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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 (I.R.S. 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)
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 June 9, 1997, there were 5,391,650 shares of common stock of the
registrant outstanding.
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DIEDRICH COFFEE, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
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............................................8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................12
Signatures.............................................................13
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS APRIL 30, 1997 JANUARY 29, 1997
-------------- ----------------
<S> <C> <C>
Current Assets:
Cash $ 143,809 $ 2,071,904
Accounts receivable 199,089 210,363
Inventories (Note 2) 1,521,015 1,615,145
Prepaid expenses 216,417 185,063
Other current assets 202,419 285,072
------------ ------------
Total current assets 2,282,749 4,367,547
Property and equipment, net 10,278,328 11,962,752
Costs in excess of net assets acquired, net 411,988 796,178
Other assets
352,473 344,942
------------ ------------
Total assets $ 13,325,538 $ 17,471,419
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,084,747 1,800,292
Accrued compensation 248,277 417,028
Accrued expenses 279,861 201,487
Restructuring liabilities 2,042,860 --
------------ -----------
Total current liabilities 3,655,745 2,418,807
Deferred rent 154,384 154,384
------------ ------------
Total liabilities 3,810,129 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 (6,420,554) (1,037,735)
------------ ------------
Total stockholders' equity 9,515,409 14,898,228
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 13,325,538 $ 17,471,419
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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DIEDRICH COFFEE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 30, 1997 MAY 1, 1996
-------------- ------------
<S> <C> <C>
Net Sales:
Retail $ 5,384,625 $ 3,901,997
Wholesale and other 483,095 372,733
------------ ------------
Total 5,867,720 4,274,730
------------ ------------
Cost and Expenses:
Cost of sales and related
occupancy costs 3,041,815 1,772,892
Store operating expenses 2,380,227 1,734,879
Other operating expenses 64,325 59,320
Depreciation and amortization 447,439 153,925
Provision for store closings
and restructuring costs 4,550,068 --
General and administrative expenses 774,325 337,375
------------ ------------
Total 11,408,856 4,058,391
------------ ------------
Operating (loss) income (5,390,479) 216,339
Interest expense -- (38,841)
Interest and other income 7,660 1,264
----------- ------------
(Loss) income before income taxes (5,382,819) 178,762
Provision for income taxes -- 71,649
------------ ------------
Net (loss) income $ (5,382,819) $ 107,113
============ ============
Loss per common and common share equivalent share:
Net loss per share $ (1.00)
============
Weighted average
shares outstanding 5,391,650
============
</TABLE>
See accompanying notes to condensed financial statements.
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DIEDRICH COFFEE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 30, 1997 MAY 1, 1996
-------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(5,382,819) $ 107,113
Adjustments to reconcile net (loss) income
to net cash (used) provided by operating
activities:
Depreciation and amortization 447,439 153,925
Restructuring charge 4,287,660 --
Changes in assets and liabilities:
Accounts receivable 11,274 (24,476)
Inventories 94,130 (204,138)
Prepaid expenses (31,354) (35,594)
Other current assets 82,653 1,500
Other assets (7,531) (30,468)
Accounts payable (715,545) 752,229
Accrued compensation (168,751) (44,398)
Accrued expenses 78,374 23,349
Income taxes payable -- 36,649
Deferred rent -- 3,279
----------- -----------
Cash (used) provided by operating activities (1,304,470) 738,970
----------- -----------
Cash flows from investing activities:
Capital expenditures for property and equipment (623,625) (1,648,440)
Acquisition of coffeehouses -- (1,800,000)
----------- -----------
Cash used by investing activities (623,625) (3,448,440)
----------- -----------
Cash flows from financing activities:
Checks issued against future deposits -- 395,239
Proceeds from long-term debt and line of credit -- 2,327,776
Principal payments on long-term debt -- (28,982)
----------- -----------
Net cash provided by financing activities -- 2,694,033
----------- -----------
Net decrease in cash (1,928,095) (15,437)
Cash at beginning of period 2,071,904 94,659
----------- -----------
Cash at end of period $ 143,809 $ 79,222
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ 38,841
Income taxes $ -- $ 39,000
</TABLE>
See accompanying notes to condensed financial statements.
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DIEDRICH COFFEE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
APRIL 30, 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 April 30, 1997 and the results of
operations and cash flows for the thirteen weeks ended April 30, 1997 and
May 1, 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 latest Form 10-K.
At April 30, 1997, the Company operated 44 coffeehouses in Southern
California, Denver and Houston. The Company also operates roasting
facilities in Irvine, California and Denver, Colorado. At May 1, 1996, the
Company operated 32 coffeehouses including 18 locations acquired in
February 1996 of which 16 were in Denver and two were in Houston. At May
1, 1996, none of the acquired locations had been converted to the Diedrich
Coffee format.
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 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 per share approximates fully diluted
earnings per share for all periods presented.
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
SFAS 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.
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DIEDRICH COFFEE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1997
(UNAUDITED)
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 29,
1997 1997
------------------------
<S> <C> <C>
Unroasted coffee $ 315,910 $ 357,255
Roasted coffee 74,675 90,536
Accessory and specialty items 384,664 454,946
Other food, beverage and supplies 745,766 712,408
---------- ----------
$1,521,015 $1,615,145
========== ==========
</TABLE>
3. DEBT
On July 19, 1996, the Company entered into a bank revolving line of
credit agreement which provided for borrowings up to $4,100,000 with
interest payable at the bank's reference rate plus .25% or, at the
Company's option, certain other international interest rates established
by the bank plus 2.25%. Upon consummation of the Company's Initial Public
Offering in September 1996, the maturity date was extended to October 1,
1997 and the maximum borrowings were increased to $6 million. On April 21,
1997, the bank revolving line of credit was canceled.
In March 1997, the Company received a commitment for a $1 million
line of credit on arms-length terms from a significant stockholder of the
Company. As of April 30, 1997, the Company had no outstanding borrowings
under this commitment. The specific terms of this line of credit have not
yet been finalized.
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 not meeting management's long-term operational expectations. At that
time, five coffeehouses had been identified on a preliminary basis for
possible closure in the first quarter of fiscal 1998. Subsequently, as
announced by the Company on April 29, 1997, the board of directors has
authorized the closure of seven additional coffeehouses during fiscal
1998. In connection with the store closures, the Company recorded an
impairment provision and a restructuring charge totaling approximately
$4.6 million 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 substantially completed
during fiscal 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The first retail store operating under the name Diedrich Coffee commenced
operations in 1972. At the conclusion of fiscal 1997, there were forty seven
coffeehouses in operation, located in California, Colorado and Texas. As of
April 30, 1997, the Company operated a total of forty-four coffeehouses as a
result of the closure of three of the twelve locations designated for closure
under the restructuring plan as discussed below.
Diedrich Coffee sells high quality coffee beverages made with its own
freshly roasted coffee. In addition to brewed coffee, the Company offers a broad
range of Italian-style beverages such as espresso, cappuccino, caffe latte, cafe
mocha and espresso machiato. To complement beverage sales, the Company sells
light food items and whole bean coffee through its coffeehouses.
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
not meeting management's long-term operational expectations. At that time, five
coffeehouses had been identified on a preliminary basis for possible closure in
the first quarter of fiscal 1998. Subsequently, as announced by the Company on
April 29, 1997, the Board of Directors has authorized the closure of seven
additional coffeehouses during fiscal 1998. In connection with the store
closures, the Company recorded an impairment provision and a restructuring
charge totaling $4.6 million 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 substantially
completed during fiscal 1998.
On March 12, 1997, the Company also announced the resignation of Steven A.
Lupinacci as its President, Chief Executive Officer, Chief Financial Officer
and Director and the appointment of Lawrence Goelman, one of the Company's board
members, to serve as interim President and Chief Executive Officer. On April 25,
1997, the Company's Board of Directors approved the appointment of Kerry W. Coin
as President and Chief Operating Officer and the appointment of John B. Bayley
as Acting Vice President, Finance and Controller.
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. 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, including but not limited to, the price and availability of coffee and
other raw materials, successful execution of the Company's expansion plans, the
impact of competition, the availability of additional financing and other risks
and uncertainties as described 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.
RESULTS OF OPERATIONS
Thirteen Weeks Ended April 30, 1997 Compared with the Thirteen Weeks
Ended May 1, 1996
Net sales. Net sales for the thirteen weeks ended April 30, 1997,
increased 37.3% to $5,868,000 from $4,275,000 for the thirteen weeks ended May
1, 1996. During this most recent quarter, the Company derived 91.8% of net sales
from its retail coffeehouse operations. The Company's wholesale and mail order
sales account for the remainder of net sales. Net retail sales for the thirteen
weeks ended April 30, 1997
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increased 38.0% to $5,385,000 from $3,902,000 in the thirteen weeks ended May 1,
1996 primarily due to the opening of new coffeehouses.
Wholesale and mail order sales combined increased 29.6% to $483,000 in the
thirteen weeks ended April 30, 1997 from $373,000 in the thirteen weeks ended
May 1, 1996. The increase was due to a more active sales effort and continued
favorable customer response from new and existing wholesale accounts. A moderate
price increase on roasted whole bean coffee was implemented during the quarter
in response to industry wide cost pressures resulting from a continuing increase
in the price of green coffee.
The percentage decrease in comparable store sales comparing net sales for
stores open during the full period in the first quarter in fiscal 1997 to net
sales for the same stores in the first quarter of fiscal 1998 was 5.1%. Only
12 of the Company's 44 coffeehouses were open for the full period in the first
quarter in fiscal 1997 and are therefore included in the base for comparable
store sales. On average these stores have been open for more than 4.5 years and
had sales of approximately $212,000 per store for the 13 weeks ended April 30,
1997. Management believes that the variation in comparable store sales results
in part from the over-representation of mature, revenue-stable stores in the
computation base. Furthermore, given the small number of stores included in the
base for comparable store sales, management believes that this percentage will
remain volatile until the base contains a more statistically meaningful number
of stores that more accurately reflects the overall composition of the Company.
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 April 30, 1997 increased
to $3,042,000 from $1,773,000 for the thirteen weeks ended May 1, 1996. As a
percentage of retail net sales, cost of sales and related occupancy costs
increased to 56.5% in the first quarter of fiscal 1998 from 45.4% for the first
quarter of fiscal 1997. This increase was primarily the result of low sales
volume for certain stores acquired during the previous fiscal year which
resulted in substantially higher rent as a percentage of sales and newly opened
stores with higher initial product costs during the growth period in their early
months of operations.
Store operating expenses. Store operating expenses increased to $2,380,000
for the thirteen weeks ended April 30, 1997 from $1,735,000 for the thirteen
weeks ended May 1, 1996. As a percentage of retail net sales, store operating
expenses decreased slightly to 44.2% in the first quarter of fiscal 1998 from
44.5% in the prior fiscal year's first quarter.
Other operating expenses. Other operating expenses (those associated with
wholesale and mail order sales) increased to $64,000 for the first quarter of
fiscal 1998 from $59,000 in the first quarter of fiscal 1997. These expenses, as
a percentage of the net sales from the wholesale division, decreased to 13.3%
from 15.9%. These decreases are a result of an increase in wholesale sales
volume that has exceeded the growth in sales and support infrastructure.
Depreciation and Amortization. Depreciation and amortization increased to
$447,000 for the thirteen weeks ended April 30, 1997 from $154,000 for the
thirteen weeks ended May 1, 1996. As a percentage of net sales, depreciation and
amortization increased to 7.6% from 3.6% in the prior year, principally due to
the increase in depreciable assets as a result of the Company operating eight
more coffeehouses this quarter than during the first quarter in the prior fiscal
year as well as the addition of the conversion costs for the acquired locations.
General and administrative expenses. General and administrative expenses
increased to $774,000 for the first quarter of fiscal 1998 from $337,000 for the
first quarter of fiscal 1997. As a percentage of net sales, general and
administrative expenses increased to 13.2% from 7.9 % due to the
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adding of selected resources and personnel in order to implement the policies
and procedures necessary for the effective control of multi-state operations and
new points of distribution operating at various volume levels.
Provision for store closings and restructuring costs. In response to
lower than expected profitability in certain of its operations the Company has
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 restructuring and impairment charge 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 Statement of Financial
Accounting Standards No. 121.
Operating (loss) income. Operating loss for the thirteen weeks ended
April 30, 1997 was $5,390,000 compared to operating income of $216,000 for the
thirteen weeks ended May 1, 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.
Interest expense. Interest expense decreased to $0 for the thirteen weeks
ended April 30, 1997 from $39,000 for the thirteen weeks ended May 1, 1996.
Net (loss) income. Net loss for the thirteen weeks ended April 30, 1997
was $5,383,000 compared to net income of $107,000 for the thirteen weeks ended
May 1, 1996. This change was essentially related to the same factors listed
above with regard to operating (loss) income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency of $1,373,000 as of April 30,
1997 compared to working capital of $1,949,000 as of January 29, 1997. Cash used
by operating activities for the thirteen weeks ended April 30, 1997 totaled
$1,304,000. In addition, the Company recorded an impairment provision of
$2,043,000 as of April 30 as a portion of the restructuring and impairment
charges discussed above.
In July 1996, the Company entered into a revolving credit agreement with
Bank of America which permitted the Company to borrow up to $6 million upon
completion of the Company's initial public offering. The Company's credit
agreement in connection with this line of credit contained various covenants
which, among other things, required the delivery of regular financial
information, the maintenance of positive net income and the maintenance of
unencumbered liquid assets. In addition, the credit agreement imposed certain
restrictions on the Company, including restrictions with respect to the
incurrence of additional indebtedness, the payment of dividends and the ability
to make acquisitions. On March 31, 1997, the Company was notified that it was in
breach of its covenant to maintain the required level of net income pursuant to
the credit agreement. The Company had no outstanding borrowings under this line
of credit and the fact that the credit agreement continued to impose numerous
restrictions upon the Company, caused it to reconsider the agreement and the
Company determined that it was in its best interest to terminate this line of
credit on April 21, 1997.
In March 1997, the Company received a commitment for a $1 million line of
credit on arms-length terms from a significant stockholder of the Company. At
April 30, 1997 the Company had no outstanding borrowings under this commitment.
The specific terms of this line of credit have not been finalized.
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The Company believes that cash from operations and the stockholder line of
credit commitment will be sufficient to satisfy the Company's working capital
needs for the remainder of the fiscal year. However, the Company anticipates it
will need to seek additional financing or equity to fund additional
acquisitions, capital expenditures for new retail locations and cash
expenditures associated with the Company's restructuring plan. The Company is
currently in negotiations with certain stockholders as well as third parties for
both secured and unsecured lines of credit that can be used for these purposes.
The Company plans to have one or more of these lines in place prior to the end
of its second fiscal quarter which ends July 30, 1997.
COFFEE PRICES AND AVAILABILITY
In the later weeks of the fiscal quarter the coffee commodities market
experienced a substantial rise in the base price of green coffee. The Company
believes that it has adequate sources of supply of high quality arabica coffee
to meet its projected needs for the foreseeable future. The average price for
coffee acquired during the thirteen weeks ended April 30, 1997 did not increase
materially in comparison with the prior year as these cost increases occurred
late in the quarter. While the Company seeks to carefully anticipate its coffee
needs, there can be no assurance that the prices it will have to pay for the
highest quality coffee available will remain stable in the future.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to seasonal fluctuations as well as
general economic trends that affect retailers in general. Historically, the
Company's net sales have not been realized ratably in each quarter, with net
sales being the highest during the last fiscal quarter which includes the
December holiday season. Quarterly results are affected by the timing of the
opening of new stores which may not occur as anticipated due to factors outside
the Company's control. As a result of the combination of the seasonality of the
retail operations, the financial results for any individual quarter may not be
indicative of the results that may be achieved for a full fiscal year.
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PART II - OTHER INFORMATION
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
----------- -----------
<S> <C>
2.1 Form of Agreement and Plan of Merger (1)
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4.1 Purchase Agreement for Series A Preferred Stock dated as of
December 11, 1992 by and among Diedrich Coffee,
Martin R. Diedrich, Steven A. Lupinacci, Redwood
Enterprises and D.C.H., L.P. (1)
4.2 Series B Preferred Stock Purchase Agreement dated as of
June 29, 1995 by and among Diedrich Coffee, Martin R.
Diedrich, Steven A. Lupinacci, Redwood Enterprises VII, L.P.
and Diedrich partners I, L.P. (1)
4.3 Representative's Warrant Agreement (1)
4.4 Specimen Stock Certificate (1)
4.5 Form of Conversion Agreement in connection with the conversion
of Series A and Series B Preferred Stock into Common Stock (1)
10.1 Martin R. Diedrich Employment Agreement, dated
June 29, 1995 (1)
10.2 Steven A. Lupinacci Employment Agreement, dated
June 29, 1995 (1)
10.3 Stock Option Plan and Agreement of Steven A. Lupinacci,
dated June 29, 1995 (1)
10.4 Form of Indemnification Agreement (1)
10.5 Diedrich Coffee 1996 Stock Incentive Plan (1)
10.6 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan (1)
10.7 Business Loan Agreement dated as of July 19, 1996 by and between
Bank of America National Trust and Savings Association and
Diedrich Coffee (1)
10.8 Revolving Promissory Note dated May 20, 1996 by Diedrich Coffee
in favor of Redwood Enterprises VII, L.P. (1)
10.9 Agreement of sales by and among Diedrich Coffee (as purchaser) and
Brothers Coffee Bars, Inc. and Brothers Gourmet Coffees, Inc. (as
sellers) dated as of February 23, 1996 (1)
10.10 Kerry W. Coin Employment Agreement, dated August 26, 1996 (1)
10.11 Letter agreement between Diedrich Coffee and Lawrence Goelman, dated April 23,
1997, regarding appointment as Interim President and Chief Executive Officer (2)
10.12 Separation agreement dated May 13, 1997 between Steven A. Lupinacci and Diedrich
Coffee, Inc.
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.
(2) Incorporated by reference to the exhibit of the same number to the
Company's annual report on Form 10-K for the fiscal year ended January 29,
1997
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(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission during the first quarter of the fiscal year ended
January 28, 1998. On March 13, 1997, the Company filed a Current Report on
Form 8-K, reporting Item 5, in connection with the resignation of Steven
A. Lupinacci as a director, President, Chief Executive Officer, and Chief
Financial Officer of the Company and the appointment of Lawrence Goelman
as Interim President and Chief Executive Officer.
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: June 13, 1997 DIEDRICH COFFEE, INC.
/s/ LAWRENCE GOELMAN
----------------------------------------
Lawrence Goelman,
Chairman of the Board and Interim Chief
Executive Officer
/s/ JOHN BAYLEY
---------------------------------------
John Bayley,
Acting Vice President of Finance and
Controller (principal financial officer)
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Exhibit 10.12
SEPARATION AGREEMENT
The parties to this Separation Agreement (this "Agreement") are
Steven A. Lupinacci ("Employee") and Diedrich Coffee, Inc., a Delaware
corporation ("Employer"), who agree and state that:
A. Employee has been employed by Employer in the position of
President, Chief Executive Officer and Chief Financial Officer since January
1993.
B. Employer and Employee entered into that certain Employment
Agreement, dated as of June 29, 1995 (the "Employment Agreement").
C. Employee resigned his positions with Employer as President, Chief
Executive Officer, Chief Financial Officer and director effective as of March
12, 1997, to pursue other interests.
D. Employer and Employee desire to terminate the Employment
Agreement and exchange the consideration set forth below upon the terms and
conditions set forth below in full satisfaction of Employer's and Employee's
rights and obligations set forth in the Employment Agreement.
THEREFORE, in exchange for the terms, promises, and obligations of
Employer and Employee made in this Agreement:
1. PAYMENT. Employer agrees to pay Employee a separation amount, the
total amount of which is one hundred sixty-two thousand, six hundred
seventy-seven and 67/100 dollars ($162,677.67) (the "Separation Amount"), which
amount includes all accrued vacation ($5,348.90). Employer agrees to pay
Employee the Separation Amount in three payments. The first payment shall be in
the amount of $75,000 and shall be paid immediately upon the effectiveness of
this Agreement. The second payment shall be in the amount of $43,838.83 and
shall be due on Tuesday, March 31, 1998. The final payment shall be in the
amount of $43,838.84 and shall be due on Monday, June 29, 1998.
Notwithstanding the foregoing, upon the occurrence of a Change of
Control (as defined below), all unpaid amounts owing or to become owing to
Employee under this Agreement shall be and become immediately due and payable
without notice, demand or presentment (all of which are hereby expressly waived
by Employer). "Change of Control" means a sale of all or substantially all of
the assets of Employer or a merger in which Employer will not continue as a
surviving corporate entity engaged in a substantially similar business as that
which it is engaged in immediately prior to such merger. All payments due under
this Section 1 shall be made in immediately available funds.
For purposes of the Stock Option Plan and Agreement dated June 29,
1995 between Employer and Employee (the "Option Agreement") which survives this
Agreement, Employee's employment termination date is March 12, 1997. Employer
and Employee acknowledge that, pursuant to the Option Agreement and subject to
the terms and conditions contained therein, Employee has options to purchase
79,183 shares of Employer's common stock at an exercise price of $1.45 per
share. These options are exercisable as provided in the Option Agreement and
shall terminate on March 12, 1999.
Employee acknowledges and agrees that the Separation Amount shall be
the sole amount paid to him and he shall have no entitlement or claim to any
further compensation or benefits from Employer, including without limitation,
salary, bonuses, incentive compensation,
<PAGE> 2
accrued vacation payments, severance, unvested pension benefits, employer-paid
health benefits or any other employment benefits. Nothing contained herein shall
affect Employee's entitlement to any benefits available pursuant to the
Consolidated Omnibus Budget Reconciliation Act.
2. ADEA WAIVER AND RELEASE. Employee specifically agrees to release
any and all claims, rights and/or remedies arising under the Age Discrimination
in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA).
In compliance with the ADEA and OWBPA:
(A) Employee acknowledges that, prior to signing this Agreement, a
period of 21 days was given to consider its provisions;
(B) Employee acknowledges that he is entitled to revoke this
Agreement within seven (7) days after its execution; it is not
effective or enforceable until this seven-day revocation
period has expired; it shall not become effective until the
eighth (8th) day after its execution by the parties; and
(C) Employee acknowledges that he has been advised to consult with
an attorney prior to signing this Agreement.
3. COOPERATION AND ASSISTANCE. Employee agrees to provide reasonable
assistance to Employer as requested by and at the expense of Employer to affect
a smooth and orderly transition and continuation of the business of Employer.
Employee will, at Employer's expense, reasonably cooperate with and
assist Employer, its agents, owners, employees, and attorneys in the preparation
and/or defense and/or pursuit of any litigation involving Employer, and, in
addition, with respect to any issues related to his employment by Employer, his
performance as an employee/officer of Employer, or any related matters, except
as he may be prevented by law or if Employee has one or more defenses which (a)
differ from those of Employer and (b) based upon the advice of counsel,
Employee's cooperation pursuant to this section could reasonably be expected to
impair or eliminate any such defense or defenses.
4. NON SOLICITATION OF EMPLOYEES. Employee agrees not to solicit or
encourage employees of Employer to leave employment of Employer during the
period for which Employee is receiving the Separation Amount from Employer
(i.e., through June 29, 1998). During such period, if Employee is contacted by
employees of Employer with regard to employment opportunities with Employee,
Employee agrees to inform such employees at the first discussion thereof that
Employee cannot encourage, follow up on, hire or promote the hiring of such
employees unless consent is provided to Employee by the Board of Directors of
Employer to continue such discussions.
5. TRADE SECRETS AND CONFIDENTIAL INFORMATION. During the term of
Employee's employment with Employer, Employee had access to and became familiar
with various trade secrets and other confidential information including, but not
limited to, coffee roasting recipes and processes, proposals, computer software
or programming, budgets or other financial information, product pricing, growth
strategies, contracts, and compilations of confidential information, data and
records which are owned by Employer and which are regularly used in the
operation of the business of Employer (the "Proprietary Information"). Employee
agrees not to disclose any of the Proprietary Information, directly or
indirectly, nor use it in any way, except as required by order of a court of
competent jurisdiction or a federal governmental agency. All files, records,
documents, data, and similar items relating to the Proprietary Information or to
the business of Employer, whether prepared by Employee or otherwise coming into
his possession, shall remain the exclusive property of Employer. Employee agrees
not to
2
<PAGE> 3
remove from the premises or otherwise take, procure, or copy this property of
Employer under any circumstances whatsoever. Employee represents and warrants
that prior to or concurrently with the execution of this Agreement, he will
return to Employer any of said property in his possession.
6. RESTRICTIVE COVENANT. Throughout the period for which Employee is
receiving the Separation Amount (i.e., through June 29, 1998), Employee shall
not for any reason, directly or indirectly, by any means or device whatsoever,
for himself or on behalf of, or in conjunction with any person, partnership or
corporation, engage in or participate in any activity involving the marketing,
sale or distribution of coffee and/or coffee-derived products which is in
competition with the business of Employer in California, Texas and Colorado.
Employee acknowledges that he fully understands the restrictions
imposed by this Agreement, that Employer is providing the Separation Amount to
compensate Employee for this restriction, and this restriction will not preclude
Employee from becoming gainfully employed following the period for which he
accepts the Separation Amount. Employee and Employer acknowledge the
reasonableness of the covenant not to compete and the reasonableness of the
geographic area and duration of time which are a part of this covenant.
7. INTEGRATED AGREEMENT. Employee represents and acknowledges that
in executing this Agreement he does not rely and has not relied upon any
representation or statement not set forth herein made by Employer or by its
agents, representatives or attorneys with regard to the subject matter, basis or
effect of this Agreement or otherwise. This Agreement, including the other
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter,
including the Employment Agreement.
8. MODIFICATION. There may be no amendment or modification of this
Agreement except in a writing signed by both parties.
9. CHOICE OF LAW. This Agreement and the rights and obligations
hereunder shall be governed by, and construed and interpreted in all aspects in
accordance with, the internal laws of the State of California.
10. SEVERABILITY. If any of the provisions in this Agreement are
found null, void or inoperative, for any reason, the remaining provisions will
remain in full force and effect.
11. ATTORNEYS' FEES. In the event any party hereto shall be required
to enforce or interpret the terms of this Agreement in any action or proceeding,
the prevailing party shall be entitled to recover all costs and expenses,
including without limitation, its reasonable attorneys' fees and costs incurred
in litigation.
12. VOLUNTARY AGREEMENT. Employee and Employer acknowledge that they
have carefully read and fully understand the terms of this Agreement, which they
voluntarily execute in good faith and deem to be a fair and equitable settlement
of all matters between them. Employer and Employee represent that: (i) they are
represented by the attorneys of their choice; (ii) prior to the execution of
this Agreement each party's attorney reviewed this Agreement, made all desired
changes, and approved this Agreement as to substance and form; (iii) the terms
of this Agreement and its consequences (including risks, complication and costs)
have been fully explained to them by their attorneys; and (iv) they freely
signed the Agreement.
13. BINDING AGREEMENT. This Agreement shall be binding upon the
parties and upon their heirs, administrators, representatives, executors,
successors and assigns, and shall
3
<PAGE> 4
inure to the benefit of the parties and each of them, and to their heirs,
administrators, representatives, executors, successors and assigns.
14. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
15. EFFECTIVENESS. This Agreement shall become effective on the
eighth (8th) day following the date on which Employer and Employee exchange
executed counterparts of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year set forth below.
Dated: May 13, 1997
/s/ Steven A. Lupinacci
----------------------------------------
Steven A. Lupinacci
Dated: May 13, 1997
Diedrich Coffee, Inc.
By: /s/ Lawrence Goelman
------------------------------------
Lawrence Goelman
Chairman of the Board
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIEDRICH
COFFEE, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED AND AS
OF APRIL 30, 1997 CONTAINED IN COMPANY'S 1ST QUARTER 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-28-1998
<PERIOD-START> JAN-30-1997
<PERIOD-END> APR-30-1997
<CASH> 143,809
<SECURITIES> 0
<RECEIVABLES> 199,089
<ALLOWANCES> 0
<INVENTORY> 1,521,015
<CURRENT-ASSETS> 2,282,749
<PP&E> 10,278,328
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,325,538
<CURRENT-LIABILITIES> 3,655,745
<BONDS> 0
53,917
0
<COMMON> 0
<OTHER-SE> 15,882,046
<TOTAL-LIABILITY-AND-EQUITY> 13,325,538
<SALES> 5,867,720
<TOTAL-REVENUES> 5,867,720
<CGS> 3,041,815
<TOTAL-COSTS> 3,041,815
<OTHER-EXPENSES> 8,367,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,382,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,382,819)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> 0
</TABLE>
