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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 1O-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-21203
DIEDRICH COFFEE, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0086628
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2144 Michelson Drive
Irvine, California 92612
(Address of Principal Executive Offices including Zip Code)
(714) 260-1600
(Registrant's Telephone Number including Area Code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. _________________ Yes |X| No |_|
As of December 11, 1997, there were 5,391,650 shares of common stock of
the registrant outstanding.
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DIEDRICH COFFEE, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
<C> <S> <C>
Item 1. Financial Statements
Condensed Balance Sheets..............................................................3
Condensed Statements of Operations....................................................4
Condensed Statements of Cash Flows....................................................5
Notes to Condensed Financial Statements...............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................9
PART II - OTHER INFORMATION
Item 5. Other Information....................................................................15
Item 6. Exhibits and Reports on Form 8-K.....................................................17
Signatures...........................................................................17
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS (Note 3) OCTOBER 29, 1997 JANUARY 29, 1997
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash $ 1,550,276 $ 2,071,904
Accounts receivable 265,885 210,363
Inventories (Note 2) 1,480,457 1,615,145
Prepaid expenses 520,958 185,063
Other current assets 43,328 285,072
------------ ------------
Total current assets 3,860,904 4,367,547
Property and equipment, net 10,245,739 11,962,752
Costs in excess of net assets acquired, net 394,713 796,178
Other assets 339,818 344,942
------------ ------------
Total assets $ 14,841,174 $ 17,471,419
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,412,472 $ 1,800,292
Accrued compensation 414,408 417,028
Accrued expenses 415,985 201,487
Current portion of obligation under capital lease 42,897 --
Restructuring liabilities 1,213,049 --
------------ ------------
Total current liabilities 3,498,811 2,418,807
Obligation under capital lease - long term 103,922 --
Long term debt 3,000,000 --
Deferred rent 160,238 154,384
------------ ------------
Total liabilities 6,762,971 2,573,191
------------ ------------
Stockholders' Equity:
Preferred stock --
Common stock 53,917 53,917
Additional paid-in capital 15,882,046 15,882,046
Accumulated deficit (7,857,760) (1,037,735)
------------ ------------
Total stockholders' equity 8,078,203 14,898,228
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 14,841,174 $ 17,471,419
============ ============
</TABLE>
See accompanying Notes to condensed financial statements.
3
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DIEDRICH COFFEE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales:
Retail $ 4,989,024 $ 4,716,301 $ 15,632,429 $ 12,887,504
Wholesale and other 573,848 388,386 1,608,685 1,159,274
------------ ------------ ------------ ------------
Total 5,562,872 5,104,687 17,241,114 14,046,778
------------ ------------ ------------ ------------
Cost and Expenses:
Cost of sales and related occupancy costs 2,716,323 2,096,321 8,619,031 6,005,203
Store operating expenses 2,029,491 2,226,610 6,536,446 5,834,033
Other operating expenses 92,896 53,244 232,985 175,829
Depreciation and amortization 426,778 238,798 1,313,294 603,349
Provision for store closings and restructuring costs -- -- 4,550,068 --
General and administrative expenses 951,683 407,532 2,695,562 1,054,992
------------ ------------ ------------ ------------
Total 6,217,171 5,022,505 23,947,386 13,673,406
------------ ------------ ------------ ------------
Operating income (loss) (654,299) 82,182 (6,706,272) 373,372
Interest expense (79,954) (78,119) (101,605) (186,851)
Interest and other income (expense) (4,501) 73,182 (9,258) 75,188
------------ ------------ ------------ ------------
Income (loss) before income taxes (738,754) 77,245 (6,817,135) 261,709
Provision for income taxes -- 31,670 2,890 103,319
------------ ------------ ------------ ------------
Net income (loss) $ (738,754) $ 45,575 $ (6,820,025) $ 158,390
============ ============ ============ ============
Per share information: $ (0.14) $ 0.01 $ (1.27) $ 0.04
============ ============ ============ ============
Net income (loss) per share
Weighted average shares outstanding 5,391,650 4,764,491 5,391,650 4,190,131
============ ============ ============ ============
</TABLE>
See accompanying Notes to condensed financial statements.
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DIEDRICH COFFEE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
OCTOBER 29, OCTOBER 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(6,820,025) $ 112,815
Adjustments to reconcile net income (loss) to cash (used in)
provided by operating activities:
Depreciation and amortization 1,313,294 364,551
Restructuring charge 1,682,325 --
Impairment on long-lived assets 2,220,955 --
Increase (decrease) from changes in:
Accounts receivable (55,522) (16,580)
Inventories 45,466 (307,143)
Prepaid expenses (335,895) (64,634)
Other current assets 241,744 (118,387)
Other assets 5,124 (316,668)
Accounts payable (387,820) 1,059,666
Accrued compensation (115,363) 100,990
Accrued expenses 214,498 99,422
Income taxes payable -- (24,916)
Deferred rent 5,854 6,546
----------- -----------
Net cash provided by (used in) operating activities (1,985,365) 895,662
----------- -----------
Cash flows from investing activities:
Capital expenditures for property and equipment (1,536,263) (3,609,893)
Acquisition of coffeehouses -- (1,800,000)
=========== ===========
Net cash provided by (used in) investing activities $(1,536,263) $(5,409,893)
=========== ===========
Cash flows from financing activities:
Checks issued against future deposits -- 204,145
Proceeds from notes payable -- 10,000
Payments on notes payable -- --
Proceeds from line of credit -- 3,386,530
Payments on line of credit -- --
Proceeds from long-term debt 3,000,000 1,422,520
Principal payments on long-term debt -- (546,565)
Proceeds from issuance of common stock, net of fees paid -- --
Proceeds from sale of preferred stock -- --
Repurchase of common stock -- --
----------- -----------
Net cash provided by financing activities 3,000,000 4,476,630
----------- -----------
Net increase (decrease) in cash (521,628) (37,601)
----------- -----------
Cash at beginning of period 2,071,904 94,659
----------- -----------
Cash at end of period $ 1,550,276 $ 57,058
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 64,729 $ 86,021
Income taxes $ 2,890 $ 62,500
Non-cash transactions
Equipment purchased under capital lease $ 146,819 $ --
</TABLE>
See accompanying Notes to condensed financial statements.
5
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DIEDRICH COFFEE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
OCTOBER 29, 1997
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed financial statements of Diedrich
Coffee, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting
of normal, recurring adjustments and accruals) considered necessary for
a fair presentation of the Company's financial position at October 29,
1997 and the results of operations and cash flows for the thirty-nine
weeks ended October 29, 1997 and October 30, 1996 have been included.
Results for the interim periods are not necessarily indicative of the
results for an entire year. This information should be read in
conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
January 29, 1997.
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 130, Reporting Comprehensive Income, which establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 is effective for financial
statements issued for periods beginning after December 15, 1997. The
Company has not determined the impact of SFAS No. 130 on its
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments
in interim financial reports issued to shareholders. SFAS No. 131 is
effective for financial statements issued for periods beginning after
December 15, 1997. The Company has not determined the impact of SFAS
No. 131 on its consolidated financial statements.
Net Income (Loss) per Common Share
The calculation of net income (loss) per share was determined
by dividing the net income (loss) by the weighted average common and
common equivalent shares outstanding when dilutive. In accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83,
shares issued and share options granted within one year of the
Company's initial public offering ("IPO") have been included in the
calculation of common share equivalents, using the treasury stock
method to determine the dilutive effect of the issuances, as if they
were outstanding for all periods presented even if they were
antidilutive. The calculation of common share equivalents assumes that
the proceeds of common shares and share options issued within one year
of the IPO were used to repurchase common shares at the IPO price of
$9.50 per share. Primary earnings (loss) per share approximate fully
diluted earnings (loss) per share for all periods presented.
6
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DIEDRICH COFFEE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (Continued)
OCTOBER 29, 1997
(Unaudited)
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share." SFAS No. 128 specifies new standards designed to improve the
earnings per share ("EPS") information provided in financial statements
by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data on
an international basis. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. The Company does not believe the implementation of
SFAS No. 128 will have a material effect on net income (loss) per
share.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 29, January 29,
1997 1997
---------- ----------
<S> <C> <C>
Green coffee $ 562,715 $ 357,255
Roasted coffee 75,487 90,536
Accessory and specialty items 270,248 454,946
Other food, beverage and supplies 572,007 712,408
---------- ----------
$1,480,457 $1,615,145
========== ==========
</TABLE>
3. Debt
On May 27, 1997, the Company made a promissory note (the
"Note") for the benefit of the Palm Trust of which Paul Heeschen, a
director, is a trustee. Mr. Heeschen has no beneficial interest in the
Palm Trust. The Note provides for borrowings by the Company up to
$1,500,000 with interest accruing at the prime rate plus 3 1/2%. All
outstanding principal and accrued interest was due and payable on
January 27, 1998 or promptly after the closing of any new debt or
equity financing in an amount exceeding $1,500,000. This indebtedness
was fully paid and discharged on October 20, 1997 with the proceeds of
borrowings from the Ocean and Grandview Trusts described below.
On August 19, 1997, the Company entered into a promissory
note, term loan agreement, and security agreement with the Virginia R.
Cirica Trust (the "Cirica Trust") (collectively the "Cirica Trust Loan
Documents"). That trust is controlled by Ms. Cirica, who is the spouse
of Lawrence Goelman, Chairman and Interim Chief Executive Officer of
the Company.
Shortly before the Cirica Trust entered into the Cirica Trust
Loan Documents, Mr. Goelman loaned Ms. Cirica approximately $250,000.
Some of those funds were transferred by Ms. Cirica to the Cirica Trust
and advanced to the Company pursuant to the Cirica Trust Loan
Documents. The loan is secured by the assets of the Company and
provides for borrowings up to $500,000 with interest accruing at the
prime rate plus 3 1/2 %. As of October 29, 1997 the Company borrowed
the entire $500,000 available. All outstanding principal and accrued
interest is due and payable on August 19, 2002.
In connection with the Cirica Trust Loan Documents, the
Company issued a warrant to the Cirica Trust to purchase up to 85,000
shares of the Company's common stock if the loan is repaid in full in
120 days of closing, or up to 170,000 shares of the Company's common
stock if the loan is not repaid within 120 days, all at a price of
$2.25 a share. The warrants are exercisable immediately and expire on
the later of August 19, 2003 or one year following payment in full of
the loan. Mr. Goelman disclaims any pecuniary interest in the loan to
the Company and any
7
<PAGE> 8
beneficial interest in the Cirica Trust, except to the extent to which
Mr. Goelman is a contingent beneficiary under the terms of the Cirica
Trust.
On September 30, 1997 the Company entered into a promissory
note, term loan agreement and security agreement with Nuvrty, Inc., a
Colorado corporation controlled by Amre Youness, a former director of
the Company (the "Nuvrty Loan Documents"). The loan is secured by the
assets of the Company and provides for borrowings up to $1,000,000 with
interest accruing and paid monthly at the prime rate plus 3 1/2%. The
Company borrowed the full amount under the loan.
In connection with the Nuvrty Loan Documents, the Company
issued a warrant to Nuvrty to purchase up to 170,000 shares of the
Company's common stock if the Loan is repaid in full within 120 days of
closing and up to 340,000 shares of the Company's common stock if the
loan is not repaid within 120 days, all at a price of $2.25 per share.
The warrants are exercisable immediately and expire on the later of
September 30, 2003 or one year following payment in full of the loan.
On October 16, 1997 the Company entered into parallel
promissory notes, term loan agreements and security agreements with the
Ocean and Grandview Trusts on terms identical to those entered into
with the Cirica Trust and Nuvrty, Inc. (the "Ocean Trust Loan
Documents" and the "Grandview Trust Loan Documents", respectively). The
Ocean Trust Loan Documents and the Grandview Trust Loan Documents
provide for borrowing up to $750,000 from each Trust. Each loan is
secured by the assets of the Company. Interest on advances is accrued
and payable monthly at the prime rate plus 3 1/2%. The Company borrowed
$750,000 under each facility. All outstanding principal and accrued
interest is due and payable to each of the Ocean and Grandview Trusts
on October 16, 2002.
In connection with the Ocean Trust Loan Documents and the
Grandview Trust Loan Documents the Company issued warrants to each
Trust respectively to purchase up to 127,500 shares each of the
Company's common stock if the loan is repaid in full within 120 days of
closing, or up to 255,000 shares respectively of the Company's common
stock if the loan is not repaid in full within 120 days of closing, all
at a price of $2.25 per share. The warrants are exercisable immediately
and expire on the later of October 16, 2003 or one year following
payment in full of the respective loans. The Company used the proceeds
from the Ocean Trust and Grandview Trusts Loans to pay off and
discharge the outstanding indebtedness to the Palm Trust.
4. Restructuring Charge
On March 12, 1997, the Company announced that it was reviewing
the performance of all of the Company's coffeehouses to determine which
units were meeting or not meeting management's long-term operational
expectations. As a result of this review, twelve stores were identified
to be closed. In connection with the planned store closures, the
Company recorded an impairment provision and a restructuring charge
totaling approximately $4,600,000 in the first quarter of fiscal 1998.
The store closures, which were undertaken to streamline operations and
improve profitability, began in late March 1997 and are expected to be
completed during fiscal 1998. The Company believes that the reserve of
$1,213,000 as of October 29, 1997 will be sufficient to cover the
actual losses arising from final resolution of the terminated leases.
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including those related to
the Company's growth and strategies, that involve risks and uncertainties. These
projections or forward looking statements fall under the safe harbors of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results and financial
position could differ materially from those anticipated in the forward-looking
statements as a result of a number of factors, such as unexpected delays in
implementing the new management and information systems, weaknesses in store
operations and management, working capital limits, failure of the wholesale
business to meet targets, the Company's ability to hire, train and retain
optimum store and area management and volatile world coffee prices. The need for
additional financing and other risks and uncertainties are described elsewhere
in this report and in detail under "Certain Factors and Trends Affecting
Diedrich Coffee and Its Business" in the Company's annual report on Form 10-K
for the fiscal year ended January 29, 1997 and in reports filed by the Company
with the Securities and Exchange Commission.
GENERAL
The Company commenced operations in 1972 as a private company and
completed its initial public offering in September 1996. The Company, a custom
roaster of specialty coffee, sells coffee and a broad range of espresso drinks
through its own coffeehouses. To complement beverage sales, the Company sells
light food items and whole bean coffee through its coffeehouses. The Company
also sells roasted coffee and a broad range of equipment through a wholesale
sales force. At the conclusion of fiscal 1997 (January 29, 1997), the Company
operated forty-seven coffeehouses or carts located in California, Colorado and
Texas. As of October 29, 1997, the Company operated a total of thirty-six
coffeehouses and one cart after closing eleven of the twelve locations
identified for closure under the previously announced restructuring plan (see
Note 4 of Notes to Condensed Financial Statements) and the opening of a new
coffeehouse in Houston, Texas in July, 1997.
In the first three-quarters of the current fiscal year the Company
experienced losses related to underperforming stores and as a consequence,
recorded a restructuring charge of approximately $4,600,000. Management is
committed to both grow the Company and return the Company to profitability, with
the primary goal of positive cash flow by the end of fiscal 1998 (January 28,
1998). In order to achieve this goal, the Company must increase sales in several
markets, add new channels of distribution and reduce expenses. Achieving these
goals depends upon, among other things, maintaining sufficient working capital,
successful implementation of new operational systems, execution of new store
management systems and improved store management and customer satisfaction.
Results were according to plan in the second quarter. While management continues
to believe that the Company can return to profitability by year-end, the Company
experienced lower than expected retail sales in the third quarter due to
unusually warm weather in the Company's core Southern California markets, delays
in establishing certain new wholesale business relationships, and green coffee
inventory expense that exceeded average historical costs.
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Business plan. At the direction of the Board of Directors, the
Company's new management team is implementing a business plan to
strengthen the Company operationally in order to position it for growth and
profitability. As previously announced, this business plan includes: (1) closing
stores which do not meet the Company's performance standards; (2) developing
carts and kiosks as well as new channels of distribution such as "co-branding",
franchising, and office coffee service; (3) accelerating growth in wholesale
sales; (4) improved cost controls through centralized purchasing and installing
upgraded software and new management information and point-of-sale systems; (5)
rolling out a more comprehensive training program and human resources systems
designed to strengthen and build the Company's operating management and staff;
and (6) concentrating on building brand awareness and brand equity.
Progress against the plan. Eleven of the twelve stores targeted for
closure were closed by October 29, 1997. Management remains confident that the
remaining store identified for closure will be closed before the end of the
fiscal year. The Company's projects operating losses to steadily diminish and
end in the fourth quarter if all targets are met. While retail revenues for the
third quarter increased 8.2% over the same quarter last year, the increase in
the third quarter did not meet management's expectations. Controllable operating
expenses at the store level are decreasing. The Company believes that further
decreases are achievable. The Company believes that controllable operating
expenses should stabilize in the first quarter of next year. Wholesale sales are
continuing to grow. Wholesale sales increased 47.8% in the third quarter. The
Company anticipates that seven pending transactions will close in the fourth
quarter and the Company expects the wholesale division to record revenues
for the year-end by that time. This expectation is based on the wholesale
division's performance to date and projects in progress.
Area Development. In September the Company informed its franchisee in
Singapore that the franchisee was in default under the agreed development
schedule under the applicable Master Development Agreement. No stores have
opened in Singapore. A new understanding may be reached as to Singapore,
Malaysia, and Indonesia only. The Company is engaged in preliminary discussions
with possible area developers for several US and foreign markets. No forecasts
can be made as to if and when such negotiations will lead to binding agreements,
or how much revenue can be anticipated from any such agreement.
Green coffee prices. In the third quarter of fiscal 1998, worldwide
coffee commodity prices moderated from the levels reached earlier in the year
but remained within the range of the highest levels experienced during the past
nine years. The Company usually pays a premium over the commodity price for the
select grade coffee beans that it purchases. As worldwide demand for coffee of
all types remains strong, the Company expects the prices that it pays to remain
comparatively high into the foreseeable future. Earlier this year, the Company
mitigated the effect of the green coffee price increases by increasing the
wholesale and retail sales prices of its roasted coffee beans, brewed coffee and
related products, but there can be no assurance that any future price increases
can be so integrated. Demand for the Company's coffee was not adversely affected
by the price increase.
GREEN COFFEE AVAILABILITY
The Company believes that it has adequate sources of supply of high
quality, green arabica coffee to meet its projected needs for the foreseeable
future. While the Company seeks to carefully anticipate its green coffee needs,
there can be no assurance that supplies and prices will not be affected by
political and social events, the weather in the coffee growing regions of the
world, unexpected demand or other market forces. Green coffee is an
international agricultural commodity product subject to considerable price
fluctuations.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to seasonal fluctuations as well as
economic trends that affect retailers in general. Historically, the Company's
net sales have not been realized proportionately in each quarter, with net sales
being the highest during the last fiscal quarter which includes the December
holiday
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season. Hot weather tends to reduce sales. Quarterly results are affected by the
timing of the opening of new stores, which may not occur as anticipated due to
events outside the Company's control. As a result of these factors, and of the
other contingencies and risk factors described elsewhere in this report, the
financial results for any individual quarter may not be indicative of the
results that may be achieved in a full fiscal year. Due to all of the foregoing
and variables, the Company's future earnings and the market price of the
Company's securities are subject to change. There can be no assurance that the
Company will return to profitability when targeted nor of future growth rate.
Roast capacity, packaging, shipping and distribution. The Company is
actively seeking cost effective ways to expand its coffee roasting capacity and
upgrade its packaging, shipping and distribution capabilities. These
improvements are needed to enable the Company to expand and diversify its
wholesale business.
RESULTS OF OPERATIONS
Thirteen Weeks Ended October 29, 1997 Compared with the Thirteen Weeks Ended
October 30, 1996
Net sales. Net sales for the thirteen weeks ended October 29, 1997
increased 9.0% to $5,563,000 from $5,105,000 for the thirteen weeks ended
October 30, 1996, despite having fewer stores in operation. During this most
recent quarter, the Company derived 89.7% of net sales from its retail
coffeehouse operations. The Company's wholesale and mail order sales accounted
for the remainder of net sales. Net retail sales for the thirteen weeks ended
October 29, 1997 increased 5.8% to $4,989,000 from $4,716,000 in the thirteen
weeks ended October 30, 1996 primarily due to higher per-store average sales. As
of October 29, 1997, the Company operated 36 coffeehouses and one cart; as of
October 30, 1996, the Company operated 40 coffeehouses and one cart. There can
be no assurance that the Company's net sales will continue to increase. The
Company's ability to continue to increase net sales depends upon many factors,
including existing and emerging competition. The percentage decrease in third
quarter of fiscal 1998 comparable store sales was 0.2%. Comparable store sales
were adversely affected in the latter half of the current quarter as a result of
rolling over the "80th Anniversary" promotion in the prior year, which increased
unit average sales by approximately 10% for the six weeks that it ran.
Wholesale and mail order sales combined increased 47.8% to $574,000 in
the thirteen weeks ended October 29, 1997 from $388,000 in the thirteen weeks
ended October 30, 1996. The increase was due to a more active sales effort,
under the leadership of the new director of wholesale sales and continued
favorable customer response from new and existing wholesale accounts. Although
the Company anticipates continued improvement in wholesale sales there can be
no assurance that this will happen.
Net sales for the thirty-nine weeks ended October 29, 1997 increased
22.7% to $17,241,000 from $14,047,000 for the thirty-nine weeks ended October
30, 1996. Net retail sales for the thirty-nine weeks ended October 29, 1997
increased 21.3% to $15,632,000 from $12,888,000 for the thirty-nine weeks ended
October 30, 1996 due to an increase in the number of average coffeehouses open
and in coffeehouse sales. Wholesale and mail order sales for the thirty-nine
weeks ended October 29, 1997 increased 38.8% to $1,609,000 from $1,159,000 for
the thirty-nine weeks ended October 30, 1996.
Cost of sales and related occupancy costs. Cost of roasted coffee,
dairy, food, paper and bar supplies, accessories and clothing (cost of sales)
and rent (related occupancy costs) for the thirteen weeks ended October 29, 1997
increased to $2,716,000 from $2,096,000 for the thirteen weeks ended October 30,
1996. As a percentage of retail net sales, cost of sales and related occupancy
costs increased to 54.4% in the third quarter of fiscal 1998 from 44.4% for the
third quarter of fiscal 1997. These figures include non-recurring expenses of
closing stores, such as continuing lease payments.
Cost of sales and related occupancy costs for the thirty-nine weeks
ended October 29, 1997 increased to $8,619,000 from $6,005,000 for the
thirty-nine weeks ended October 30, 1996. As a percentage of retail net sales,
cost of sales and related occupancy costs increased to 55.1% for the first
three-quarters in fiscal 1998 from 46.6% for the first three fiscal quarters in
fiscal 1997. This increase
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<PAGE> 12
stems from the result of higher green coffee costs that were not entirely offset
by the menu price increase implemented in the second quarter of fiscal 1998.
Additionally, the increase was also attributable to some increases in related
occupancy costs. The Company is actively working to control and reduce green
coffee costs, cost of sales and occupancy costs through several means. The
Company's Director of Purchasing, hired in the second quarter, is focused on
reducing the cost of goods purchased. The Company is evaluating and testing
"co-branding" relationships at some locations and implementing new management
and staff training and procedures. The Company believes that it will see the
benefits of cost savings in the fourth quarter and the next fiscal year
beginning January 29, 1998.
Store operating expenses. Store operating expenses decreased to
$2,029,000 for the thirteen weeks ended October 29, 1997 from $2,227,000 for the
thirteen weeks ended October 30, 1996. As a percentage of retail net sales,
store operating expenses decreased to 40.7% in the third quarter of fiscal 1998
from 47.2% in the prior fiscal year's third quarter. For the thirty-nine weeks
ended July 31, 1997, store operating expenses, as a percentage of retail net
sales, similarly decreased to 41.8% from 45.3% for the thirty-nine weeks ended
October 30, 1996. These decreases were primarily due to improved labor
scheduling methods. The Company plans to achieve further reductions in store
operating expenses.
Other operating expenses. Other operating expenses (those associated
with wholesale and mail order sales) increased to $93,000 for the third quarter
of fiscal 1998 from $53,000 in the third quarter of fiscal 1997. These expenses,
as a percentage of the net sales from the wholesale division, increased to 16.2%
from 13.7%. This increase reflects the cost of additional management and sales
staff recruited to further develop the sales of the wholesale division. As a
percentage of net sales these costs should go down as wholesale sales increase.
For the thirty-nine weeks ended October 29, 1997, other operating expenses, as a
percentage of wholesale net sales, decreased to 14.5% from 15.2% for the
thirty-nine weeks ended October 30, 1996. This decrease is a result of an
increase in sales volume on a year-to-date basis.
Depreciation and Amortization. Depreciation and amortization increased
to $427,000 for the thirteen weeks ended October 29, 1997 from $239,000 for the
thirteen weeks ended October 30, 1996. As a percentage of net sales,
depreciation and amortization increased to 7.7% from 4.7% for the same period in
the prior year, principally due to depreciable assets related to the addition of
new stores and the conversion costs for the acquired locations. Depreciation and
amortization increased to $1,313,000 for the thirty-nine weeks ended October 29,
1997 from $603,000 for the thirty-nine weeks ended October 30, 1996.
General and administrative expenses. General and administrative
expenses increased to $952,000 for the third quarter of fiscal 1998 from
$408,000 for the third quarter of fiscal 1997. As a percentage of net sales,
general and administrative expenses increased to 17.1% from 8.0% due to the
adding of selected resources and personnel in order to implement the revenue
building and cost saving elements of the Company's business plan. Similarly, as
a percentage of net sales, general and administrative expenses increased to
15.6% in the thirty-nine weeks ended October 29, 1997 from 7.5% for the
thirty-nine weeks ended October 30, 1996. The Company believes that it will see
a reduction in general and administrative expenses relative to sales over the
next several quarters as revenue flows increase and cost controls and other
savings are realized, assuming continued successful execution of the new
business plan.
Provision for store closings and restructuring costs. In response to
lower than expected profitability in certain of its operations, the Company
commenced a restructuring program which includes store closures, lease
terminations and the write off of fixed assets. The $4.6 million, or $.84 per
share provision for store closings and restructuring costs reflects anticipated
expenses related to the program. The restructuring charge primarily includes
lease termination and other costs associated with store closures as well as a
provision for the impairment of long-lived assets in accordance with SFAS No.
121.
Interest expense. Interest expense increased to $82,000 for the
thirteen weeks ended October 29, 1997 from $78,000 for the thirteen weeks ended
October 30, 1996. Interest expense for the 39 weeks ended October 29, 1997 was
$104,000 compared to $187,000 for the 39 weeks ended October 30, 1996.
12
<PAGE> 13
Income (loss) before taxes. Loss before taxes for the thirteen weeks
ended October 29, 1997 was $739,000 compared to income before taxes of $77,000
for the thirteen weeks ended October 30, 1996. This change was primarily the
result of increases in cost of sales and related occupancy, depreciation and
amortization, and general and administrative costs as a percentage of sales.
Operating loss for the thirty-nine weeks ended October 29, 1997 was
$6,820,000 (including the restructuring charge of $4,200,000) compared to
operating income of $262,000 for the thirty-nine weeks ended October 30, 1996.
This change was principally the result of the restructuring provision discussed
above as well as increases in cost of sales and related occupancy, depreciation
and amortization, and general and administrative costs as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $362,000 as of October 29, 1997
compared to working capital of $1,949,000 as of January 29, 1997. The current
period working capital includes remaining restructuring liabilities of
$1,213,000. Cash used by operating activities for the thirty-nine weeks ended
July 30, 1997 totaled $1,985,000.
On May 27, 1997, the Company made a promissory note (the "Note") for
the benefit of the Palm Trust of which Paul Heeschen, a director, is a trustee.
Mr. Heeschen has no beneficial interest in the Palm Trust. The Note provides for
borrowings by the Company up to $1,500,000 with interest accruing at the prime
rate plus 3 1/2%. All outstanding principal and accrued interest was due and
payable on January 27, 1998 or promptly after the closing of any new debt or
equity financing in an amount exceeding $1,500,000. This indebtedness was fully
paid and discharged on October 20, 1997 with the proceeds of borrowings from the
Ocean and Grandview Trusts described below.
On August 19, 1997, the Company entered into a promissory note, term
loan agreement, and security agreement with the Virginia R. Cirica Trust (the
"Cirica Trust Loan Documents"). That trust is controlled by Ms. Cirica, who is
the spouse of Lawrence Goelman, Chairman and Interim Chief Executive Officer of
the Company.
Shortly before the Cirica Trust entered into the Cirica Trust Loan
Documents, Mr. Goelman loaned Ms. Cirica approximately $250,000. Some of those
funds were transferred by Ms. Cirica to the Cirica Trust and advanced to the
Company pursuant to the Cirica Trust Loan Documents. The loan is secured by the
assets of the Company and provides for borrowings up to $500,000 with interest
accruing at the prime rate plus 3 1/2 %. All outstanding principal and accrued
interest is due and payable on August 19, 2002.
In connection with the Cirica Trust Loan Documents, the Company issued
a warrant to the Cirica Trust to purchase up to 85,000 shares of the Company's
common stock if the loan is repaid in full in 120 days of closing, or up to
170,000 shares of the Company's common stock if the loan is not repaid within
120 days, all at a price of $2.25 a share. The warrants are exercisable
immediately and expire on the later of August 19, 2003 or one year following
payment in full of the loan. Mr. Goelman disclaims any pecuniary interest in the
loan to the Company, and any beneficial interest in the Cirica Trust, except to
the extent to which Mr. Goelman is a contingent beneficiary under the terms of
the Cirica Trust.
On September 30, 1997 the Company entered into a promissory note, term
loan agreement and security agreement with Nuvrty, Inc., a Colorado corporation
controlled by Amre Youness, a former director of the Company (the "Nuvrty Loan
Documents"). The loan is secured by the assets of the Company and provides for
borrowings up to $1,000,000 with interest accruing and paid monthly at the prime
rate plus 3 1/2 %. The Company borrowed the full amount under the loan.
In connection with the Nuvrty Loan Documents, the Company issued a
warrant to Nuvrty, Inc. to purchase up to 170,000 shares of the Company's common
stock if the Loan is repaid in full within 120
13
<PAGE> 14
days of closing and up to 340,000 shares of the Company's common stock if the
loan is not repaid within 120 days, all at a price of $2.25 per share. The
warrants are exercisable immediately and expire on the later of September 30,
2003 or one year following payment in full of the loan.
On October 16, 1997 the Company entered into parallel promissory notes,
term loan agreements and security agreements with the Ocean and Grandview Trusts
on terms identical to those entered into with the Virginia R. Cirica Trust and
Nuvrty, Inc. (the "Ocean Trust Loan Documents" and the "Grandview Trust Loan
Documents", respectively). The Ocean Trust Loan Documents and the Grandview
Trust Loan Documents provide for borrowing up to $750,000 from each Trust. Each
loan is secured by the assets of the Company. Interest on advances is accrued
and payable monthly at the prime rate plus 3 1/2%. The Company borrowed $750,000
under each facility. All outstanding principal and accrued interest is due and
payable on October 16, 2002.
In connection with the Ocean Trust Loan Documents and the Grandview
Trust Loan Documents the Company issued warrants to each Trust respectively to
purchase up to 127,500 shares each of the Company's common stock if the loan is
repaid in full within 120 days of closing, or up to 255,000 shares each of the
Company's common stock if the loan is not repaid in full within 120 days of
closing, all at a price of $2.25 per share. The warrants are exercisable
immediately and expire on the later of October 16, 2003 or one year following
payment in full of the respective loans. The Company used the proceeds from the
Ocean Trust and Grandview Trusts Loans to pay off and discharge the outstanding
indebtedness to the Palm Trust.
The Company believes that cash from operations and the aforementioned
financing activities will be sufficient to satisfy the Company's working capital
needs for the remainder of the fiscal year. The Company anticipates that it will
need to seek additional debt or equity financing to fund development of new
retail locations and additional capital expenditures currently projected for
fiscal 1999, which begins as of January 29, 1998.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
NEW CHAIRMAN OF THE BOARD AND NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER
On November 18, 1997, the Company announced that former Taco Bell
Worldwide Chairman and Chief Executive Officer Mr. John E. Martin had agreed to
join the Company's Board of Directors as Chairman replacing Lawrence Goelman. On
November 17, 1997, Mr. Martin entered into a letter agreement with the Company
appointing him Chairman of the Board of the Company. Subject to stockholder
approval, the Company entered into a performance-based Stock Option Plan and
Agreement under which Mr. Martin will be granted the option to purchase up to
850,000 shares of the common stock of the Company. Mr. Martin and the Company
also agreed to terms under which Mr. Martin will purchase 333,333 shares of the
Company's common stock at $3.00 per share.
The Stock Option Plan and Agreement grants Mr. Martin the option to
purchase up to 850,000 shares of the common stock of the Company subject to
stockholder approval. The options granted to Mr. Martin become exercisable at
the following exercise prices: 450,000 shares of common stock at an exercise
price of $4.00 per share; 100,000 shares of common stock at an exercise price of
$5.00 per share; 150,000 shares of common stock at an exercise price of $8.00
and 150,000 shares of common stock at an exercise price of $10.00. All of the
options granted to Mr. Martin become exercisable on the earlier of May 15, 2002
or as soon as the closing price of the Company's common stock exceeds the
respective price for at least seven (7) trading days in any period of ten (10)
consecutive trading days. All options are to terminate if unexercised on
November 17, 2002. The Stock Option Plan and Agreement with Mr. Martin is
attached hereto as Exhibit 10.22.
The Company also entered into a Common Stock Purchase Agreement with
Mr. Martin under which it has agreed to issue and sell 333,333 restricted shares
of Common Stock of the Company to Mr. Martin at $3.00 per share, such price
representing the fair market value of the Common Stock, as of November 17, 1997.
The Common Stock Purchase Agreement is attached hereto as Exhibit 10.23.
Lawrence Goelman will continue to serve as a Director. The authorized
number of directors was increased, in accordance with the Bylaws, from four to
six.
NEW CHIEF EXECUTIVE OFFICER
On November 18, 1997, the Company announced that it named experienced
restaurant industry executive Timothy J. Ryan, former president of Sizzler USA,
and a former colleague of Mr. Martin's at Taco Bell Worldwide, as Diedrich
Coffee's President and Chief Executive Officer to replace Lawrence Goelman,
Interim Chief Executive Officer. Subject to stockholder approval, the Company
entered into a performance based Stock Option Plan and Agreement under which Mr.
Ryan will be granted the option to purchase up to 600,000 shares of the common
stock of the Company. Mr. Ryan will also invest $50,000 in the Company pursuant
to a private sale of restricted stock.
On November 17, 1997, Mr. Ryan entered into an employment agreement
with the Company to serve as Chief Executive Officer. The term of Mr. Ryan's
agreement is two years. The agreement provides for an annual salary of $200,000
per year and a discretionary performance bonus.
The Stock Option Plan and Agreement with Mr. Ryan grants Mr. Ryan the
option to purchase an aggregate of 600,000 shares of the Common Stock of the
Company, contingent upon the approval of the stockholders. The options granted
to Mr. Ryan become exercisable at the following exercise prices: 50,000 shares
of Common Stock at an exercise price of $3.50 per share; 75,000 shares of Common
Stock at an
15
<PAGE> 16
exercise price of $4.50 per share; 125,000 shares of Common Stock at an exercise
price of $5.00 per share; 175,000 shares of Common Stock at an exercise price of
$8.00 per share and 175,000 shares of Common Stock at an exercise price of
$10.00 per share. The shares become exercisable on the earlier of (i) May 15,
2002 or (ii) upon the satisfaction of two conditions: (x) the options having
vested pursuant to a vesting schedule set forth in the agreement, and (y) after
the date of the agreement, the closing price of the Common Stock shall have
exceeded the option price per share for at least seven trading days in any
period of ten consecutive trading days. The agreement is attached hereto as
Exhibit 10.25.
The Company entered into a Common Stock Purchase Agreement with Mr.
Ryan under which it has agreed to issue and sell 16,667 restricted shares of the
Common Stock of the Company to Mr. Ryan at $3.00 per share, such price
representing the fair market value of the Common Stock, on the date of the Ryan
Employment Agreement. The Common Stock Purchase Agreement with Mr. Ryan is
attached hereto as Exhibit 10.26.
Mr. Kerry Coin, formerly President and Chief Operating Officer,
continues as Chief Operating Officer.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Set forth below is a list of the exhibits included as part of this
Quarterly Report:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
10.27 Form of Promissory Note made in favor of Nuvrty, Inc.,
the Ocean Trust and the Grandview Trust
10.28 Form of Term Loan Agreement entered into with Nuvrty,
Inc., the Ocean Trust and the Grandview Trust
10.29 Form of Security Agreement entered into with Nuvrty,
Inc., the Ocean Trust and the Grandview Trust
10.30 Form of Warrant Agreement entered into with Nuvrty,
Inc., the Ocean Trust and the Grandview Trust
10.31 Form of Inter Creditor Agreement among Nuvrty, Inc.,
the Ocean Trust, the Grandview Trust and the Cirica
Trust.
10.32 Amendment to Kerry Coin's employment agreement dated
September 24, 1997
10.33 Form of Indemnification Agreement - John Bayley
10.34 Form of Indemnification Agreement - Jonathan Eddison
10.35 Form of Indemnification Agreement - John Martin
10.36 Form of Indemnification Agreement - Timothy J. Ryan
27 Financial data schedule
</TABLE>
(1) Incorporated by reference to the exhibit of the same
number to the Company's Registration Statement on Form
S-1 ( No. 333-08633), as amended, as declared effective
by the Securities and Exchange Commission on September
11, 1996.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December __, 1997 DIEDRICH COFFEE, INC.
/s/ Timothy J. Ryan
----------------------------------------
Timothy J. Ryan,
Chief Executive Officer
/s/ John Bayley
----------------------------------------
John Bayley,
Vice President of Finance and
Controller (principal financial officer)
17
<PAGE> 1
EXHIBIT 10.27
FORM OF SECURED PROMISSORY NOTE
$____________ Principal Amount ____________, 1997
Irvine, California
FOR VALUE RECEIVED, the undersigned, Diedrich Coffee, Inc., a
Delaware corporation ("Borrower") hereby promises to pay to the order of
_______, ("Holder") or its successors or assigns, the principal sum of
_______________, ($__________) or such lesser amount as may be borrowed under
the terms of this Note, together with interest on the unpaid principal amount
from time to time outstanding from the date hereof until the principal amount of
this Note is paid in full, in accordance with the terms of this Note, at the
Note Rate (as defined below). The principal of this Note, together with all
accrued and unpaid interest, shall become due and payable on ________, 2002.
Interest shall become due and payable monthly as it is accrued, beginning
________, 1997.
1. LOAN AGREEMENT. Borrower and Holder have entered into a Term
Loan Agreement of even date (the "Agreement") and this Note shall be entitled to
all of rights and benefits under such Agreement. Reference is made to the
Agreement for a more complete statement of the terms and conditions under which
the loan evidenced hereby is made and is to be repaid.
2. INTEREST. The principal amount of this Note shall bear interest
at the Note Rate. The "Note Rate" shall be the prime rate plus three and
one-half percent or the maximum rate allowed by law, whichever is less. The
prime rate as of any date shall be determined by reference to the prime rate as
published in the Wall Street Journal (the base rate on corporate loans posted by
at least 75% of the thirty largest U.S. banks). Interest shall be computed daily
at the Note Rate on the basis of the actual number of days in which all or any
portion of the principal amount hereof is outstanding computed on the basis of a
360 day year.
3. DISBURSEMENT. Holder shall advance $___________ to Borrower
upon the execution hereof. All loans made by Holder and all repayments of the
principal thereof shall be recorded by the Holder and endorsed by an officer of
the Borrower on the schedule attached hereto, or on a continuation of such
schedule attached to and made a part hereof; provided that the failure of Holder
to make any such recordation or of Borrower to make any such endorsement shall
not affect the obligations of Borrower hereunder.
<PAGE> 2
4. EFFECT OF NON-PAYMENT OF PRINCIPAL AND INTEREST. If any
principal and/or interest is not paid when due, without affecting any of
Holder's other rights and remedies, the unpaid principal amount and, to the
extent permitted by applicable law, interest, shall bear interest at the Note
Rate and shall be payable on demand of Holder until such unpaid amount is paid
in full.
5. PAYMENT OF PRINCIPAL AND INTEREST. Principal and interest shall
be payable in lawful money of the United States at Holder's address located at
___________ _____________________________________________, or at such other
place as is directed by Holder in writing.
6. PREPAYMENT.
(a) MANDATORY PREPAYMENTS. Borrower shall prepay the entire
principal balance of this Note (plus all interest then due hereunder)
immediately upon the issuance, offer or sale of any shares of Borrower's capital
stock pursuant to a secondary offering to the public with net proceeds of
greater than Ten Million Dollars ($10,000,000); excluding, however, any offering
of Borrower's common stock pursuant to a stock option, bonus, award or other
employee benefit plan and existing options to purchase any of Borrower's common
stock which are presently held by officers, directors or employees of Borrower.
(b) OPTIONAL PREPAYMENT. Borrower may prepay any portion of the
principal balance of this Note in any amount which is an integral multiple of
$10,000 at any time without penalty.
7. SECURITY. This Note and all of Borrower's obligations hereunder
are secured by the security interest granted by Borrower to Holder by the
Security Agreement of even date in which Borrower is the Debtor and Holder is
the Secured Party (the "Security Agreement").
8. DEFAULT. Each of the following shall constitute an event of
default ("Event of Default") under this Note:
(a) Borrower shall fail to pay when due (whether by
acceleration or otherwise) principal or interest on this Note, and such default
shall have continued for a period of five (5) days; or
(b) Any representation or warranty made by or on behalf of
Borrower in this Note, the Agreement, the Security Agreement or in any other
Loan Document (as defined in the Agreement) or in any statement or certificate
given in writing pursuant
-2-
<PAGE> 3
thereto or in connection therewith is false, misleading or incomplete in any
material respect when made (or deemed to have been made); or
(c) Borrower breaches or fails or neglects to perform, keep or
observe any covenant set forth in this Note, the Agreement, the Security
Agreement, or any other Loan Document (other than Borrower's obligation to make
all payments due under this Note which is governed by subparagraph (a) above)
and the same has not been cured within ten (10) calendar days after Borrower
receives notice thereof from Holder; or
(d) Borrower shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing; or
(e) An involuntary case or other proceeding shall be commenced
against Borrower seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order for relief shall
be entered against Borrower under the federal bankruptcy laws as now or
hereafter in effect; or
(f) This Note, the Agreement, the Security Agreement or any
other Loan Document for any reason (other than the satisfaction in full of all
amounts owing in connection with the Loan) ceases to be, or is asserted by
Borrower not to be, a legal, valid and binding obligation of Borrower,
enforceable in accordance with its terms, and such occurrence has not been cured
to Holder's satisfaction within five (5) calendar days after Borrower receives
notice thereof from Holder; or
(g) Borrower has fraudulently conveyed or concealed its
property to prevent attachment or execution by its creditors; or
(h) Borrower is insolvent and fails to satisfy or obtain the
release of any judicial lien within 30 days of such lien coming into existence;
or
-3-
<PAGE> 4
(i) Borrower has admitted to any person in writing that it is
unable to pay its debts and that it is willing to be adjudged a bankrupt.
If an Event of Default shall occur and be continuing or shall
exist, the principal amount of this Note and interest accrued hereon shall be
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived, and an action
therefor shall immediately accrue.
9. GOVERNING LAW. This Note shall be governed by, and construed
and enforced in accordance with, the internal laws (including the laws of
conflict and choice of law) of the State of California.
10. WAIVER. No failure to exercise and no delay in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by law.
11. AMENDMENT. This Note may be amended or modified only upon the
written consent of both Borrower and Holder. Any amendment must specifically
state the provision or provisions to be amended and the manner in which such
provision(s) are to be amended.
12. FEES AND EXPENSES. Borrower promises to pay all the cost and
expenses, including reasonable attorneys' fees, incurred in the collection and
enforcement of this Note. Borrower and each surety, endorser, guarantor, and
other party ever liable for payment of any sums of money payable under this
Note, hereby, jointly and severally, consent to renewal and extension of time at
or after the maturity hereof, without notice, and hereby, jointly and severally
waive diligence, presentment, protest, demand and notice of every kind and, to
the full extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.
13. AGREEMENT. This Note incorporates by reference all the
provisions of the Agreement, including but not limited to all provisions
contained therein with respect to Events of Default, waivers, remedies and
covenants, and the description of the benefits, rights and obligation of each of
the Borrower and Holder under the Agreement.
(Signature Page Follows)
-4-
<PAGE> 5
[SIGNATURE PAGE - NOTE]
IN WITNESS WHEREOF, Borrower has executed this Note as of the date and year
first above written.
DIEDRICH COFFEE, INC., a Delaware
corporation
By:
------------------------------
Kerry Coin, President
-5-
<PAGE> 6
PROMISSORY NOTE
LOAN AND REPAYMENT OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Principal Holder Borrower
Date Loan/Repayment Balance Recordation By Endorsement By
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ $
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE> 1
EXHIBIT 10.28
FORM OF TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (the "Agreement") is made and entered
into as of the ____ day of __________, 1997, by and between DIEDRICH COFFEE,
INC., a Delaware corporation (the "Borrower"), and _____________, a (the
"Lender").
RECITALS
A. WHEREAS, Borrower desires to borrow ________________ Dollars
($____________) for working capital purposes from Lender.
B. WHEREAS, Lender has agreed to advance ____________
($__________) to the Borrower pursuant to the Secured Promissory Note of even
date (the "Note"), a copy of which is attached hereto as Exhibit A, in
accordance with the terms and conditions provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants, agreements, representations and warranties hereinafter set
forth, the parties hereto agree as follows:
1. Definitions.
1.1 Action. The term "Action" has the meaning given in Section
11.11.
1.2 Business Day. The term "Business Day" means a day other
than a Saturday, Sunday or other day on which commercial banks in the State of
California are required by law to close.
1.3 Closing Date. The term "Closing Date" has the meaning
given in Section 3.1.
1.4 Closing. The term "Closing" has the meaning given in
Section 3.1.
1.5 Common Stock. The term "Common Stock" means the Common
Stock, $0.01 par value per share, of Borrower as hereafter modified and any
other class of stock of Borrower or of any other entity into which such stock
shall be converted or for which it shall be exchanged.
1.6 Event of Default. The term "Event of Default" has the
meaning given in Section 10.1.
1.7 GAAP. The term "GAAP" means Generally Accepted Account ing
Principles.
-1-
<PAGE> 2
1.8 Intellectual Property. The term "Intellectual Property"
has the meaning given in Section 4.25.
1.9 Intercreditor Agreement. The term "Intercreditor
Agreement" means the Intercreditor Agreement to be entered into between Lender
and the Other Lenders.
1.10 Loan. The term "Loan" means Lender's $__________ loan to
Borrower subject to and upon the terms and conditions set forth herein.
1.11 Loan Documents. The term "Loan Documents" means this
Agreement, the Note, the Warrant and the Security Agreement.
1.12 Maturity Date. The term "Maturity Date" means September
30, 2002.
1.13 Note. The term "Note" has the meaning given in the
recitals.
1.14 Other Agreements. The term "Other Agreements" means two
or more term loan agreements, on substantially the same terms as this Agreement
except for amounts, between Borrower and the Other Lenders.
1.15 Other Lenders. The term "Other Lenders" means the lenders
identified on Schedule 1.15 that have loaned up to $__________ to the Company on
terms substantially similar to those contained in this Agreement.
1.16 Security Agreement. The term "Security Agreement" means
the Security Agreement of even date, entered into and between Lender and
Borrower, a copy of which is attached hereto as Exhibit B.
1.17 Warrant. The term "Warrant" means the Warrant issued to
Lender by Borrower of even date, in the form of Exhibit C attached hereto.
1.18 Warrant Stock. The term "Warrant Stock" means Borrower's
authorized and unissued Common Stock reserved for issuance upon exercise of the
Warrant, subject to the terms and conditions of this Agreement.
2. Amount and Basic Terms of the Loan.
2.1 Basic Loan Terms. The terms of the Loan shall be as set
forth in this Agreement and in the Note. As more fully described below and in
the Note, Lender shall advance to Borrower ______________ ($___________)
pursuant to the Note at the Closing and Borrower shall repay that amount,
together with interest from the date hereof until fully paid.
2.2 Payments. The entire principal of the Loan, together with
all accrued and unpaid interest, shall be due and payable on ____________, 2002.
Interest shall be due and payable on the first day of each month as it is
accrued, beginning _______________, 1997; provided, however, that if any
interest payment is due on a day which is not a Business Day, such payment shall
be considered timely if paid on the next Business Day.
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2.3 Rate of Interest. The principal balance of the Loan shall
bear interest at the rate set forth in the Note.
2.4 Security Agreement. The Loan shall be secured by the
Security Agreement executed by Borrower as debtor to Lender as a secured party,
granting Lender a first-priority security interest (subject to certain
limitations contained in the Security Agreement), to the extent of the amount of
the indebtedness, in the collateral described in the Security Agreement.
2.5 Warrants. Concurrently with the execution of this
Agreement, Borrower will issue the Warrant to purchase ___________ shares of
Warrant Stock of Borrower to Lender pursuant to the terms of the Warrant.
3. Closing Date Delivery.
3.1 Closing Date. The consummation of the transactions contem
plated by this Agreement ( the "Closing") shall take place at the time and place
mutually agreed upon by the parties hereto on ____________, 1997 (the "Closing
Date").
3.2 Delivery. At the Closing, each party will deliver the Loan
Documents for which it is a party, and Lender will make the advance under the
Loan by check payable to Borrower or by wire transfer to an account designated
by Borrower and acceptable to Lender.
4. Representations and Warranties of Borrower. Borrower
represents and warrants to Lender that:
4.1 Organization and Standing; Charter Documents. Borrower is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite corporate power and
authority to own, lease and operate its property and to conduct its business as
such is presently conducted and as proposed to be conducted. Borrower is duly
qualified to do business as a foreign corporation in any state or jurisdiction
in the United States in which such qualification is required by the nature of
Borrower's business. True and accurate copies of the Certificate of
Incorporation and Bylaws of Borrower, each as currently in effect, have been
made available to Lender and its Counsel.
4.2 Capitalization. Immediately prior to the Closing, the
authorized capital of Borrower will consist only of 25,000,000 shares of Common
Stock and 3,000,000 shares of Preferred Stock.
4.3 Authorization. All corporate action on the part of
Borrower and its officers, directors and shareholders that is necessary for the
authorization, execution, delivery and performance of the Loan Documents by
Borrower has been taken; and the Loan Documents, when executed and delivered,
will constitute valid and legally binding obligations of Borrower, enforceable
in accordance with their terms. The Warrant Stock of Borrower issuable upon
exercise of the Warrant has been duly authorized and reserved and, when and if
delivered, will be duly and validly issued and outstanding, fully paid and
non-assessable, subject to the rights and restrictions described in the Warrant.
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<PAGE> 4
4.4 Validity of the Note. The Note, when issued by Borrower in
accordance with the terms of this Agreement, will be duly and validly issued for
the full amount of the Loan.
4.5 Consents. All consents, approvals, orders, waivers of
authoriza tions of, or registrations, qualifications, designations, declarations
or filings with, any court or any federal or state governmental authority or
third party required on the part of Borrower or any of its subsidiaries in
connection with the consummation of the transactions contemplated by this
Agreement and the other Loan Documents will have been obtained prior to and be
effective as of the Closing Date.
4.6 Compliance with Other Instruments. Borrower is not in
violation of or default under any provision of its Certificate of Incorporation
or Bylaws, each as amended. Borrower is not in material violation of or default
under any provision of any instrument or contract to which it is a party or by
which it is bound, or, to Borrower's knowledge, of any provision of any federal
or state statute, rule, governmental regulation, order or decree, applicable to
it.
4.7 Litigation. There is no material claim, action, suit,
proceeding, arbitration or investigation pending or to the knowledge of Borrower
currently threatened by or against Borrower or any of its affiliates which, if
adversely determined, is likely to have an adverse effect upon Borrower.
Borrower is not a party to or subject to the provi sions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which may have a material effect upon the Loan or Borrower's
ability to enter into and perform its obligations under the Loan Documents.
4.8 Conduct of Business. The conduct of Borrower's business,
as now conducted and as proposed to be conducted, and the closing of the
transactions completed hereby, will not conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which Borrower is now obligated.
4.9 Title to Property and Assets. Except as described in
Schedule 4.9 attached hereto, Borrower owns all its property and assets in its
own name free and clear of all mortgages, liens, claims, loans and encumbrances,
except for liens for taxes not yet due and payable which are contested in good
faith and mechanics liens, materialmen's liens and dairyman's liens for amounts
incurred in the ordinary course of business, and for amounts that either are not
delinquent or will be repaid with proceeds of the Loan promptly following the
Closing. All material contracts of Borrower containing obligations in excess of
$50,000 are listed on Schedule 4.9 hereto. Each of the outstanding liens or
claims in excess of $50,000, which have been or may be asserted against Borrower
or its assets is listed on Schedule 4.9.
4.10 Information; Misleading Statements. No representation,
warran ty or statement by Borrower in this Agreement or the other Loan
Documents, or in any written statement or certificate furnished or to be
furnished to Lender pursuant thereto contains or will contain any untrue
statement of a material fact or, when taken together, omits or will omit to
state a material fact necessary to make the statements made herein or therein,
in light of the circumstances in which made, not misleading.
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<PAGE> 5
4.11 Offering. Subject to the accuracy of Lender's
representations in Section 5 of this Agreement, the offer, issuance and sale of
the Note, and the Warrant constitutes, and will constitute, transactions exempt
from the registration and prospectus delivery requirement of Section 5 of the
Securities Act of 1933, as amended, and Borrower has obtained (or is exempt from
the requirement to obtain) all qualifications, permits, and other consents
required by all applicable state laws governing the offer, sale or issuance of
securities.
4.12 Accuracy of Financial Records. Each of (a) the financial
state ments of Borrower attached to Schedule 4.12 hereto, (b) the financial
statements of Borrower provided to Lender prior to the date hereof, and (c) the
financial statements of Borrower to be provided to Lender under this Agreement,
shall have been prepared in accordance with GAAP (except as disclosed therein
and except that interim financial statements do not and will not contain
footnotes and are subject to year-end adjustments) and fairly in all material
respects (or, as to financial statements to be provided in the future, will
fairly in all material respects) represent the financial condition of Borrower
as at the dates thereof and the results of operations for the periods then
ended. Borrower is not aware of any fact or claim that when reasonably applied
would render the information contained in any of the financial statements
delivered to Lender on or prior to the date hereof materially false or
misleading.
4.13 No Material Adverse Change. Except as disclosed in any of
Bor rower's financial statements delivered to Lender prior to the date hereof,
Borrower has no actual knowledge of any fact or claim that has occurred that
will cause a material change in Borrower's business, or its ability to operate
or its ability to perform its obligations under the Loan Documents.
4.14 Lender to Have First-Priority Lien; No Junior Liens.
Except as disclosed on Schedule 4.9 and subject to the terms of the
Intercreditor Agreement, this Agreement and the other Loan Documents give Lender
a first-priority security interest in all of the collateral identified in the
Security Agreement, and there are no junior liens presently existing with
respect to such collateral.
4.15 No Other Encumbrances on Borrowers Leases. Except as
described in Schedule 4.15, none of Borrower's rights under any of its leases
are or will be subject to a sublease, assignment or agreement, or have otherwise
been or will be otherwise transferred or encumbered, except to Lender (or to the
Other Lenders pursuant to the Other Agreements).
4.16 No Outstanding Warrants or Options. Except for the
Warrant granted to Lender (and the similar warrants granted to the Other Lenders
in connection with the Other Agreements), options issued to underwriters, and
the rights of Borrower's employees as set forth in various stock option plans
and agreements, there are no outstanding warrants, stock options, or other
similar rights outstanding as of the date of this Agreement with respect to any
securities of Borrower.
4.17 Outstanding Obligations. Except for (a) this Agreement
and the other Loan documents, (b) the Other Agreements, (c) the leases
identified in Schedule 4.9, (d) the co-branding relationships described on
Schedule 4.15, (e) contracts for the purchase of inventory in the ordinary
course of business, and (f) such other obligations as are identified on Schedule
4.17, Borrower has not entered into any contract, agreement or
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<PAGE> 6
commitment which obligates or may obligate borrower to pay, now or in the
future, a total of $100,000 or more to any person or entity or which would
require Borrower to pay, now or in the future, a total of $100,000 or more to
any group of persons or entities for the same or related goods and/or services.
4.18 Financial Information. Borrower shall make all of its
books and financial records available for inspection by Lender or its authorized
agents and repre sentatives within seven days following a written request by
Lender. Promptly upon its receipt of a written request from Lender therefor,
Borrower shall provide Lender with copies of final and interim balance sheets,
final and interim profit and loss statements (broken down on a month-by-month
and/or a store-by-store basis if so requested); final and interim budgets;
narrative explanations by a senior executive of Borrower setting forth why
Borrower's budgets and projections are believed to be accurate and Borrower's
plans for expansion of its business or the closing of any of its stores, leases,
contracts, agreements or other commitments (including "soft commitments") which
obligate or might obligate Borrower to pay, during the term of such lease,
contract, agreement or other commitment, a total of $100,000 or more to any
person or entity (or which would require Borrower to pay a total of $100,000 or
more to any group of persons or entities for the same or related goods and/or
services); explanations of any fact, claim or circumstance which could have a
material adverse effect on Lender, its business or its ability to satisfy its
obligations under this Agreement, the Note, or any of the other Loan Documents,
and all such similar financial records and information as Lender may reasonably
request. Borrower shall promptly furnish Lender with the information identified
in this Section upon Lender's agreement that, with respect to any material
inside information which Lender may receive pursuant to this section, Lender
will retain such information in confidence and use it solely in connection with
the enforcement of Lender's rights under this Agreement and the other Loan
Documents.
4.19 Inspections. Borrower shall grant Lender reasonable
access to all of Borrower's places of business to inspect the premises and the
collateral described in the Security Agreement.
4.20 Notice of Certain Events. Borrower shall promptly notify
Lender of any fact, occurrence or event which (a) constitutes (or which would,
with the passage of time, constitute) an Event of Default under this Agreement
or a breach of or default under any of the other Loan Documents, (b) results in
a fire or other casualty of any of its assets which caused or is expected to
cause damages of $100,000 or more to Borrower, or (c) would render any fact,
representation or warranty contained in any of the Loan documents or otherwise
conveyed to Lender false or misleading. Borrower shall also promptly notify
Lender of each fire, casualty or accident which has caused or is expected to
cause damages or liabilities of $100,000 or more.
4.21 Notification of Governmental Claims; Compliance with
Govern mental Directives. Lender shall promptly notify Lender of any eminent
domain or similar proceedings which are brought or threatened against any of its
properties or assets and of each other court or governmental notice, order,
ruling or directive which would prevent or have a material adverse effect on
Borrower's ability to carry on its business at any of its stores or otherwise
conducts its affairs. Except as Borrower may contest in good faith, Borrower
shall comply with all notices, orders, rulings and directives made by any court
or governmental authority relating to the conduct of its business or the
maintenance of any license, permit or authorization which Borrower is or may be
required to maintain.
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<PAGE> 7
4.22 Payment of Taxes and Assessments. Borrower has filed all
necessary federal, state and local tax returns and similar filings within the
times and in the manner prescribed by law and has paid all taxes and assessments
(including without limitation, all payroll and income taxes and all taxes on
sales, inventory and fixtures) and any penalties and interest relating thereto,
that are or were due and payable.
4.23 Provisions for Obligations. Borrower has made and shall
con tinue to make adequate provisions for the payment of all tax obligations
which are not yet due and payable. Borrower has made and shall continue to make
adequate provisions for the payment or other full satisfaction of all mechanics'
liens, landlord liens, dairymen's liens and similar obligations which it has
incurred or will incur in the future.
4.24 Names; Subsidiaries. Borrower has not, does not and will
not do business under any name or trade name other than its own. Borrower does
not own, directly or indirectly, any interest or investment (whether equity or
debt) in any corporation, partnership, business, trust, joint venture or any
other entity or subsidiary.
4.25 Intellectual Property. Borrower owns, and/or has applied
for, the trademarks, service marks, copyrights, patents, inventions and
processes which are listed on Schedule 4.25 (collectively, "Intellectual
Property"). Except with respect to certain co-branding relationships described
on Schedule 4.15, no person other than Borrower owns any trademark, service
mark, copyright, patent, invention or process the use of which is necessary or
contemplated in connection with the operation of Borrower's business or in
connection with the performance of any contract to which Borrower is a party.
Borrower has not infringed, and is not now infringing, on any trademark, service
mark, copyright, patent, invention or process which is protected by federal
trademark, copyright or patent protection; and there are no pending or
threatened actions against Borrower relating to any alleged infringement.
4.26 No Guarantees. Borrower is not a guarantor, surety,
co-obligor or otherwise responsible, directly or indirectly, primarily or
secondarily, for the obligation, debt or liability of any other person or
entity.
4.27 Insurance. As set forth in greater detail in the Security
Agree ment, Borrower: (a) maintains and shall continue to maintain adequate
insurance protection against all damages, losses, liabilities, claims and risks
against which it is customary to insure, all in amounts as are adequate given
the nature and size of Borrower's business and its foreseeable risks and (b)
shall cause Lender and its successors and assigns to be named as additional
insureds on all of Borrower's insurance policies.
5. Representations, Warranties and Covenants of Lender. Lender
repre sents and warrants to Borrower that:
5.1 Organization. Lender is a [corporation] [trust] duly
organized, validly existing and in good standing under the laws of the State of
__________ and has all requisite [corporate] power and authority to own, lease
and operate its property and to conduct its business as such is presently
conducted and is proposed to be conducted.
5.2 Authorization. All action on the part of Lender and its
representatives necessary for the authorization, execution, delivery and
performance of the Loan Documents by Lender has been taken; and the Loan
Documents, when executed and
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<PAGE> 8
delivered, will constitute valid and legally binding obligations of Lender,
enforceable in accordance with their terms.
5.3 Consents. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations, declarations
or filings with, any court or any federal or state governmental authority
required on the part of Lender in connection with the consummation of the
transactions contemplated by this Agreement and the other Loan Documents will
have been obtained prior to and be effective as of the Closing.
5.4 Investment Intent. The Note has been and the Warrant to be
issued to Lender pursuant to this Agreement and the Warrant Stock issuable upon
exercise of the Warrant are being acquired by Lender solely for its own account,
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of the Note, the Warrant or the Warrant Stock
issuable upon exercise of the Warrant.
5.5 Sophistication. Lender is able to bear the economic risk
of the investment required pursuant to this Agreement and can afford to sustain
a total loss on such investment, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the proposed investment and therefore has the capacity to protect its
own interests in connection with the Loan.
6. Conditions Precedent to Lender's Obligations at Closing. The
obliga tion of Lender to make the Loan is subject to the satisfaction (or
written waiver by Lender) of all the following conditions precedent:
6.1 Note. A duly-authorized officer of Borrower will have
executed and delivered the Note to Lender.
6.2 Corporate Documents. Lender will have received, in form
and substance satisfactory to Lender and its counsel, a copy of the records of
all actions taken by Borrower, including corporate resolutions of Borrower
authorizing or relating to the execution, delivery and performance of the Loan
Documents and the consummation of the transactions contemplated thereby, and a
certified copy of the Certificate of Incorporation and Bylaws of Borrower.
6.3 Qualifications and Consents. All authorizations,
approvals, permits, consents or waivers if any, of (i) governmental authority or
regulatory body of the United States or of any state or (ii) any third party
that are required on the part of Borrower in connection with the receipt of the
Loan or the issuance of the Note and the Warrant will have been duly obtained
and will be effective on and as of the Closing Date.
6.4 Proceedings and Documents. All corporate and other proceed
ings in connection with the transaction contemplated by this Agreement and all
documents incident to such transaction, including but not limited to the Note
and the Security Agreement are and the Warrant will be in form and substance
satisfactory to Lender and its counsel, and Lender will have received all
counterpart originals or certified or other copies of such documents as it may
reasonably request.
6.5 Performance. Borrower shall have performed and complied
with all terms and conditions required to be performed or complied with by it
prior to or at the Closing, and no Event of Default shall exist.
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<PAGE> 9
6.6 Absence of Litigation. No suit, action, proceeding, court
order, administrative order or investigation shall have occurred, be pending or
threatened which would or seeks to prevent or delay beyond the date of the
Closing, the consummation of the transactions contemplated by this Agreement or
the operation of Borrower's business.
6.7 Opinion of Borrower's General Counsel. Borrower's General
Counsel shall deliver to Lender a legal opinion substantially in the form of
Exhibit D hereto.
6.8 No Material Changes. No fact or event has occurred or been
dis covered which would have a material adverse effect on the accuracy of the
financial information provided by Borrower to Lender or which would have a
material adverse effect on the liability or conduct of Borrower's business.
7. Conditions Precedent to Borrower's Obligation at the Closing.
The obligation of Borrower at the Closing is subject to fulfillment, at or
before the Closing, of each of the following conditions:
7.1 Representations and Warranties True. The representations
and warranties of Lender contained in Section 5 hereof will be true and correct
at and as of the Closing Date.
7.2 Funds Disbursed. Borrower will receive from Lender the
principal sum of the Loan at the Closing.
7.3 Performance. Lender shall have performed and complied in
all respects with all agreements and conditions contained herein required to be
performed by or complied with by it prior to the Closing.
8. Covenants of Borrower. Borrower hereby covenants and agrees
with Lender as follows:
8.1 Corporate Rights; Facilities; Conduct of Business.
Borrower shall:
(a) Maintain and preserve in full force and effect its
corporate existence and all rights, licenses, leases qualifications, privileges,
franchises and other authority necessary or appropriate for the conduct of its
business;
(b) Subject to Borrower's reasonable business judgment as
to opening new business sites and closing those that do not meet Borrower's
financial requirements, Borrower will maintain, preserve and protect all its
properties, assets, equipment and facilities in good order and working repair
and condition (taking into consideration ordinary wear and tear) and from time
to time make, or cause to be made, all needful and proper repairs, renewals and
replacements thereto;
(c) Maintain, preserve and protect its goodwill and all of
its rights to enjoy and use patents, copyrights, trademarks, trade names,
service marks, licenses, leases, and franchises;
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<PAGE> 10
(d) Promptly pay and discharge all taxes, including taxes
on inventories and fixtures, when due and payable, except such as may be
contested in good faith by appropriate proceedings and for which an adequate
reserve has been established and is maintained in accordance with GAAP. Borrower
will promptly notify Lender of any challenge, contest or proceeding pending by
or against Borrower before any taxing authority;
(e) Maintain all banking accounts at FDIC- or
FSLIC-insured banks or other financial institutions;
(f) From time to time as may be necessary, disclose to
Lender in writing any material matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described by Borrower in this Agreement or any of the other Loan
Documents (including all schedules and exhibits hereto or thereto) or which is
necessary to correct any information set forth or described by Borrower
hereunder or thereunder which has been rendered inaccurate thereby.
8.2 Expenses. Borrower shall immediately pay Lender upon
demand all costs and expenses incurred by Lender in connection with: (a) the
preparation of this Agreement and all other Loan Documents contemplated hereby;
and (b) the administration of this Agreement and the other Loan Documents for
the term of the Loan. For all purposes of this Agreement, Lender's costs and
expenses shall include, without limitation, all legal fees and expenses,
accounting fees and auditor fees. In no event shall such expenses to Borrower
exceed Five Thousand Dollars ($5,000).
8.3 Reservation of Warrant Stock. Borrower, during the period
within which the Warrant may be exercised, shall at all times have authorized
and reserved, for the purpose of issuance upon the exercise of the Warrant, a
sufficient number of shares of Common Stock to provide for such exercise.
8.4 Negative Covenants. So long as any portion of the Loan
remains outstanding, Borrower will not, without first obtaining Lender's prior
written consent, which consent will not be unreasonably withheld:
(a) declare or pay any dividend on or declare or make any
distribution on account of, any shares of any class of stock now or hereafter
outstanding, or set apart any sum for such purpose, except for shares of Common
Stock issued by Borrower to its employees or other participants pursuant to
Borrower's existing stock option plans; or
(b) issue or enter into any agreement that restricts its
ability to repay the Loan.
8.5 Further Assurances. In addition to the obligations and
documents which this Agreement expressly requires Borrower to execute, deliver
and perform, Borrower will execute, deliver and perform, and will cause its
subsidiaries to execute, deliver and perform, any and all further acts or
documents which Lender may reasonably require to effectuate the purposes of this
Agreement or any of the other Loan Documents.
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9. Prepayment of the Note.
-----------------------
9.1 Mandatory Prepayments. Borrower shall prepay the
outstanding principal amount (or such lesser principal amount as shall then be
outstanding) of the Note immediately upon the issuance, offer or sale of any
shares of its capital stock pursuant to a secondary offering to the public with
net proceeds of greater than Ten Million Dollars ($10,000,000); excluding,
however, any offering of Common Stock of Borrower pursuant to stock option,
bonus, award or other employee benefit plan and existing options to purchase the
Common Stock of Borrower held by officers, directors or employees of Borrower.
9.2 Optional Prepayment. Borrower may prepay the Loan in any
amount which is an integral multiple of $10,000 at any time without penalty.
10. Events of Default of Borrower.
10.1 Events of Default. Each of the following shall constitute
an event of default ("Event of Default") under this Agreement:
(a) Borrower shall fail to pay when due (whether by
acceleration or otherwise) principal or interest on this Note, and such default
shall have continued for a period of five (5) days; or
(b) Any representation or warranty made by or on behalf of
Bor rower in this Agreement, the Note or in any other Loan Document or in any
statement or certificate given in writing pursuant thereto or in connection
therewith is false, misleading or incomplete in any material respect when made
(or deemed to have been made); or
(c) Borrower breaches or fails or neglects to perform,
keep or observe any covenant set forth in this Agreement, the Note, or any other
Loan Document other than Borrower's obligation to make all payments due under
the Note when due and the same has not been cured within ten (10) calendar days
after Borrower receives notice thereof from Lender; or
(d) The occurrence of an event of default under any of the
Other Agreements or any other material agreement of Borrower for funds borrowed
by Borrower.
(e) Borrower shall commence a voluntary case or other
proceed ing seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing; or
(f) An involuntary case or other proceeding shall be
commenced against Borrower seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect
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<PAGE> 12
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against Borrower
under the federal bankruptcy laws as now or hereafter in effect; or
(g) This Agreement, the Note or any other Loan Document
for any reason (other than the satisfaction in full of all amounts owing in
connection with the Loan) ceases to be, or is asserted by Borrower not to be, a
legal, valid and binding obligation of Borrower, enforceable in accordance with
its terms, and such occurrence has not been cured to Lender's satisfaction
within five (5) calendar days after Borrower receives notice thereof from
Lender; or
(h) Borrower has fraudulently conveyed or concealed its
property to prevent attachment or execution by its creditors; or
(i) Borrower is insolvent and fails to satisfy or obtain
the release of any judicial lien within 30 days of such lien coming into
existence; or
(j) Borrower has admitted to any person in writing that it
is unable to pay its debts and that it is willing to be adjudged a bankrupt.
10.2 Remedies of Lender. If an Event of Default shall occur
and be continuing or shall exist, the principal amount of the Note and interest
accrued thereon shall be immediately due and payable without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived, and an action therefor shall immediately accrue. Nothing contained
herein shall be deemed a waiver of any other remedies that Lender may have under
contract or statute.
10.3 Indemnification. Borrower hereby agrees to defend,
indemnify and hold harmless Lender, its officers, employees, agents, successors
and assigns from and against any and all losses, damages, liabilities, claims,
actions, judgments, court costs and legal or other expenses (including, without
limitation, attorneys' fees and expenses) which Lender may incur as a direct or
indirect consequence of: (a) the purpose to which Borrower applies proceeds of
the Loans; (b) the material failure of Borrower to perform any obligations as
and when required by this Agreement, the Note or any of the other Loan
Documents; (c) any failure at any time of any of Borrower's representations or
warranties to be materially true and correct; or (d) any act or omission by
Borrower.
Borrower shall immediately pay to Lender upon demand any
amounts owing under this indemnity, together with interest from the date the
indebtedness arises until paid at the rate of interest applicable to the
principal balance of the Note.
11. Miscellaneous.
11.1 Survival of Representations and Warranties. The
representations and warranties contained herein or made pursuant to this
Agreement and all other Loan Documents shall survive the Closing.
11.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon personal delivery, facsimile
transmission
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(with written or facsimile confirmation of receipt), telex or delivery by a
reputable overnight commercial delivery service (delivery, postage or freight
charges prepaid), or on the fourth day following deposit in the United States
mail (if sent by registered or certified mail, return receipt requested,
delivery, postage or freight charges prepaid), addressed to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Lender, to: ________________________
________________________
________________________
________________________
________________________
with a copy to: ________________________
________________________
________________________
________________________
________________________
(b) if to Borrower, to: Diedrich Coffee, Inc.
Attention: President
2144 Michelson Drive
Irvine, California 92612
Fax: (714) 756-1144
with a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: Peter J. Tennyson, Esq.
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626-1924
Fax: (714) 979-1921
11.3 Interpretation. When a reference is made in this
Agreement to an Article, Section, Exhibit or Schedule, such reference shall be
to an Article, Section, Exhibit or Schedule to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
11.4 Counterparts; Faxes. This Agreement may be executed on
any number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same document and shall become
effective when each party has delivered to the other party a counterpart duly
executed by it, it being understood that all parties need not sign the same
counterpart. An executed signature page of this Agreement which is transmitted
by fax shall be treated for all purposes as containing an original signature of
the party whose signature appears thereon; as a courtesy, however, when a
signature is initially provided by fax, an original, hand-signed signature page
shall also be provided.
11.5 Integration. This Agreement, the Note, the Security
Agreement and the Warrant and the exhibits and schedules attached hereto and
thereto constitute the entire agreement among the parties with respect to the
subject matter set forth herein or
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<PAGE> 14
therein and supersede all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof or thereof.
11.6 Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
11.7 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California, including its rules of conflicts of law or choice of law.
11.8 Assignment. No party hereto shall assign or transfer or
permit the assignment or transfer of this Agreement without the prior written
consent of the other party.
11.9 Severability. Any portion or provision of this Agreement
which is invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the extent permitted by law,
rendering that or any other portion or provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
11.10 Brokers. No finder, broker, agent, financial advisor or
other intermediary has acted on behalf of Lender in connection with the
transactions contem plated by this Agreement. Borrower and Lender acknowledge
that Gregg Rondinelli and Gregg Rondinelli & Associates (collectively,
"Rondinelli") has provided services to Borrower in connection with the
negotiations and transactions which led to the execution of this Agreement and
the other Loan documents, and agree that Borrower shall be solely responsible
for the payment of all sums, if any, which are due to Rondinelli in this regard.
Borrower and Lender further agree that, at all times, Rondinelli was acting
exclusively for Borrower and not at the request of or for the benefit of Lender.
11.11 Attorneys' Fees. If any party to this Agreement shall
bring any action, suit, counterclaim or appeal for any relief against any other
party, declaratory or otherwise, to enforce the terms hereof or to declare
rights hereunder (collectively, an "Action"), the prevailing party shall be
entitled to recover as part of any such Action its reasonable attorney's fees
and costs, including any fees and costs incurred in bringing and prosecuting
such Action and/or enforcing any order, judgment, ruling or award granted as
part of such Action. "Prevailing party" within the meaning of this section
includes, without limitation, a party who agrees to dismiss an Action upon the
other party's payment of all or a portion of the sums allegedly due or
performance of the covenants allegedly breached, or who obtains substantially
the relief sought by it.
(Signature Page Follows)
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<PAGE> 15
[SIGNATURE PAGE - TERM LOAN AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BORROWER: LENDER:
DIEDRICH COFFEE, INC.,
a Delaware corporation ------------------------------------
By: By:
-------------------------------- ---------------------------------
Kerry Coin, President ,
------------ ---------------
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<PAGE> 1
EXHIBIT 10.29
FORM OF SECURITY AGREEMENT
--------------------------
The parties to this Security Agreement ("Agreement") are:
SECURED PARTY: ________, _______________
DEBTOR: Diedrich Coffee, Inc., a Delaware Corporation
TERMS
1. Definitions.
(a) "Collateral" refers to all of Debtor's assets, both tangible and
intangible, whether on Debtor's premises or elsewhere, including, without
limitation:
(i) all of Debtor's present and future accounts receivable,
including accounts, instruments, documents, chattel paper, and general
intangibles in which Debtor, has or later acquires rights
(collectively, "Accounts");
(ii) all present and future proceeds of all Accounts;
(iii) all of Debtor's present and future contract rights,
including, without limitation, all rights under any insurance policy;
(iv) all of Debtor's present and future rights as lessee under
any lease, including furnishings, fixtures, improvements, and personal
property;
(v) all of Debtor's present and future rights as lessor under
any lease, including furnishings, fixtures, improvements, and personal
property;
(vi) all of Debtor's present and future equipment, fixtures, and
trade fixtures;
(vii) all of Debtor's present and future inventory;
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<PAGE> 2
(viii) all of Debtor's present and future bank accounts,
deposits, and certificates of any kind;
(ix) all of Debtor's present and future brokerage accounts of
any kind;
(x) all shares, bonds, securities, or other indicia of ownership
in or rights with respect to any corporation or business entity owned
by Debtor, now or in the future;
(xi) all interests which Debtor has or may acquire in any real
property, wherever located;
(xii) all books, records, ledger cards, computer programs, and
other property and general intangibles evidencing or relating to the
Accounts, any account debtor, or any form of Collateral, including all
file cabinets or containers in which they are stored (collectively,
"Records");
(xiii) all of Debtor's present and future rights with respect to
intellectual property, including, without limitation, all trade names
and trademarks (and the goodwill of the business they symbolize),
patents, copyrights, and licenses, as well as all applications for any
of the above;
(xiv) all of Debtor's present and future Federal, State and
local tax refund claims of all kinds, insurance claims; and
condemnation awards;
(xv) all of Debtor's other present and future property rights
and general intangibles of every kind, including without limitation,
goodwill, judgments and choses in action, whether tangible or
intangible, vested or contingent;
(xvi) all of Debtor's present and future rights of stoppage in
transit, replevin, repossession and reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, guaranties or
other contracts of suretyship with respect to the Accounts, deposits or
other security for the obligation of any account debtor, and credit and
other insurance;
(xvii) all proceeds of any of the Collateral, including sale
proceeds, claims against third parties for loss or damage to or
destruction of Collateral, and insurance proceeds;
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<PAGE> 3
(xviii) to the extent permitted by law, all of Debtor's
licenses, permits, qualifications, privileges, rights, franchises,
authority, and authorizations which are adequate, necessary or
appropriate for the conduct of Debtor's business;
(xix) to the extent permitted by applicable leases, all of
Debtor's present and future rights to possess, occupy, or conduct
business on the real property owned, leased, or occupied by Debtor for
use in the continued operation of any or all of Secured Party's stores
or in connection with the operation of any other lawful business
thereon; and
(xx) all of Debtor's present and future rights to possess and
use the personal property and fixtures owned, leased, or possessed by
the Company for use in connection with the continued operation of any
or all of Secured Party's stores or in connection with the operation of
any other lawful business.
(b) "Indebtedness" means all of the obligations of Debtor to Secured
Party under the Secured Promissory Note between the parties of even date (the
"Promissory Note") and the Term Loan Agreement between the parties of even date
(the "Term Loan Agreement") (including, without limitation, attorneys' fees and
out-of-pocket costs and interest on those fees and costs at annual rate of 10%
from the date incurred), or any other agreement between the parties, including
future agreements by which Debtor becomes indebted or otherwise obligated to
Secured Party.
(c) "Obligations" means existing and future Indebtedness, including
any non-monetary liabilities of Debtor to Secured Party, and obligations under
the Term Loan Agreement and the Promissory Note, including attorneys' fees and
costs incurred in enforcing this Agreement or collecting payment under it.
(d) Terms defined in the California Commercial Code not otherwise
defined in this Agreement are used in this Agreement as defined in that Code on
the date of this Agreement.
2. Security Interest. In consideration for Secured Party's commitment
to loan Debtor monies under the Promissory Note and under the Term Loan
Agreement, Debtor grants Secured Party a first-priority security interest in the
Collateral to secure payment of the Obligations. The first-priority security
interest is subject to the following:
(a) Debtor represents that, with the exception of UCC filings of
record, liens for taxes not yet due and payable, and mechanics' liens, it is the
sole legal and equitable owner of 100% of the Collateral and has not previously
transferred, assigned, pledged, or hypothecated any interest in any of the
Collateral.
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<PAGE> 4
(b) Except for (i) the property to be disposed of as set forth in
Schedule A attached hereto, (ii) sales of inventory in the ordinary course of
business, and (iii) sales of used equipment or furnishings in the ordinary
course of business (and not in full or partial liquidation of Borrower's
business), Debtor will not, without the written consent of Secured Party,
transfer, assign, pledge or hypothecate any interest in the Collateral until it
satisfies the Indebtedness owed to Secured Party, except that:
(i) Borrower may grant or suffer the existence of mechanics'
liens and landlord liens in the ordinary course of its business,
provided that Borrower makes adequate provisions for the payment or
other satisfaction of such liens;
(ii) Borrower may grant purchase money liens in the ordinary
course of its business, provided that such purchase money liens shall
have priority over the rights of Secured Creditor only to the extent of
the portion of the purchase price which was advanced to Borrower by the
purchase money lender and if such purchase money lender shall require
Borrower to convey security other than the goods sold to Borrower, the
agreement between Borrower and the purchase money lender shall
expressly acknowledge that the Borrower money lender's rights with
respect to any such additional security shall be junior to the rights
of Secured Party; and
(iii) Borrower may enter into certain sale and leaseback
agreements with respect to equipment as set forth in Schedule B
attached hereto.
(c) If any of the Collateral, or any interest in it, is conveyed,
pledged or alienated by the Debtor, by operation of law or otherwise, except as
set forth above, the Indebtedness shall immediately become due at the option of
Secured Party, and without demand or notice.
(d) In the event of a default (as defined in Section 8 below)
Secured Party shall have the right to occupy, possess, use, or sublet any or all
of Debtor's present or future real or personal property (whether owned or
leased) as Secured Party, in its sole an absolute discretion deems appropriate
or desirable and such right is a material part of the consideration for Secured
Party's loan to Debtor. This is because Secured Party's ability to operate some
or all of Debtor's stores (or to sublet the premises or use such property as may
be permitted by any underlying lease) may, under certain circumstances, be the
best or only way that Secured Party can protect its rights as a practical
matter.
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<PAGE> 5
3. Covenants of Debtor. Debtor promises:
(a) To pay the Indebtedness to Secured Party when it is due, time
being of the essence.
(b) To pay all expenses, including attorneys' fees, incurred by
Secured Party in the perfection, preservation, realization, enforcement, and
exercise of its rights under this Agreement.
(c) To indemnify Secured Party against actual loss of any kind,
including reasonable attorneys' fees, caused to Secured Party by reason of its
interest in the Collateral.
(d) Not to sell, lease, transfer, or otherwise dispose of any
Collateral except for (i) the property to be disposed of as set forth in
Schedule A, (ii) sales of inventory in the ordinary course of business, (iii)
sales of used equipment or furnishings in the ordinary course of business (and
not in full or partial liquidation of Borrower's business), and (iv) the sale
and leaseback agreements as set forth in Schedule B.
(e) Not to permit liens on the Collateral, except existing liens,
liens for taxes not yet due and payable, mechanics' liens, landlord liens, and
purchase-money liens.
(f) To execute and deliver to Secured Party all financing statements
and other documents that Secured Party requests, in order to maintain a
first-perfected security interest in the Collateral in all appropriate
jurisdictions.
(g) To maintain, satisfactory and complete books and records of all
Accounts, and to make all records available as Lender may reasonably request;
provided, however, that Lender may only use the information contained in such
records for purposes consistent with this Agreement.
(h) That it has made adequate provision to pay or otherwise fully
satisfy all tax obligations, mechanics' liens, and landlord liens, either now or
hereafter existing.
4. Insurance. Debtor represents, warrants, and covenants that, at
present and for so long as any of the Indebtedness remains unsatisfied:
(a) Debtor maintains and shall continue to maintain adequate
insurance protection against all damages, losses, liabilities, claims, and risks
against which it is customary to insure, all in amounts as is adequate given the
nature and size of Debtor's business and its foreseeable risks. In this regard,
Debtor carries: (i) Boiler and Machine insurance; (ii) property and primary
liability insurance; (iii) automobile insurance; and (iv)
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<PAGE> 6
an umbrella commercial liability insurance policy; all as more particularly
described in Schedule C attached hereto.
(b) Debtor is not in default with respect to payment of premiums on
any insurance policy held by Debtor.
(c) Debtor shall cause Secured Party and its successors and assigns
to be named as additional insureds on each of the insurance policies described
above. Debtor shall likewise cause Secured Party and its successors and assigns
to be named as additional insureds on each subsequent, replacement, or
additional insurance policies which it may later acquire.
5. Appointment of Attorney in Fact. In the event of a default (as
defined in Section 8 below), and subject to the terms of the Intercreditor
Agreement between Secured Party and the other parties thereto to be entered into
on or before the date hereof (the "Intercreditor Agreement"), Debtor appoints
Secured Party as Debtor's attorney in fact, with the following powers:
(a) To perform any of the Obligations of Debtor under the Agreement,
the Term Loan Agreement, or the Promissory Note in Debtor's name or otherwise;
(b) To collect any payments due to and to enforce all of the rights
of Creditor with respect to any of the Collateral;
(c) To give notice of Secured Creditor's right to payment, to
enforce that right, and to make extension agreements with respect to it;
(d) To prepare and file financing statements, continuation
statements, statements of assignment, termination statements, and the like as
necessary, appropriate, or helpful to perfect, protect, preserve, or release
Secured Party's interest in the Collateral;
(e) To endorse Debtor's name on instruments, documents, or other
forms of payment or security that come into Secured Party's possession; and
(f) To accept cash in payment of Obligations.
6. Termination. This Agreement and the Secured Party's security
interest hereunder shall be extinguished when Debtor satisfies the Indebtedness
in full and completes performance of all Obligations to Secured Party.
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<PAGE> 7
7. Documents to Perfect. Debtor shall execute all documents, including
UCC- 1 form financing statements, requested by Secured Party to effectuate and
perfect the security interest, as may be necessary, appropriate, or helpful to
secure the benefits to be provided to Secured Party under this Agreement, the
Term Loan Agreement, or the Promissory Note.
8. Default. Debtor will be in default under this Agreement if:
(a) There shall occur any event which constitutes an "Event of
Default" under the Promissory Note; or
(b) There shall occur any event which constitutes an "Event of
Default" under the Term Loan Agreement.
9. Remedies for Default. Upon the occurrence of any default, and
subject to the Intercreditor Agreement (as defined in the Term Loan Agreement):
(a) Secured Party shall have all rights of a secured creditor under
the California Commercial Code and under the Uniform Commercial Code of any
other jurisdiction as may be necessary, appropriate, or helpful to enforce this
Agreement. These rights include, but are not limited to, the right to take
possession, appropriate or sell any of the Collateral and apply proceeds of the
Collateral toward payment of the underlying obligation; the right to settle and
compromise any claims of the Debtor regarding the Collateral; the right to
prosecute any action, suite or proceeding with respect to the Collateral; and
the right to sell the Collateral at a public or private sale and to purchase
Collateral at such a sale.
(b) Debtor waives any bond that might be required if Secured Party
seeks to take possession of Collateral through judicial process.
(c) All rights, powers and remedies shall be cumulative and may be
exercised successively or concurrently in Secured Party's sole discretion
without impairing its security interest, rights or available remedies. Secured
Party's forbearance, failure or delay in exercising any right, power, or remedy
shall not preclude further exercise of that or any other right, power, or
remedy, which shall continue in effect until Secured Party specifically waives
it in writing. Secured Party has the right to decide, in its sole discretion,
which remedies it will pursue and when. Debtor will remain liable for any
deficiency after disposition of the Collateral.
(d) Debtor agrees that each of the following procedures will be
considered "commercially reasonable" within the meaning of the California
Commercial
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<PAGE> 8
Code, the Uniform Commercial Code of any other state or jurisdiction, and any
similar statutes, rules, or regulations which may be applicable:
(i) The giving of notice of any sale of any of the Collateral by
Secured Party to Debtor, in the manner set forth in Paragraph 16 of
this Agreement, which is at least 5 days before the date of any public
sale (or 5 days before the time after which a private sale will be
made); or
(ii) The sale of any Collateral to a supplier, including sale in
bulk or in parcels, as may be provided in any agreement between Secured
Party and the supplier.
If Secured Party disposes of any Collateral other than as set out in
this subparagraph, the commercial reasonableness of the disposition will be
determined under California law.
10. Assignment of Rights of Secured Party. Secured Party may, at any
time, sell, assign, convey, alienate, pledge, hypothecate, borrow against, or
otherwise transfer or encumber any or all of the interests, rights, and powers
granted to Secured Party by this Agreement without any need to obtain Debtor's
consent or approval to such transfer or encumbrance and regardless of whether
Secured Party has provided Debtor with prior notice of that or any transfer or
encumbrance.
11. Transfers Requiring Consent, Approval, or Waiver. Notwithstanding
any other provision of this Agreement to the contrary, if it should be
determined that any right of Debtor lessee under any lease of Debtor ("Leasehold
Right") is not assignable or transferable pursuant to the terms of such lease
without the consent, approval, or waiver of a third party, or if an assignment
or other transfer ("Transfer") of, or an agreement to Transfer, any Leasehold
Right would constitute a breach thereof or a violation of law, nothing in this
Agreement will constitute a Transfer of, or an agreement to Transfer, such
Leasehold Right.
12. Defenses. In the event of any default, Debtor will fulfill all of
Obligations and commitments to Secured Party regardless of whether any
Collateral is defective or worth less than believed or anticipated and will
indemnify and hold Secured Party harmless against any claims or defenses
asserted by any buyer of the Collateral relating to the condition of, or
representations made by Debtor about, any Collateral. Debtor waives all rights
of offset against Secured Party and agrees that it will not assert against
Secured Party any claim or defense Debtor has or may have against any third
party.
13. Further Acts; Cooperation. The parties will execute all further
documents reasonable, convenient, necessary, or desirable to carry out this
Agreement. The parties
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shall cooperate to effectuate the intent of this Agreement and the mutual
benefits intended to be conferred under it.
14. Successors and Assigns. This Agreement shall be binding upon and
insure to the benefit of the parties and their respective heirs, successors, and
assigns.
15. Jurisdiction and Venue for Disputes. Any action relating to any
dispute under this Agreement shall be litigated solely in the courts located in
Orange County, California. All parties consent to the jurisdiction in the State
of California over all disputes and consent that venue is proper in Orange
County, California.
16. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile transmission
(with written or facsimile confirmation of receipt), telex or delivery by a
reputable overnight commercial delivery service (delivery, postage or freight
charges prepaid), or on the fourth day following deposit in the United States
mail (if sent by registered or certified mail, return receipt requested,
delivery, postage or freight charges prepaid), addressed to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
IF TO SECURED PARTY:
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
WITH A COPY TO:
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
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IF TO DEBTOR:
Diedrich Coffee, Inc.
Attention: President
2144 Michelson Drive
Irvine, California 92612
Fax: (714) 756-1144
WITH A COPY TO:
Paul, Hastings, Janofsky & Walker LLP
Peter J. Tennyson, Esq.
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Fax: (714) 979-1921
17. Headings. Headings in this Agreement are for convenience only and
shall not be deemed a part of this Agreement.
18. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of California.
19. Construction. All parties have cooperated in the drafting and
preparation of this Agreement. Accordingly, no provision of this Agreement shall
be construed for or against either party by virtue of its having drafted a
specific provision.
20. Attorneys' Fees. Debtor promises to pay all of the costs and
expense, including reasonable attorneys's fees, incurred in connection with the
perfection and enforcement of this Agreement or in connection with the
collection or enforcement of the Promissory Note. The obligation to pay
attorneys' fees as set forth herein shall not be construed as an agreement
authorizing an award of attorneys' fees incurred in connection with any
controversy or dispute concerning the interpretation, breach, or enforceability
of the Term Loan Agreement even if such fees are incurred in connection with
proceedings seeking the perfection or enforcement of this Agreement or the
collection or enforcement of the Note.
21. No Waiver. Secured Party's waiver, forbearance, failure, or delay
in exercising any right, power, or remedy shall not preclude further exercise of
that or any other right, power, or remedy, which shall continue in effect until
Secured Party specifically waives it in writing. Secured Party has the right to
decide, in its sole discretion, which remedies it will pursue and when.
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22. Survival of Representations and Warranties. Debtor's
representations and warranties in this Agreement, the Term Loan Agreement, and
the Promissory Note will survive the execution, delivery, and termination of
this Agreement.
23. Integration. This Agreement supersedes all prior agreement or
understandings between Secured Party and Debtor relating to its subject matter,
except for those agreements contained in the Term Loan Agreement, the Promissory
Note and the Warrant. There are no oral agreements pertaining to the subject
matter of this Agreement, and this Agreement shall supersede all oral
representations and statements by the parties. This Agreement may be modified
only by a writing signed by the party to be charged.
(Signature Page Follows)
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[SIGNATURE PAGE - SECURITY AGREEMENT]
Dated: ___________________
DIEDRICH COFFEE INC. (DEBTOR)
By
----------------------------
Kerry Coin, President
------------------------------
(SECURED PARTY)
By
----------------------------
----------, -----------
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<PAGE> 1
EXHIBIT 10.30
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THAT ACT OR SUCH
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE.
- --------------------------------------------------------------------------------
FORM OF WARRANT
- --------------------------------------------------------------------------------
_________, 1997
Diedrich Coffee, Inc., a Delaware corporation ("Company"), hereby
grants to ___________, a ____________ ("Holder"), or its registered assigns the
right to acquire the shares of Common Stock issuable upon exercise hereof,
subject to the terms and conditions set forth below:
1. Definitions. As used in this Warrant, the following terms shall
mean:
1.1 "Agreement" -- shall mean the Term Loan Agreement of even date,
between Company and Holder.
1.2 "Common Stock" -- shall mean the Common Stock, $0.01 par value
issued by Company issuable on exercise of this Warrant.
1.3 "Company" shall include Diedrich Coffee, Inc. and each successor
corporation or Diedrich Coffee, Inc. under this Warrant, whether such assumption
is express, implied, or by operation of law.
1.4 "Determination Date" -- shall mean the date on which Company
receives Holder's written notice of an exercise of the stock purchase right
pursuant to Section 2.1 hereof.
1.5 "Indemnified Person" -- shall have the meanings given in Section
3.7(a) and Section 3.7(b).
1.6 "Issuance Date" -- shall mean the date of this Warrant.
<PAGE> 2
1.7 "Note" -- shall mean the Secured Promissory Note issued by
Company to Holder as further described in the Agreement.
1.8 "Liability" -- shall have the meaning given in Section 3.7.
1.9 "Purchase Price" -- shall mean initially $2.25 per share, as
adjusted in accordance with Section 5, depending upon the context.
1.10 "Registration Expenses" -- shall have the meaning given in
Section 3.6.
1.11 "SEC" -- shall mean the Securities Exchange Commission.
1.12 "Securities Act" -- shall mean the Securities Act of 1933, as
amended.
1.13 "Shares" -- shall mean the shares of Warrant Stock for which
this Warrant may be exercised pursuant to Section 2.1 hereof.
1.14 "Subsidiary" -- shall mean any corporation, association or
other business entity at least fifty percent (50%) of the outstanding voting
stock of which is at the time owned or controlled directly or indirectly by
Company or by one or more of such subsidiary entities or both.
1.15 "Warrant Amount" -- shall mean an amount equal to the initial
Purchase Price times _________ shares, as reduced by the exercise of rights
hereunder; provided however that if Company repays Holder all amounts due under
the Note within 120 days of the date hereof, thereafter the term "Warrant
Amount" shall mean an amount equal to the initial Purchase price times ________
[one-half of initial warrant amount] shares, as reduced by the exercise of
rights hereunder.
1.16 "Warrant Stock" -- shall mean the authorized and unissued
Common Stock reserved for issuance upon exercise of the Warrant.
2. Right to Purchase.
2.1 Exercise. Holder shall have the right to purchase for all or any
portion of the Warrant Amount that number of shares of fully paid and
nonassessable Warrant Stock of Company which is determined by dividing the
Warrant Amount by the
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Purchase Price. Such right shall be exercisable at any time through and
including _____________, 2003, or, if later, one year after the final payment of
all principal and accrued interest on the Secured Promissory Note issued to
Holder pursuant to the Agreement (the "Note"). Upon the surrender of this
Warrant to Company, accompanied by Holder's written notice of exercise and a
payment of the Purchase Price for the Shares identified in the notice, Company
shall, within ten (10) days from the date of Company's receipt of such notice
(a) issue and deliver to Holder certificates evidencing the Shares (as
hereinafter set forth) and (b) if any or all of rights to purchase evidenced by
this Warrant remain unexercised, return this Warrant or a substitute Warrant to
Holder with such notation thereon as appropriate to indicate that partial
exercise has occurred and to purchase rights. For the purpose of this Section 2,
the purchase shall be deemed to occur at the close of business on the
Determination Date. In the event that Holder shall elect to exercise its right
with respect to less than the entire number of shares covered by this Warrant,
such partial exercise shall not be interpreted to prevent Holder or its
transferees, successors or assignees from asserting the then unexercised rights
or constitute a waiver of such unexercised rights.
2.2 Form of Payment: "Cashless" Exercise. Payment on exercise of
this Warrant may be in cash, by check payable to the order of the Company, by
surrender of one or more of the Company's promissory notes (or portion thereof),
securities, or other obligations (or portion thereof), or any combination of the
above. At Purchaser's option, exercisable in the notice delivered pursuant to
Section 2.1, all or a portion of the Purchase Price may be paid by surrendering
a portion of the Shares. The value attributed to any Shares so surrendered shall
be the closing offer price on the date of the notice.
2.3 Fractional Shares. No fractional shares of Warrant Stock, or
other class of capital stock, will be issued in connection with any exercise
hereunder, but in lieu of such fractional shares, Company shall make a cash
payment therefor upon the basis of the fair market value of each Share as of the
Determination Date, as determined in good faith by the Board of Directors of
Company less the Purchase Price.
2.4 Interest Adjustment. The parties agree that if the Note was not
accompanied by this Warrant, the interest rate would be not more than one
percent (1%) higher.
2.5 Surrender Warrant Following Kickout. If Company repays Holder
all amounts due under the Note within 120 days of the date hereof, Holder shall
immediately surrender this Warrant to Company and Company shall reissue to
Holder a replacement Warrant reflecting the change in the Warrant Amount.
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3. Registration Rights; Transfer of Securities. This Warrant and the
Warrant Stock to be issued pursuant to exercise of this Warrant is not
transferable except, to the extent such transfers would not violate the
provisions of the Securities Act or any applicable state securities laws, (a) to
affiliates (as such term is defined in Rule 144 of the Securities Act) of the
Holder who are accredited investors within the meaning of Regulation D of the
Securities Act, (b) such other persons upon the prior written consent of
Company, which consent shall not be unreasonably be withheld, or (c) upon the
conditions specified in this Section 3, which conditions are intended to assure
compliance with the provisions of the Securities Act and state securities laws
in respect of the transfer of any such Warrants or Warrant Stock.
3.1 Restrictive Legends. Unless and until they are registered under
the Securities Act, this Warrant (and any replacement therefor) and the Shares
issued upon the exercise of this Warrant shall be stamped or otherwise imprinted
with legends in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND THUS MAY NOT BE
TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS
AVAILABLE.
Company may cause its transfer agent to stop the transfer of such
Warrants or Warrant Stock if Holder or the owner of Warrant Stock wishing to
make the transfer fails to provide the Company with such a written opinion of
counsel.
3.2 Notice of Proposed Transfers. Subject to Section 3.1, prior to
any transfer or attempted transfer of this Warrant (or any Warrant Stock)
bearing the legend described in Section 3.1, Holder (or the owner of Warrant
Stock) shall give the Company written notice of its intention so to do,
describing briefly the nature of any such proposed transfer. If, in the written
opinion of counsel for Holder (or the owner of Warrant Stock), in form and
substance reasonably satisfactory to the Company or its counsel, addressed to
the Company or Holder (or the owner of Warrant Stock), the proposed transfer may
be effected without registration of this Warrant (or such Warrant Stock), this
Warrant (or the Warrant Stock proposed to be transferred) may be transferred in
accordance with the terms of said notice and in compliance with applicable state
securities laws and regulations. Company shall not be required to effect any
such transfer prior to the receipt of such
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favorable opinion; provided that if the proposed transfer is governed by Rule
144 promulgated by the SEC, or any successor rule, such opinion shall not be
required, but Company may prevent such transfer until it receives evidence
satisfactory to it and its counsel that the transfer complies with Rule 144.
Each transfer shall comply with all applicable state securities laws and
regulations.
3.3 Piggyback Registration. If Company at any time prior to
__________, 2003 proposes to register any of its securities under the Securities
Act (other than a registration effected solely to implement an employee benefit
plan, a transaction to which Rule 145 of the SEC is applicable or any other form
or type of registration in which the Warrant Stock cannot be included pursuant
to SEC rule or practice), it will give a written notice to Holder and the
registered owners of Warrant Stock of its intention to do so. If such
registration is proposed on a form which permits inclusion of the Warrant Stock,
upon the written request of Holder or any owner of Warrant Stock given within 30
days after the transmittal by Company to such Holder or owner of such notice,
the Company will, subject to the limits contained in this Section 3.3, use its
best efforts to cause all Warrant Stock which said requesting Holder or owner
identifies in its request (including Warrant Stock to be issued upon exercise of
this Warrant) to be registered under the Securities Act and qualified for sale
under any state blue sky law, all to the extent requisite to permit such sale or
other disposition by such Holder or owner. Notwithstanding the above, however,
if the underwriter managing such registration gives a written notice to the
person requesting registration pursuant to this Section 3.3 that market or
economic conditions limit the amount of securities of the Company which may
reasonably be expected to be sold, the underwriter shall first exclude from the
proposed registration the shares of Common Stock which persons other than (a)
such requesting Holder or owners of Warrant Stock, (b) the holders of the
warrants issued pursuant to the Other Agreements (as that term is defined in the
Agreement) or (c) Company have requested to be registered. If, after such
exclusion, the total number of shares of Common Stock to be registered still
exceeds the number of shares of Common Stock which the underwriter will permit
to be registered, each requesting Holder or owner will be allowed to register
Warrant Stock pro rata according to the proportion which the number of shares of
Warrant Stock held (including shares issuable upon exercise of this Warrant) by
such requesting Holder or owner bears to the total number of shares of Common
Stock which were proposed to be sold by the underwriter. Company may for any
reason determine not to proceed with a proposed registration of its securities
even though Holder or one or more owners of Warrant Stock has requested the
inclusion of Warrant Stock in such proposed registration. However, if Company
determines not to proceed and withdraws the Company's registration statement,
Company shall pay all fees and expenses reasonably incurred by the requesting
Holder or owner(s) in connection with the proposed registration.
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3.4 Demand Registration. Company shall use its best efforts to
qualify and remain qualified for registration of the Warrant Stock on Form S-3
(or a similar short-form registration statement). If singly or in combination,
the Holder, holders of any other warrant issued pursuant to the Agreement or the
Other Agreements, or owners of Common Stock issued pursuant to this Warrant or
any other warrant issued pursuant to the Agreement or the Other Agreements
request to have 300,000 or more of their shares of Common Stock (or shares of
Warrant Stock which they are entitled to acquire under this or such other
warrants) registered, Company will use its best efforts to promptly register
such shares on Form S-3 (or a similar short-form registration statement). Such
request(s) shall be in writing and shall state the number of shares of Warrant
Stock to be registered and the intended method of disposition of such Warrant
Stock in sufficient detail to permit a description in a registration statement
and shall contain a statement of a good-faith intention to sell the Warrant
Stock proposed to be registered. The Company may delay registration pursuant to
this Section 3.4 if, in the good-faith judgment of the Company, such
registration will hinder or interfere with a concurrent or proposed security
issuance of, or acquisition by, the Company; provided that the Company shall use
its best efforts to effect the registration following the completion of the
transaction or transactions involving such issuance or acquisition. The Company
shall give notice to Holder and all registered owners of Warrant Stock of the
receipt of a request for registration pursuant to this Section 3.4 and shall
provide a reasonable opportunity for such persons to participate in the
registration. If any requesting Holder or owner of Warrant Stock determines not
to proceed with a registration requested pursuant to this Section 3.4 and the
registration is not completed (or is completed but less than 300,000 shares of
Warrant Stock are registered), such withdrawing Holder or owner shall pay its
proportionate share of the expenses reasonably incurred by Company pursuant to
the registration request, unless the decision not to proceed is:
(a) based upon a material adverse fact or condition relating to
Company which was not disclosed to such Holder or owner of Warrant Stock prior
to the request for registration;
(b) based upon a written opinion of such Holder or owner's
counsel that one or more specific statements or omissions in the proposed
registration statement are materially misleading without changes which Company
declines to make after written request therefor; or
(c) followed by a decision by Company or other holders of
Company's Common Stock (or holders of rights to such stock) to proceed with the
registration in question, which results in the proposed registration statement
becoming
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effective with respect to shares of Common Stock to be issued by the Company or
held by others.
3.5 Registration Procedures. If and whenever Company proposes the
registration of any of its securities under the Securities Act, or is in receipt
of a request pursuant to Section 3.3 or 3.4, Company will, as expeditiously as
possible, subject in all cases to the right of Company to withdraw a proposed
registration as described in Section 3.3 or delay the registration as described
in Section 3.4.
(a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period provided for in Section
3.5(g);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period provided for in Section 3.5(g) and to otherwise comply with the
provisions of the Securities Act with respect to the sale or other disposition
of the securities covered by such registration statement;
(c) furnish to Holder and the owners of Warrant Stock whose
securities are to be included in the registration such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as Holder or such
owners may reasonably request to facilitate the sale or other disposition of the
Warrant Stock to be covered by such registration statement;
(d) use every reasonable effort to register or qualify the
securities covered by such registration statement under such other securities or
state blue sky laws of such jurisdictions as Holder or the owners of Warrant
Stock participating in such registration shall reasonably request and do any and
all other acts and things which may be necessary under such securities or blue
sky laws to enable such Holder or owners to consummate the sale or other
disposition in such jurisdictions of the securities owned by them which are
covered by the registration statement in question, except that the Company shall
not for any such purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(e) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to one counsel selected by Holder and
the
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<PAGE> 8
owners of Warrant Stock who have requested registration copies of such documents
proposed to be filed which shall be subject to the reasonable approval of such
counsel; and
(f) furnish to Holder and each requesting owner of Warrant Stock
a signed counterpart, addressed to such Holder or owner, of (i) an opinion of
counsel for Company, dated the effective date of the registration statement, and
(ii) a "comfort" letter signed by the independent public accountants who have
certified Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in case of the accountants'
letter with respect to events subsequent to the date of the financial
statements, as are customarily covered (at the time of such registration) in
opinions of Company's counsel and in accountants' letters delivered to the
underwriters in underwritten public offerings of securities; and
(g) notwithstanding any other provision of this Section 3,
Company shall not in any event be required to us its best efforts to maintain
the effectiveness of any such registration statement for a period in excess of
90 days (or at the request of Holder or any owner of Warrant Stock who so
requests, an additional 90 days).
3.6 Expenses. All expenses incurred in effecting all registrations
provided for above, including without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for Company, expenses
of any audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions relating to
a registration pursuant to Section 3.3 or 3.4 hereof (all of such expenses
referred to as "Registration Expenses") shall be paid by Company; provided,
however, that Company shall bear the Registration Expenses for no more than two
registrations pursuant to Section 3.4 for all holders of this Warrant and the
warrants issued in connection with the Other Agreements. The Company shall not
pay any fees or expenses of counsel for Holder or the owners of Warrant Stock or
any counsel for underwriters or any fees or commissions due to any underwriter
with respect to any Warrant Stock.
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3.7 Indemnification.
(a) In the event of any registration of any of its securities
under the Securities Act pursuant to Section 5, Company shall indemnify and hold
harmless the seller of such securities, each underwriter (as defined in the
Securities Act), and each other person, if any, who controls (within the meaning
of the Securities Act) such seller, underwriter or participating seller
(individually and collectively the "Indemnified Person") against any losses,
claims, damages or liabilities (collectively the "liability"), joint or several,
to which such Indemnified Person may become subject under the Securities Act or
any other statute or at common law, insofar as such liability (or action in
respect thereof) is caused by (i) any untrue statement of material fact
contained on the effective date thereof, in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or any amendment or supplement
thereto, or (ii) any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading.
Except as otherwise provided in Section 3.7(d), Company shall reimburse each
such Indemnified Person in connection with investigating or defending any such
liability, provided, however, that Company shall not be liable to any
Indemnified Person in any such case to the extent that any such liability is
caused by any untrue statements or omissions made in such registration
statement, preliminary or final prospectus, or amendment or supplement thereto
in reliance upon and in conformity with information furnished to Company by such
Indemnified Person specifically for use therein; and provided further, that
Company shall not be required to indemnify any Indemnified Person against any
liability caused by any untrue or misleading statement or omission contained in
any preliminary prospectus if such deficiency is corrected in the final
prospectus or for any lability which is caused by the failure of any person
other than Company to deliver a prospectus as required by the Securities Act.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Person and shall survive
transfer of such securities by such seller.
(b) If, at the request of Holder or any owner of Warrant Stock,
Company shall register any of the Warrant Stock of such requesting Holder or
owner, that requesting Holder or owner shall indemnify and hold harmless
Company, Company's directors and officers, each underwriter and each other
person, if any,who controls (within the meaning of the Securities Act) Company
or such underwriter (individually and collectively also the "Indemnified
Person") against any liability (or actions in respect thereof) was caused by (i)
the disposition of this Warrant or Warrant Stock by such Holder or owner in
violation of the provisions of Section 3.2; (ii) an untrue statement of material
fact contained in, on the effective date thereof, any registration statement
under which such securities were registered, any preliminary prospectus or final
prospectus contained
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therein, or any amendment or supplement thereto, which untrue statement was
included therein in good faith reliance on and in conformity with information
furnished to Company in writing by such Holder or owner specifically for use in
such registration statement, preliminary or final prospectus, or amendment or
supplement thereto, or (iii) an omission of material fact required to be stated
in any registration statement under which such securities were registered, an
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, which omission was the result of the Indemnified Person's
good-faith reliance on and in conformity with information furnished to Company
in writing by such Holder or owner specifically for use in such registration
statement, preliminary or final prospectus, or amendment or supplement thereto.
Notwith standing the above, however, no Holder or owner of Warrant Stock shall
be required to indemnify any Indemnified Person if any untrue statement or
omission of material fact was made in reliance on the advise, conclusions,
calculations, determinations, or authority of an expert so long as Holder or
such owner of Warrant Stock had no reasonable ground to disbelieve, and did not
in fact disbelieve, the accuracy or completeness of the information provided by
the Holder or owner in reliance on such expert. A Holder or owner of Warrant
Stock otherwise required to provide indemnification pursuant to this Section
3.7(b) shall reimburse any Indemnified Person for any legal fees incurred in
investigating or defending any such liability, provided,however, that no such
Holder or owner of Warrant Stock shall be required to indemnify any person
against any liability arising form any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or for any liability which arises out of the failure of
any person other than Holder (or the indemnity obligation shall apply to the
benefit of the Company, the Company's directors and officers, each underwriter
and each other person, if any, who controls the Company or such underwriter and
to no other persons or entities.
(c) Subject to such modifications as the context may require,
indemnification similar to that specified in Section 3.7(a) above shall be given
by Holder and owners of Warrant Stock who have indemnity obligations (but only
to the extent of such Holder or owner's obligations thereunder) with respect to
any required registration or other qualification of Warrant Stock under any
federal or state law or regulation of governmental authority other than the
Securities Act.
(d) If Company, Holder, or any owner of Warrant Stock receives a
complaint, claim or other notice of any liability or action, giving rise to a
claim for indemnification under Section 3.7(a), 3.7(b), or 3.7(c), the person
claiming indemnification under such sections shall promptly notify the person
against whom indemnification is sought of such complaint, notice, claim or
action and such indemnifying person shall have the right to investigate and
defend any such loss, claim, damage,
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<PAGE> 11
liability, or action. The person claiming indemnification shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses sought unless the indemnifying party fails to
promptly defend (in which case the fees and expenses of such separate counsel
shall be borne by the person against whom indemnification is sought). In no even
shall a person against whom indemnification is sought be obligated to indemnify
any person for any settlement of any claim or action effecting without
indemnifying person's prior written consent.
3.8 Contribution. If the indemnification by Company as provided for
in Sections 3.7(a) or 3.7(c) is unavailable or insufficient to hold harmless the
Indemnified Persons in respect of any liability, then Company shall contribute
to the amount paid or payable by such Indemnified Persons as a result of such
liability in such proportion as is appropriate to reflect the relative fault of
Company on the one hand and the Indemnified Person(s) on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities, expenses or actions as well as any other relevant
equitable considerations, including the failure to file the notice required
hereunder. The relative fault of Company and the Indemnified Person(s) shall be
determined by reference to, among other things, whether the untrue statement of
material fact relates to the information supplied by Company or the Indemnified
Person(s) and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Company agrees
that it would not be just and equitable if contributions pursuant to this
Section 3.8 were determined by pro rata allocation or by any other method of
allocation which did not take account of the equitable considerations referred
to above.
3.9 Registration Rights Do not Necessarily Follow the Warrant Stock.
Notwithstanding the provisions of this Section 3, if Holder causes Company to
issue any Warrant Stock to a third party, or if Holder transfers any Warrant
Stock issued to it to a third party, Holder shall retain the right to have those
shares registered as set forth in this Section 3, and the third-party owner of
such Warrant Stock shall not have any registration rights under this Warrant,
unless the Company shall give its written consent to the transfer of such
registration rights.
3.10 Termination of Registration Rights. Notwithstanding the
provisions of this Section 3, the rights to registration of the Warrant Stock
shall terminate, as to any particular Warrant Stock, when such Warrant Stock
shall have been lawfully sold by the holder pursuant to a registration statement
or Rule 144 or may be sold pursuant to Rule 144 during any three month period
or, if earlier, the later of ________, 2003 and one year after the final payment
of all principal and accrued interest on the Note.
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3.11 Compliance with Rule 144. At the request of Holder or any owner
of Warrant Stock who proposes to sell Warrant Stock in compliance with Rule 144
of the SEC, Company shall forthwith furnish to Holder or such owner a written
statement of compliance with the filing requirements of the SEC as set forth in
such Rule, as such Rule may be amended from time to time and make available to
the public and Holder or such owner such information as will enable holder of
the owner to make sales of Warrant Stock pursuant to Rule 144.
3.12 Consent to Be Bound. Each subsequent Holder and each transferee
of any Warrant Stock must consent in writing to be bound by the terms and
conditions of this Section 3 in order to acquire the registration rights granted
pursuant to this Section.
3.13 Investment Intent. Holder represents and warrants that this
Warrant and the Warrant Stock issuable upon exercise of the Warrant are being
acquired by Holder solely for Holder's own account, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of the Warrant or the Warrant Stock issuable upon exercise of the
Warrant.
3.14 Sophistication. Holder represents and warrants that Holder is
able to bear the economic risk of the investment required pursuant to this
Warrant and the Warrant Stock issuable upon exercise of the Warrant and can
afford to sustain a total loss on such investment, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the proposed investment and therefore has the capacity
to protect its own interests in connection with the Warrant.
4. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to Company of the ownership of and the loss, theft, destruction or
mutilation of this War rant and (in the case of loss, theft or destruction) upon
delivery of an indemnity agreement in an amount reasonably satisfactory to
Company, or (in the case of mutilation) upon sur render and cancellation of the
mutilated Warrant, Company will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
5. Protection Against Dilution.
5.1 Adjustment for Stock Splits and Combinations. If Company at any
time or from time to time after the Issuance Date effects a subdivision of the
outstanding Warrant Stock, the Purchase Price then in effect immediately before
the subdivision shall be proportionately decreased, and conversely, if Company
at any time or from time to time after the Issuance Date combines the
outstanding shares of Warrant Stock, the Purchase Price then in effect
immediately before the combination shall be proportionately increased.
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Any adjustment under this Section 5.1 shall become effective as of the date and
time the subdivision or combination becomes effective.
5.2 Adjustment for Certain Dividends and Distributions. If Company
at any time or from time to time after the Issuance Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Purchase Price then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denom inator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such dividend is not fully paid, or if
such distribution is not fully made on the date fixed therefor, the Purchase
Price shall be recomputed to reflect that such dividend was not fully paid or
that such distribution was not fully made as of the close of business on such
record date and thereafter the Purchase Price shall be adjusted pursuant to this
Section 5.2 as of the time of actual payment of such dividends or distributions.
5.3 Adjustments for Other Dividends and Distributions. In the event
Company at any time or from time to time after the Issuance Date makes, or fixes
a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of Company other
than shares of Common Stock, then and in each such event provision shall be made
so that Holder shall receive upon exercise of this Warrant, in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of Company which Holder would have received had the Warrant been fully exercised
for Common Stock on the date of such event and had Holder thereafter, during the
period from the date of such event to and including the date of exercise,
retained such securities receivable by it as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of Holder.
5.4 Adjustment for Reclassification, Exchange and Substitution. If
the Warrant Stock issuable upon the exercise of this Warrant is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for
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elsewhere in this Section 5), then, and in any such event, Holder shall have the
right there after, upon exercise of this Warrant to receive the kind and amount
of stock and other securities and property receivable upon such reorganization,
reclassification or other change, in an amount equal to the amount that Holder
would have been entitled to had it immediately prior to such reorganization,
reclassification or change exercised Holder's rights to purchase under this
Warrant, but only at such time and to the extent this Warrant is actually
exercised, all subject to further adjustment as provided herein.
5.5 Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time there is a capital reorganization of the
Warrant Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of the Warrant Stock provided for elsewhere in this
Section 5) or merger or consolidation of Company with or into another entity, or
the sale of all or substantially all of Company's properties and assets to any
other person then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that Holder shall thereafter be entitled to
receive, upon exercise of rights to purchase under this Warrant (but only to the
extent such rights are exercised), the number of shares of stock or other
securities or property of Company, or of the successor entity resulting from
such merger or consolidation or sale, to which a holder of Warrant Stock, or
other securities, deliverable upon the exercise of purchase rights under this
Warrant would otherwise have been entitled on such capital reorganization,
merger, consolidation, or sale. In any such case, appropriate adjustments shall
be made in the application of the provisions of this Section 5 (including
adjustment of the Purchase Price then in effect and number of shares
purchasable) which shall be applicable after such events; provided, however,
that any such adjustments shall be made so as to ensure that the provisions of
this Section 5 applicable after such events shall be as equivalent as may be
practicable to the provisions of this Section 5 applicable before such events.
5.6 Officer's Certificate of Adjustment. In any case of an
adjustment or readjustment of the Purchase Price, the number of shares of
Warrant Stock or other securities issuable upon exercise of this Warrant, the
Company's chief financial officer at its expense shall compute such adjustment
or readjustment in accordance with the provisions hereof and shall prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to Holder at Holder's address
as shown in Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including a statement of (a) the consideration received or
deemed to be received by Company for any Warrant Stock issued or sold or deemed
to have been issued or sold, (b) the Purchase Price at the time in effect, and
(c) the type and amount, if any, of other property which at the time would be
received upon exercise of this Warrant.
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Notwithstanding the above, the Holder may select and cause independent public
accoun tants of recognized standing also to compute such adjustment or
readjustment in accordance with the provisions hereof and to prepare a
certificate showing such adjustment or readjustment. If, by such computation,
the Holder shall determine that the computation performed by the Company's chief
financial officer was incorrect by five percent (5%) and such inaccuracy was
prejudicial to the Holder, then, at the option of Holder, the cost of Holder's
computation and certificate preparation shall be borne by Company and shall be
due and owing upon demand.
5.7 No Change in Warrant Required. The form of this Warrant need not
be changed because of any adjustment in the Purchase Price or in the number of
shares of Warrant Stock purchasable on its exercise. A Warrant issued after any
such adjustment on any partial exercise or in replacement may continue to
express the same Purchase Price and the same number of shares of Warrant Stock
(appropriately reduced in the case of partial exercise) as are stated on the
face of this Warrant as initially issued, and that Purchase Price and number of
shares shall be considered to have been so changed as of the close of business
on the date of adjustment.
5.8 Reservation of Shares. Company recognizes that since the Warrant
Amount is a fixed number, the adjustments provided in this Section will alter
the number of shares subject to purchase rights and agrees to adjust the
appropriate number(s) of shares reserved pursuant to Section 7.1 for issuance
upon exercise of purchase rights.
6. Transfer of Securities.
6.1 Transfer. Subject to the restrictions on transfer contained in
the Agreement, this Warrant and all rights hereunder are transferable on the
books of Company maintained for such purpose at its principal office referred to
above by Holder in person or by duly authorized attorney, upon surrender of this
Warrant properly endorsed and upon payment of any necessary transfer tax or
other governmental charge imposed upon such transfer. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant when endorsed in blank shall be deemed negotiable and that when this
Warrant shall have been so endorsed, Holder hereof may be treated by Company and
all other persons dealing with this Warrant, as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of Company, any notice to the
contrary notwithstanding; but until such transfer on such books, Company may
treat the registered Holder hereof as the owner for all purposes.
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<PAGE> 16
6.2 Rights Under Agreement. The Shares issuable upon the exercise of
this Warrant are subject to the terms, conditions and limitations set forth in
the Agreement.
6.3 Payment of Taxes. All Shares issued upon the exercise of rights
under this Warrant shall be validly issued, fully paid and nonassessable, and
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof. Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any certificate for Shares in any name other than
that of Holder surrendered in connection with the purchase of such Shares, and
in such case Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to Company's satisfaction that no tax or other charge is due.
7. Affirmative Duties of Company.
7.1 Reservation of Warrant Stock. Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the exercise of the purchase rights
under this Warrant, such number of shares of Warrant Stock as shall be issuable
upon the exercise hereof. Com pany covenants and agrees that, upon such exercise
all Shares issuable upon such exercise shall be duly and validly issued, fully
paid and nonassessable.
7.2 No Dilution or Impairment. Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolu tion, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant. Without
limiting the generality of the foregoing, Company will take all such action as
may be necessary or appropriate in order that Company may validly and legally
issue fully paid and nonassessable Warrant Stock upon the exercise of the
purchase rights in this Warrant.
8. Notices to Warrant Holder.
8.1 Notices to be Given. Nothing contained in this Warrant shall be
construed as conferring upon Holder hereof the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter or as having any rights whatsoever
as a shareholder of Company. If, however, at any time prior to the expiration
(by lapse of time or complete exercise) of the purchase right under this
Warrant, any of the following events shall occur:
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<PAGE> 17
(a) Company shall take a record of the holders of its shares of
Warrant Stock for the purpose of entitling them to receive a dividend or
distribution; or
(b) Company shall offer to the holders of its Common Stock
generally any additional shares of capital stock of Company or securities
convertible into or exchangeable for shares of capital stock of Company, or any
option, right or warrant to subscribe therefor; or
(c) Company shall reclassify its Common Stock; or
(d) Company shall engage in or enter into any capital
reorganization, consolidation or merger; or
(e) A dissolution, liquidation or winding up of Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then Company shall give written notice of such event to Holder at
least fifteen (15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the shareholders entitled to
receive such dividend, distribution, convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
8.2 Listing on Stock Exchange. The Common Stock is currently listed
on NASDAQ. If the Company at any time lists any Common Stock or other securities
of the same class as those issuable on exercise of this Warrant on any national
securities (other than NASDAQ), the Company will, at its sole expense,
simultaneously list on that exchange, an official notice of issuance on exercise
of this Warrant and maintain such listing or inclusion of all shares of Warrant
Stock or other securities from time to time issuable on exercise of this
Warrant.
8.3 Methods; Addresses. Except as otherwise provided herein, any
notice or demand which, by the provisions hereof, is required or which may be
given to or served upon the parties hereto shall be in writing and, if by
telegram, telecopy or telex, shall be deemed to have been validly served, given
or delivered when delivery is con firmed electronically, if by personal
delivery, shall be deemed to have been validly served,
-17-
<PAGE> 18
given or delivered upon actual delivery and, if mailed, shall be deemed to have
been validly served, given or delivered three (3) business days after deposit in
the United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
(a) If to Holder:
------------------------
------------------------
------------------------
------------------------
------------------------
With copy to:
------------------------
------------------------
------------------------
------------------------
Facsimile: (310) 556-1418
(b) If to Company:
Diedrich Coffee, Inc.
Attention: President
2144 Michelson Drive
Irvine, California 92612
Facsimile: (714) 756-1144
With copy to:
Paul, Hastings, Janofsky & Walker LLP
Attention: Peter J. Tennyson
Seventeenth Floor
695 Town Center Drive
Costa Mesa, California 92626
Facsimile: (714) 979-1921
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<PAGE> 19
8.4 Warrant Agent. The Company may, on written notice to the Holder,
appoint an agent for the purposes of issuing Warrant Stock or other securities
on the exercise of this Warrant and/or replacing or exchanging this Warrant. If
any such appointment is made, any issuance, replacement, or exchange shall be
made at that office by that agent.
8.5 No Right as Shareholder. No Holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be considered a shareholder of
the Company for the purposes, nor shall anything in this Warrant be construed to
confer on any Holder of this Warrant, as such, any rights of a shareholder of
the Company or any right to vote, to give or withhold consent to corporate
action, to receive notice of meetings of shareholders, or to receive dividends
or subscription rights or otherwise.
9. Miscellaneous.
9.1 Survival of Covenants. All agreements and covenants made herein
shall survive the execution and delivery hereof.
9.2 Failure or Indulgence Not Waiver. No failure or delay on the
part of Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any one or more of such failures or
delays constitute a course of performance or dealing on which Company is
entitled to rely, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercises thereof or of any other
right, power or privilege. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.3 Cost of Enforcement. If any default is made in the fulfillment
of Company's duties under this Warrant, Company shall pay Holder all costs of
enforcement, including, without limitation, reasonable attorneys' and
accountants' fees and costs of appeals and interest on any sums actually
disbursed at the rate set forth herein.
9.4 Governing Law. This Warrant has been executed in and shall be
governed by the laws of the State of California. As part of the consideration
for Holder's investment herein, Company and Holder hereby agree that all actions
or proceedings arising directly or indirectly hereunder, whether instituted by
Holder or Company, may, at the option of Holder, be litigated in courts having
situs within the State of California, County of Orange and Company hereby
expressly consents to the jurisdiction of any local, state or federal court
located within said state and county, and consents that any service of process
in such action or proceeding may be made by personal service upon Company
-19-
<PAGE> 20
wherever Company may be located, or by certified or registered mail directed to
Company at its last known address. Company and Holder waive trial by jury, any
objection based on forum non conveniens, and any objection to venue of any
action instituted hereunder.
9.5 Modification. Neither this Warrant nor any provision hereof may
be amended, modified, waived, discharged or terminated with respect to Holder
unless agreed to by the Holder.
9.6 Severability. Whenever possible, each provision of this Warrant
will be interpreted in such manner as to be effective and valid under applicable
law, but, if any provision of this Warrant is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Warrant.
9.7 Further Assurance. At any time or from time to time upon the
request of Holder, Company will execute and deliver such further documents and
do such other acts and things as Holder may reasonably request in order fully to
effectuate the purposes of this Warrant, the exercise of Holder's purchase
right.
9.8 Successors. All the covenants, agreements, representations and
warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
9.9 Headings. The section headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.
9.10 Construction. Both of the parties have participated in the
drafting of this Warrant. Consequently, no provision of this Warrant shall be
construed in favor of or against any party by reason of his or its attorney
having drafting it.
[Signature Page Follows]
-20-
<PAGE> 21
[SIGNATURE PAGE - WARRANT]
IN WITNESS WHEREOF, the parties hereto have caused this
Warrant to be executed as of the day and year first written above.
DIEDRICH COFFEE, INC.
By:
--------------------------------
Kerry Coin, President
NUVRTY, INC.
By:
--------------------------------
-------------,--------------
-21-
<PAGE> 1
EXHIBIT 10.31
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Agreement") is made this 16th day
of October, 1997, by and among Virginia R. Cirica Trust (number "1"), Grandview
Trust (number "2"), Ocean Trust (number "3") and Nuvrty, Inc. (number "4"). 1,
2, 3 and 4 have each, as of the date of this Agreement, entered into separate
and independent Term Loan Agreements (the "Loan Agreements") with Diedrich
Coffee, Inc., a Delaware corporation ("Borrower"). 1, 2, 3 and 4 have,
contemporaneously with the execution of their respective Loan Agreements,
received a security interest in substantially all of Borrower's assets. 1
received a security interest, which was perfected by a finan cing statement
filed prior to the filing of the financing statements perfecting the security
interests of 2, 3 and 4. 4 received a security interest, which was perfected by
a financing statement filed prior to the filing of the financing statements
perfecting the security interests of 2 and 3. 1, 2, 3 and 4 desire, however, to
provide that their recoveries from payments under the Loan Agreements and their
recoveries, if necessary following an event of default and foreclosures under
their respective security agreements (entered into in connection with each Loan
Agreement) shall, except as provided herein, be on a pari passu basis.
Accordingly, 1, 2, 3 and 4 have agreed as follows:
1. Sharing of Payments. 1, 2, 3 or 4 intend that their loans shall be
repaid on a pari passu basis in proportion to the respective principal amounts
of their term loans outstanding at any particular date. Accordingly:
a. If either 1, 2, 3 or 4 receives, or has received, as of any
specified date, a greater amount of the interest or principal due as of such
date under its Loan Agreement than any other has received, such greater amount
shall be shared with the others, and the party receiving the excess amount shall
be deemed to have received such amount in trust for the others effective as of
the date of such receipt.
b. If either 1, 2, 3 or 4 forecloses on its security interest in
Borrower's assets, the proceeds of such foreclosure shall be applied first to
pay the costs and expenses of foreclosure and, second, to pay interest due 1, 2,
3 and 4 under their respective Loan Agreements, pro rata in accordance with the
amounts so due. If any
<PAGE> 2
amounts remain thereafter, such amounts shall be applied to pay the principal
outstanding under the loans by 1, 2, 3 and 4, in proportion to the outstanding
principal amounts thereof. If any amounts remain after payment of all principal
and interest on the loans made by 1, 2, 3 and 4, such amounts shall be paid to
Borrower or as otherwise directed by a court of competent jurisdiction.
2. Cooperation with Respect to Enforcement. 1, 2, 3 and 4 hereby
acknowledge that each of them has made independent loans, based upon its
independent credit judgment with respect to the affairs of Borrower, that they
desire to cooperate in certain respects and that they have no obligation to
cooperate otherwise. Specifically:
a. 1, 2 and 3 acknowledges that 4 does not have access to all the
information available to 1, 2 and 3 with respect to Borrower. 4 acknowledges
that 1, 2 and 3 have no obligation or duty to disclose to 4 any information in
the possession of 1, 2 or 3 which has not been shared with 4 by Borrower, and
that 1, 2 and 3 shall have no duty to inquire of 4 or of Borrower whether any
information made available to 1, 2 and 3 has been provided to 4. However, 1, 2,
3 and 4 agree to notify each other, at least quarterly, of all amounts collected
from Borrower.
b. 1, 2, 3 and 4 agree that each party shall have the right
independently, and without consultation with the other, to enforce or waive
specific provisions of its Loan Agreement and to decide to accelerate, if
acceleration is available, to enforce or waive events of default, to foreclose
or not to foreclose upon its respective Security Agreement and otherwise to take
any action with respect to Borrower as it deems appropriate under its respective
Loan Agreement and related documents; and
c. 1, 2, 3 and 4 hereby agree that if they declare an event of
default or seek to enforce to enforce their rights under their respective
Security Agree ments, they will inform the other parties to this Agreement of
such decision at or about the same time they inform Borrower of their action.
-2-
<PAGE> 3
3. Disclaimer of Group or Partnership Status.
a. 1, 2, 3 and 4 hereby disclaim any beneficial ownership in any
stock, warrants or other rights with respect to any securities of Borrower held
by the others and disclaim any intention to act as a "group" within the meaning
of Section 13(d) of the Securities Exchange Act of 1934, as amended, or to act
jointly with respect to any voting, refraining from voting, solicitation of
proxies or giving or withholding of consents with respect to Borrower's
securities.
b. Neither 1, 2, 3 nor 4 is under any duty or obligation to inform
the other of decisions to exercise, sell, hold or surrender warrants which they
have obtained with respect to their respective Loan Agreements or stock obtained
on exercise thereof.
c. 1, 2, 3 and 4 disclaim any intent to act as partners, joint
venturers or as part of any common enterprise with respect to lending to
Borrower, holding or disposing of Borrower's securities or taking any other
action.
d. Neither 1, 2, 3 nor 4 shall be treated as, or shall act as, or
shall hold itself as authorized to act as, an agent of any other.
e. Except as provided in this Agreement, neither 1, 2, 3 nor 4 has
an obligation, agreement or understanding with respect to Borrower or its debt
or equity securities.
4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, including its principles of
law and conflicts of law.
5. Disputes. Any dispute arising under or in connection with this
Agreement shall be litigated in state or federal courts having a situs in Orange
County, California.
-3-
<PAGE> 4
6. Construction of Terms. Whenever in this Agreement the masculine or
feminine is used, it shall imply the other gender or the neuter gender, and
references in the singular shall include references in the plural.
7. No Third Party Benefit. This Agreement is solely for the benefit and
convenience of the parties herein and is not intended to confer any benefits
upon any third party, including without limitation Borrower or any other
creditor of Borrower.
8. Notices. Any notice required or permitted to be sent under the terms
and provisions of this Agreement shall be effective when delivery by electronic
means has been confirmed, when personal delivery has been accomplished by a
messenger or courier service which provides a proof of receipt, when personally
delivered, or three days after deposit with the United States Postal Service,
postage prepaid. Any such notice shall be sent to the parties at the addresses
shown below:
If to 1: Virginia R. Cirica Trust
Attention: Virginia R. Cirica
4515 Tremont Lane
Corona Del Mar, California 92625
Facsimile (714) 644-9096
With a copy to: Kraw & Kraw
Attention: George Kraw, Esq.
333 W. San Carlos, Suite 1050
San Jose, California 95110-2711
Facsimile (310) 203-7199
If to 2: Grandview Trust c/o Irell & Manella
Attention: Eoien Kreditor, Trustee
1800 Avenue of the Stars
Los Angeles, California 90067-4276
Facsimile (310) 203-7199
With a copy to: Irell & Manella
Attention: Paul Frimmer, Esq.
1800 Avenue of the Stars
Los Angeles, California 90067-4276
Facsimile (310) 203-7199
-4-
<PAGE> 5
If to 3: Ocean Trust c/o Irell & Manella
Attention: Eoien Kreditor, Trustee
1800 Avenue of the Stars
Los Angeles, California 90067-4276
Facsimile (310) 203-7199
With a copy to: Irell & Manella
Attention: Paul Frimmer, Esq.
1800 Avenue of the Stars
Los Angeles, California 90067-4276
Facsimile (310) 203-7199
If to 4: Nuvrty, Inc.
Attention: Amre Youness
3 Civic Plaza, Suite 170
Newport Beach, California 92660
Facsimile (714) 721-8102
With a copy to: Bernard I. Segal, A Professional Corporation
Attention: Bernard Segal, Esq.
1900 Avenue of the Stars
19th Floor
Los Angeles, California 90067
9. Counterparts. This Agreement may be executed in any number of
counterparts, but all counterparts, by whomever executed, shall be treated as
one and the same instrument.
10. Amendments and Modifications. This Agreement may be amended or
modified or any its terms or provisions waived only by an instrument in writing
executed by the party against whom enforcement of such change is sought.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 6
[SIGNATURE PAGE - INTERCREDITOR AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Intercreditor
Agreement as of the date first above written.
"1"
Virginia R. Cirica Trust
By: /s/ Virginia R. Cirica
----------------------------------
Virginia R. Cirica, Trustee
"2"
Grandview Trust
By: /s/ Eoin Kreditor
----------------------------------
Eoin Kreditor, Trustee
"3"
Ocean Trust
By: /s/ Alexa Chappellet
----------------------------------
Alexa Chappellet
"4"
Nuvrty, Inc.
By: /s/ Amre Youness
----------------------------------
Amre Youness, President
-6-
<PAGE> 1
EXHIBIT 10.32
September 24, 1997
Mr. Kerry W. Coin
2144 Michelson Drive
Irvine, CA 92612
Dear Kerry:
On April 25, 1997, the Compensation Committee of the Board of Directors
of Diedrich Coffee, Inc. (the "Company") approved certain changes to your
compensation and employment agreement with the Company. If you are in agreement
with the changes set forth below, please sign a copy of this letter (the
"Amendment Letter") and return it to me. Upon your execution of the Amendment
Letter, it shall amend your employment agreement with the company dated August
26, 1996 (the "Employment Agreement"). In the event of any conflict between the
terms of the Employment Agreement and the Amendment Letter, the Amendment Letter
shall supersede the Employment Agreement.
1. Effective April 28, 1997, you shall assume the position of President
and Chief Operating Officer of the Company.
2. Paragraph 2.1 of the Employment Agreement shall be revised in its
entirety to read as follows:
"2.1 Salary. For all services to be rendered by the Employee under
this Agreement, the Company agrees to pay the employee a salary (the
"Base Salary") equal to One Hundred Sixty Thousand Dollars ($160,000)
per year, payable in semi-monthly installments, less all amounts
required by law to be withheld or deducted. During the term of this
Agreement, the Board shall review the Employee's Base Salary from time
to time and may, in its sole and absolute discretion, increase
Employee's Base Salary."
3. Upon the specific achievement of criteria set forth in the Financial
Plan dated August 7, 1997 and attached hereto as Exhibit A, you shall be
entitled to a "success bonus" in an amount up to 30% of your annual base salary.
You shall not be entitled to any bonus hereunder unless you fulfill the
requirements set forth in the Financial Plan for receiving the success bonus.
4. The option exercise price with respect to the option shares granted
to you pursuant to Paragraph 2.2 of the Employment Agreement shall be (i) $3.00
with respect to the first 90,000 option shares to become exercisable pursuant to
the terms of such Paragraph and (ii) $4.50 with respect to the remaining 30,000
option shares granted pursuant to such Paragraph.
5. Subparagraph 2.2(d) of the Employment Agreement shall be revised in
its entirety to read as follows:
"(d) Unless terminated earlier pursuant to this subparagraph 2.2(d),
the option shares shall terminate on August 26, 2006. If the Employee's
employment with the Company is terminated for any reason whatsoever by
the Company or the Employee prior to the expiration of the Term, any
option shares that have not yet become exercisable shall not become
exercisable after the effective date of Employee's termination of
employment and such option shares shall terminate on such date. Any
option shares which are exercisable as of the effective date of
Employee's termination of employment shall remain exercisable for sixty
(60) days following the effective date of such termination of employment
and shall terminate on the sixtieth day following the effective date of
employment termination. The option exercise price
<PAGE> 2
Mr. Kerry W. Coin
September 24, 1997
Page 2
payable with respect to the option shares granted pursuant to this
Agreement shall be payable only by delivery of legal tender of the
United States in immediately available funds. This shall be the
exclusive method of exercise with respect to the option shares and the
Employee shall not be entitled to any net exercise rights, "cashless"
exercise, exercise price loans, delivery of capital stock or option
shares for the option exercise price or any other method of exercise."
6. The first sentence of Subparagraph 4(d) of the Employment Agreement
shall be revised in its entirety as follows:
"In addition to its rights to terminate the Employee's employment
under this Agreement pursuant to subparagraph 4(a), the Company may also
terminate the Employee's employment under this Agreement for any other
reason, provided that, in such event, the Employee shall be entitled to
receive an aggregate amount equal to $90,000 payable in equal monthly
installments over a nine-month period and the Employee shall not be
entitled to receive any other compensation or benefits hereunder."
Congratulations and I look forward to working with you to build Diedrich
Coffee into a thriving and profitable company.
Sincerely,
Lawrence Goelman
Chairman and Interim Chief Executive Officer
I have reviewed the foregoing and agree to the amendment of my Employment
Agreement as set forth herein. I have been advised to and have been given an
opportunity to consult with an attorney regarding this amendment to my
employment agreement. I further understand that the provisions of this Amendment
Letter revise material terms of my Employment Agreement and the stock options
granted thereunder and I agree to be bound by the terms hereof.
- ------------------------------------------- ------------------------
Kerry W. Coin Date
<PAGE> 1
EXHIBIT 10.33
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this 25th day
of April, 1996 by and between Diedrich Coffee, Inc., a Delaware corporation (the
"Company") and John B. Bayley ("Indemnitee"), with reference to the following:
RECITALS
A. The Indemnitee is currently serving as a Director and/or Officer of
the Company and the Company wishes the Indemnitee to continue in such capacity.
The Indemnitee is willing, under certain circumstances, to continue in such
capacity.
B. The Indemnitee has indicated his concern that the indemnities
available under the Company's bylaws and available insurance, if any, may not be
adequate to protect him against the risks associated with his service to the
Company. The Indemnitee may not be willing to continue in office in the absence
of the benefits accorded to Indemnitee under this Agreement.
AGREEMENT
In order to induce the Indemnitee to continue to serve as Director and/or
Officer for the Company and in consideration for his continued service, the
Company hereby agrees to indemnify the Indemnitee as follows:
1. The Company shall indemnify, and advance expenses to, Indemnitee as
provided in this Agreement and to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement. The indemnification and
advancement of expenses contemplated by this Agreement are intended to be
provided in accordance with the terms and conditions of this Agreement
regardless of whether any of the events underlying the indemnified claims or
actions or advanced expenses occurred before or after the date of this
Agreement. The rights of Indemnitee under this Agreement shall survive
termination of his status as a director, officer, employee or agent of the
Company.
<PAGE> 2
2. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 2 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending, or completed action, suit or proceeding, other
than an action by or in the right of the Company. Pursuant to this Section 2,
Indemnitee shall be indemnified against expenses (including attorneys' fees),
judgments, damages, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such proceeding
or any claim, issue or matter therein, 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, and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
3. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending or completed action, suit or proceeding brought
by or in the right of the Company to procure a judgment in its favor. Pursuant
to this Section, Indemnitee shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection with the defense or settlement of such action, suit or proceeding 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. Notwithstanding the foregoing, no
indemnification against such expenses shall be made in respect of any claim,
issue or matter in such proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of his duty to the
Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification against expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the court in which such proceeding shall have been brought or is pending, shall
determine.
4. Any indemnification under Sections 2 and 3 of this Agreement, unless
ordered by a court, shall be made by the corporation only as authorized by the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 2 and 3 of this Agreement.
Such determination shall be made (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (2) if there are no such directors, or if such directors so direct, by
independent legal counsel, in a written opinion, or (3) by the stockholders.
Page 2 of 5
<PAGE> 3
5. If the Company does not respond to a written claim for payment under
this Agreement within sixty (60) days of having received a claim under this
Agreement, it shall be deemed to have waived any right to refuse to pay such
claim under this Agreement. If a claim under this Agreement is not paid by the
Company, or on its behalf, within ninety (90) days after a written claim has
been received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim.
6. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
7. Notwithstanding anything to the contrary herein, the Company shall not
be liable under this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is actually made to the Indemnitee under a
valid and collectible insurance policy, except in respect of any excess
beyond the amount of payment under such insurance;
(b) for which the Indemnitee is indemnified by the Company
otherwise than pursuant to this Agreement;
(c) based upon or attributable to the Indemnitee or any member of
his immediate family gaining in fact any personal profit or advantage to
which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by
the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common law;
or
(e) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement as to
any claims upon which suit may be brought against him by reason of any
alleged dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the Indemnitee shall establish that he
committed (i) acts of active and deliberate dishonesty or (ii) acts with
actual dishonest purpose and intent, which acts were material to the
cause of action so adjudicated.
Page 3 of 5
<PAGE> 4
8. No costs, charges or expenses for which indemnity shall be sought
hereunder shall be incurred without the Company's consent, which consent shall
not be unreasonably withheld.
9. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to the Company notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Company shall be directed to
Diedrich Coffee, Inc., 2144 Michelson Drive, Irvine, CA 92612, Attention:
Corporate Secretary (or such other addresses as the Company shall designate in
writing to the Indemnitee); notice shall be deemed received if sent by prepaid
mail properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
10. Costs and expenses (including attorneys' fees) incurred by the
Indemnitee in defending or investigating any action, suit, proceeding or
investigation shall be paid by the Company in advance of the final disposition
of such matter, if the Indemnitee shall undertake in writing to repay any such
advances in the event that it is ultimately determined that the Indemnitee is
not entitled to indemnification under the terms of this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, no
advance shall be made by the Company if a determination is reasonably promptly
made (l) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion that, based upon the facts known to the board or counsel at the
time such determination is made, (a) the Indemnitee acted in bad faith or
deliberately breached his duty to the Company or its stockholders, and (b) as a
result of such actions by the Indemnitee, it is more likely than not that it
will ultimately be determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement.
11. Nothing herein shall be deemed to diminish or otherwise restrict the
Indemnitee's right to indemnification under any provision of the certificate of
incorporation or bylaws of the Company or under Delaware law.
12. This Agreement shall be governed by and construed in accordance with
Delaware law, but without reference to the conflicts of law's principles of that
jurisdiction.
13. This Agreement shall be binding upon all successors and assigns of
the Corporation (including any transferee of all or substantially all of its
assets and any successor by merger or operation or law) and shall inure to the
benefit of the heirs, personal representatives and estates of Indemnitee.
Page 4 of 5
<PAGE> 5
14. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (b) to the fullest extent possible, the
remaining provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
of the parties that the Company provide protection to Indemnitee to the fullest
enforceable extent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
DIEDRICH COFFEE, INC.
2144 Michelson Drive
Irvine, CA 92612
----------------------------------------
Martin R. Diedrich, Corporate Secretary
AGREED TO AND ACCEPTED:
INDEMNITEE
Signed:
-------------------------
Name:
---------------------------
- --------------------------------
- --------------------------------
(address)
Page 5 of 5
<PAGE> 1
EXHIBIT 10.34
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this 16th day
of June 1997 by and between Diedrich Coffee, Inc., a Delaware corporation (the
"Company") and Jonathan B. Eddison ("Indemnitee"), with reference to the
following:
RECITALS
A. The Indemnitee is currently serving as a Director and/or Officer of
the Company and the Company wishes the Indemnitee to continue in such capacity.
The Indemnitee is willing, under certain circumstances, to continue in such
capacity.
B. The Indemnitee has indicated his concern that the indemnities
available under the Company's bylaws and available insurance, if any, may not be
adequate to protect him against the risks associated with his service to the
Company. The Indemnitee may not be willing to continue in office in the absence
of the benefits accorded to Indemnitee under this Agreement.
AGREEMENT
In order to induce the Indemnitee to continue to serve as Director and/or
Officer for the Company and in consideration for his continued service, the
Company hereby agrees to indemnify the Indemnitee as follows:
1. The Company shall indemnify, and advance expenses to, Indemnitee as
provided in this Agreement and to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement. The indemnification and
advancement of expenses contemplated by this Agreement are intended to be
provided in accordance with the terms and conditions of this Agreement
regardless of whether any of the events underlying the indemnified claims or
actions or advanced expenses occurred before or after the date of this
Agreement. The rights of Indemnitee under this Agreement shall survive
termination of his status as a director, officer, employee or agent of the
Company.
<PAGE> 2
2. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 2 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending, or completed action, suit or proceeding, other
than an action by or in the right of the Company. Pursuant to this Section 2,
Indemnitee shall be indemnified against expenses (including attorneys' fees),
judgments, damages, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such proceeding
or any claim, issue or matter therein, 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, and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
3. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending or completed action, suit or proceeding brought
by or in the right of the Company to procure a judgment in its favor. Pursuant
to this Section, Indemnitee shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection with the defense or settlement of such action, suit or proceeding 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. Notwithstanding the foregoing, no
indemnification against such expenses shall be made in respect of any claim,
issue or matter in such proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of his duty to the
Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification against expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the court in which such proceeding shall have been brought or is pending, shall
determine.
4. Any indemnification under Sections 2 and 3 of this Agreement, unless
ordered by a court, shall be made by the corporation only as authorized by the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 2 and 3 of this Agreement.
Such determination shall be made (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (2) if there are no such directors, or if such directors so direct, by
independent legal counsel, in a written opinion, or (3) by the stockholders.
Page 2 of 5
<PAGE> 3
5. If the Company does not respond to a written claim for payment under
this Agreement within sixty (60) days of having received a claim under this
Agreement, it shall be deemed to have waived any right to refuse to pay such
claim under this Agreement. If a claim under this Agreement is not paid by the
Company, or on its behalf, within ninety (90) days after a written claim has
been received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim.
6. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
7. Notwithstanding anything to the contrary herein, the Company shall not
be liable under this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is actually made to the Indemnitee under a
valid and collectible insurance policy, except in respect of any excess
beyond the amount of payment under such insurance;
(b) for which the Indemnitee is indemnified by the Company
otherwise than pursuant to this Agreement;
(c) based upon or attributable to the Indemnitee or any member of
his immediate family gaining in fact any personal profit or advantage to
which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by
the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common law;
or
(e) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement as to
any claims upon which suit may be brought against him by reason of any
alleged dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the Indemnitee shall establish that he
committed (i) acts of active and deliberate dishonesty or (ii) acts with
actual dishonest purpose and intent, which acts were material to the
cause of action so adjudicated.
Page 3 of 5
<PAGE> 4
8. No costs, charges or expenses for which indemnity shall be sought
hereunder shall be incurred without the Company's consent, which consent shall
not be unreasonably withheld.
9. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to the Company notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Company shall be directed to
Diedrich Coffee, Inc., 2144 Michelson Drive, Irvine, CA 92612, Attention:
Corporate Secretary (or such other addresses as the Company shall designate in
writing to the Indemnitee); notice shall be deemed received if sent by prepaid
mail properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
10. Costs and expenses (including attorneys' fees) incurred by the
Indemnitee in defending or investigating any action, suit, proceeding or
investigation shall be paid by the Company in advance of the final disposition
of such matter, if the Indemnitee shall undertake in writing to repay any such
advances in the event that it is ultimately determined that the Indemnitee is
not entitled to indemnification under the terms of this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, no
advance shall be made by the Company if a determination is reasonably promptly
made (l) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion that, based upon the facts known to the board or counsel at the
time such determination is made, (a) the Indemnitee acted in bad faith or
deliberately breached his duty to the Company or its stockholders, and (b) as a
result of such actions by the Indemnitee, it is more likely than not that it
will ultimately be determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement.
11. Nothing herein shall be deemed to diminish or otherwise restrict the
Indemnitee's right to indemnification under any provision of the certificate of
incorporation or bylaws of the Company or under Delaware law.
12. This Agreement shall be governed by and construed in accordance with
Delaware law, but without reference to the conflicts of law's principles of that
jurisdiction.
13. This Agreement shall be binding upon all successors and assigns of
the Corporation (including any transferee of all or substantially all of its
assets and any successor by merger or operation or law) and shall inure to the
benefit of the heirs, personal representatives and estates of Indemnitee.
Page 4 of 5
<PAGE> 5
14. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (b) to the fullest extent possible, the
remaining provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
of the parties that the Company provide protection to Indemnitee to the fullest
enforceable extent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
DIEDRICH COFFEE, INC.
2144 Michelson Drive
Irvine, CA 92612
----------------------------------------
Larry Goelman - Chairman
AGREED TO AND ACCEPTED:
INDEMNITEE
Signed:
------------------------------
Jonathan B. Eddison
227 S. Norton Avenue
Los Angeles, CA 90004
Page 5 of 5
<PAGE> 1
EXHIBIT 10.35
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this 17th day
of November 1997 by and between Diedrich Coffee, Inc., a Delaware corporation
(the "Company") and John E. Martin ("Indemnitee"), with reference to the
following:
RECITALS
A. The Indemnitee is currently serving as a Director and/or Officer of
the Company and the Company wishes the Indemnitee to continue in such capacity.
The Indemnitee is willing, under certain circumstances, to continue in such
capacity.
B. The Indemnitee has indicated his concern that the indemnities
available under the Company's bylaws and available insurance, if any, may not be
adequate to protect him against the risks associated with his service to the
Company. The Indemnitee may not be willing to continue in office in the absence
of the benefits accorded to Indemnitee under this Agreement.
AGREEMENT
In order to induce the Indemnitee to continue to serve as Director and/or
Officer for the Company and in consideration for his continued service, the
Company hereby agrees to indemnify the Indemnitee as follows:
1. The Company shall indemnify, and advance expenses to, Indemnitee as
provided in this Agreement and to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement. The indemnification and
advancement of expenses contemplated by this Agreement are intended to be
provided in accordance with the terms and conditions of this Agreement
regardless of whether any of the events underlying the indemnified claims or
actions or advanced expenses occurred before or after the date of this
Agreement. The rights of Indemnitee under this Agreement shall survive
termination of his status as a director, officer, employee or agent of the
Company.
<PAGE> 2
2. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 2 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending, or completed action, suit or proceeding, other
than an action by or in the right of the Company. Pursuant to this Section 2,
Indemnitee shall be indemnified against expenses (including attorneys' fees),
judgments, damages, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such proceeding
or any claim, issue or matter therein, 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, and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
3. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending or completed action, suit or proceeding brought
by or in the right of the Company to procure a judgment in its favor. Pursuant
to this Section, Indemnitee shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection with the defense or settlement of such action, suit or proceeding 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. Notwithstanding the foregoing, no
indemnification against such expenses shall be made in respect of any claim,
issue or matter in such proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of his duty to the
Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification against expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the court in which such proceeding shall have been brought or is pending, shall
determine.
4. Any indemnification under Sections 2 and 3 of this Agreement, unless
ordered by a court, shall be made by the corporation only as authorized by the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 2 and 3 of this Agreement.
Such determination shall be made (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (2) if there are no such directors, or if such directors so direct, by
independent legal counsel, in a written opinion, or (3) by the stockholders.
Page 2 of 5
<PAGE> 3
5. If the Company does not respond to a written claim for payment under
this Agreement within sixty (60) days of having received a claim under this
Agreement, it shall be deemed to have waived any right to refuse to pay such
claim under this Agreement. If a claim under this Agreement is not paid by the
Company, or on its behalf, within ninety (90) days after a written claim has
been received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim.
6. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
7. Notwithstanding anything to the contrary herein, the Company shall not
be liable under this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is actually made to the Indemnitee under a
valid and collectible insurance policy, except in respect of any excess
beyond the amount of payment under such insurance;
(b) for which the Indemnitee is indemnified by the Company
otherwise than pursuant to this Agreement;
(c) based upon or attributable to the Indemnitee or any member of
his immediate family gaining in fact any personal profit or advantage to
which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by
the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common law;
or
(e) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement as to
any claims upon which suit may be brought against him by reason of any
alleged dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the Indemnitee shall establish that he
committed (i) acts of active and deliberate dishonesty or (ii) acts with
actual dishonest purpose and intent, which acts were material to the
cause of action so adjudicated.
Page 3 of 5
<PAGE> 4
8. No costs, charges or expenses for which indemnity shall be sought
hereunder shall be incurred without the Company's consent, which consent shall
not be unreasonably withheld.
9. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to the Company notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Company shall be directed to
Diedrich Coffee, Inc., 2144 Michelson Drive, Irvine, CA 92612, Attention:
Corporate Secretary (or such other addresses as the Company shall designate in
writing to the Indemnitee); notice shall be deemed received if sent by prepaid
mail properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
10. Costs and expenses (including attorneys' fees) incurred by the
Indemnitee in defending or investigating any action, suit, proceeding or
investigation shall be paid by the Company in advance of the final disposition
of such matter, if the Indemnitee shall undertake in writing to repay any such
advances in the event that it is ultimately determined that the Indemnitee is
not entitled to indemnification under the terms of this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, no
advance shall be made by the Company if a determination is reasonably promptly
made (l) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion that, based upon the facts known to the board or counsel at the
time such determination is made, (a) the Indemnitee acted in bad faith or
deliberately breached his duty to the Company or its stockholders, and (b) as a
result of such actions by the Indemnitee, it is more likely than not that it
will ultimately be determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement.
11. Nothing herein shall be deemed to diminish or otherwise restrict the
Indemnitee's right to indemnification under any provision of the certificate of
incorporation or bylaws of the Company or under Delaware law.
12. This Agreement shall be governed by and construed in accordance with
Delaware law, but without reference to the conflicts of law's principles of that
jurisdiction.
13. This Agreement shall be binding upon all successors and assigns of
the Corporation (including any transferee of all or substantially all of its
assets and any successor by merger or operation or law) and shall inure to the
benefit of the heirs, personal representatives and estates of Indemnitee.
Page 4 of 5
<PAGE> 5
14. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (b) to the fullest extent possible, the
remaining provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
of the parties that the Company provide protection to Indemnitee to the fullest
enforceable extent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
DIEDRICH COFFEE, INC.
2144 Michelson Drive
Irvine, CA 92612
-----------------------------------------
By: Jonathan B. Eddison, Vice President,
General Counsel and Assistant Secretary
AGREED TO AND ACCEPTED:
INDEMNITEE
Signed:
---------------------------
Name: John E. Martin
- ----------------------------------
- ----------------------------------
(address)
Page 5 of 5
<PAGE> 1
EXHIBIT 10.36
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this 17th day
of November 1997 by and between Diedrich Coffee, Inc., a Delaware corporation
(the "Company") and Timothy J. Ryan ("Indemnitee"), with reference to the
following:
RECITALS
A. The Indemnitee is currently serving as a Director and/or Officer of
the Company and the Company wishes the Indemnitee to continue in such capacity.
The Indemnitee is willing, under certain circumstances, to continue in such
capacity.
B. The Indemnitee has indicated his concern that the indemnities
available under the Company's bylaws and available insurance, if any, may not be
adequate to protect him against the risks associated with his service to the
Company. The Indemnitee may not be willing to continue in office in the absence
of the benefits accorded to Indemnitee under this Agreement.
AGREEMENT
In order to induce the Indemnitee to continue to serve as Director and/or
Officer for the Company and in consideration for his continued service, the
Company hereby agrees to indemnify the Indemnitee as follows:
1. The Company shall indemnify, and advance expenses to, Indemnitee as
provided in this Agreement and to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to, the rights set
forth in the other Sections of this Agreement. The indemnification and
advancement of expenses contemplated by this Agreement are intended to be
provided in accordance with the terms and conditions of this Agreement
regardless of whether any of the events underlying the indemnified claims or
actions or advanced expenses occurred before or after the date of this
Agreement. The rights of Indemnitee under this Agreement shall survive
termination of his status as a director, officer, employee or agent of the
Company.
<PAGE> 2
2. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 2 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending, or completed action, suit or proceeding, other
than an action by or in the right of the Company. Pursuant to this Section 2,
Indemnitee shall be indemnified against expenses (including attorneys' fees),
judgments, damages, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such proceeding
or any claim, issue or matter therein, 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, and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
3. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of the fact that he is or was a director,
officer, employee or agent of the Company, he is, or is threatened to be made, a
party to any threatened, pending or completed action, suit or proceeding brought
by or in the right of the Company to procure a judgment in its favor. Pursuant
to this Section, Indemnitee shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection with the defense or settlement of such action, suit or proceeding 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. Notwithstanding the foregoing, no
indemnification against such expenses shall be made in respect of any claim,
issue or matter in such proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of his duty to the
Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification against expenses shall
nevertheless be made by the Company in such event if and only to the extent that
the court in which such proceeding shall have been brought or is pending, shall
determine.
4. Any indemnification under Sections 2 and 3 of this Agreement, unless
ordered by a court, shall be made by the corporation only as authorized by the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 2 and 3 of this Agreement.
Such determination shall be made (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (2) if there are no such directors, or if such directors so direct, by
independent legal counsel, in a written opinion, or (3) by the stockholders.
Page 2 of 5
<PAGE> 3
5. If the Company does not respond to a written claim for payment under
this Agreement within sixty (60) days of having received a claim under this
Agreement, it shall be deemed to have waived any right to refuse to pay such
claim under this Agreement. If a claim under this Agreement is not paid by the
Company, or on its behalf, within ninety (90) days after a written claim has
been received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim.
6. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
7. Notwithstanding anything to the contrary herein, the Company shall not
be liable under this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is actually made to the Indemnitee under a
valid and collectible insurance policy, except in respect of any excess
beyond the amount of payment under such insurance;
(b) for which the Indemnitee is indemnified by the Company
otherwise than pursuant to this Agreement;
(c) based upon or attributable to the Indemnitee or any member of
his immediate family gaining in fact any personal profit or advantage to
which he was not legally entitled;
(d) for an accounting of profits made from the purchase or sale by
the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common law;
or
(e) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement as to
any claims upon which suit may be brought against him by reason of any
alleged dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the Indemnitee shall establish that he
committed (i) acts of active and deliberate dishonesty or (ii) acts with
actual dishonest purpose and intent, which acts were material to the
cause of action so adjudicated.
Page 3 of 5
<PAGE> 4
8. No costs, charges or expenses for which indemnity shall be sought
hereunder shall be incurred without the Company's consent, which consent shall
not be unreasonably withheld.
9. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to the Company notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Company shall be directed to
Diedrich Coffee, Inc., 2144 Michelson Drive, Irvine, CA 92612, Attention:
Corporate Secretary (or such other addresses as the Company shall designate in
writing to the Indemnitee); notice shall be deemed received if sent by prepaid
mail properly addressed, the date of such notice being the date postmarked. In
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
10. Costs and expenses (including attorneys' fees) incurred by the
Indemnitee in defending or investigating any action, suit, proceeding or
investigation shall be paid by the Company in advance of the final disposition
of such matter, if the Indemnitee shall undertake in writing to repay any such
advances in the event that it is ultimately determined that the Indemnitee is
not entitled to indemnification under the terms of this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, no
advance shall be made by the Company if a determination is reasonably promptly
made (l) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion that, based upon the facts known to the board or counsel at the
time such determination is made, (a) the Indemnitee acted in bad faith or
deliberately breached his duty to the Company or its stockholders, and (b) as a
result of such actions by the Indemnitee, it is more likely than not that it
will ultimately be determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement.
11. Nothing herein shall be deemed to diminish or otherwise restrict the
Indemnitee's right to indemnification under any provision of the certificate of
incorporation or bylaws of the Company or under Delaware law.
12. This Agreement shall be governed by and construed in accordance with
Delaware law, but without reference to the conflicts of law's principles of that
jurisdiction.
13. This Agreement shall be binding upon all successors and assigns of
the Corporation (including any transferee of all or substantially all of its
assets and any successor by merger or operation or law) and shall inure to the
benefit of the heirs, personal representatives and estates of Indemnitee.
Page 4 of 5
<PAGE> 5
14. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (b) to the fullest extent possible, the
remaining provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
of the parties that the Company provide protection to Indemnitee to the fullest
enforceable extent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
DIEDRICH COFFEE, INC.
2144 Michelson Drive
Irvine, CA 92612
-----------------------------------------
By: Jonathan B. Eddison, Vice President,
General Counsel and Assistant Secretary
AGREED TO AND ACCEPTED:
INDEMNITEE
Signed:
----------------------------
Name: Timothy J. Ryan
- -----------------------------------
- -----------------------------------
(address)
Page 5 of 5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIEDRICH
COFFEE INC. UNAUDITED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED AND
AS OF OCTOBER 29, 1997 CONTAINED IN COMPANY'S AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> JAN-28-1998
<PERIOD-START> JAN-30-1997
<PERIOD-END> OCT-29-1997
<CASH> 1,550,276
<SECURITIES> 0
<RECEIVABLES> 265,885
<ALLOWANCES> 0
<INVENTORY> 1,480,457
<CURRENT-ASSETS> 3,860,904
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,841,174
<CURRENT-LIABILITIES> 3,498,811
<BONDS> 0
0
0
<COMMON> 53,917
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,841,174
<SALES> 17,241,114
<TOTAL-REVENUES> 17,241,114
<CGS> 8,619,031
<TOTAL-COSTS> 8,619,031
<OTHER-EXPENSES> 15,328,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,605
<INCOME-PRETAX> (6,817,135)
<INCOME-TAX> 2,890
<INCOME-CONTINUING> (6,820,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,820,025)
<EPS-PRIMARY> (1.27)
<EPS-DILUTED> 0
</TABLE>
