller shall have obtained the
consent of any other third parties identified on Schedule 8.18.
12.9. RESOLUTIONS. Buyer shall have received a certified copy of the
resolutions of the Boards of Directors of Seller and Shareholder authorizing the
execution, delivery and performance of this Agreement by Seller.
12.10. LEGAL OPINION. Buyer shall have received an opinion of counsel
to Seller and Shareholder in form and substance reasonably satisfactory to Buyer
and its counsel, to the effect that:
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Arizona, and Shareholder is a
corporation duly organized validly existing and in good standing under the laws
of the State of Delaware;
(b) The execution, delivery and performance of this Agreement by
Seller and Shareholder have been duly and effectively authorized by all
necessary corporate action; and
(c) This Agreement has been duly authorized, executed and
delivered by Seller and Shareholder and is the valid, legally binding and
enforceable obligation of each of Seller and Shareholder, assuming Arizona law
is the same as Oregon law for such purposes, subject only to the effect of
bankruptcy, insolvency or other laws affecting creditors' rights generally,
provided that no opinion shall be provided as to the enforceability of any
non-competition provisions this Agreement. 12.11. MODIFICATIONS TO CERTAIN
LEASES. Seller shall have obtained modifications to the terms of certain of the
Leases, in form and substance reasonably satisfactory to Buyer, as described in
Schedule 12.11.
12.12. SUPPLY AGREEMENT. Seller shall have executed and delivered a
Supply Agreement in the form of Exhibit C (the "Supply Agreement").
13. CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of the Seller and
of the Shareholder under this Agreement are subject to the satisfaction at or
prior to the Closing of each of the following conditions:
13.1. REPRESENTATIONS TRUE. The representations and warranties of
Buyer shall be true and correct in all material respects as of the Closing Date.
<PAGE>
13.2. COMPLIANCE WITH COVENANTS. Buyer shall have complied with all
covenants and conditions contained in this Agreement to be performed or complied
with by it at or prior to Closing.
13.3. OFFICER'S CERTIFICATE. Buyer shall have furnished to Seller a
certificate, dated the Closing Date, signed by Buyer's President to the effect
that (i) each of the conditions specified in this Section 13 have been complied
with, (ii) each of the representations and warranties of Buyer contained in this
Agreement are true and correct in all material respects as of the Closing Date,
and (iii) all covenants to be performed by Buyer prior to or at Closing have
been fully performed.
13.4. RESOLUTIONS. Seller shall have received a copy of the
resolutions of Buyer's Board of Directors, certified by Buyer's Secretary,
authorizing the execution, delivery and performance of this Agreement by Buyer.
13.5. LEGAL OPINION. Seller shall have received an opinion of counsel
to Buyer in form and substance reasonably satisfactory to Seller and its
counsel, to the effect that:
(a) Buyer is a corporation duly organized and validly existing
under the laws of the State of Oregon;
(b) The execution, delivery and performance of this Agreement by
Buyer have been duly and effectively authorized by all necessary corporate
action; and
(c) This Agreement has been duly authorized, executed and
delivered by Buyer and is the valid, legally binding and enforceable obligation
of Buyer, subject only to the effect of bankruptcy, insolvency or other laws
affecting creditors' rights generally, provided that no opinion shall be
provided as to enforceability of any non-competition provision in this
Agreement.
13.6. LICENSE AGREEMENT. Buyer shall have executed and delivered to
Seller the License Agreement.
13.7. SUPPLY AGREEMENT. Buyer shall have executed and delivered the
Supply Agreement.
14. CLOSING.
14.1. DATE AND PLACE. The transactions contemplated in this Agreement
shall close (the "Closing") on the first Wednesday after the conditions in
Sections 12.7 and 12.11 have been satisfied, but not earlier than May 7, 1997,
at the offices of Tonkon, Torp, Galen, Marmaduke & Booth, 1600 Pioneer Tower,
888 SW Fifth Avenue, Portland, Oregon, or at such other time and place as the
parties may mutually agree (the "Closing Date"), and shall be effective for all
purposes as of 11:59 p.m. the day prior to the Closing Date.
<PAGE>
14.2. DELIVERIES AT CLOSING BY SELLER. At the Closing, Seller will
deliver or cause to be delivered to Buyer the following in form and substance
reasonably satisfactory to Buyer and its counsel:
(a) One or more bills of sale and assignments covering all of the
Assets, conveying the same to Buyer free and clear of all liens and
encumbrances;
(b) Assignment documents conveying to Buyer free and clear of all
liens and encumbrances (i) Seller's leasehold interest in the property leased
under the Leases; and (ii) Seller's right, title and interest in and to the
Intellectual Property (as defined in Section 8.11);
(c) The certificate called for by Section 12.4;
(d) The certified copy of resolutions called for by Section 12.9;
(e) The legal opinion called for by Section 12.10;
(f) Resolutions and any amendment to Articles of Incorporation
and all other documents necessary to effect a change in the name of Coffee
Plantation, Inc. to a name not confusingly similar to "Coffee Plantation";
(g) All other consents, documents and instruments called for by
Section 12;
(h) The Supply Agreement; and
(i) Such other documents, instruments or certificates as may be
necessary to perfect or consummate the transfer contemplated hereby.
14.3. DELIVERIES AT CLOSING BY BUYER. At the Closing, Buyer will
deliver to Seller the following in form and substance reasonably satisfactory to
Seller and Shareholder and their counsel:
(a) The portion of the Purchase Price payable at Closing;
<PAGE>
(b) The certificate called for by Section 13.3;
(c) The certified copy of resolutions called for by Section 13.4;
(d) The legal opinion called for by Section 13.5;
(e) Assumption documents in form and substance reasonably
satisfactory to Seller as shall be necessary or convenient to cause Buyer to
assume Seller's obligations under the Leases;
(f) Any other consents, documents and instruments called for by
Section 13;
(g) The Supply Agreement and the License Agreement; and
(h) Such other documents, instruments or certificates as may be
necessary to perfect or consummate the transfer contemplated hereby.
15. INDEMNIFICATION.
15.1. GUARANTY. Shareholder unconditionally guarantees each
representation and warranty of Seller and the performance of each covenant and
obligation of Seller set forth in this Agreement, including without limitation
the indemnification obligation set forth in this Section 15, subject to the
limitations set forth in Section 15.3 and 20.1.
15.2. INDEMNIFICATION OF BUYER. Seller and Shareholder shall jointly
and severally indemnify and hold harmless Buyer from and against any loss,
liability, cost, expense or damage suffered or incurred by Buyer because (i) of
a breach of any covenant or obligation of Seller or Shareholder under this
Agreement, (ii) any representation or warranty by Seller or Shareholder
contained herein proves to be false or misleading, or (iii) any liability or
obligation of Seller or Shareholder, whether arising out of ownership of the
Assets or operation of the Stores or otherwise prior to the Closing Date (other
than the Commitments), is asserted as a claim against Buyer or the Assets
(including without limitation any asserted claim based on successor liability or
similar theories), including in such indemnified costs and expenses all attorney
fees incurred by Buyer in connection with any claim, action, suit, proceeding,
demand, assessment or judgment, whether incurred without trial, at trial or on
appeal, incident to any of the above indemnified matters. All amounts for which
Buyer shall be entitled to indemnification hereunder shall be referred to as
"Losses".
<PAGE>
15.3. DOLLAR LIMITATION. The indemnification provided in Section 15.2
shall apply only to the extent that Losses exceed the "Dollar Limitation," which
for purposes of this Agreement shall mean (i) $1,000 for any individual claim;
and (ii) $10,000 in the aggregate. In any event, the aggregate amount of Losses
to be indemnified by Seller and Shareholder together shall not exceed the
Purchase Price. Notwithstanding the foregoing, however, there shall be no Dollar
Limitation on any claims with respect to obligations to employees arising before
Closing, the breach of the covenant set forth in Section 10.9, or any breach of
the representations and warranties set forth in Section 8.14.
15.4. INDEMNIFICATION OF SELLER AND SHAREHOLDER. Buyer will indemnify
and hold Seller and Shareholder harmless from and against any loss, liability,
cost, expense or damage suffered or incurred by Seller or Shareholder because
(i) of a breach of any covenant or obligation of Buyer under this Agreement,
(ii) any representation or warranty by Buyer contained herein proves to be false
or misleading, or (iii) any liability or claim whether arising out of ownership
of the Assets or the operation of the Stores or otherwise after the Closing Date
is asserted as a claim against Seller or Shareholder, including in such
indemnified costs and expenses all attorney fees incurred by Seller or
Shareholder in connection with any claim, action, suit, proceeding, demand,
assessment or judgment, whether incurred without trial, at trial or on appeal,
incident to any of the above indemnified matters.
16. TERMINATION PROVISIONS.
16.1. TERMINATION. This Agreement may be terminated on or before the
Closing Date as follows:
(a) DEADLINE. By either party if the Closing has not occurred on
or before June 20, 1997; provided, that if the conditions set forth in Sections
12.7 and 12.11 are not satisfied on or before June 20, 1997, and Buyer has not
waived such conditions as necessary to close on or before June 20, 1997, Seller
shall have the option to extend the Closing Date under this Section 16.1(a) up
to and including December 20, 1997.
(b) CONSENT. By unanimous consent of the parties;
(c) MISREPRESENTATION BY SELLER. By Buyer if in its reasonable
opinion there has been a material misrepresentation by Seller and Shareholder
under this Agreement or any material failure to perform any covenant under this
Agreement not cured within 10 days after receipt of written notice thereof, or
if any condition under Section 12 has not been satisfied on or before the
Closing Date; or
<PAGE>
(d) MISREPRESENTATION BY BUYER. By Seller if in its reasonable
opinion there has been a material misrepresentation by Buyer under this
Agreement or any material failure to perform any covenant under this Agreement
not cured within 10 days after receipt of written notice thereof, or if any
condition under Section 13 has not been satisfied on or before the Closing Date.
16.2. EFFECT OF TERMINATION. In the event that this Agreement is
terminated pursuant to Section 16.1, all further obligations of the parties
under this Agreement will terminate. In the event of termination of this
Agreement by Buyer under clause (c) of Section 16.1, Seller shall be liable for
all damages, including costs and attorneys fees, incurred by Buyer as a result
of Seller's misrepresentation or breach. In the event of termination of this
Agreement by Seller under clause (d) of Section 16.1, Buyer shall be liable for
all damages, including costs and attorneys fees, incurred by Seller as a result
of Buyer's misrepresentation or breach. In the event of termination by any party
as above provided, prompt written notice will be given to all other parties.
17. RISK OF LOSS. Seller will bear all risk of loss with respect to the
Assets on and prior to the Closing Date. Buyer will bear the risk of loss after
the Closing Date.
18. POST-CLOSING COOPERATION. Each of the parties covenants and agrees that
it shall execute, acknowledge and deliver all further deeds, assignments,
consents, transfers and other instruments as may be reasonably required to
protect and permit the enjoyment of the rights, benefits and interests conveyed
and to be conveyed pursuant to the terms of this Agreement, and to appropriately
carry out and perform the transactions contemplated thereby. The parties shall
cooperate with each other following the Closing in order to effectuate and carry
out this Agreement. Seller shall cease all use of the name "Coffee Plantation"
as soon as is practicable, and in any event no later than the termination of the
License Agreement. The Buyer shall satisfy all of the Seller's obligations under
the Commitments.
19. ANNOUNCEMENTS. Prior to the Closing, neither Buyer nor Seller (or any
of Seller's affiliates) will make any public announcements of this Agreement or
the transactions contemplated or consummated by this Agreement without the
written consent of the other. Notwithstanding the foregoing, however, Buyer and
Seller each acknowledge that upon execution of this Agreement, they may be
obligated under applicable securities laws and regulations to make public
disclosure of the transactions contemplated by this Agreement, and each of them
shall be permitted to make such disclosures in form approved by the other, which
approval shall not be unreasonably withheld.
<PAGE>
20. MISCELLANEOUS.
20.1. SURVIVAL OF WARRANTIES. The representations, warranties and
covenants herein shall survive the Closing for a period of 12 months after the
Closing, provided that the representations and warranties set forth in Sections
8.11, 8.14 and 8.15 shall survive until 36 months after Closing. Any claim must
be made in writing prior to the end of the applicable survival period.
20.2. NO FINDER'S FEES. Seller and Buyer represent and warrant to each
other that neither of them has incurred any obligation or liability, whether
contingent or fixed, to any person for a broker's, agent's or finder's fee or
commission in connection with this Agreement, except for fees owed by Seller to
Nesbitt Burns, which acted as consultant to Seller.
20.3. WAIVERS AND AMENDMENTS. This Agreement may be amended, modified
or supplemented only by a written instrument executed by all parties hereto. The
waiver by any party of a breach of any provision of this Agreement will not
operate or be construed as a waiver of any subsequent breach. Any condition to
the obligation to close under this Agreement may be waived in writing by the
party in whose favor the condition operates, whereupon the obligations of the
parties under this Agreement will be construed as if such condition or
conditions waived were not included herein.
20.4. EXPENSES AND TAXES. The parties shall pay their own expenses
incurred in connection with the negotiation and preparation of this Agreement
and supporting documents. Seller shall pay any sales, use, transfer, recording
and similar taxes and fees incurred in connection with the purchased Assets as a
result of the consummation of the transactions contemplated by this Agreement.
20.5. NOTICES. All notices, requests, demands and other communications
which are required or permitted under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
certified mail, postage prepaid, or transmitted by facsimile, with hard copy to
follow by first class mail, postage prepaid, addressed as follows:
If to Buyer: Coffee People, Inc.
15100 SW Koll Parkway
Suite J
Beaverton, Oregon 97006
Attention: Taylor H. Devine
Fax: 503-672-9013
<PAGE>
With Copy to: Tonkon, Torp, Galen,
Marmaduke & Booth
1600 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204
Attention: Ronald L. Greenman
Fax: 503-274-8779
If to Seller or Shareholder: c/o The Second Cup, Inc.
175 Bloor Street East
South Tower, Suite 801
Toronto, Ontario M4W 3R8
Attention: Kathy Welsh
Fax; 416-975-9896
With Copy to: Goodman Phillips & Vineberg
Suite 2400, 250 Yonge Street
Toronto, Ontario M5B 2M6
Attention: David Matlow
Fax: 416-979-1234
or to such other address as any party shall have specified by notice in writing
to the other. Any such notice shall be deemed delivered (i) if sent by certified
mail, not later than three business days after deposit in the United States
mail; (ii) if delivered personally, on the date of delivery; or (iii) if by
facsimile, on the first business day after transmission.
20.6. ENTIRE AGREEMENT. This Agreement and the exhibits and schedules
hereto constitute the entire agreement among the parties and merges with and
supersedes any prior understanding or agreement, whether written or oral,
concerning the Assets.
20.7. BULK SALES. The Seller and the Buyer hereby waive the provisions
of the Arizona bulk sales transfer statutes, under Arizona Revised Statues,
Sections 47 - 6101 et seq. or any successor Bulk Sales Law (the "Bulk Sales
Law") to the extent, if any, such provisions are applicable to the transactions
contemplated by this Agreement. The Seller and the Shareholder shall defend,
indemnify and hold the Buyer harmless from and against any and all claims
arising out of the non-compliance of the Bulk Sales Law. Such indemnification
shall include all costs, including attorney fees, incurred in respect of any
such claim, and the indemnification provided under this Section shall not be
subject to the Dollar Limitation set forth in Section 15.2.
20.8. BINDING EFFECT, BENEFITS. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
legatees, successors or assigns, provided, that no party shall be permitted to
assign their respective obligations under this Agreement. Nothing in this
Agreement is intended to confer on any third person any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
<PAGE>
20.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which
together will be deemed to be one and the same instrument. This Agreement may
also be executed by facsimile.
20.10. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Oregon, without giving
effect to conflicts of laws principles.
20.11. JURISDICTION; VENUE. Seller, Shareholder and Buyer hereby
consent to jurisdiction and venue in any state court or federal court located in
Multnomah County, Oregon in the event suit is brought for the interpretation or
enforcement of any provision of this Agreement or the related agreements in the
from attached as exhibits to this Agreement. Jurisdiction and venue in Multnomah
County, Oregon shall be exclusive with respect to any disputes arising out of
the transactions contemplated by this Agreement, except for actions for the
enforcement of judgments.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
COFFEE PEOPLE, INC.
By: /s/ Kenneth B. Ross
-------------------------------
Its: Chief Financial Officer
------------------------------
THE COFFEE PLANTATION, INC.
By: /s/ K. A. Welsh
-------------------------------
Its: Secretary
------------------------------
THE SECOND CUP INC.
By: /s/ K. A. Welsh
-------------------------------
Its: Secretary
------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of April 21, 1997, is between
Bank of America NT & SA (the "Bank") and Coffee People, Inc. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan Agreement
dated as of September 4, 1996 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
---------
1. Definitions. Capitalized terms used but not defined in this Amendment shall
have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 A new Article 2A is hereby added to the Agreement as follows:
2A. FACILITY NO. 3: TERM LOAN AMOUNT AND TERMS
2A.1 Loan Amount. The Bank agrees to provide a term loan to the
Borrower in the amount of Six Million Dollars ($6,000,000) (the
"Facility 3 Commitment").
2A.2 Availability Period. The loan is available in one disbursement
from the Bank between the date of this Agreement and June 1, 1997
unless the Borrower is in default.
2A.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described
below the interest rate is the Reference Rate plus 0.50
percentage point.
(b) The Reference Rate is the rate of interest publicly announced
from time to time by Bank of America National Trust and Savings
Association ("BofA California") in San Francisco, California, as
its Reference Rate. The Reference Rate is set based on various
factors, including BofA California's costs and desired return,
general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans
to its customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the opening of
business on the days specified in the public announcement of a
change in the Reference Rate.
<PAGE>
2A.4 Repayment Terms.
(a) The Borrower will pay interest on June 1, 1997, and then monthly
thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrower will repay the principal amount outstanding on the
Expiration Date in 60 successive equal monthly installments
starting June 1, 1997. On May 1, 2002, the Borrower will repay
the remaining principal balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time.
The prepayment will be applied to the most remote installment of
principal due under this Agreement.
2A.5 Optional Interest Rates. Instead of the interest rate based on
the Reference Rate, the Borrower may elect to have all or
portions of the loan bear interest at the rate(s) described below
during an interest period agreed to by the Bank and Borrower.
Each interest rate is a rate per year. Interest will be paid on
the last day of each interest period, and on the first day each
month during the interest period. At the end of any interest
period, the interest will revert to the rate based on the
Reference Rate, unless the Borrower has designated another
optional interest rate for the portion.
2A.6 Long Term Rate. The Borrower may elect to have all or portions of
the principal balance of the loan bear interest at the Long Term
Rate, subject to the following requirements:
(a) The interest period during which the Long Term Rate will be in
effect will be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and
the Borrower agree will apply to the portion during the
applicable interest period.
(c) Each Long Term Rate portion will be for an amount not less than
One Hundred Thousand Dollars ($100,000).
<PAGE>
(d) Any portion of the principal balance of the loan already bearing
interest at the Long Term Rate will not be converted to a
different rate during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in
part in the minimum amount of Five Hundred Thousand Dollars
($500,000). The Borrower will give the Bank irrevocable written
notice of the Borrower's intention to make the prepayment,
specifying the date and amount of the prepayment. The notice must
be received by the Bank at least 5 banking days in advance of the
prepayment. All prepayments of principal on the Long Term Rate
portion will be applied on the most remote principal installment
or installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by
payment of all accrued interest on the amount of the prepayment
and the prepayment fee described below.
(g) The prepayment fee will be the sum of fees calculated separately
for each Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which
would have accrued each month for the Prepaid Installment
had it remained outstanding until the applicable Original
Payment Date, using the Long Term Rate;
(ii) The Bank will then subtract from each monthly interest
amount determined in (i), above, the amount of interest
which would accrue for that Prepaid Installment if it were
reinvested from the date of prepayment through the Original
Payment Date, using the following rate:
(A) If the Original Payment Date is more than 5 years after
the date of prepayment: the Treasury Rate plus
one-quarter of one percentage point;
(B) If the Original Payment Date is 5 years or less after
the date of prepayment: the Money Market Rate.
(iii)If (i) minus (ii) for the Prepaid Installment is greater
than zero, the Bank will discount the monthly differences to
the date of prepayment by the rate used in (ii) above. The
sum of the discounted monthly differences is the prepayment
fee for that Prepaid Installment.
<PAGE>
(h) The following definitions will apply to the calculation of the
prepayment fee:
"Money Market" means the domestic certificate of deposit market,
the eurodollar deposit market or other appropriate money market
selected by the Bank.
"Money Market Rate" means the fixed interest rate per annum which
the Bank determines could be obtained by reinvesting specified
Prepaid Installment in the Money Market from the date of
prepayment through the Original Payment Date.
"Original Payment Dates" mean the dates on which principal of the
Long Term Rate portion would have been paid if there had been no
prepayment. If a portion of the principal would have been paid
later than the end of the interest period in effect at the time
of prepayment, then the Original Payment Date for that portion
will be the last day of the interest period.
"Prepaid Installment" means the amount of the prepaid principal
of the Long Term Rate portion which would have been paid on a
single Original Payment Date.
"Treasury Rate" means the interest rate yield for U.S. Government
Treasury Securities which the Bank determines could be obtained
by reinvesting a specified Prepaid Installment in such securities
from the date of prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to
reflect the compounding, accrual basis, or other costs of the
Long Term Rate portion. Each of the rates is the Bank's estimate
only and the Bank is under no obligation to actually reinvest any
prepayment. The rates will be based on information from either
the Telerate or Reuters information services, The Wall Street
Journal, or other information sources the Bank deems appropriate.
2A.7 Offshore Rate. The Borrower may elect to have all or portions of
the principal balance of the loan bear interest at the Offshore
Rate, subject to the following requirements:
<PAGE>
(a) The "Offshore Rate" means the interest rate the Bank and the
Borrower agree will apply to the portion during the applicable
interest period.
(b) The interest period during which the Offshore Rate will be in
effect will be no shorter than 30 days and no longer than one
year. The last day of the interest period will be determined by
the Bank using the practices of the offshore dollar inter-bank
market.
(c) Each Offshore Rate portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
(d) The Borrower may not elect an Offshore Rate with respect to any
portion of the principal balance of the loan which is scheduled
to be repaid before the last day of the applicable interest
period.
(e) Any portion of the principal balance of the loan already bearing
interest at the Offshore Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of
the interest period, exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the offshore
dollar market for a period starting on the date on which it
was prepaid and ending on the last day of the interest
period for such portion.
(g) The Bank will have no obligation to accept an election for an
Offshore Rate portion if any of the following described events
has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of an Offshore Rate portion
are not available in the offshore Dollar inter-bank market;
or
<PAGE>
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
2.2 Subparagraph 8.1(c) is added to the Agreement as follows:
(c) Facility No. 3 To use the proceeds of the credit only for the
acquisition of The Coffee Plantation chain in Arizona.
2.3 A new Article 8.3A is hereby added to the Agreement as follows:
8.3A Total Liabilities to Tangible Net Worth. To maintain a ratio of
total liabilities to tangible net worth not exceeding 1.50:1.0.
"Total liabilities" means the sum of current liabilities plus
long term liabilities.
"Tangible net worth" means the gross book value of the Borrower's
assets (excluding goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt discount
and expense, deferred research and development costs, deferred
marketing expenses, and other like intangibles) less total
liabilities, including but not limited to accrued and deferred
income taxes, and any reserves against assets.
2.4 In Paragraph 8.3 of the Agreement the ratio "1.25:1.0" is substituted
for the ratio "2.0:1.0."
2.5 Paragraph 8.4 of the Agreement is amended in its entirety as follows:
8.4 Cash Flow Ratio. To maintain for each quarterly accounting
period, a cash flow ratio of at least 2.0:1.0.
"Cash flow ratio" means the ratio of cash flow to the current
portion of long term debt. "Cash flow" is defined as net income,
plus depreciation and amortization, less non-financed capital
expenditures, plus the cash and cash equivalents balance as of
the last day of the most recent quarterly accounting period.
This ratio will be calculated at the end of each fiscal quarter,
using the result of that quarter and each of the 3 immediately
preceding quarters. The current portion of long term debt will be
measured as of the day of the most recent quarterly accounting
period.
<PAGE>
2.6 Subparagraph 8.9(f) is added to the Agreement as follows:
(f) each instance of the Borrower opening more than two stores in a
State of the United States other than Oregon.
3. Conditions. This Amendment will be effective when the Bank receives the
following items, in form and content acceptable to the Bank:
3.1 The Borrower agrees to pay a Fifteen Thousand Dollar ($15,000) fee, or
0.25% of the Commitment amount, due upon execution of this Amendment.
3.2 The Borrower agrees to provide to the Bank a copy of the definitive
agreements related to the purchase of the Coffee Plantation Chain in Arizona,
and a comparative schedule showing the historical same store sales results for
each Coffee Plantation store being purchased by the Borrower.
4. Effect of Amendment. Except as provided in this Amendment, all of the terms
and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date started at the beginning of this
Amendment.
Bank of America NT & SA Coffee People, Inc.
By: /s/ Sharon Capizzo By: /s/ Kenneth B. Ross
-------------------------- -----------------------------
Sharon Capizzo Kenneth B. Ross
Vice President Chief Financial Officer
