<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended _________
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 28, 1999 to June 30, 1999
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
Incorporation or Organization) Identification No.)
2144 MICHELSON DRIVE
IRVINE, CALIFORNIA 92612
(Address of Principal Executive Offices including Zip Code)
(949) 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 August 13, 1999, there were 12,603,538 shares of the registrant's
common stock outstanding.
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DIEDRICH COFFEE, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<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
Item 3 Quantitative and Qualitative Disclosures About Market Risk.... 14
PART II - OTHER INFORMATION
Item 1 Legal Proceedings............................................. 15
Item 4 Submission of Matters to a Vote of Security Holders........... 15
Item 5 Other Information............................................. 16
Item 6 Exhibits and Reports on Form 8-K.............................. 17
Signatures.................................................... 21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS (Notes 3 and 4) JUNE 30, 1999 JANUARY 27, 1999
------------- ----------------
<S> <C> <C>
Current Assets:
Cash $ 552,124 $ 1,200,861
Accounts receivable 335,903 263,651
Note receivable 100,000 100,000
Inventories (Note 2) 1,432,249 1,279,436
Prepaid expenses 153,113 188,993
Income taxes receivable 17,686 17,686
------------ ------------
Total current assets 2,591,075 3,050,627
Property and equipment, net 7,504,439 9,119,859
Costs in excess of net assets acquired, net 317,741 329,086
Note receivable 40,000 --
Other assets 1,329,185 236,880
------------ ------------
Total assets $ 11,782,440 $ 12,736,452
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of obligations under capital lease $ 169,488 $ 169,488
Current note payable (Note 3) 1,000,000 --
Accounts payable 1,978,325 1,415,067
Accrued compensation 900,565 970,034
Accrued expenses 886,903 1,039,097
Provision for store closings and restructuring costs 95,195 112,400
------------ ------------
Total current liabilities 5,030,476 3,706,086
Obligation under capital lease - long term 239,049 283,106
Long term debt (Note 4) 2,500,000 2,500,000
Deferred rent 233,548 219,865
------------ ------------
Total liabilities 8,003,073 6,709,057
------------ ------------
Stockholders' Equity: (Note 5)
Common stock 61,736 61,674
Additional paid-in capital 18,826,473 18,708,032
Accumulated deficit (15,108,842) (12,742,311)
------------ ------------
Total stockholders' equity 3,779,367 6,027,395
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 11,782,440 $ 12,736,452
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
DIEDRICH COFFEE, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Weeks Thirteen Weeks Twenty-Two Weeks Twenty-Six Weeks
Ended Ended Ended Ended
June 30, 1999 July 29, 1998 June 30, 1999 July 29, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Retail $ 3,647,775 $ 5,343,789 $ 8,837,640 $ 10,628,849
Wholesale and other 557,196 685,726 1,415,604 1,324,027
Franchise revenue 58,883 -- 108,913 --
----------- ----------- ------------ ------------
Total revenues 4,263,854 6,029,515 10,362,157 11,952,876
----------- ----------- ------------ ------------
Cost and Expenses:
Cost of sales and related occupancy costs 1,923,032 2,712,403 4,681,136 5,395,068
Store operating expenses 1,573,162 2,273,005 3,861,190 4,556,908
Other operating expenses 126,783 146,516 284,291 295,301
Depreciation and amortization 637,928 461,352 1,144,863 943,574
Provision for impairment reserve 798,551 -- 798,551 --
General and administrative expenses 788,732 1,113,530 1,645,999 2,088,378
----------- ----------- ------------ ------------
Total 5,848,188 6,706,806 12,416,030 13,279,229
----------- ----------- ------------ ------------
Operating loss (1,584,334) (677,291) (2,053,873) (1,326,353)
Interest expense (186,840) (99,981) (282,937) (197,254)
Interest and other income (expense) (9,557) 18,896 (8,960) 20,406
----------- ----------- ------------ ------------
Loss before income taxes (1,780,731) (758,376) (2,345,770) (1,503,201)
Income tax provision -- 2,890 2,800 3,690
----------- ----------- ------------ ------------
Net loss $(1,780,731) $ (761,266) $ (2,348,570) $ (1,506,891)
=========== =========== ============ ============
Basic net loss per share: $ (0.29) $ (0.13) $ (0.38) $ (0.26)
=========== =========== ============ ============
Diluted net loss per share: $ (0.29) $ (0.13) $ (0.38) $ (0.26)
=========== =========== ============ ============
Weighted average shares outstanding - basic
and diluted 6,173,538 5,941,650 6,172,932 5,871,320
=========== =========== ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
DIEDRICH COFFEE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-TWO WEEKS TWENTY-SIX WEEKS
ENDED JUNE 30, ENDED JULY 29,
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,348,570) $(1,506,891)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 1,211,971 943,574
Impairment Charge 798,551 --
Accretion of non-cash interest 100,542 --
Changes in assets and liabilities:
Accounts receivable (72,252) (150,512)
Inventories (152,813) 111,186
Prepaid expenses 35,880 (78,241)
Income taxes receivable -- 23,165
Other assets (44,965) 8,053
Accounts payable 563,258 (251,659)
Accrued compensation (69,469) 112,649
Accrued expenses and restructuring charge (158,054) (59,079)
Deferred rent 13,683 19,512
----------- -----------
Net cash used in operating activities (122,238) (828,243)
----------- -----------
Cash flows from investing activities:
Capital expenditures for property and equipment (402,676) (811,542)
Payment of acquisition costs (1,039,766) --
Issuance of note receivable (40,000) --
----------- -----------
Net cash used in investing activities (1,482,442) (811,542)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net fees paid -- 1,275,000
Proceeds from issuance of note payable 1,000,000 --
Payment on capital lease obligation (44,057) (41,751)
----------- -----------
Net cash provided by financing activities 955,943 1,233,249
----------- -----------
Net decrease in cash (648,737) (406,536)
----------- -----------
Cash at beginning of period 1,200,861 1,408,161
----------- -----------
Cash at end of period $ 552,124 $ 1,001,625
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 133,313 $ 150,000
=========== ===========
Income taxes $ 2,800 $ 3,690
=========== ===========
Non-cash transactions
Equipment purchased under capital lease $ -- $ 54,127
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE> 6
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN FISCAL YEAR
In an effort to align its fiscal year with that of Coffee People, Inc.
("Coffee People"), which Diedrich Coffee, Inc. (the "Company") acquired on July
7, 1999 (note 7), the Company changed its year end from a fiscal year ending on
the Wednesday nearest January 31 to a fiscal year ending on the Wednesday
nearest June 30. Accordingly, the transition period condensed statements of
operations and cash flows for the nine and twenty-two weeks ended June 30, 1999
are not necessarily comparable to the accompanying thirteen and twenty-six
weeks ended July 29, 1998 nor are they indicative of a full fiscal year's
results of operations.
BASIS OF PRESENTATION
The condensed financial statements of 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 June 30,1999 and the results
of operations and cash flows for both the nine and twenty-two weeks ended June
30, 1999 and for both the thirteen and twenty-six weeks ended July 29, 1998 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 27, 1999.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 27, 1999
------------- ----------------
<S> <C> <C>
Green coffee (raw materials) $574,745 $412,103
Roasted coffee (finished goods) 157,115 115,979
Accessory and specialty items 258,889 275,386
Other food, beverage and supplies 441,500 475,968
---------- ----------
$1,432,249 $1,279,436
========== ==========
</TABLE>
3. NOTE PAYABLE
On April 6, 1999, the Company entered into a $1,000,000 loan agreement
and security agreement with Amre Youness, a former director of the Company. All
outstanding principal was due and payable on April 6, 2000. The loan was secured
by the assets of the Company with interest accruing and paid monthly at the
prime rate plus 3%. In connection with the loan agreement, the Company issued
warrants to Mr. Youness to purchase 70,000 shares of the Company's common stock
at a price of $5.625 per share. The fair value of the warrants is estimated to
be $100,000. In connection with the acquisition (note 7), the loan was repaid on
July 8, 1999. As a result of the early repayment, the Company accelerated
amortization of the discount attributable to the warrant fair values resulting
in an approximate $100,000 non-cash charge to interest expense during the nine
weeks ended June 30, 1999.
6
<PAGE> 7
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
4. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 27, 1999
------------- ----------------
<S> <C> <C>
NUVRTY, INC.
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly.
Note is secured by the assets of the
Company. Due September 30, 2002 $1,000,000 $1,000,000
GRANDVIEW TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly.
Note is secured by the assets of the
Company. Due October 15, 2002 750,000 750,000
OCEAN TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly.
Note is secured by the assets of the
Company. Due October 16, 2002 750,000 750,000
---------- ----------
Long term debt $2,500,000 $2,500,000
========== ==========
</TABLE>
In connection with the acquisition (note 7), the Company repaid the
above long-term debt on July 8, 1999.
5. STOCKHOLDERS' EQUITY
On February 12, 1999, 6,225 shares of common stock were issued pursuant
to the exercise of options granted under the Company's 1996 Stock Incentive
Plan.
6. SEGMENT INFORMATION
In accordance with the requirements of Statement of Financial
Accounting Standards 131, "Disclosures about Segments of an Enterprise and
Related Information," the Company's reportable business segments and respective
accounting policies are the same as those described in Note 1 of the Company's
Annual Report on Form 10-K for the year ended January 27, 1999. Management
evaluates segment performance based primarily on revenue and earnings from
operations. Interest income and expenses is evaluated on a consolidated basis
and not allocated to the Company's business segments.
7
<PAGE> 8
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
Segment information is summarized as follows for the twenty-two weeks
ended June 30, 1999 and the twenty-six weeks ended July 29,1998.
<TABLE>
<CAPTION>
TWENTY-TWO WEEKS TWENTY-SIX WEEKS
ENDED JUNE 30, ENDED JULY 29,
1999 1998
---------------- ----------------
<S> <C> <C>
Net Revenues:
Retail operations $ 8,837,640 $ 10,628,849
Wholesale operations 1,415,604 1,324,027
Other 108,913 --
------------ ------------
10,362,157 11,952,876
============ ============
Earnings (loss) from
operations:
Retail operations (534,482) 752,607
Wholesale operations 223,197 177,114
Other (1,742,588) (2,256,074)
------------ ------------
Total $ (2,053,873) $ (1,326,353)
============ ============
</TABLE>
7. SUBSEQUENT EVENTS
On July 7, 1999, the Company completed its acquisition of Coffee
People, pursuant to an Agreement and Plan of Merger, dated as of March 16, 1999.
The acquisition was effected by way of a merger of CP Acquisition Corp., an
indirect wholly owned subsidiary of the Company, with and into Coffee People. As
a result of the merger each share of Coffee People common stock was converted
into the right to receive $2.11 in cash and 0.14 share of the Company's common
stock. The Company's acquisition of Coffee People will be accounted for as a
purchase.
The cash payment to Coffee People stockholders was financed by a
portion of the net proceeds of a public equity offering of 4,600,000 shares of
the Company's common stock at a price of $6.00 per share. The Company estimates
that the total consideration and direct acquisition costs associated with the
Company's acquisition of Coffee People amounted to approximately $37,100,000.
On July 7, 1999, the Company entered into a credit agreement with
BankBoston, N.A. that is secured by pledges of all of the Company's assets and
its subsidiaries' stock and provides for a $12 million term loan and a $3
million revolving credit facility, both with final maturity in July 2004. The
Company used the proceeds of the term loan to repay indebtedness and to pay
expenses related to the acquisition of Coffee People and its public equity
offering. The Company intends to use the proceeds from the revolving credit
facility to finance additional and remodel existing company-owned retail
locations and for general corporate purposes. Amounts outstanding under the
credit agreement bear interest, at the Company's option, at BankBoston's base
rate plus 1.25% or LIBOR plus 3.00%.
The credit agreement contains restrictive covenants customary for
credit agreements of the size, type and purpose contemplated which, with
specified exceptions, limits our ability to enter into affiliate transactions,
pay dividends, consolidate, merge or effect certain asset sales, make specified
investments, acquisitions and loans and change the nature of our business. The
credit agreement requires the Company to satisfy financial covenants, which
covenants will require the maintenance of specified financial ratios and
compliance with certain financial tests, including ratios for maximum leverage
(not greater than 3.25 to 1 initially), minimum interest coverage (not less than
1.25 to 1 initially), and minimum fixed charge coverage (a static ratio of not
less than 1.1 to 1). Advances under the revolving credit facility for the
purpose of financing additional company-owned retail locations or making
acquisitions permitted under the credit agreement are conditioned upon at least
90% of existing company-owned retail locations having positive cash flow.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
From time to time, in both written reports and oral statements, we make
"forward-looking statements" within the meaning of Federal and state securities
laws. Disclosures that use words such as "believes," "anticipates," "expects,"
"may" or "plans" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements reflect our current
expectations and are based upon data available at the time of the statements.
Forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from expectations. Any
forward-looking statements, whether made in this report or elsewhere, should be
considered in context with the various disclosures made by us about our
business, including the factors discussed below. 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. Foreseeable risks and uncertainties are described elsewhere in this
report and in detail under "Risk Factors and Trends Affecting Diedrich Coffee
and Its Business" in our Annual Report on Form 10-K for the fiscal year ended
January 27, 1999 and in reports that we file with the Securities and Exchange
Commission.
GENERAL
The first retail store operating under the name of Diedrich Coffee
commenced operations in 1972. As of June 30, 1999, we operated 32 coffeehouses,
two franchised retail locations and seven coffee carts located in California,
Colorado and Texas. We sell high quality coffee beverages made with our own
freshly roasted coffee. We sell specialty coffee beans, brewed coffee and
espresso-based beverages such as cappuccinos, lattes, mochas and espressos and
various blended drinks through these company-owned and franchised retail
locations. To complement beverage sales, we also sell light food items, whole
bean coffee and accessories at our retail locations. In addition, we have a
strong wholesale division that markets its products directly to independent and
chain food service establishments, as well as to businesses for office coffee
systems through brokers and sales representatives.
FRANCHISE AREA DEVELOPMENT AGREEMENTS
Our franchise area development goal is to enter into franchise area
development agreements covering most major U.S. markets. During the last year,
we have entered into five franchise area development agreements. On September
16, 1998, we announced our first franchise area development agreement which
calls for the development of 44 coffeehouses as well as a number of carts and
kiosks in the state of North Carolina over a five year period. In connection
with the signing of this agreement, we recorded and collected area development
fee income of $100,000. On November 16, 1998, we announced our second franchise
area development agreement which provides for the development of 50 coffeehouses
as well as a number of carts and kiosks in San Diego, Palm Springs and Temecula,
California over the next five years. This franchise area development agreement
also includes a one-year option to begin development of 45 coffeehouses in
Arizona. In connection with the signing of this agreement, we recorded area
development fee income of $100,000 as well as a note receivable for $100,000. On
May 17, 1999, we announced our third franchise area development agreement which
provides for the development of 50 coffeehouses in the northern portion of
Florida. On May 26, 1999, we announced our fourth franchise area development
agreement which calls for the development of 80 coffeehouses in the Los Angeles,
California market. This agreement also gives the franchisee an option to develop
up to 103 additional stores in the Bay Area of Northern California. In
connection with signing of this agreement, we recorded an area development fee
of $32,000. On June 1, 1999, we announced our fifth franchise area development
agreement which provides for the development of 50 coffeehouses in the states of
Kentucky and Tennessee. In connection with the signing of this agreement, we
recorded an area development fee of $20,000.
We are currently in various stages of discussion and negotiations with
several additional potential area developers. We have recently added two
franchise sales organizations to assist in the sales program. These sales
organizations are compensated through success-fees based on the execution of
area development agreements. There can be no assurances, however, that positive
sales will result from these activities.
COFFEE PEOPLE ACQUISITION
On July 7, 1999, the Company completed its acquisition of Coffee
People, Inc. pursuant to an Agreement and Plan of Merger, dated as of March 16,
1999. The acquisition was effected by way of a merger of CP Acquisition Corp.,
an indirect
9
<PAGE> 10
wholly owned subsidiary of the Company, with and into Coffee People. As a result
of the merger, each share of Coffee People common stock was converted into the
right to receive $2.11 in cash and 0.14 share of the Company's common stock. The
Company's acquisition of Coffee People will be accounted for as a purchase.
The cash payment to Coffee People stockholders was financed by a
portion of the net proceeds of a public equity offering of 4,600,000 shares of
the Company's common stock at a price of $6.00 per share.
On July 7, 1999, we entered into a credit agreement with BankBoston,
N.A. that is secured by pledges of all of our assets and our subsidiaries' stock
and provides for a $12 million term loan and a $3 million revolving credit
facility, both with final maturity in July 2004. We used the proceeds of the
term loan to repay indebtedness and to pay expenses related to the acquisition
of Coffee People and our public equity offering. We intend to use the proceeds
from the revolving credit facility to finance additional and remodel existing
company-owned retail locations and for general corporate purposes. Amounts
outstanding under the credit agreement bear interest, at our option, at
BankBoston's base rate plus 1.25% or LIBOR plus 3.00%.
YEAR 2000
We are currently working to resolve the potential impact of the year
2000 on the processing of data-sensitive information by our computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of our programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. We are investigating the impact of the year
2000 problem on our business, including our operational, information and
financial systems. Based on the preliminary review of our existing businesses,
we do not expect the year 2000 problem, including the cost of making our
computerized information systems year 2000 compliant, to have a material adverse
impact on our financial position or results of operations in future periods.
However, our inability to resolve all potential year 2000 problems in a timely
manner could have a material adverse impact on our business and results of
operations. We have also initiated communications with significant suppliers and
key business partners on which we rely in an effort to determine the extent to
which our business is vulnerable to the failure by these third parties' to
remediate their year 2000 problems. Although we have not been informed of any
material risks associated with the year 2000 problem on these entities, there
can be no assurance that the computerized information systems of these third
parties' will be year 2000 compliant on a timely basis. The inability of these
third parties to remediate their year 2000 problems could have a material
adverse impact on Diedrich Coffee.
We will have to modify certain applications and replace some of the
hardware used in the processing of financial information. In conjunction with
these upgrades, which are expected to be completed by the end of the summer
1999, we believe we will have addressed any potential significant year 2000
issues. Total expenditures related to the upgrade of the information systems are
expected to cost less than $20,000. As of June 30, 1999, we have incurred and
expensed approximately $34,000 of expenditures consisting of internal staff
costs, outside consulting and other expenditures related to this upgrade
process. To the extent possible, we will be developing and executing contingency
plans designed to allow continued operation in the event of failure of our or
third parties' computer information systems.
SEASONALITY AND QUARTERLY RESULTS
Our business is subject to seasonal fluctuations as well as economic
trends that affect retailers in general. Historically, our net revenues have not
been realized proportionately in each quarter, with net revenues being highest
during the last fiscal quarter (prior to the change in our fiscal year) which
included the December holiday season. Hot weather tends to reduce revenues.
Quarterly results are affected by the timing of the opening of new stores, which
may not occur as anticipated due to events outside our control. As a result of
these factors, and of the other contingencies and risk factors described
elsewhere in this report and our Annual Report in Form 10-K, the financial
results for any individual quarter may not be indicative of the results that
may be achieved in a full fiscal year.
10
<PAGE> 11
RESULTS OF OPERATIONS
Change in Fiscal Year
In an effort to align our fiscal year with that of Coffee People, Inc., which
we acquired on July 7, 1999, we changed our year end from a fiscal year ending
on the Wednesday nearest January 31 to a fiscal year ending on the
Wednesday nearest June 30. Accordingly, the transition period condensed
statements of operations and cash flows for the nine and twenty-two weeks ended
June 30, 1999 are not necessarily comparable to the accompanying thirteen and
twenty-six weeks ended July 29, 1998 nor are they indicative of a full fiscal
year's results of operations.
Nine and Twenty-Two Weeks Ended June 30, 1999 Compared with the Thirteen and
Twenty-Six Weeks Ended July 29, 1998.
Total revenues. Total revenues of $4,264,000 for the nine weeks ended
June 30, 1999 were 29.3% lower than the total revenues of $6,030,000 for the
thirteen weeks ended July 29, 1998. This difference was principally due to the
abbreviated transition reporting period resulting from our change in fiscal
year. During this most recent quarter, we derived 85.6% of total revenues from
our retail coffeehouse operations. Wholesale and mail order revenue accounted
for 13.1% of total revenues and franchise revenues counted for 1.3% of total
revenues. Retail revenues of $3,648,000 for the nine weeks ended June 30, 1999
were 31.7% lower than the retail revenues of $5,344,000 for the thirteen weeks
ended July 29, 1998. This difference was primarily a result of the abbreviated
transition reporting period and of operating four fewer company-operated
coffeehouses during the nine weeks ended June 30, 1999. Two of these retail
locations were franchised during the nine weeks ended June 30, 1999 and two were
closed. As of June 30, 1999, we operated 39 retail locations, whereas as of July
29, 1998, we operated 43 retail locations. The percentage increase in comparable
store sales was 3.5% during the nine weeks ended June 30, 1999. This increase
was principally a result of improved targeted marketing programs as no price
increases were taken.
Wholesale and other revenues of $557,000 were 18.8% lower for the nine
weeks ended June 30, 1999 than the wholesale and other revenues of $686,000 for
the thirteen weeks ended July 29, 1998. This difference was principally due to
the abbreviated transition reporting period resulting from our change in fiscal
year. On an average weekly basis, wholesale and other revenues increased
approximately 17%.
Franchise revenues were $59,000 for the nine weeks ended June 30, 1999.
Franchise revenues consist of initial franchise fees and royalties received on
sales made at each franchise location. We first recorded franchise revenue in
the third quarter of fiscal 1999; as a result, there were no franchise revenues
for the thirteen weeks ended July 29, 1998. As of June 30, 1999, we had two
franchised coffeehouses.
Total revenues of $10,362,000 for the twenty-two weeks ended June 30,
1999 were 13.3% lower than the total revenues of $11,953,000 for the twenty-six
weeks ended July 29, 1998. Retail revenues of $8,838,000 for the twenty-two
weeks ended June 30, 1999 were 16.9% lower than the retail revenues of
$10,629,000 for the twenty-six weeks ended July 29, 1998. Wholesale and other
revenues for the twenty-two weeks ended June 30, 1999 increased 6.9% to
$1,416,000 from $1,324,000 for the twenty-six weeks ended July 29, 1998.
Franchise revenues were $109,000 for the twenty-two weeks ended June 30, 1999.
The percentage increase in comparable store sales was 3.4% for the twenty-two
weeks ended June 30, 1999.
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 nine weeks ended June 30, 1999 were
$1,923,000, compared to $2,712,000 for the thirteen weeks ended July 29, 1998.
As a percentage of total revenue, cost of sales and related occupancy costs
increased slightly to 45.1% for the nine weeks ended June 30, 1999 from 45.0%
for the thirteen weeks ended July 29, 1998. Costs of sales and related occupancy
costs for the twenty-two weeks ended June 30, 1999 were $4,681,0000, compared to
$5,395,000 for the twenty-six weeks ended July 29, 1998. As a percentage of
total revenue, costs of sales and related occupancy costs increased slightly to
45.2% for the twenty-two weeks ended June 30, 1999 from 45.1% for the twenty-six
weeks ended July 29, 1998.
Store Operating Expenses. Store operating expenses for the nine weeks
ended June 30, 1999 were $1,573,000, compared to $2,273,000 for the thirteen
weeks ended July 29, 1998. As a percentage of retail and franchise revenues,
store operating expenses decreased to 42.4% for the nine weeks ended June 30,
1999 from 42.5% for the thirteen weeks ended July 29, 1998. These decreases were
principally due to increased franchising activities. For the twenty-two weeks
ended June 30, 1999, store operating expenses, as a percentage of retail and
franchise, increased to 43.2% from 42.9% for the twenty-six weeks ended July 29,
1998. This increase is primarily the result of increases in labor costs
resulting from new training programs implemented at the store level and a
provision for inventory reserves for excess assessories of $30,000.
11
<PAGE> 12
Other Operating Expenses. Other operating expenses (those associated
with wholesale and other revenues) for the nine weeks ended June 30, 1999 were
$127,000, compared to $147,000 for the thirteen weeks ended July 29, 1998. These
expenses, as a percentage of the revenues from the wholesale division, increased
to 22.8% from 21.4%. For the twenty-two weeks ended June 30, 1999, other
operating expenses, as a percentage of wholesale revenue, decreased to 20.1%
from 22.3% for the twenty-six weeks ended July 29, 1998. The decrease as a
percentage of revenues from the wholesale division reflects the increase in
wholesale revenues, as a result of the emphasis placed on adding new chain
restaurant accounts.
Depreciation and Amortization. Depreciation and amortization for the
nine weeks ended June 30, 1999 were $638,000, compared to $461,000 for the
thirteen weeks ended July 29, 1998. As a percentage of total revenue,
depreciation and amortization increased to 15.0% in comparison to 7.7%.
Depreciation and amortization increased to $1,145,000 for the twenty-two weeks
ended June 30, 1999 from $944,000 for the twenty-six weeks ended July 29, 1998.
The increase is primarily due to the accelerated depreciation taken on a closed
coffeehouse.
General and Administrative Expenses. General and administrative
expenses for the nine weeks ended June 30, 1999 were $789,000, compared to
$1,114,000 for the thirteen weeks ended July 29, 1998. As a percentage of total
revenue, general and administrative expenses remained at 18.5%. For the
twenty-two weeks ended June 30, 1999, general and administrative expenses, as a
percentage of total revenue, decreased to 15.9% from 17.5% for the twenty-six
weeks ended July 29, 1998. This decrease was primarily a result of the
elimination of management personnel that were not essential to our current
growth strategy.
Interest Expense. Interest expense increased to $187,000 for the nine
weeks ended June 30, 1999 from $100,000 for the thirteen weeks ended July 29,
1998. The increase is related to a acceleration of non-cash interest related to
the fair value of the warrants.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years principally
through private and public sales of our common stock and long-term debt. We had
working capital deficit of $2,439,000 as of June 30, 1999 compared to working
capital deficit of $655,000 as of January 27, 1999. The current period working
capital includes remaining restructuring liabilities of $95,000. Cash used by
operating activities for the twenty-two weeks ended June 30, 1999 totaled
$122,000 as compared to $828,000 for the twenty-six weeks ended July 29, 1998.
Net cash used in investing activities for the twenty-two weeks ended
June 30, 1999 totaled $1,482,000, which consisted of capital expenditures for
property and equipment, payment of acquisition costs, and issuance of a note
receivable. Net cash provided by financing activities for the twenty-two weeks
ended June 30, 1999 totaled $956,000 which consisted of proceeds from the
issuance of debt.
As of June 30, 1999, we had $2,500,000 of long-term debt that consisted
of three term loans with three separate investors on substantially similar
terms. Each of the loans bore interest at the prime rate plus 3 1/2% with
the interest only payable monthly. The principal was due in one lump sum at
maturity. The loans were scheduled to mature at different times in September
and October of 2002 and were secured by all of our assets. As discussed in
note 4 of the notes to condensed financial statements, we repaid the
loans on July 8, 1999.
On April 6, 1999, we entered into a $1,000,000 loan agreement and
security agreement with Amre Youness, a former director of Diedrich Coffee. All
outstanding principal was scheduled to be due and payable on April 6, 2000. The
loan was secured by our assets with interest accruing and paid monthly at the
prime rate plus 3%. In connection with the loan agreement, we issued warrants to
Mr. Youness to purchase 70,000 shares of common stock at a price of $5.625 per
share. As discussed in note 3 of the notes to condensed financial statements, we
repaid the loan on July 8, 1999.
On July 7, 1999, we entered into a credit agreement with BankBoston,
N.A. that is secured by pledges of all of our assets and our subsidiaries' stock
and provides for a $12 million term loan and a $3 million revolving credit
facility, both with final maturity in July 2004. We used the proceeds of the
term loan to repay indebtedness and to pay expenses related to the acquisition
of Coffee People and our public equity offering. We intend to use the proceeds
from the revolving credit facility to finance additional and remodel existing
company-owned retail locations and for general corporate purposes. As of
August 13, 1999, we have not borrowed any funds under the revolving credit
facility. Amounts outstanding under the credit agreement bear interest, at our
option, at BankBoston's base rate plus 1.25% or LIBOR plus 3.00%.
Our credit agreement contains restrictive covenants customary for
credit agreements of the size, type and purpose contemplated which, with
specified exceptions, limits our ability to enter into affiliate transactions,
pay dividends, consolidate,
12
<PAGE> 13
merge or effect certain asset sales, make specified investments, acquisitions
and loans and change the nature of our business. The credit agreement requires
us to satisfy financial covenants, which covenants will require the maintenance
of specified financial ratios and compliance with certain financial tests,
including ratios for maximum leverage (not greater than 3.25 to 1 initially),
minimum interest coverage (not less than 1.25 to 1 initially), and minimum fixed
charge coverage (a static ratio of not less than 1.1 to 1). Advances under the
revolving credit facility for the purpose of financing additional company-owned
retail locations or making acquisitions permitted under the credit agreement are
conditioned upon at least 90% of existing company-owned retail locations having
positive cash flow.
We believe that the net proceeds of our public equity offering, cash
flow from our operations and borrowings under our credit agreement will be
sufficient to satisfy our working capital needs for the next twelve months.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE INSTRUMENTS
We did not invest in market risk sensitive instruments in fiscal 1999,
nor for the twenty-two weeks ended June 30, 1999. From time to time, however, we
enter into agreements to purchase green coffee in the future at prices to be
determined within two to twelve months of the time of actual purchase. At June
30, 1999 these commitments totaled $1,373,000. These agreements are tied to
specific market prices (defined by both the origin of the coffee and the month
of delivery) but we have significant flexibility in selecting the date of the
market price to be used in each contract. We do not use commodity based
financial instruments to hedge coffee or any other commodity, as we believe
there will continue to be a high probability of maintaining a strong correlation
between increases in green coffee prices and the final selling prices of our
products.
We have not used derivative financial instruments for any purpose,
including hedging or mitigating interest rate risk.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards for derivative instruments embedded in other contracts
and hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Application of SFAS 133 is not expected to
have a material impact on our business, results of operations or liquidity.
MARKET RISK
Our market risk exposure with regard to certain financial instruments
outstanding as of June 30, 1999 was to changes in the "prime rate" in the United
States. We borrowed $2,500,000 at the prime rate plus 3 1/2% and $1,000,000 at
the prime rate plus 3%. At June 30, 1999, a hypothetical 100 basis point
increase in the prime rate would result in additional interest expense of
$35,000 on an annualized basis. At June 30, 1999 the prime rate was 7.75%.
On July 7, 1999, we entered into a credit agreement which exposes us to
market risk with respect to changes in the "base rate" of BankBoston, N.A. or
LIBOR. Amounts outstanding under the credit agreement bear interest, at our
option, at BankBoston's base rate plus 1.25% or LIBOR plus 3.00%.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of our business, we may become involved in legal
proceedings from time to time. During the transition period ended June 30, 1999,
however, we were not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Stockholders was held on June 30, 1999 at the
Doubletree Hotel in Irvine, California. John Martin, Tim Ryan, Lawrence Goelman,
Martin Diedrich, Paul Heeschen, and Peter Churm were elected to the board of
directors to serve until the next Annual Meeting of Stockholders. In addition to
the election of directors, the stockholders voted upon the following
propositions, as recorded and reported by the inspector of elections:
For the board of directors:
<TABLE>
<CAPTION>
NAME FOR ABSTAIN OR WITHHELD BROKER NON-VOTES
---- --- ------------------- ----------------
<S> <C> <C> <C>
Peter Churm 5,367,212 5,050 ---
Martin R. Diedrich 5,367,212 5,050 ---
Lawrence Goelman 5,367,212 5,050 ---
Paul C. Heeschen 5,367,212 5,050 ---
John E. Martin 5,367,212 5,050 ---
Timothy J. Ryan 5,367,212 5,050 ---
</TABLE>
To approve the issuance of shares of Diedrich Coffee common stock to Coffee
People stockholders under the terms of the merger agreement.
<TABLE>
<CAPTION>
FOR AGAINST OR WITHHELD ABSTAIN BROKER NON-VOTES
--- ------------------- ------- ----------------
<S> <C> <C> <C>
3,257,317 10,750 3,930 2,100,265
</TABLE>
To approve an amendment to the Diedrich Coffee 1996 Stock Incentive Plan to
increase by 500,000 shares the total number of shares of Diedrich Coffee common
stock that may be issued under the plan.
<TABLE>
<CAPTION>
FOR AGAINST OR WITHHELD ABSTAIN BROKER NON-VOTES
--- ------------------- ------- ----------------
<S> <C> <C> <C>
3,227,524 36,358 8,115 2,100,265
</TABLE>
To ratify the selection of KPMG LLP as independent accountants for Diedrich
Coffee for the current fiscal year ending June 28, 2000.
<TABLE>
<CAPTION>
FOR AGAINST OR WITHHELD ABSTAIN BROKER NON-VOTES
--- ------------------- ------- ----------------
<S> <C> <C> <C>
5,359,972 7,350 4,940 ---
</TABLE>
15
<PAGE> 16
ITEM 5. OTHER INFORMATION.
Minimum Advance Notice of Stockholder Proposals. Stockholders of
Diedrich Coffee are advised that we must be notified at least 45 days prior to
the month and day of mailing the prior year's proxy statement of any proposal or
solicitation that any stockholder intends to present at the next annual meeting
of stockholders and which the stockholder has not sought to have included in our
proxy statement for the meeting in accordance with Rule 14a-8 under the
Securities Exchange Act of 1934. If a proponent fails to notify us before the
required deadline, management proxies will be allowed to use their discretionary
voting authority when the proposal is raised at the annual meeting, without any
discussion of the matter in the proxy statement.
16
<PAGE> 17
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8-K.
(A) EXHIBITS
Set forth below is a list of the exhibits included as part of this
Transition Report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Form of Agreement and Plan of Merger between Diedrich Coffee, a California corporation,
and Diedrich Coffee, Inc., a Delaware corporation (1)
2.2 Agreement and Plan of Merger, dated as of March 16, 1999, by and among Diedrich Coffee,
CP Acquisition Corp., a wholly owned subsidiary of Diedrich Coffee, and Coffee People
(2)
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
4.1 Purchase Agreement for Series A Preferred Stock, dated as of December 11, 1992, by and
among Diedrich Coffee, Martin R. Diedrich, Donald M. Holly, SNV Enterprises and D.C.H.,
L.P. (1)
4.2 Purchase Agreement for Series B Preferred Stock, 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 Specimen Stock Certificate (1)
4.4 Form of Conversion Agreement in the connection with the conversion of Series A and
Series B Preferred Stock into Common Stock (1)
4.5 Form of Lock-up Letter Agreement among The Second Cup, Ltd. and Diedrich Coffee (3)
4.6 Voting Agreement and Irrevocable Proxy, dated as of March 16, 1999, by and among
Diedrich Coffee, D.C.H., L.P., Peter Churm, Martin R. Diedrich, Lawrence Goelman, Paul
C. Heeschen, John E. Martin, Timothy J. Ryan, and Second Cup USA Holdings Ltd. (3)
10.1 Form of Indemnification Agreement (1)
10.2 Diedrich Coffee 1996 Stock Incentive Plan (2)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan (1)
10.4 Agreement of Sale, dated as of February 23, 1996, by and among Diedrich Coffee (as
purchaser) and Brothers Coffee Bars, Inc. and Brothers Gourmet Coffees, Inc. (as
sellers) (1)
</TABLE>
17
<PAGE> 18
<TABLE>
<C> <S>
10.5 Separation Agreement, dated May 13, 1997, by and between Steven A. Lupinacci and
Diedrich Coffee (4)
10.6 Letter Agreement, dated as of November 17, 1997, by and between Diedrich Coffee and John
E. Martin appointing Mr. Martin Chairman of the Board (5)
10.7 Stock Option Plan and Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and John E. Martin granting Mr. Martin the option to purchase up to 850,000
shares of Diedrich Coffee common stock (5)
10.8 Common Stock Purchase Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and John E. Martin under which Mr. Martin agrees to purchase 333,333 shares of
Diedrich Coffee common stock (5)
10.9 Employment Agreement, dated as of November 17, 1997, by and between Diedrich Coffee and
Timothy J. Ryan retaining Mr. Ryan as Chief Executive Officer (5)
10.10 Stock Option Plan and Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and Timothy J. Ryan granting Mr. Ryan up to 600,00 shares of Diedrich Coffee
common stock (5)
10.11 Common Stock Purchase Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and Timothy J. Ryan under which Mr. Ryan agrees to purchase 16,667 shares of
Diedrich Coffee common stock (5)
10.12 Form of Promissory Note made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview
Trust (6)
10.13 Form of Term Loan Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.14 Form of Security Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.15 Form of Warrant Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.16 Form of Intercreditor Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.17 Common Stock and Option Purchase Agreement, dated as of April 3, 1998, with Franchise
Mortgage Acceptance Company (7)
10.18 Separation and Release Agreement, dated January 28, 1998, with Kerry W. Coin (7)
10.19 Employment Agreement, dated April 8, 1998, with Ann Wride (8)
10.20 Employment Agreement, dated April 8, 1998, with Dolf Berle (9)
10.21 Employment Agreement, dated June 11, 1998, with Catherine Saar (9)
</TABLE>
18
<PAGE> 19
<TABLE>
<C> <S>
10.22 Form of Franchise Agreement (10)
10.23 Form of Area Development Agreement (10)
10.24 Employment Agreement, dated June 29, 1998, with Martin R. Diedrich (3)
10.25 Credit Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries
10.26 Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries
10.27 Securities Pledge Agreement, dated as of July 7, 1999, by and among BankBoston, N.A.,
Diedrich Coffee and its subsidiaries
10.28 Trademark Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A.,
Diedrich Coffee and its subsidiaries
10.29 Form of Term Note made in favor of BankBoston, N.A.
10.30 Form of Revolving Note made in favor of BankBoston, N.A.
27 Financial Data Schedule
</TABLE>
- ----------------------------
(1) Incorporated by reference to Diedrich Coffee'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 Appendix to Diedrich Coffee's Registration
Statement on Form S-4, filed with the Securities and Exchange Commission
on April 23, 1999.
(3) Incorporated by reference to Diedrich Coffee's Registration Statement on
Form S-4, filed with the Securities and Exchange Commission on April 23,
1999.
(4) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended April 30, 1997, filed with the Securities and
Exchange Commission on June 13, 1997.
(5) Incorporated by reference to Diedrich Coffee's Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 25,
1997.
(6) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended October 29, 1997, filed with the Securities
and Exchange Commission on December 11, 1997.
19
<PAGE> 20
(7) Incorporated by reference to Diedrich Coffee's Annual Report on Form
10-K, for the fiscal year ended January 28, 1998, filed with the
Securities and Exchange Commission on April 28, 1998.
(8) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended April 29, 1998, filed with the Securities and
Exchange Commission on June 11, 1998.
(9) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended July 29, 1998, filed with the Securities and
Exchange Commission on September 10, 1998.
(10) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended October 28, 1998, filed with the Securities
and Exchange Commission on December 11, 1998.
(B) REPORTS ON FORM 8-K
1. A Current Report on Form 8-K was filed on February 10, 1999
reporting that Diedrich Coffee had signed a letter of intent to
acquire all of the outstanding shares of common stock of Coffee
People, Inc.
2. A Current Report on Form 8-K was filed on March 25, 1999 reporting that
Diedrich Coffee had signed a definitive agreement to acquire all the
outstanding shares of common stock of Coffee People, Inc.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Transition Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: August 13, 1999 DIEDRICH COFFEE, INC.
/s/ Timothy J. Ryan
------------------------------------------------
Timothy J. Ryan,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ann Wride
------------------------------------------------
Ann Wride
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Form of Agreement and Plan of Merger between Diedrich Coffee, a California corporation,
and Diedrich Coffee, Inc., a Delaware corporation (1)
2.2 Agreement and Plan of Merger, dated as of March 16, 1999, by and among Diedrich Coffee,
CP Acquisition Corp., a wholly owned subsidiary of Diedrich Coffee, and Coffee People
(2)
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
4.1 Purchase Agreement for Series A Preferred Stock, dated as of December 11, 1992, by and
among Diedrich Coffee, Martin R. Diedrich, Donald M. Holly, SNV Enterprises and D.C.H.,
L.P. (1)
4.2 Purchase Agreement for Series B Preferred Stock, 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 Specimen Stock Certificate (1)
4.4 Form of Conversion Agreement in the connection with the conversion of Series A and
Series B Preferred Stock into Common Stock (1)
4.5 Form of Lock-up Letter Agreement among The Second Cup, Ltd. and Diedrich Coffee (3)
4.6 Voting Agreement and Irrevocable Proxy, dated as of March 16, 1999, by and among
Diedrich Coffee, D.C.H., L.P., Peter Churm, Martin R. Diedrich, Lawrence Goelman, Paul
C. Heeschen, John E. Martin, Timothy J. Ryan, and Second Cup USA Holdings Ltd. (3)
10.1 Form of Indemnification Agreement (1)
10.2 Diedrich Coffee 1996 Stock Incentive Plan (2)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan (1)
10.4 Agreement of Sale, dated as of February 23, 1996, by and among Diedrich Coffee (as
purchaser) and Brothers Coffee Bars, Inc. and Brothers Gourmet Coffees, Inc. (as
sellers) (1)
</TABLE>
<PAGE> 23
<TABLE>
<C> <S>
10.5 Separation Agreement, dated May 13, 1997, by and between Steven A. Lupinacci and
Diedrich Coffee (4)
10.6 Letter Agreement, dated as of November 17, 1997, by and between Diedrich Coffee and John
E. Martin appointing Mr. Martin Chairman of the Board (5)
10.7 Stock Option Plan and Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and John E. Martin granting Mr. Martin the option to purchase up to 850,000
shares of Diedrich Coffee common stock (5)
10.8 Common Stock Purchase Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and John E. Martin under which Mr. Martin agrees to purchase 333,333 shares of
Diedrich Coffee common stock (5)
10.9 Employment Agreement, dated as of November 17, 1997, by and between Diedrich Coffee and
Timothy J. Ryan retaining Mr. Ryan as Chief Executive Officer (5)
10.10 Stock Option Plan and Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and Timothy J. Ryan granting Mr. Ryan up to 600,00 shares of Diedrich Coffee
common stock (5)
10.11 Common Stock Purchase Agreement, dated as of November 17, 1997, by and between Diedrich
Coffee and Timothy J. Ryan under which Mr. Ryan agrees to purchase 16,667 shares of
Diedrich Coffee common stock (5)
10.12 Form of Promissory Note made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview
Trust (6)
10.13 Form of Term Loan Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.14 Form of Security Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.15 Form of Warrant Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.16 Form of Intercreditor Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the
Grandview Trust (6)
10.17 Common Stock and Option Purchase Agreement, dated as of April 3, 1998, with Franchise
Mortgage Acceptance Company (7)
10.18 Separation and Release Agreement, dated January 28, 1998, with Kerry W. Coin (7)
10.19 Employment Agreement, dated April 8, 1998, with Ann Wride (8)
10.20 Employment Agreement, dated April 8, 1998, with Dolf Berle (9)
10.21 Employment Agreement, dated June 11, 1998, with Catherine Saar (9)
</TABLE>
<PAGE> 24
<TABLE>
<C> <S>
10.22 Form of Franchise Agreement (10)
10.23 Form of Area Development Agreement (10)
10.24 Employment Agreement, dated June 29, 1998, with Martin R. Diedrich (3)
10.25 Credit Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries
10.26 Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries
10.27 Securities Pledge Agreement, dated as of July 7, 1999, by and among BankBoston, N.A.,
Diedrich Coffee and its subsidiaries
10.28 Trademark Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A.,
Diedrich Coffee and its subsidiaries
10.29 Form of Term Note made in favor of BankBoston, N.A.
10.30 Form of Revolving Note made in favor of BankBoston, N.A.
27 Financial Data Schedule
</TABLE>
- ----------------------------
(1) Incorporated by reference to Diedrich Coffee'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 Appendix A to Diedrich Coffee's Registration
Statement on Form S-4, filed with the Securities and Exchange Commission
on April 23, 1999.
(3) Incorporated by reference to Diedrich Coffee's Registration Statement on
Form S-4, filed with the Securities and Exchange Commission on April 23,
1999.
(4) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended April 30, 1997, filed with the Securities and
Exchange Commission on June 13, 1997.
(5) Incorporated by reference to Diedrich Coffee's Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 25,
1997.
(6) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended October 29, 1997, filed with the Securities
and Exchange Commission on December 11, 1997.
<PAGE> 25
(7) Incorporated by reference to Diedrich Coffee's Annual Report on Form
10-K, for the fiscal year ended January 28, 1998, filed with the
Securities and Exchange Commission on April 28, 1998.
(8) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended April 29, 1998, filed with the Securities and
Exchange Commission on June 11, 1998.
(9) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended July 29, 1998, filed with the Securities and
Exchange Commission on September 10, 1998.
(10) Incorporated by reference to Diedrich Coffee's Quarterly Report on Form
10-Q, for the period ended October 28, 1998, filed with the Securities
and Exchange Commission on December 11, 1998.
<PAGE> 1
EXHIBIT 10.25
----------------------------------------------------------
CREDIT AGREEMENT
among
BANKBOSTON, N.A.,
DIEDRICH COFFEE, INC.
AND
ITS DIRECT AND INDIRECT SUBSIDIARIES WHO ARE PARTIES HERETO
Dated as of July 7, 1999
----------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS............................................................1
SECTION 2. THE CREDIT FACILITIES.................................................15
2.1 THE LOANS AND NOTES...........................................................15
2.2 SCHEDULED PRINCIPAL REPAYMENTS ON THE LOANS...................................16
2.3 CLOSING FEE; COMMITMENT FEES; INTEREST; DEFAULT RATE..........................16
2.4 REQUESTS FOR LOANS............................................................17
2.5 CONVERSION AND CONTINUANCE OF LOANS...........................................18
2.6 REDUCTION OR TERMINATION OF THE REVOLVER COMMITMENT...........................18
2.7 MANDATORY PAYMENTS AND PREPAYMENTS............................................19
2.8 LETTERS OF CREDIT.............................................................20
2.9 CHANGED CIRCUMSTANCES.........................................................22
2.10 CAPITAL ADEQUACY.............................................................25
2.11 PAYMENTS BEFORE END OF EURODOLLAR PERIOD.....................................26
2.12 SECURITY.....................................................................27
2.13 USE OF PROCEEDS..............................................................27
2.14 TIME AND METHOD OF PAYMENTS..................................................27
SECTION 3. CONDITIONS OF CREDIT EXTENSIONS.......................................27
3.1 CONDITIONS TO INITIAL CREDIT EXTENSION........................................29
3.2 CONDITIONS TO ALL CREDIT EXTENSIONS...........................................29
SECTION 4. REPRESENTATIONS AND WARRANTIES........................................30
4.1 ORGANIZATION AND QUALIFICATION................................................30
4.2 CORPORATE OR PARTNERSHIP AUTHORITY............................................30
4.3 VALID OBLIGATIONS.............................................................30
4.4 APPROVALS.....................................................................30
4.5 TITLE TO PROPERTIES; ABSENCE OF LIENS.........................................30
4.6 LICENSES, PATENTS, TRADEMARKS AND INTELLECTUAL PROPERTY.......................31
4.7 COMPLIANCE WITH LAWS AND AGREEMENTS...........................................31
4.8 MATERIAL AGREEMENTS...........................................................31
4.9 ENVIRONMENTAL MATTERS.........................................................31
4.10 COMPLIANCE WITH ERISA........................................................33
4.11 FINANCIAL STATEMENTS.........................................................33
4.12 SOLVENCY.....................................................................33
4.13 TAXES........................................................................34
4.14 LITIGATION...................................................................34
4.15 MARGIN RULES.................................................................34
4.16 RESTRICTIONS ON THE BORROWERS................................................34
4.17 CAPITALIZATION...............................................................34
4.18 FULL DISCLOSURE..............................................................34
4.19 INVESTMENT COMPANY ACT.......................................................35
4.20 LABOR DISPUTES; COLLECTIVE BARGAINING AGREEMENTS; EMPLOYEE GRIEVANCES........35
4.21 YEAR 2000 COMPLIANCE.........................................................35
SECTION 5. FINANCIAL COVENANTS...................................................35
5.1 MAXIMUM LEVERAGE RATIO........................................................35
5.2 MINIMUM FIXED CHARGES COVERAGE RATIO..........................................36
5.3 MINIMUM INTEREST COVERAGE RATIO...............................................36
5.4 MAXIMUM CAPITAL EXPENDITURES..................................................37
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 6. AFFIRMATIVE COVENANTS..................................................37
6.1 FINANCIAL REPORTING............................................................37
6.2 CONDUCT OF BUSINESS............................................................39
6.3 MAINTENANCE AND INSURANCE......................................................39
6.4 TAXES..........................................................................40
6.5 INSPECTION BY THE LENDER.......................................................40
6.6 ACCOUNTING SYSTEM..............................................................40
6.7 FURTHER ASSURANCES.............................................................40
6.8 ENVIRONMENTAL LAWS.............................................................40
6.9 DEPOSITORY.....................................................................40
SECTION 7. NEGATIVE COVENANTS.....................................................41
7.1 INDEBTEDNESS; CONTINGENT LIABILITIES...........................................41
7.2 SALE AND LEASEBACK.............................................................41
7.3 ENCUMBRANCES...................................................................42
7.4 DISPOSITION OF ASSETS, ETC.....................................................42
7.5 AMENDMENT TO CHARTER OR PARTNERSHIP DOCUMENTS..................................43
7.6 MERGERS; CONSOLIDATIONS; ISSUANCE OF SECURITIES; ETC...........................43
7.7 RESTRICTED PAYMENTS............................................................44
7.8 INVESTMENTS, LOANS AND ACQUISITIONS............................................44
7.9 ERISA..........................................................................44
7.10 TRANSACTIONS WITH AFFILIATES..................................................45
7.11 AMENDMENT OF CERTAIN AGREEMENTS...............................................45
7.12 NEGATIVE PLEDGES, ETC.........................................................45
SECTION 8. DEFAULTS................................................................45
8.1 EVENTS OF DEFAULT..............................................................45
8.2 REMEDIES.......................................................................47
8.3 LETTERS OF CREDIT..............................................................48
SECTION 9. MISCELLANEOUS...........................................................48
9.1 NOTICES........................................................................48
9.2 EXPENSES.......................................................................49
9.3 INDEMNIFICATION................................................................49
9.4 TERM OF AGREEMENT..............................................................49
9.5 NO WAIVERS.....................................................................50
9.6 GOVERNING LAW..................................................................50
9.7 ENTIRE AGREEMENT; AMENDMENTS...................................................50
9.8 ASSIGNMENTS; PARTICIPATIONS...................................................50
9.9 COUNTERPARTS; PARTIAL INVALIDITY...............................................51
9.10 WAIVER OF JURY TRIAL..........................................................51
9.11 CONSENT TO JURISDICTION.......................................................51
9.12 JOINT AND SEVERAL LIABILITY...................................................51
</TABLE>
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EXHIBITS
Exhibit 2.1(a) Form of Revolving Note
Exhibit 2.1(b) Form of Term Note
Exhibit 2.4 Form of Loan Request
Exhibit 2.5 Form of Interest Rate Option Notice
Exhibit 2.9 Exemption Certificate
Exhibit 6.1 Form of Covenant Compliance Report
SCHEDULES
Schedule 1(a) Coffee People Sale Stores
Schedule 1(b) Quarterly Dates
Schedule 4.1 Qualifications
Schedule 4.4 Approvals
Schedule 4.5 Title to Properties; Absence of Liens
Schedule 4.6 Intellectual Property; Trademarks, Etc.
Schedule 4.8 Material Agreements
Schedule 4.9 Environmental Matters
Schedule 4.14 Litigation
Schedule 4.17 Capitalization
Schedule 7.1 Indebtedness
Schedule 7.3 Encumbrances
Schedule 7.8 Investments
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<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of July 7, 1999, among DIEDRICH
COFFEE, INC., a Delaware corporation (the "Parent"), and its Subsidiaries,
COFFEE PEOPLE WORLDWIDE, INC., a Delaware corporation, COFFEE PEOPLE, INC., an
Oregon corporation ("Coffee People"), GLORIA JEAN'S, INC., a Delaware
corporation, EDGLO ENTERPRISES, INC., a Illinois corporation, GLORIA JEAN'S
GOURMET COFFEES CORP., an Illinois corporation, and GLORIA JEAN'S GOURMET
COFFEES FRANCHISING CORP., an Illinois corporation (the Parent and such
Subsidiaries and such other Subsidiaries who hereafter become parties hereto
being collectively referred to herein as the "Borrowers" and individually as a
"Borrower") and BANKBOSTON, N.A., a national banking association, or any
successor thereto (the "Lender").
RECITALS
A. The Borrowers are in the business of owning and operating retail
coffee Stores and manufacturing and selling wholesale and retail specialty
coffees.
B. The Parent has entered into a Merger Agreement dated as of March 16,
1999 (the "CP Acquisition Agreement") to acquire all of the Capital Stock (the
"CP Acquisition") of Coffee People.
C. The Borrowers have requested that the Lender provide a term loan of
$12,000,000 to be used for repayment of indebtedness and closing costs in
connection with the CP Acquisition and a revolving line of credit to the
Borrowers of up to $3,000,000 to be used for working capital, standby letters of
credit for remodeling Stores and to develop or fund new coffee retail Stores via
development and acquisition.
D. The Lender is willing, subject to the terms and conditions set forth
herein, to provide such credit facilities to the Borrowers.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS. As used herein, the terms shall have the
following meanings:
Accountants: KPMG LLP or other independent certified public accountants
acceptable to the Lender.
Acquisition: See definition of Permitted Acquisition.
Adjusted Eurodollar Rate: As applied to any Interest Period, the rate
per annum determined pursuant to the following formula:
AER = [ IOR ]*
---------------
[1.00 - RP]
<PAGE> 6
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
----------------
* The amount in brackets shall be rounded upwards, if necessary, to the
next higher 1/100th of 1%.
Where:
The "Interbank Offered Rate" applicable to any Eurodollar Loan
for any Interest Period means the rate of interest determined by the
Lender to be the prevailing rate per annum at which deposits in U.S.
dollars are offered to the Lender by first-class banks in the interbank
Eurodollar market in which it regularly participates on or about 10:00
a.m. (Boston time) two Business Days before the first day of such
Interest Period in an amount approximately equal to the principal
amount of the Eurodollar Loan to which such Interest Period is to apply
for a period of time approximately equal to such Interest Period; and
The "Reserve Percentage" applicable to any Interest Period
means the rate (expressed as a decimal) applicable to the Lender during
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System for determining the
maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency or marginal reserve requirement) of the Lender
with respect to "Eurocurrency liabilities" as that term is defined
under such regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the
effective date of any change in the Reserve Percentage.
Affiliates: As applied to any Person, (a) if an individual, a spouse or
relative of such person; (b) if a business entity, any partner, shareholder,
member, director, officer or manager of such Person (except an equityholder of
not more than 5% of the outstanding stock of any company listed on a national
securities exchange or actively traded in the over-the-counter securities
market); (c) any corporation, association, partnership, joint venture, firm or
other entity of which such Person is a partner, stockholder (except an
equityholder of not more than 5% of the outstanding stock of any company listed
on a national securities exchange or actively traded in the over-the-counter
securities market), venturer, member, director, officer or manager; and (d) any
other Person directly or indirectly controlling, controlled by, or under common
control with, such Person.
Asset Sale: Any sale, lease, sale and leaseback, assignment,
conveyance, transfer or other disposition ("Disposition") of property or a
series of any such related Dispositions of property (excluding any such
Disposition permitted by clause (a) of Section 7.4) for which any Company
receives (valued at the initial principal amount thereof in the case of non-cash
proceeds consisting of notes or other debt, securities and valued at fair market
value in the case of other non-cash proceeds) $25,000 or more.
Available Amount: See Section 2.1(a).
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<PAGE> 7
Available Revolver Commitment: At any time, the aggregate Revolver
Commitment, minus the Revolving Credit Outstandings.
Base Rate: The higher of (i) the annual rate of interest announced from
time to time by the Lender at its head office as its Base Rate, and (ii) the
Federal Funds Effective Rate plus .50% per annum (rounded upwards, if necessary,
to the next .125%). The Base Rate is not necessarily intended to be the lowest
rate of interest determined by the Agent in connection with extensions of
credit.
Base Rate Loan: Any Loan bearing interest calculated by reference to
the Base Rate.
Borrower: See the Preamble.
Business Day: (i) For all purposes other than as covered by clause (ii)
below, any day other than a Saturday, Sunday or legal holiday on which banks in
Boston, Massachusetts are open for the transaction of a substantial part of
their commercial banking business; and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day that is a Business Day described in clause (i) and
that is also a day for trading by and between banks in the U.S. Dollar deposits
in the interbank Eurodollar market.
Capital Expenditures: As to any Person for any period, the sum of all
amounts which would, in accordance with GAAP consistently applied, be included
as additions to property, plant and equipment and other capital expenditures for
such Person for such period, including without limitation amounts with respect
to Capitalized Leases, but excluding (i) expenditures constituting the purchase
price for Permitted Acquisitions and (ii) so long as no Event of Default exists
at the time of such Asset Sale or casualty, amounts constituting Net Sale
Proceeds of Asset Sales of the Coffee People Sale Stores and proceeds of
casualty insurance policies to the extent permitted to be reinvested in the
business of the Borrowers within 180 days after such Asset Sale or casualty to
upgrade or remodel Stores or to make other improvements in the assets and
operations of the Borrowers.
.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
similar ownership interests in any Person which is not a corporation, and any
and all warrants, options or other rights to acquire any of the foregoing.
Capitalized Leases: Leases under which any Company is the lessee or
obligor, the discounted future rental payment obligations under which are
required to be capitalized on the balance sheet of the lessee or obligor in
accordance with GAAP.
Change in Control: for any reason (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than
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<PAGE> 8
35% of the total outstanding Capital Stock (on a fully-diluted basis) of the
Parent entitled to vote in the election of directors; (b) any Borrower shall
cease to own of record and beneficially 100% of the issued and outstanding
Capital Stock in each of its Subsidiaries (unless otherwise permitted
hereunder); or (c) during any period of up to 24 consecutive months, commencing
after the date of this Agreement, individuals who at the beginning of such 24
month period were directors of the Parent (together with any new director whose
election by its Board of Directors or whose nomination for election by its
shareholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the directors of the Parent then in
office.
Code: The Internal Revenue Code of 1986 and the rules and regulations
promulgated thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
Coffee People: See the Recitals.
Coffee People Sales Stores: Those certain existing Coffee People
company-owned Stores listed on Schedule 1(a) and located in Texas, Colorado,
Oregon and Arizona which are intended to be sold by the Borrowers.
Collateral: Any and all real and personal property of any of the
Companies, whether tangible or intangible, in each case in which the Lender now
has, is granted by this Agreement or otherwise, or hereafter acquires a security
interest or any other lien, to secure any of the Obligations.
Commitment Fee: See Section 2.3.
Commitments: The Revolver Commitment and the Term Loan Commitment.
Companies: The Borrowers and each of their Subsidiaries from time to
time.
Consolidated Cash Flow: For any period, without duplication, the sum of
(a) the Consolidated EBITDA of the Companies for such period, minus (b) cash
taxes in respect of income and profits for such period, minus (c) the aggregate
amount of Maintenance Capital Expenditures during such period; in each case
determined on a consolidated basis in accordance with GAAP.
Consolidated EBITDA: For any period determined on a consolidated basis
in accordance with GAAP, without duplication, the sum of (a) the Consolidated
Net Income of the Companies for such period, plus (b) taxes in respect of income
and profits, if any, paid or accrued by the Companies for such period, plus (c)
Consolidated Interest Expense of the Companies for such period, plus (d)
consolidated depreciation and amortization expenses of the Companies for such
period (including amortization of goodwill and other intangibles and
organizational costs), plus (e) other consolidated non-cash charges of the
Companies for such period, plus (f) consolidated nonrecurring charges of the
Companies for such period related to mergers and acquisitions, minus (g) other
consolidated non-cash credits of the Companies for such period; provided that
(i) if at any time during such Reference Period any Asset Sale shall have
occurred, the Consolidated EBITDA for such Reference Period
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<PAGE> 9
shall be reduced by an amount equal to the Consolidated EBITDA (if positive)
attributable to the property that is the subject of such Asset Sale for such
Reference Period or increased by an amount equal to the Consolidated EBITDA (if
negative) attributable thereto for such Reference Period and (ii) if during such
Reference Period an Acquisition shall have occurred, Consolidated EBITDA for
such Reference Period shall be calculated after giving pro forma effect thereto
as if such Acquisition occurred on the first day of such Reference Period.
Consolidated EBITDAR: For any period, without duplication, the sum of
(a) Consolidated EBITDA, plus (b) rental expense under Operating Leases; in each
case determined on a consolidated basis in accordance with GAAP.
Consolidated Financial Obligations: For any period, without
duplication, the sum of all scheduled payments (including without limitation,
principal and Consolidated Interest Expense) on Consolidated Funded Indebtedness
of the Companies (including without limitation with respect to Capitalized
Leases) which came due during such period, in each case determined on a
consolidated basis in accordance with GAAP.
Consolidated Funded Indebtedness: At any time, without duplication, as
to any Person, the sum of (a) all indebtedness of such Person for borrowed
money, (b) all obligations of such Person for the deferred purchase price of
property or services (other than trade payables incurred in the ordinary course
of such Person's business), (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) the principal portion of
Capitalized Leases of such Person, (f) all obligations of such Person,
contingent or otherwise, as an account party under acceptance, letter of credit
(as to the face amount thereof plus, without duplication, LC Draw Obligations)
or similar facilities, (g) all Guarantees of such Person in respect of
Indebtedness of another Person, (h) all Indebtedness of another Person secured
by (or for which the holder of such obligation has an existing right, contingent
or otherwise, to be secured by) any Lien on property owned by such Person,
whether or not such Person has assumed or become liable for the payment of such
obligation, (i) all obligations of such Person in respect of Interest Rate
Protection Agreements, (j) all obligations of such Person under take-or-pay or
similar arrangements or under commodities agreements, (k) all preferred Capital
Stock issued by such Person and which by the terms thereof could be (at the
request of the holders thereof or otherwise) subject to mandatory sinking fund
payments, redemption or other acceleration (other than as a result of a Change
of Control or an Asset Sale that does not in fact result in a redemption of such
preferred Capital Stock) at any time during the term of this Agreement, (l) the
principal portion of all obligations of such Person under synthetic leases, (m)
the Indebtedness of any partnership or unincorporated joint venture in which
such Person is a general partner or a joint venturer, and (n) the outstanding
attributed principal amount under any securitization transaction.
Consolidated Interest Expense: For any period, without duplication, the
sum of (a) interest expense (including amortization or write-off of debt
discount and debt issuance costs) of the Companies for such period, (b) the
interest component of all Capitalized Leases of the Companies for such period,
and (c) all commitment fees, Letter of Credit Fees, fees relating to Interest
Rate
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<PAGE> 10
Protection Agreements and other fees, discounts, commissions and other charges
incurred or payable by the Companies during such period relating to
Indebtedness; in each case determined on a consolidated basis in accordance with
GAAP.
Consolidated Net Assets: As of any date on which the amount thereof is
to be determined, the net book value of all assets of the Companies as
determined on a consolidated basis in accordance with GAAP.
Consolidated Net Income: For any period, the net income (or loss) of
the Companies, excluding any extraordinary income (or loss) for such period
(taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves (including reserves for deferred income
taxes) and all other proper deductions; all determined on a consolidated basis
in accordance with GAAP.
Controlled Group: All trades or businesses (whether or not
incorporated) under common control that, together with the Companies, are
treated as a single employer under Section 414(b) or 414(c) of that Code or
Section 4001 of ERISA.
CP Acquisition: See the Recitals.
CP Acquisition Agreement: See the Recitals.
Credit Extensions: The Loans and the Letters of Credit.
Debt/Equity Proceeds Payments: See Section 2.7.
Debt Issuance: The issuance of Consolidated Funded Indebtedness
subordinated to the obligations of the Borrowers to pay principal of and
interest on and other amounts due with respect to the Loans, the Notes and other
Obligations on terms of subordination satisfactory to the Lender, and pursuant
to documentation containing other terms and including, without limitation,
interest, amortization, mandatory prepayments, covenants and events of default
in form and substance satisfactory to the Lender.
Default: An Event of Default or event or condition that, but for the
requirement that time elapse or notice be given, or both, would constitute an
Event of Default.
Distribution: As to any Person, any direct or indirect: (i) declaration
or payment of any dividend on or in respect of any Capital Stock of such Person
(except, in the case of the Parent, a dividend payable solely in shares of
Permitted Capital Stock); (ii) redemption, purchase or other retirement or
acquisition of any Capital Stock of such Person, through a Subsidiary of such
Person or otherwise; or (iii) return of capital by such Person to its
shareholders or other equityholders as such; or (iv) other distribution on or in
respect of any Capital Stock of such Person (except, in the case of the Parent,
any distribution made by the Parent solely in shares of Permitted Capital Stock
in connection with any stock split or reverse stock split).
Encumbrances: See Section 7.3.
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Environmental Laws: Any and all applicable foreign, federal, state and
local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated), of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over any Borrower and all
applicable judicial and administrative and regulatory decrees, judgments and
orders, including common law rulings and determinations, relating to injury to,
or the protection of, real or personal property or human health or the
environment, including, without limitation, all requirements pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
emissions, discharges, releases or threatened releases of Hazardous Materials,
chemical substances, pollutants or contaminants whether solid, liquid or gaseous
in nature, into the environment or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of such
Hazardous Materials, chemical substances, pollutants or contaminants. Without
limiting the generality of the foregoing, the term shall encompass each of the
following statutes and regulations promulgated thereunder, and amendments and
successors to such statutes and regulations, as enacted and promulgated from
time to time: (a) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (codified in scattered sections of 26 U.S.C.; 33 U.S.C.;
42 U.S.C. and 42 U.S.C. Section 9601 et seq.); (b) the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. Section 6901 et seq. ); (c) the Hazardous
Materials Transportation Act (49 U.S.C. Section 1801 et seq.); (d) the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.); (e) the Clean Water Act
(33 U.S.C. Section 1251 et seq.); (f) the Clean Air Act (42 U.S.C. Section 7401
et seq.); (g) the Safe Drinking Water Act (21 U.S.C. Section 349; 42 U.S.C.
Section 201 and Section 300 et seq.); (h) the National Environmental Policy Act
of 1969 (42 U.S.C. Section 4321); (i) the Superfund Amendment and
Reauthorization Act of 1986 (codified in scattered sections of 10 U.S.C.; 29
U.S.C.; 33 U.S.C. and 42 U.S.C.); and (j) Title III of the Superfund Amendment
and Reauthorization Act (40 U.S.C. Section 1101 et seq.).
Equity Issuance: any issuance or sale by any Company of (i) any of its
Capital Stock, (ii) any warrants or options exercisable in respect of Capital
Stock, or (iii) any other security or instrument if representing any Capital
Stock (or the right to obtain any Capital Stock) in any Company.
ERISA: The Employee Retirement Income Security Act of 1974 and the
rules and regulations thereunder, collectively, as the same may from time to
time be supplemented or amended and remain in effect.
Eurodollar Loan: Any Revolving Loan bearing interest at a rate
calculated by reference to the Adjusted Eurodollar Rate.
Event of Default: See Section 8.1.
Expiration Date: The fifth anniversary of the date hereof, or such
earlier date on which the Revolver Commitment of the Lender shall terminate in
accordance with the terms hereof.
Federal Funds Effective Rate: For any day, a fluctuating interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a
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<PAGE> 12
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day on such transactions received by
the Lender from three Federal funds brokers of recognized standing selected by
the Lender.
Fee Letter: The Fee Letter among the Lender and the Borrowers dated as
of June 30, 1999.
Franchise Agreements: The franchise agreements between the Borrowers
and their franchisees in effect from time to time.
Franchisees: Each of the franchisees which is a party to a Franchise
Agreement with any Borrower pursuant to a Franchise Agreement from time to time.
FTC: The Federal Trade Commission, and any successor agency thereof.
GAAP: For all purposes other than the financial statements contemplated
by Sections 6.1(a), (b) and (c) of this agreement, GAAP shall mean generally
accepted accounting principles in effect as of January 27, 1999, applied on a
consistent basis. With respect to the financial statements contemplated by
Sections 6.1(a) and (b) of this Agreement, GAAP shall mean generally accepted
accounting principles in effect at the time of the effective dates thereof,
applied on a consistent basis with past financial statements (unless otherwise
mutually agreed to in writing by the parties hereto).
Guaranty or Guarantees: All guarantee(s), endorsement(s) or other
contingent or surety obligation(s) of any Company with respect to obligations of
others, whether or not reflected on its balance sheet, including any obligation
to furnish funds, directly or indirectly (whether by virtue of partnership
arrangements, by agreement to keep-well or otherwise), through the purchase of
goods, supplies or services, or by way of stock purchase, capital contribution,
advance or loan, or to enter into a contract for any of the foregoing, for the
purpose of payment of obligations of any other Person.
Hazardous Material: Any substance (a) the presence of which requires or
may hereafter require notification, investigation or remediation under any
Environmental Law; (b) which is or becomes defined as a "hazardous waste",
"hazardous material", "hazardous material or oil" or "hazardous substance" or
"controlled industrial waste" or "pollutant" or "contaminant" or "chemical
substance or mixture" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (43 U.S.C. Section 9601
et seq.) and any applicable local statutes and the regulations promulgated
thereunder; (c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, and the United States, any
state of the United States, or any political subdivision thereof to the extent
any of the foregoing has or had jurisdiction over the Companies; or (d) without
limitation, which contains gasoline, diesel fuel or other petroleum products,
asbestos or polychlorinated biphenyls.
Hedging Agreement: Any commodity swap or other agreement designed to
protect against fluctuations in the price of coffee or coffee-related products.
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Indebtedness: As to any Person, all obligations, contingent or
otherwise, that in accordance with GAAP should be classified on a Person's
balance sheet as liabilities or to which reference should be made by footnotes.
Initial Financial Statements: See Section 4.11.
Insolvent or Insolvency: As applied to any Person, a Person as to which
there has occurred one or more of the following events, as applicable: (a)
dissolution (except for dissolution of Subsidiaries to the extent permitted
hereunder); (b) termination of existence (except for mergers, consolidations or
dissolutions to the extent permitted hereunder); (c) insolvency within the
meaning of the United States Bankruptcy Code or other applicable statute; (d)
such Person's inability to pay his or its debts as they come due; or (e)
appointment of a receiver of any part of the property of, execution of a trust
mortgage or an assignment for the benefit of creditors by, of the filing of a
petition in bankruptcy or the commencement of any proceedings under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment or indebtedness or reorganization of debtors, or the offering of a
plan to creditors for composition or extension, except for an involuntary
proceeding commenced against such Person which is dismissed within 60 days after
the commencement thereof without the entry of an order for relief or the
appointment of a trustee.
Intercompany Notes: See Section 7.1.
Interest Period: (a) With respect to each Eurodollar Loan, the period
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending one, two, three or six months thereafter, as the
Borrowers may elect in the applicable Loan Request or Interest Rate Option
Notice; and (b) with respect to each Base Rate Loan, the period commencing on
the date of the making or continuation of or conversion to such Base Rate Loan
and ending on the next Quarterly Date thereafter provided that, in each case:
(i) any Interest Period (other than an Interest Period
determined pursuant to clause (iv) below) that would otherwise end on a
day that is not a Business Day shall be extended to the next succeeding
Business Day unless, in the case of Eurodollar Loans, such Business Day
falls in the next calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day;
(ii) if the Borrowers shall fail to give notice as provided in
Section 2.5, the Borrowers shall be deemed to have requested a
conversion of the affected Eurodollar Loan to a Base Rate Loan on the
last day of the then current Interest Period with respect thereto;
(iii) any Interest Period relating to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is not numerically corresponding day in the calendar month
at the end of such Interest Period) shall, subject to clause (iv)
below, end on the last Business Day of a calendar month;
(iv) any Interest Period that would otherwise end after the
Expiration Date shall end on the Expiration Date; and
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(v) notwithstanding clause (iv) above, no Interest Period
relating to a Eurodollar Loan shall have a duration of less than one
month.
Interest Rate Option Notice: See Section 2.5.
Interest Rate Protection Agreement: Any interest rate swap agreement or
other financial agreement or arrangement designed to protect any Company against
fluctuations in interest rate.
June, 1999 Offering: The 4,600,000 shares of common Capital Stock of
the Parent being offered pursuant to the Prospectus in connection with the CP
Acquisition.
LC Draw Obligation: The Borrowers' obligation to reimburse the Lender
on account of any drawing under any Letter of Credit as provided in Section
2.8(c).
LC Exposure Amount: At any time, the sum of (i) the aggregate undrawn
face amount of all Letters of Credit outstanding at such time, and (ii) the
aggregate amount of all drawings under Letters of Credit for which the Lender
shall not have been reimbursed by the Borrowers as provided in Section 2.8(c).
Lease: Any Operating Lease or Capitalized Lease.
Lender: See the Preamble.
Letter of Credit: See Section 2.8(a).
Letter of Credit Documents: See Section 2.8(a).
Letter of Credit Fee: See Section 2.8(g).
Loan Documents: Collectively, this Agreement, the Fee Letter, the
Notes, the Letters of Credit, the Letter of Credit Documents, the Security
Documents and any and all other agreements, instruments, certificates, Loan
Requests, Interest Rate Option Notices or reports executed or delivered from
time to time in connection with this Agreement, in each case as may be amended
or restated from time to time.
Loan Request: See Section 2.4.
Loans: The Term Loan and the Revolving Loans.
Maintenance Capital Expenditures: Capital Expenditures relating solely
to expenditures with respect to fixed assets existing as of the date hereof,
including without limitation coffee retail Stores, production facilities and
corporate offices.
Margin Stock: See Section 4.5.
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Material Adverse Effect: A material adverse effect on (a) the business,
assets, property, operations, condition (financial or otherwise), liabilities or
prospects of the Parent or of the Borrowers taken as a whole, (b) the ability of
any Borrower to perform any material obligation under any of the Loan Documents
to which it is bound, or (c) the validity or enforceability of (i) this
Agreement, (ii) any of the other Transaction Documents, or (iii) any of the
rights or remedies of the Lender hereunder or thereunder.
Net Debt/Equity Proceeds: In the case of any Debt Issuance or Equity
Issuance (other than an Equity Issuance constituting an Asset Sale), the
aggregate amount of all cash received by any Company in respect thereof, net of
reasonable, customary fees, discounts, commissions and expenses incurred by the
Companies for such Debt Issuance or Equity Issuance.
Net Sale Proceeds: With respect to any Asset Sale, the aggregate amount
of all cash received by any Company in respect thereof, net of reasonable,
customary fees, commissions and expenses incurred by the Companies for such
Asset Sale net of taxes paid or reasonably estimated to be payable and for which
reserves have been provided as a result thereof.
Obligations: Any and all obligations (whether payment or performance
related or otherwise) of any Company to the Lender or any of its affiliates of
every kind and description, direct or indirect, absolute or contingent, primary
or secondary, due or to become due, now existing or hereafter arising, which may
arise under, out of, or in connection with, this Agreement (as may be amended or
restated from time to time), any other Loan Document (as may be amended or
restated from time to time), any Interest Rate Protection Agreement entered into
with the Lender or any affiliate of the Lender or any other document made,
delivered or given in connection herewith or therewith, whether on account of
principal (including any increases thereto), interest, reimbursement
obligations, fees, indemnities, costs, expenses (including all fees, charges and
disbursements of counsel to the Lender that are required to be paid by the
Borrowers pursuant to any Loan Document) or otherwise (including interest
accruing after the maturity of the Credit Extensions and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Company, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding).
Operating Leases: Leases or other periodic payment arrangements for the
use of real or personal property, other than Capitalized Leases.
Organizational Documents: See Section 4.2.
PBGC: The Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA
Permitted Acquisitions: The acquisition by any Borrower, whether by way
of the purchase of assets or equity interests, by merger or consolidation or
otherwise, of substantially all of the assets of or equity interests in a
specialty coffee retail Store or Stores (each, an "Acquisition"), subject to the
fulfillment of the following conditions:
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(a) At least 90% of all Stores owned and operated by each of
the Borrowers as of the date of such Acquisition must each have a
positive Store Cash Flow for the four fiscal quarters immediately
preceding such Acquisition (excluding from such computation Stores not
owned and operated by the Borrowers throughout such four quarter period
and the existing 26 Gloria Jean's Stores owned and operated by Gloria
Jean's Gourmet Coffees Corp. and Gloria Jean's Stores bought by
Borrowers in the future from franchisees of Gloria Jean's Gourmet
Coffees Franchising Corp.);
(b) If such Acquisition involves the purchase of equity
interests, the same shall be effected in such a manner as to assure
that the acquired entity becomes a direct or indirect wholly-owned
Subsidiary of the Parent;
(c) No later than: (i) 15 days prior to the consummation of
any such Acquisition or, if earlier, 10 business days after the
execution and delivery of the related acquisition agreement, the
Borrowers shall have delivered to the Lender a copy of executed
counterparts of such acquisition agreement, together with all schedules
thereto, and all applicable financial information, including new
Projections (if such Acquisition involves more than five stores),
updated to reflect such Acquisition and any related transactions, (ii)
promptly following a request therefor, copies of such other information
or documents relating to such Acquisition as the Lender shall have
reasonably requested, and (iii) promptly following the consummation of
such Acquisition, copies of the material agreements, instruments and
documents executed and delivered at the closing under such acquisition
agreement;
(d) No Borrower nor any Subsidiary shall, in connection with
any such Acquisition, assume or remain liable with respect to any
Indebtedness (including any material tax or ERISA liability) of the
related seller, except (i) Indebtedness to the extent permitted under
Section 7.1 of this Agreement, (ii) trade obligations of such seller
incurred in the ordinary course of business and necessary or desirable
to the continued operation of the underlying Store business (but which
do not constitute Consolidated Financial Obligations) and (iii)
existing Operating Leases of Stores acquired in the Permitted
Acquisition;
(e) All assets and properties acquired in connection with such
Acquisition shall be free and clear of any Encumbrances, other than
Permitted Encumbrances;
(f) Immediately prior to any such Acquisition and after giving
effect thereto, no Default shall have occurred or be continuing;
(g) Without limiting the generality of the foregoing, after
giving effect to such Acquisition (including any Loan therefor) the
Borrowers shall be in compliance with the provisions of Section 5, (i)
calculated on a pro forma basis as of the end of and for the Reference
Period most recently ended prior to the effective date of such
Acquisition, and (ii) under the updated Projections referred to above
(if applicable). The Borrowers shall provide to the Lender a
certificate signed on behalf of the Borrowers by their treasurer
demonstrating such compliance in reasonable detail;
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(h) On or before the consummation of each such Acquisition
involving the purchase or formation of a Subsidiary, such Subsidiary
shall be wholly-owned by a Borrower and the Loan Documents shall be
revised pursuant to amendments satisfactory in form and substance to
the Lender providing for such Subsidiary to become another "Borrower"
hereunder and for compliance with all requirements of Section 2.13; and
(i) On or before the consummation of each such Acquisition,
the Borrowers and their Subsidiaries shall have complied with all of
the requirements of Section 2.13 hereto, including the execution and
delivery of any required Security Documents, and the Lender shall have
received on behalf of the Lenders a first priority security interest in
all of the assets so acquired, whether by way of an asset or equity
interest acquisition, and the Lender shall have also received a first
priority perfected security interest in and pledge of the equity
interests of any such acquired Subsidiary.
Permitted Capital Stock: Capital Stock of the Parent with respect to
which the Parent has no obligation to make any Distributions prior to the
indefeasible payment in full in cash of all Obligations.
Permitted Encumbrances: See Section 7.3.
Permitted Sale: See Section 7.4.
Person: Any individual, corporation, partnership, joint venture, trust
or unincorporated organization or any government or any agency or political
subdivision thereof.
Plan: At any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (a) maintained by any Company or any
member of the Controlled Group for employees of any Company or any member of the
Controlled Group or (b) if such Plan is established maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which any Company or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five Plan years made contributions.
Prospectus: The Prospectus dated June 30, 1999 of the Parent, filed
with the SEC.
Qualified Investments: As applied to any Company, investments in (a)
notes, bonds or other obligations of the United States of America or any agency
thereof that as to principal and interest constitute direct obligations or are
guaranteed by the United States of America, (b) certificates of deposit or other
deposit instruments or accounts of banks or trust companies organized under the
laws of the United States or any state thereof that have capital and surplus of
at least $500,000,000 and are members of the Federal Deposit Insurance
Corporation, (c) commercial paper of the Lender or commercial paper of other
issuers that is rated not less than prime-one or A-1 or their equivalents by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or their successors or municipal bonds with at least the equivalent rating, (d)
any repurchase agreement secured by any one or more of the foregoing, (e)
securities with maturities of one year or less from
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<PAGE> 18
the date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing authority
of any such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standard letters of credit issued by the
Lender or any commercial bank satisfying the requirements of clause (b) of this
definition; or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition; and (h) with the Lender's prior written consent, any Subsidiary
provided such Subsidiary complies with the provisions of the Loan Documents
applicable to it (including without limitation Section 2.12 hereof).
Quarterly Dates: The last day of each fiscal quarter of the Borrowers,
using their fiscal year accounting as in effect with respect to the Initial
Financial Statements of the Parent. The Quarterly Dates for the period from the
date hereof through fiscal year end 2004 are listed on Schedule 1 hereto.
Reference Period: Each period of four consecutive fiscal quarters of
the Borrowers ending on or after the Quarterly Date for the second fiscal
quarter of fiscal year 1999.
Remedial Work: All activities, including, without limitation, cleanup
design and implementation, removal activities, investigation, field and
laboratory testing and analysis, monitoring and other remedial and response
actions, taken or to be taken, arising out of or in connection with Hazardous
Materials, including without limitation (a) all activities included within the
meaning of the terms "removal," "remedial action" or "response," as defined in
42 U.S.C. Section 9601(23), (24) and (25), and (b) all activities included
within the meaning of the terms "remedial response actions" and "Remedial
Response Implementation Plan (RRIP)," as defined in 310 CMR 40.
Rental Expense: For any period, all rental expense under Operating
Leases.
Restricted Payment: With reference to any Company any (i) Distribution
or (ii) any retirement, repurchase, defeasance or redemption of, any acquisition
for value of, or any repayment of, any Debt Issuance other than as expressly
permitted in writing by the Lender.
Revolver Commitment: See Section 2.1.
Revolving Credit Outstandings: At any time, the sum of (i) the
aggregate principal amount of Revolving Loans outstanding at such time, plus
(ii) the LC Exposure Amount at such time.
Revolving Loans: See Section 2.1.
Revolving Note: See Section 2.1.
Sale Leaseback: See Section 7.2.
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<PAGE> 19
Sale Proceeds Payments: See Section 2.7.
SEC: The Securities and Exchange Commission, or any successor agency
thereto.
SEC Acquisition Filings: The Prospectus, Form S-1 and Form S-4 filed
with the SEC relating to the June, 1999 Offering or the CP Acquisition.
Security Documents: Collectively, the agreements and instruments
referred to in Section 3.1 and any and all other agreements, documents and
instruments executed by any Company or other Affiliates, to secure, or otherwise
in connection with, the Obligations, all as amended from time to time.
Store: Any store owned or controlled or franchised as franchisor
directly or indirectly by any Company.
Store Cash Flow: For any period as to any Store, determined in
accordance with generally accepted accounting principles consistently applied,
without duplication, the sum of the income (or loss) of such Store, excluding
any extraordinary income (or loss) for such Store for such period, after
deducting all operating expenses for such Store.
Subsidiary: (a) Any corporation, association, joint stock company,
business trust or other similar organization of which 50% or more of the
ordinary voting power for the election of a majority of the members of the board
of directors or other governing body of such entity is held or controlled by any
Borrower or a Subsidiary of any Borrower; (b) any other such organization the
management of which is directly or indirectly controlled by any Borrower or a
Subsidiary of any Borrower through the exercise of voting power or otherwise; or
(c) any joint venture, association, partnership or other entity in which any
Borrower or any Subsidiary thereof has a 50% or greater equity interest.
Term Loan: See Section 2.1.
Term Loan Commitment: See Section 2.1.
Term Loan Maturity Date: The fifth anniversary of the date hereof, or
such earlier date on which all the Commitments of the Lender shall terminate in
accordance with the terms hereof.
Term Note: See Section 2.1.
Transaction Documents: See Section 4.2.
SECTION 2. THE CREDIT FACILITY.
2.1 The Loans and Notes.
(a) Revolving Loans. The Lender agrees, subject to the terms of this
Agreement, to make revolving credit loans (the "Revolving Loans") to the
Borrower from time to time from and
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after the date hereof until the Expiration Date in an aggregate principal amount
at any time outstanding up to, but not exceeding, $3,000,000 (the "Revolver
Commitment"), minus the LC Exposure Amount at such time. Subject to the terms
and conditions of this Agreement, from time to time from and after the date
hereof until the Expiration Date, the Borrowers may borrow, repay and reborrow
Revolving Loans. The Revolving Loans shall be evidenced by a promissory note in
the form of Exhibit 2.1(a) hereto delivered to the Lender on the date hereof (as
may be amended, renewed, substituted or replaced from time to time, the
"Revolving Note").
(b) Term Loan. The Lender agrees, subject to the terms of this
Agreement, to make a term loan (the "Term Loan") to the Borrowers on or about
the date hereof in the principal amount of $12,000,000 to pay closing costs and
to repay outstanding indebtedness in connection with the CP Acquisition. The
Borrowers shall not be entitled to reborrow all or any part of the principal of
the Term Loan which shall be paid or prepaid at any time. The Term Loan shall be
evidenced by a promissory note in the form of Exhibit 2.1(b) hereto delivered to
the Lender on the date hereof (as may be amended, renewed, substituted or
replaced from time to time, the "Term Note").
(c) Notations on Notes. The Borrowers irrevocably authorize the Lender
to make an appropriate notation on the applicable Note reflecting the making of
each Loan and each payment on the Loans. The outstanding amount of the Loans
entered in the computer records of the Lender shall be prima facie evidence of
the principal amount thereof owing and unpaid to the Lender, but the failure to
enter, or any error in so entering, any such amount shall not limit or otherwise
affect the obligations of the Borrowers hereunder or under the Notes to make
payments of principal, interest and other amounts due thereunder.
2.2 Scheduled Principal Repayments on the Loans.
(a) Revolving Loans. The Borrowers shall pay to the Lender on the
Expiration Date all then outstanding principal on the Revolving Loans.
(b) Term Loan. The Borrower shall pay to the Lender principal of the
Term Loan in 18 consecutive quarterly installments, payable on each March 31,
June 30, September 30 and December 31, commencing on December 31, 1999. Each of
the first 17 installments shall be in the amount of $666,666, with the final
18th installment being in the amount of all remaining outstanding principal due
and payable in full on the Term Loan Maturity Date.
2.3 Closing Fee; Commitment Fees; Interest; Default Rate.
(a) Closing Fee. The Borrowers shall pay jointly and severally pay to
the Lender a fully-earned nonrefundable closing fee on the date hereof as set
forth in the Fee Letter.
(b) Commitment Fees. The Borrowers shall pay jointly to the Lender a
commitment fee (the "Commitment Fee") on the daily unused portion of the
Revolver Commitment (taking into account the LC Exposure Amount as usage) at a
per annum rate equal to .50%.
(c) Interest Rate. The Borrowers may elect an interest rate for each
Loan (or one or more portions thereof) based on either the Base Rate or the
applicable Adjusted Eurodollar Rate and
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determined as follows: (i) the rate for any Base Rate Loan shall be the Base
Rate plus 1.25%; and (ii) the rate for any Eurodollar Loan shall be the
applicable Adjusted Eurodollar Rate plus 3.00%.
(e) Interest and Commitment Fees Payment Dates. Interest on Base Rate
Loans shall be due and payable, without setoff, deduction or counterclaim,
quarterly in arrears on each March 31, June 30, September 30 and December 31,
commencing on September 30, 1999, and when such Base Rate Loan is due (whether
at maturity, by reason of acceleration or otherwise). The rate of interest on
Base Rate Loans shall change on the date of any change in the applicable Base
Rate. Interest on each Eurodollar Loan shall be payable, without setoff,
deduction or counterclaim, for the related Interest Period on the last day
thereof and when such Eurodollar Loan is due (whether at maturity, by reason of
acceleration or otherwise) and, if such Interest Period is longer than three
months, at intervals of three months after the first day of such Interest
Period. Commitment Fees shall be due and payable in arrears on each Quarterly
Date and on the Expiration Date.
(f) Default Rate; Late Fee. During the existence of any Event of
Default, the outstanding principal under the Notes and, to the extent permitted
by applicable law, any interest (under this Section 2.3) and fees or any other
amounts due and payable hereunder (including without limitation overadvances)
shall bear interest, from and including the date such Event of Default occurred
at a rate per annum equal to the Base Rate plus 3.00%, which interest shall be
compounded daily and payable on demand. If any payment of principal, interest or
other amount due hereunder is not paid in full within 10 days after the same is
due, the Borrowers shall also jointly and severally pay to the Lender a late fee
in the amount of 5.0% of the amount not paid when due. Nothing in this Section
2.3(f) shall affect the Lender's right to exercise any of its rights or
remedies, including those provided in Section 8.2 and in the Security Documents,
arising upon the occurrence of an Event of Default.
(g) Computations. Interest on the Loans and on fees and expenses shall
be computed on the basis of the actual number of days elapsed over a 360-day
year. Except as otherwise provided in the definition of the term "Interest
Period" with respect to the Eurodollar Loans, if any payment hereunder or under
the Notes shall be due and payable on a day which is not a Business Day, such
payment shall be deemed due on the next following Business Day and interest
shall be payable at the applicable rate specified herein through such extension
period.
2.4 Requests for Loans. The Parent shall give the Lender telephonic
notice confirmed in writing in the form of Exhibit 2.4 of each Loan requested
hereunder (a "Loan Request") no later than (a) 1:00 PM (Boston time) on the same
Business Day as the proposed date of any Base Rate Loan and (b) 1:00 PM (Boston
time) on the third Business Day prior to the proposed date of any Eurodollar
Loan. Each such notice shall specify (i) the principal amount thereof requested
and the use or uses thereof, (ii) the proposed date of such Loan, (iii) the
Interest Period for such Loan, if a Eurodollar Loan, and (iv) whether such Loan
shall be a Base Rate Loan or a Eurodollar Loan. Notwithstanding anything herein
to the contrary, any Revolving Loan that is to be used by any Borrower for the
purpose of new unit growth or Permitted Acquisitions may only be used for such
so long as 90% of the company-owned Stores as of the date of such Loan each have
a positive Store Cash Flow for the four fiscal quarters immediately preceding
the proposed date of such Revolving Loan (excluding from such computation Stores
not owned and operated by the Borrowers throughout such four quarter period and
the existing 26 Gloria Jean's Stores owned and operated by Gloria
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Jean's Gourmet Coffees Corp. and Gloria Jean's Stores purchased by Borrowers in
the future from their franchisees of Gloria Jean's Gourmet Coffees Franchising
Corp.). Each Loan Request shall be irrevocable and binding on the Borrowers and
shall obligate the Borrowers to accept the Loan requested on the proposed date.
Each Loan Request for a Base Rate Loan shall be in a minimum amount of $50,000
(and integrals thereof) and each Loan Request for a Eurodollar Loan shall be in
a minimum amount of $100,000 (and integrals thereof); provided, that at no time
shall there be more than five Eurodollar Loans outstanding. The Lender shall
disburse Revolving Loans to the Borrowers by depositing them in a joint account
of the Borrowers with the Lender.
2.5 Conversion and Continuance of Loans.
(a) Conversion to a Different Type of Loan. The Borrowers may elect
from time to time to convert any outstanding Loan to a Base Rate Loan or
Eurodollar Loan, as the case may, be provided that (i) with respect to any such
conversion of a Eurodollar Loan to a Base Rate Loan, the Borrowers shall provide
the appropriate Interest Rate Option Notice in the form of Exhibit 2.5 hereto
(an "Interest Rate Option Notice") to the Lender by 1:00 PM (Boston time) on the
date of such proposed conversion; (ii) with respect to any such conversion of a
Base Rate Loan to a Eurodollar Rate Loan, the Borrowers shall provide the
appropriate Interest Rate Option Notice to the Lender by 1:00 PM (Boston time)
at least three Business Days' prior to the date of such proposed conversion;
(iii) with respect to any such conversion of a Eurodollar Loan into a Base Rate
Loan, such conversion shall only be made on the last day of the related Interest
Period; (iv) no Loans may be converted into a Eurodollar Loan when any Default
has occurred and is continuing; (v) at no time shall there be more than five
Eurodollar Loans outstanding; and (vi) any conversion of less than all of the
outstanding Loans of either type into Loans of the other type shall be in a
minimum principal amount of $100,000, provided that a conversion of a Eurodollar
Loan to a Base Rate Loan shall be in a minimum principal amount of $100,000.
(b) Continuance of an Interest Rate Option. The Borrowers may continue
any Loan of either type as a Loan of the same type upon the expiration of the
related Interest Period by providing an Interest Rate Option Notice to the
Lender in compliance with the notice provisions set forth in Section 2.5(a);
provided that no Eurodollar Loan may be continued as such when any Default has
occurred and is continuing, but shall be automatically converted to a Base Rate
Loan on the last day of the first applicable Interest Period which ends during
the continuance of such Default; provided further that if the Borrowers fail to
give a timely Interest Rate Option Notice, the affected Loan shall be
automatically converted to a Base Rate Loan on the last day of the applicable
Interest Period.
2.6 Reduction or Termination of the Revolver Commitment.
(a) At any time prior to the Expiration Date, upon at least 10 days
prior written notice, the Borrowers may permanently terminate or permanently
reduce the Revolver Commitment. Any such reduction shall be in an amount of not
less than $500,000 (or multiples thereof) or such lesser amount as equals the
Available Revolver Commitment. Simultaneously with any such termination or
reduction of the Revolver Commitment, the Borrowers shall (i) make any payments
required under Section 2.11 and (ii) pay to the Lender any then accrued unpaid
commitment fees and interest on the terminated Revolver Commitment or on the
portion of the Revolver Commitment terminated pursuant to any reduction thereof;
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(b) The Revolver Commitment shall be automatically and permanently
reduced to -0- on the Expiration Date, when all outstanding principal, accrued
interest and other amounts due on the Revolving Note shall be due and payable in
full.
2.7 Mandatory Payments and Prepayments.
(a) Overdraws. If at any time the Revolving Credit Outstandings exceed
the sum of the Revolver Commitment, the Borrowers shall immediately pay to the
Lender the amount of such excess, which excess shall be first applied to any
unpaid LC Draw Obligations or, if a Default then exists and is continuing,
applied at the Lender's sole and absolute discretion.
(b) Mandatory Payments in Connection with Prepayment Events. If at any
time any portion of the Term Loan is outstanding, the Borrowers shall, not later
than 30 days following each day any Net Sale Proceeds are received by any
Borrower or any of its Subsidiaries in excess of $250,000 in the aggregate as to
all Asset Sales in any fiscal year, pay to the Lender the amount of such Net
Sale Proceeds (each such payment to the Lender being referred to herein as a
"Sale Proceeds Payment"), provided, however, Net Sale Proceeds of any Asset Sale
of the Coffee People Sale Stores need not be paid to the Lender until 180 days
after such Asset Sale and then only to the extent not reinvested pursuant to the
definition of "Capital Expenditures".
(c) Mandatory Payments in Connection with Debt or Equity Issuances. If
at any time any portion of the Term Loan is outstanding, the Borrowers shall,
not later than 30 days following each day any Net Debt/Equity Proceeds are
received by any Borrower or any of its Subsidiaries in excess of $250,000 in the
aggregate as to all Debt Issuances and Equity Issuances of all Companies in any
fiscal year, pay to the Lender the amount of such Net Debt/Equity Proceeds (each
such payment to the Lender being referred to herein as a "Debt/Equity Proceeds
Payment"); provided, however, no Debt/Equity Proceeds Payment shall be required
with respect to the June, 1999 Offering.
(d) Voluntary Prepayments. Subject to the provisions hereof, including
without limitation the provisions of Section 2.11, the Borrowers may at any time
voluntarily prepay the Loans in whole or in part (in multiples of $100,000 as to
Eurodollar Loans and $50,000 as to Base Rate Loans) from time to time upon not
less than the one Business Day's prior notice by 1:00 PM to the Lender with
respect to Base Rate Loans and three Business Days' prior notice by 1:00 PM to
the Lender with respect to Eurodollar Loans; provided, however, that (i)
Eurodollar Loans may be repaid only on the last day of an Interest Period
therefor, and (ii) all repayments of Eurodollar Loans or any portion thereof
shall be made together with payment of all interest accrued on the amount repaid
and other amounts due with respect thereto through the date of such repayment.
(e) Application of Payments.
(i) If no Default then exists hereunder, all Sale Proceeds
Payments and all Debt/Equity Proceeds Payments shall be applied to
principal of the Term Loan in inverse order of maturity.
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<PAGE> 24
(ii) Except as set forth in subparagraph (i) above (or if a
Default exists in which case all payments and prepayments may be
applied as the Lender elects), all payments and repayments made
pursuant to the terms hereof shall be applied (A) first to all (if any)
amounts (except principal, interest and fees) due and payable under
this Agreement at such time, (B) then to payment of all fees due and
payable at such time, (C) then to interest due and payable at such
time, (D) then to accrued interest, (E) then to principal of Base Rate
Loans, (F) then to principal of Eurodollar Loans, and (G) finally, to
all other Obligations.
2.8 Letters of Credit.
(a) Letter of Credit Commitment. Subject to the execution and delivery
by the Borrowers of a letter of credit application and any other related
documents on the Lender's customary forms in effect from time to time
(collectively, the "Letter of Credit Documents") and in reliance upon the
representations and warranties of the Borrowers contained herein, the Lender
agrees from time to time until the Expiration Date to issue, extend and renew
for the account of any Borrower one or more standby letters of credit (each
individually, a "Letter of Credit"), in such form as may be requested from time
to time by the Borrowers and agreed to by the Lender. In the event and to the
extent that any provision of any Letter of Credit Document shall be inconsistent
with any provision of this Agreement, then the provisions of this Agreement
shall govern.
(b) Conditions to Issuance of Letters of Credit; Etc.
(i) The obligation of the Lender to issue, extend or renew any
Letter of Credit hereunder shall be subject to the conditions for Loans
set forth in Section 3 and to the following conditions:
(A) Such Letter of Credit shall provide for payment
in U.S. Dollars and shall expire by its terms no later than
the earlier to occur of (A) 30 days prior to the Expiration
Date and (b) one year from the date of its issuance;
(B) After giving effect to such issuance, extension
or renewal, (1) the aggregate outstanding principal amount of
the Revolving Loans shall not exceed the Available Revolver
Commitment and (2) the sums of the aggregate LC Exposure
Amount shall not exceed $1,000,000;
(C) The form and terms of each Letter of Credit and
the related Letter of Credit Documents shall be acceptable to
the Lender; and
(D) Each Letter of Credit shall be issued to support
obligations of one or more of the Borrowers incurred in the
ordinary course of its or their business.
(ii) Whenever the Borrowers desire to have a Letter of Credit
issued, extended or renewed, the Borrowers will furnish to the Lender a
written application therefor which shall (A) be received by the Lender
not less than three Business Days prior to the proposed date of
issuance, extension or renewal and (B) specify (1) such proposed date
(which must be a Business Day), (2) the expiration date of such Letter
of Credit, (3) the name and address of
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<PAGE> 25
the beneficiary of the Letter of Credit, (4) the amount of such Letter
of Credit, and (5) the purpose and proposed form of such Letter of
Credit. Each Letter of Credit shall be subject to the International
Standby Practices (1998) and, to the extent not inconsistent therewith,
the laws of the Commonwealth of Massachusetts.
(c) LC Draw Obligations of the Borrowers. In order to induce the Lender
to issue, extend and renew each Letter of Credit, the Borrowers hereby jointly
and severally agree to reimburse or pay to the Lender:
(i) except as otherwise expressly provided in paragraph (ii)
below, on the Business Day immediately following each date that any
draft presented under such Letter of Credit is honored by the Lender or
the Lender otherwise makes a payment with respect thereto, as indicated
in the notice thereof from the Lender to the Borrowers (A) the amount
paid by the Lender under or with respect to such Letter of Credit, and
(B) the amount of any taxes, fees, charges or other reasonable costs
and expenses whatsoever incurred by the Lender in connection with any
payment made by the Lender under or with respect to such Letter of
Credit; and
(ii) upon the termination or reduction of the Revolver
Commitment, or the acceleration of the LC Draw Obligations in
accordance with Section 8.1, an amount equal to the LC Exposure Amount
(or with respect to a reduction, the excess thereof over the reduced
aggregate Revolver Commitment), which amount shall be held by the
Lender as cash collateral for all LC Draw Obligations.
Interest shall accrue on any and all amounts remaining unpaid by the Borrowers
under this Section 2.8 at any time from the date of any draw under a Letter of
Credit until payment in full (whether before or after judgment) at the rate
specified in Section 2.3 for principal on the Revolving Loans until the Business
Day immediately following such draw and, thereafter, at the default rate set
forth in Section 2.3, and shall be payable to the Lender on demand.
(d) Revolving Loans to Satisfy LC Draw Obligations. The Borrowers may
elect to satisfy any LC Draw Obligation arising under paragraph (c)(i) of this
Section by borrowing a Base Rate Loan in the amount thereof and applying the
proceeds thereto, provided that (i) all conditions to such Revolving Loan set
forth in Section 3 shall have been satisfied in full and (ii) after giving
effect to such Revolving Loan and the application of proceeds thereof, the
Revolving Credit Outstandings will not exceed the Revolver Commitment.
(e) Borrowers' Obligations Absolute. The Borrowers assume all risks in
connection with the Letters of Credit. The Borrowers' obligations under this
Section 2.8 shall be absolute and unconditional under any and all circumstances
and irrespective of the occurrence of any Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which any Borrower
may have or have had against the Lender or any beneficiary of a Letter of
Credit. The Borrowers also agree that the Lender shall not be responsible for,
and the Borrowers' LC Draw Obligations shall not be affected by, among other
things, (i) the validity, genuineness or enforceability of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, insufficient (provided all such documents conform on
their
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<PAGE> 26
face), fraudulent or forged, or (ii) any dispute between or among any Borrower,
any of its Subsidiaries, the beneficiary of any Letter of Credit or any
financing institution or other party to which any Letter of Credit may be
transferred or any claims or defenses whatsoever of any Borrower or any of its
Subsidiaries against the beneficiary of any Letter of Credit or any such
transferee. The Lender shall not be liable for any error, omission, interruption
or delay in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Borrowers agree that
any action taken or omitted to be taken by the Lender under or in connection
with each Letter of Credit and the related drafts and documents, if done in good
faith without gross negligence, shall be binding upon the Borrowers and shall
not subject the Lender to any liability.
(f) Reliance by Lender. The Lender shall be entitled to rely, and shall
be fully protected in relying upon, any Letter of Credit, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, telegram, telecopy,
telex or teletype message, statement, order or other document believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person and upon advice and statements of legal counsel, independent accountants
and other experts selected by the Lender.
(g) Letter of Credit Fee. In order to induce the Lender to issue,
extend and renew each Letter of Credit, the Borrowers hereby agree jointly and
severally to pay to the Lender quarterly in arrears on the Quarterly Dates with
respect to each such issuance, extension and renewal a fee (in each case, a
"Letter of Credit Fee") on the stated amount of such Letter of Credit at a rate
per annum equal to 3.00%. In addition, the Borrowers shall pay to the Lender any
and all standard charges customarily made by the Lender in connection with such
issuance, extension or renewal.
2.9 Changed Circumstances.
(a) Eurodollar Loans. In the event that:
(i) on any date on which the Adjusted Eurodollar Rate would
otherwise be set, the Lender shall have determined in good faith (which
determination shall be final and conclusive) that adequate and fair
means do not exist for ascertaining the Interbank Offered Rate, or
(ii) at any time the Lender shall have determined in good
faith (which determination shall be final and conclusive) that:
(A) the making or continuation of, or conversion of
any Base Rate Loan to, a Eurodollar Loan has been made
impracticable or unlawful by (1) the occurrence of a
contingency that materially and adversely affects the
interbank eurodollar market or (2) compliance by the Lender in
good faith with any applicable law or governmental regulation,
guideline or order or interpretation or change thereof by any
governmental authority charged with the interpretation or
administration thereof or with any request or directive of any
such governmental authority (whether or not having the force
of law); or
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(B) the Adjusted Eurodollar Rate shall no longer
represent the effective cost to the Lender for U.S. dollar
deposits in the interbank market for deposits in which they
regularly participate;
then, and in any such event, the Lender shall notify the Borrowers. Until the
Lender notifies the Borrowers that the circumstances giving rise to such notice
no longer apply, the obligation of the Lender to allow selection by the
Borrowers of Eurodollar Loans shall be suspended. If at the time the Lender so
notifies the Borrowers, the Borrowers have previously given the Lender a Loan
Request or Interest Rate Option Notice with respect to one or more Eurodollar
Loans but such Loan or Loans have not yet gone into effect, such notification by
the Borrowers shall be deemed to be void and the Loan or Loans shall bear
interest at the rate then applicable to Base Rate Loans. Upon such date as the
Lender shall specify in such notice (which shall be the last day of applicable
Interest Period, if an earlier date is not required), the Borrowers shall prepay
all outstanding Eurodollar Loans, together with interest thereon, and may borrow
Base Rate Loans in accordance with this Agreement by delivering an Interest Rate
Option Notice pursuant to Section 2.5. In the event that the Lender determines
at any time following the giving of notice pursuant to this clause that it may
lawfully make Eurodollar Loans, the Lender shall give notice thereof to the
Borrowers of such determination, whereupon the Borrowers' right to request, and
the Lender's obligation to make, Eurodollar Loans shall be restored.
(b) All Credit Extensions. After the date hereof, in case any change in
any existing or any new law, regulation, treaty or official directive or the
interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):
(i) subject to (c) below, subjects the Lender to any tax with
respect to payments of principal or interest or any other amounts
payable hereunder by any Borrower or otherwise with respect to the
transactions contemplated hereby (except for taxes on the overall net
income of such Persons imposed by the United States of America or any
political subdivision thereof), or
(ii) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or Loans or
Letters of Credit issued by the Lender (other than such requirements as
are already included in the determination of the Adjusted Eurodollar
Rate), or
(iii) imposes upon the Lender any other condition with respect
to the Loans or the Letters of Credit or otherwise with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to the Lender,
reduce the income receivable by the Lender or impose any expense with respect to
any Loan or Letter of Credit (in each case without duplication of amounts
described in Section 2.10), the Lender shall so notify the Borrowers. The
Borrowers agree to pay to the Lender the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or
expense is incurred or determined, upon demand after presentation by the Lender
of a statement in the amount and setting
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<PAGE> 28
forth the Lender's calculation thereof, which statement shall be deemed true and
correct absent manifest error.
(c) All payments made by the Borrowers under the Loan Documents shall
be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any governmental authority, excluding
net income taxes and franchise taxes (imposed in lieu of net income taxes)
imposed on the Lender as a result of a present or former connection between the
Lender and the jurisdiction of the governmental authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, any Loan
Document). If any such non-excluded taxes, levies, imposts, duties, charges,
fees, deductions or withholdings ("Non-Excluded Taxes") or other stamp or
documentary taxes or excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document
("Other Amounts") are required to be withheld from any amounts payable to the
Lender hereunder, the amounts so payable to the Lender shall be increased to the
extent necessary to yield to the Lender (after payment of all Non-Excluded Taxes
and Other Amounts) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement or such other Loan Document,
provided, however, that the Borrowers shall not be required to increase any such
amounts payable to the Lender with respect to any Non-Excluded Taxes (i) that
are attributable to the Lender's failure to comply with the requirements of
paragraph (e) or (f) of this Section or (ii) that are United States withholding
taxes imposed on amounts payable to the Lender at the time the Lender becomes a
party to this Agreement, except to the extent that the Lender's assignor (if
any) was entitled, at the time of assignment, to receive additional amounts from
the Borrowers with respect to such Non-Excluded Taxes pursuant to this Section.
In addition, the Borrowers shall pay any Other Amounts to the relevant
governmental authority in accordance with applicable law.
(d) Whenever any Non-Excluded Taxes or Other Amounts are payable by the
Borrowers, as promptly as possible thereafter the Borrowers shall send to the
Lender a certified copy of an original official receipt received by the
Borrowers showing payment thereof. If the Borrowers fail to pay any Non-Excluded
Taxes or Other Amounts when due to the appropriate taxing authority or fails to
remit to the Lender the required receipts or other required documentary
evidence, the Borrowers hereby indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure.
(e) The Lender or any participant or successor or assignee of the
Lender that is not a citizen or resident of the United States of America, a
corporation, partnership or other entity created or organized in or under the
laws of the United States of America (or any jurisdiction thereof), or any
estate or trust that is subject to federal income taxation regardless of the
source of its income (a "Non-U.S. Lender") shall deliver to the Borrowers (or,
in the case of a participant, to the Lender) two copies of either U.S. Internal
Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender
claiming exemption from U.S. federal withholding tax under Section 871(h) or 88
1 (c) of the Code with respect to payments of "portfolio interest", a statement
substantially in the form of Exhibit 2.9 (an "Exemption Certificate") and a Form
W-8, or any subsequent versions
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<PAGE> 29
thereof or successors thereto, properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S.
federal withholding tax on all payments by the Borrowers under this Agreement
and the other Loan Documents. Such forms shall be delivered by each Non-U.S.
Lender on or before the date it becomes a party to this Agreement (or, in the
case of any participant, on or before the date such participant purchases the
related participation). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify
the Borrowers at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Borrowers (or any other form
of certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this Section, a Non-U.S. Lender shall not
be required to deliver any form pursuant to this Section that such Non-U.S.
Lender is not legally able to deliver.
(f) The Lender or any participant or successor or assignee of the
Lender that is entitled to an exemption from or reduction of non-U.S.
withholding tax under the law of the jurisdiction in which any Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrowers (with a copy to the
Lender), at the time or times prescribed by applicable law or reasonably
requested by the Borrowers, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate, provided that such Person is legally entitled
to complete, execute and deliver such documentation and in such Person's
judgment such completion, execution or submission would not materially prejudice
its legal position.
(g) If the Lender determines that it has recovered or used as a credit
any amount withheld on its account pursuant to this section, it shall reimburse
the Borrowers to the extent of such amount so determined to have been recovered
or used as a credit, provided that nothing contained in this paragraph (g) shall
require the Lender to make available its tax returns (or any other information
relating to its taxes which it deems to be confidential).
(h) The agreements in this Section shall survive the termination of
this Agreement and the payment of the Obligations.
2.10 Capital Adequacy. The Lender shall notify the Borrowers if, after
the date hereof, the Lender determines that (a) the adoption of or change in any
law, rule, regulation or guideline regarding capital requirements for banks or
bank holding companies , or any change in the interpretation or application
thereof by any governmental authority charged with the administration thereof,
or (b) compliance by any such Person or its parent bank holding company with any
guideline, request or directive of any such entity regarding capital adequacy
(whether or not having the force of law), has the effect of reducing the return
on such Person's or such holding company's capital as a consequence of such
Person's commitment to make Loans or issue Letters of Credit hereunder to a
level below that which such Person or such holding company could have achieved
but for such adoption, change or compliance (taking into consideration such
Person's or such holding company's then existing policies with respect to
capital adequacy and assuming the full utilization of such entity's capital and
excluding any such reduction resulting from a decline in such Person's capital
or capital ratios) by any amount reasonably deemed by such Person to be
material. The Borrowers agree to pay to the Lender the amount of such reduction
of return of capital within 30
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<PAGE> 30
days after presentation by the Lender of a statement in the amount and setting
forth the Agent's or such Lender's calculation thereof, which statement shall be
deemed true and correct absent manifest error. In determining such amount, the
Lender may use any reasonable averaging and attribution methods used in similar
circumstances.
2.11 Payments Before End of Eurodollar Period. If any Borrower for any
reason makes any payment or prepayment (whether voluntary or mandatory) of
principal with respect to any Eurodollar Loan on any day other than the last day
of the applicable Interest Period, or fails to borrow, continue or convert to a
Eurodollar Loan after giving a Loan Request or Interest Rate Option Notice
pursuant to Section 2.4 or 2.5, or if any Eurodollar Loan is accelerated
pursuant to Section 8.1, the Borrowers shall pay to the Lender a makewhole
payment pursuant to the following formula:
L = (R - T) x P x D
---------------
360
L = amount payable to the Lender
R = interest rate on such Loan
T = effective interest rate per annum at which any
readily marketable bond or other obligation of the United States,
selected at the Lender's sole discretion, maturing on or near the
last day of the then applicable Interest Period and in
approximately the same amount as such Loan can be purchased by
the Lender on the day of such payment of principal or failure to
borrow, continue or convert
P = the amount of principal prepaid or the amount of
the requested Loan
D = the number of days remaining in the Interest
Period as of the date of such payment or the number of days of
the requested Interest Period
The Borrowers shall pay such amount upon demand upon presentation by the Lender
of a statement setting forth the amount and the Lender's calculation thereof
pursuant hereto, which statement shall be deemed true and correct absent
manifest error.
2.12 Security. The Obligations, whether under this Agreement, the
Notes, the Letter of Credit Documents, the other Loan Documents or otherwise,
shall be secured at all times by:
(a) a first priority perfected security interest in all presently owned
and hereafter acquired tangible and intangible personal property and fixtures of
the Borrowers and their Subsidiaries (including without limitation all
Intercompany Notes and trademarks and service marks and licenses), subject only
to Permitted Encumbrances, together with any landlord waivers with respect to
the locations of such personal property and fixtures (provided that landlord
waivers will not be required for individual Stores other than the Companies'
so-called coffee houses) and, after an Event of Default has been declared by the
Lender, lock box or agency account agreements with respect to cash receipts; and
(b) a first priority perfected pledge of all of the issued and
outstanding shares of Capital Stock of all of the Borrowers other than the
Parent.
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<PAGE> 31
The Borrowers agree to take such actions (and to cause their Subsidiaries, if
any, to take such actions) as the Lender may reasonably request from time to
time in order to cause the Lender to be secured at all times as described in
this Section.
2.13 Use of Proceeds. Each of the Borrowers hereby covenants, warrants
and represents that proceeds of the Term Loan shall be used for closing costs
and repayment of outstanding indebtedness in connection with the CP Acquisition
and all Revolving Loans shall be used for the Borrowers' working capital and
general corporate purposes, for remodeling of Stores and, so long as 90% of the
Stores owned and operated by the Borrowers as of the date of such Loan each have
a positive Store Cash Flow for the four fiscal quarters immediately preceding
such Revolving Loan (excluding from such computation Stores not owned and
operated by the Borrowers throughout such four quarter period and the existing
26 Gloria Jean's Stores owned and operated by Gloria Jean's Gourmet Coffees
Corp. and Gloria Jean's Stores bought by Borrowers in the future from
franchisees of Gloria Jean's Gourmet Coffees Corp.) to fund new unit growth and
for Permitted Acquisitions.
2.14 Time and Method of Payments. All payments of principal, interest,
fees and other amounts (including indemnities) payable by the Borrowers
hereunder shall be made in U.S. Dollars, in immediately available funds, without
deduction, setoff or counterclaim, to the Lender at its principal office on the
date on which such payment shall become due; provided, however, that any payment
not received by the Lender by 3:00 PM, (Boston time) on the date made shall be
deemed received on the next Business Day (but no Default shall be deemed to have
occurred as a result thereof under Section 8.1 if payment is received after 3:00
PM (Boston time) but prior to 5:00 PM (Boston time) on the date on which such
payment shall become due). The Lender may, but shall not be obligated to, debit
the amount of any such payment which is not made by such time to any deposit
account of any of the Borrowers with the Lender. Except as otherwise provided in
the definition of the term "Interest Period" with respect to the Eurodollar
Loans, if any payment of principal or interest becomes due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension shall be included in computing interest in connection with such
payment. All payments hereunder and under the Notes shall be made without setoff
or counterclaim.
SECTION 3. CONDITIONS OF CREDIT EXTENSIONS.
3.1 Conditions to Initial Credit Extension. The obligations of the
Lender to make the initial Credit Extensions hereunder are subject to the
fulfillment of the following conditions precedent:
(a) Receipt by the Lender of the following documents, certificates and
opinions in form and substance satisfactory to the Lender, duly executed and
delivered as follows:
(i) This Agreement, executed and delivered by all Borrowers;
(ii) The Notes executed and delivered by all Borrowers;
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<PAGE> 32
(iii) The Security Documents executed and delivered by all
Borrowers and such stock certificates, stock powers, assignments,
consents, landlord waivers, UCC financing statements and other
instruments and documents as the Lender shall deem necessary to satisfy
the requirements of Section 2.12, provided the Borrowers need use only
best efforts in obtaining such landlord waivers;
(v) An officer's certificate executed by the chief financial
officer of each of the Borrowers in the form provided by the Lender,
including all attachments thereto;
(vi) Certificates of insurance or insurance binders evidencing
compliance with Section 6.3 (including the required lender's loss
payable endorsements); and
(vii) A favorable legal opinion satisfactory to the Lender,
addressed to the Lender and its counsel, from Gibson Dunn & Crutcher
LLP, general counsel to the Borrowers and their Subsidiaries, if any;
provided, however, an authority opinion from Illinois counsel to the
Borrowers who are Illinois corporations need not be delivered to Lender
until July 31, 1999; and
(viii) A favorable legal opinion satisfactory to the Lender,
addressed to the Lender and its counsel, from Knobbe Martins Olsen &
Bear, trademark counsel to the Borrowers and their Subsidiaries, if
any.
(b) The Borrowers shall have paid the fee required by the Fee Letter
and the other fees required to be paid as of the date of such Credit Extension
and all reasonable fees and expenses of the Lender's counsel through the date of
such Credit Extension.
(c) The Borrowers shall have provided the Lender with such payoff
letters, payment instructions and other additional instruments, certificates,
opinions and other documents as the Lender or its counsel shall reasonably
request.
(d) The Parent shall have received no less than $18,000,000 in Net
Debt/Equity Proceeds from the June, 1999 Offering and shall have provided Lender
with satisfactory evidence thereof.
(e) The closing of the CP Acquisition (including all conditions
precedent thereto) shall have been consummated in accordance with the terms of
the CP Acquisition Agreement and the SEC Acquisition Filings (except for that
portion of the Indebtedness being repaid with proceeds of the Term Loan) and the
Borrowers shall constitute the Parent and all of its direct and indirect
Subsidiaries.
(f) All governmental or other third party approvals necessary or
advisable for this Agreement, the CP Acquisition, the June, 1999 Offering or any
transactions contemplated thereby or by the SEC Acquisition Filings shall have
been obtained and be in full force and effect (including without limitation any
consent of the shareholders of the Parent and Coffee People, the SEC, the FTC
and the U.S. Department of Justice).
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<PAGE> 33
(g) The Lender shall be satisfied that no litigation or other legal
proceeding exists which could reasonably be expected to result in a Material
Adverse Effect or which restrains or attempts to restrain or undo the
consummation of the CP Acquisition or any portion thereof.
(h) All corporate, partnership and other proceedings, and all
documents, instruments and other legal, diligence and financial matters in
connection with the transactions contemplated by the Loan Documents shall be
reasonably satisfactory in form and substance to the Lender and its counsel.
3.2 Conditions to All Credit Extensions. The obligation of the Lender
to make any Credit Extension (including the initial Credit Extension) is subject
to the following additional conditions:
(a) All representations and warranties contained in this Agreement or
otherwise made in writing by or on behalf of any of the Borrowers or any of
their Subsidiaries in connection with the transactions contemplated hereby shall
be true and correct in all material respects at the time of each such Credit
Extension (except to the extent such representations and warranties were
expressly made only as of a specific date and except to the extent affected by
transactions occurring after the date hereof and permitted hereunder), with and
without giving effect to the Credit Extension at such time and the application
of the proceeds thereof.
(b) At the time of each such Credit Extension (i) the Borrowers and
their Subsidiaries shall have performed and complied with all covenants required
in this Agreement to be performed or complied with by it prior to the making of
such Credit Extension, (ii) no Default shall have occurred and be continuing or
would result from such Credit Extension, and (iii) no event or condition shall
have occurred which could reasonably be likely to have a Material Adverse
Effect.
(c) As to any such Credit Extension, the Lender shall have received a
properly completed Loan Request or Letter of Credit Documents, as appropriate.
(d) The Lender shall have received such other supporting documents and
certificates as it may reasonably request.
Each request for a Credit Extension shall be deemed to constitute the Borrowers'
representations and warranty that all of the foregoing conditions in Sections
3.1 and 3.2 have been satisfied in full.
SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce the
Lender to enter into this Agreement and make the Credit Extensions hereunder,
each of the Borrowers hereby confirms the representations and warranties set
forth in the Security Documents (which are incorporated by reference herein)
and, further, represents and warrants (all of which representations and
warranties assume the making of the initial Credit Extensions hereunder) as
follows:
4.1 Organization and Qualification. Each of the Companies (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of formation (as designated on Schedule 4.1); (b) has all requisite
corporate power and authority to own its property and conduct its business as
now conducted and as presently contemplated; and (c) is duly qualified
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<PAGE> 34
and in good standing in each jurisdiction where the nature of its properties or
its business requires such qualification, as specified in Schedule 4.1, except
to the extent that the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect. Schedule 4.1 also sets forth each of
the Organizational Documents to which any Company is a party.
4.2 Corporate Authority. The execution, delivery and performance of
each of the Loan Documents and the CP Acquisition Agreement and each of the
documents contemplated thereby (together with the Loan Documents, the
"Transaction Documents") and the transactions contemplated thereby (including
without limitation the granting of security interests thereunder in favor of the
Lender) are within the corporate authority of each of the Companies, have been
authorized by all necessary corporate proceedings on the part of each of the
Companies, and do not and will not contravene any provision of law (including
without limitation the rules and provision of law or the charter documents or
by-laws (collectively, "Organizational Documents")) of any of the Companies, or
contravene any provisions of, or constitute a Default hereunder or a default
under any other material agreement (including any Lease, any shareholder
agreement, any license agreement or any supplier contracts), instrument,
judgment, order, decree, permit, license or undertaking binding upon or
applicable to any of the Companies or any of its properties, or result in the
creation, other than in favor of the Lender, of any Encumbrance upon any of the
properties of any of the Companies.
4.3 Valid Obligations. Each of the Transaction Documents and all of its
terms and provisions (including the security interests granted thereunder to the
Lender) are legal, valid and binding obligations of each of the Companies who
are named as parties thereto, enforceable in accordance with its respective
terms.
4.4 Approvals. The execution, delivery and performance of the
Transaction Documents and the transactions contemplated thereby do not require
any approval or consent of, or filing or registration with, any governmental or
other agency or authority or any other Person, except as disclosed on Schedule
4.4 and all of such approvals or consents and filings or registrations have been
obtained or completed, as applicable, as of the date hereof to the extent
material to the business of any of the Companies.
4.5 Title to Properties; Absence of Liens. Schedule 4.5 (as updated
from time to time as required hereunder) lists all of the Stores of each of the
Companies, including the owner thereof, the address thereof, and whether such
Store is company-owned or franchised to a Franchisee pursuant to a Franchise
Agreement. As of the date hereof or as of the date of the latest required
quarterly financials, as applicable, the Companies own the number of
company-owned Stores listed on Schedule 4.5 (as updated from time to time as
required hereunder) and the number of franchised Stores franchised to
Franchisees pursuant to Franchise Agreements listed on Schedule 4.5. Except as
set forth in Schedule 4.5 (as updated from time to time as required hereunder),
as of the date of this Agreement and after giving effect to the application of
the proceeds of the Loans as provided in Section 2.13, or as of the date of the
latest required quarterly financials, as applicable, each of the Companies has
good and marketable title to all of its material properties of every name and
nature now purported to be owned by it, including without limitation all assets
of the Stores listed on Schedule 4.5 which are designated thereon as
company-owned (as updated from time to time as required hereunder), all rights
under each of the Franchise Agreements to which any Company is a
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party (including without limitation all rights to development and royalty
payments thereunder), the Collateral and the properties reflected in the Initial
Financial Statements, in each case free from all Encumbrances whatsoever except
for Permitted Encumbrances.
4.6 Licenses, Patents, Trademarks and Intellectual Property. Except as
otherwise described in Schedule 4.6, each of the Companies has all necessary
permits, approvals, authorizations, consents, license (including liquor
licenses), franchises, registrations, patents, trademarks, trade names and
copyrights, recipes and other rights and privileges to allow it to own and
operate its respective business and to operate or franchise, as applicable, the
Stores listed on Schedule 4.5 (as updated from time to time as required
hereunder) without any violation of law or the rights of others. All trademarks,
service marks (including without limitation Diedrich Coffee(R), Weiner
Melange(R), Harvest Peak(R), SCOOP-A-CCINO(R), Flor de Apanas(R), Coffee
People(R), Gloria Jean's(R), Coffee Plantation(R), Motor Moka(R) and Aero
Moka(R)), trade names, patents and patent applications in which any Company has
an ownership or licensee interest, and all United States, state and foreign
registrations thereof and applications therefor in the name of any Company, are
listed on Schedule 4.6 (as updated from time to time as required hereunder), and
the Parent or Coffee People is and will at all times hereafter be the owner
thereof, free of all Encumbrances except in favor of the Lender. No interest in
any of such intellectual property has been licensed or sublicensed to any other
Person except to Franchisees pursuant to the Franchise Agreements.
4.7 Compliance with Laws and Agreements. No Company is in violation of
any provision of its Organizational Documents and no Company is in violation of
any provision of any material indenture, agreement or instrument to which it is
a party or by which it is bound (including without limitation any material
lease) or of any provision of law (including without limitation, ERISA,
Environmental Laws, SEC and FTC Laws, and franchising laws), the violation of
which could reasonably be expected to have a Material Adverse Effect or any
order, judgment or decree of any court or other agency of government. Without
limiting the scope of the foregoing, each Company is in compliance in all
material respects with all federal and state laws and regulations, the violation
of which could reasonably be expected to have a Material Adverse Effect. To
Borrowers' knowledge, third parties to any material agreements are not in
material violation thereof to the extent that such violations in the aggregate
could reasonably be expected to result in a Material Adverse Effect.
4.8 Material Agreements. As of the date hereof, each of the material
agreements to which any Company is a party is in full force and effect and
constitutes the legally valid and binding obligation of the Company identified
with it thereon and, to Borrowers' knowledge, the other parties thereto,
enforceable against each of them in accordance with its respective terms. None
of the Franchise Agreements under which any Company is a franchisor prohibit the
granting of a security interest by such Company therein to the Lender, including
without limitation a security interest in all development fees, royalties and
other amounts payable thereunder. Each Company agrees that each Franchise
Agreement entered into by it after the date hereof shall not prohibit the
granting of any such security interest or the collateral assignment to the
Lender of any rights or remedies of such Company thereunder, including without
limitation the right to collect development fees, royalties and other payments
thereunder.
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4.9 Environmental Matters. Except as specified in Schedule 4.9:
(a) Each Company has obtained all permits, licenses and other
authorizations which are required under all Environmental Laws, except to the
extent failure to have any such permit, license or authorization could not
reasonably be likely to have a Material Adverse Effect. Each Company is in
compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not have a Material Adverse Effect.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged failure by any Company
to have any permit, license or authorization required in connection with the
conduct of its business or with respect to any Environmental Laws, including,
without limitation, Environmental Laws relating to the generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Materials, except to the extent that such notice, complaint, penalty or
investigation did not or could not result in the remediation of any property
costing in excess of $250,000 in the aggregate in each fiscal year prior to the
date of this Agreement and, for any periods after such date, except for matters
that individually and in the aggregate could not reasonably be expected to have
a Material Adverse Effect.
(c) No material oral or written notification of a release of a
Hazardous Material has been filed by or on behalf of any Company and no property
now or previously owned, leased or used by any Company is listed or proposed for
listing on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or on any similar
state list of sites requiring investigation or clean-up.
(d) There are no Encumbrances arising under or pursuant to any
Environmental Laws on any of the material real properties owned, leased or used
by any Company, and no governmental actions have been taken or are in process
which could subject any of such properties to any Encumbrances or, as a result
of which any Company would be required to place any notice or restriction
relating to the presence of Hazardous Materials at any property owned by it or
in any deed to such property.
(e) No Company has (i) engaged in or permitted any operations or
activities upon or any use or occupancy of any property owned, leased or used by
it, or any portion thereof, for the purpose of or in any way involving the
handling, manufacture, treatment, storage, use generation, release, discharge,
refining, dumping or disposal (whether legal or illegal, accidental or
intentional) of any Hazardous Materials on, under, in or about such property,
except to the extent commonly used in day-to-day operations of such property and
in such case only in compliance with all Environmental Laws, or (ii) transported
any Hazardous Materials to, from or across such property except to the extent
commonly used in day-to-day operations of such property and, in such case, in
compliance with, all Environmental Laws; nor to the knowledge of any of the
Borrowers have any Hazardous Materials migrated from other properties upon,
about or beneath such property, nor are any
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<PAGE> 37
Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except to the extent commonly used
in day-to-day operations, and, in such case, in compliance with, all
Environmental Laws.
4.10 Compliance with ERISA. Each of the Companies and each member of
the Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the applicable provisions of ERISA and the Code,
and have not incurred any material liability to the PBGC or a Plan under Title
IV of ERISA; and no "prohibited transaction" or "reportable event" (as such
terms are defined in ERISA and other than reportable events as to which the 30
day notice period is waived) has occurred with respect to any Plan.
4.11 Financial Statements. The Parent has furnished to the Lender (a)
its consolidated audited balance sheet as at January 27, 1999 audited by the
Accountants and its related consolidated audited statements of operations and
cash flow for the fiscal year then ended, and related consolidating financial
statements, and (b) the consolidated audited balance sheet as at June 27, 1998
of Coffee People by PricewaterhouseCoopers LLP and the related consolidated
audited statements of operations and cash flow for the fiscal year then ended
(collectively, the "Initial Financial Statements"). Such Initial Financial
Statements were prepared in accordance with GAAP and as to such fiscal year
statements audited by the Accountants. Such Initial Financial Statements fairly
present the financial position of the respective Companies as at such dates and
the results of operations for such periods covered thereby. No Debt Issuance is
outstanding as of the date hereof. The Borrowers have reviewed the projections
for the future results of operations of the Companies dated June 3, 1999 for the
period commencing June, 1999 and ending June, 2004 (the "Projections"), after
given effect to the CP Acquisition, and the Borrowers hereby certify to the
Lender that the Projections are based upon good faith estimates and assumptions
believed by management of the Parent to be reasonable at the time made, it being
recognized by the Lender that such financial information as it relates to future
events is not to be viewed as fact and that actual results during the periods
covered thereby may differ from the projected results set forth therein by a
material amount. Except as reflected in the Initial Financial Statements, as of
the date hereof none of the Companies has any material contingent obligations,
liabilities for taxes or unusual forward or long-term commitments. Since the
effective date of the latest audited Initial Financial Statements, there have
been no changes in the assets, liabilities, financial condition, business or
prospects of any Company, the effect of which has, individually or in the
aggregate, could reasonably be likely to have a Material Adverse Effect.
4.12 Solvency. Each of the Companies has assets (both tangible and
intangible) having a fair salable value in excess of the amount required to pay
the probable liability on its respective existing debts (whether matured or
unmatured, liquidated or unliquidated, fixed or contingent); each of the
Companies has access to adequate capital for the conduct of its respective
business for the foreseeable future and the discharge of its debts incurred in
connection therewith as such debts mature; each of the Companies is not
Insolvent and, immediately prior to the consummation of the Term Loan hereunder,
each of the Companies was not Insolvent; and each of the Companies does not
intend to or believe that it will incur debts beyond its ability to pay them at
their maturity.
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4.13 Taxes. Each of the Companies has filed all federal, state and
other material tax returns required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other such governmental
charges due have been fully paid (other than any taxes the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided for on
the books of the Companies). No Company has executed any waiver that would have
the effect of extending the applicable statute of limitations in respect of tax
liabilities (other than any taxes the amount or validity of which are currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided for on the books of
the Companies).
4.14 Litigation. Except as otherwise described in Schedule 4.14, there
is no litigation, proceeding or governmental investigation, administrative or
judicial, pending or, to any of the Borrowers' knowledge, threatened against or
affecting any Company or its properties which could reasonably be expected to
result in a Material Adverse Effect.
4.15 Margin Rules. None of the Borrowers or any of their Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purposes of purchasing or carrying any "margin
security" or "margin stock" ("Margin Stock") as such terms are used in
Regulations U or X (the "Margin Regulations") of the Board of Governors of the
Federal Reserve System. The value of all Margin Stock held by the Borrowers and
their Subsidiaries constitutes less than 25% of the value, as determined in
accordance with the Margin Regulations, of all assets of the Borrowers and their
Subsidiaries.
4.16 Restrictions on the Borrowers. No Company is a party to or bound
by any contract, agreement or instrument, nor subject to any charter or other
corporate restriction, that has or could reasonably be expected to have a
Material Adverse Effect.
4.17 Capitalization. All of the Subsidiaries of each of the Companies
are listed on Schedule 4.1 and a Borrower owns all of the issued and outstanding
Capital Stock thereof as noted thereon and all of such Subsidiaries are
Borrowers hereunder. The Borrowers have supplied the Lender with true and
complete copies of their Organizational Documents. Except as otherwise set forth
in Schedule 4.1: (a) no Capital Stock of any Company carries preemptive rights;
(b) there are no outstanding subscriptions, warrants or options to purchase any
Capital Stock of the Parent as of the date hereof or of any other Company; (c)
no Company is obligated to redeem or repurchase any of its Capital Stock; and
(d) there is no other agreement, arrangement or plan which could directly or
indirectly affect the equity structure of any Company. All Capital Stock of each
Subsidiary is validly issued and fully paid and non-assessable, free of any
Encumbrance, except for liens on the Capital Stock granted to the Lender and
restrictions on transfer indicated on the certificates evidencing such Capital
Stock pursuant to applicable Federal or state securities regulations. No Company
owns any minority interest in any Person, except as set forth in Schedule 4.1.
4.18 Full Disclosure. No statement of fact made by or on behalf of any
Company or any Principal in this Agreement or any of the other Loan Documents or
in any certificate or schedule furnished to the Lender pursuant hereto or
thereto in light of all information provided to the Lender, as of the date such
statement, certificate or schedule was so furnished contains any untrue
statement
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<PAGE> 39
of a material fact or omits, when considered as a whole, to state any material
fact necessary to make statements continued therein or herein not misleading as
of the date such statement, certificate or schedule was so furnished. As of the
date hereof, there is no fact known to any Borrower which has not been disclosed
to the Lender in writing which could reasonably be likely to have a Material
Adverse Effect.
4.19 Investment Company Act. No Company is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company," or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
4.20 Labor Disputes; Collective Bargaining Agreements; Employee
Grievances. Except for matters that individually and in the aggregate could not
reasonably be expected to have a Material Adverse Effect (a) there are no
collective bargaining agreements or other organized labor contracts covering any
Company or any Store; (b) no union or other labor organization is seeking to
organize, or to be recognized as bargaining representative for, a bargaining
unit of employees of any Company or any Store; (c) there is no material labor
dispute pending or threatened against or affecting any Company or any Store; (d)
there has not been, during the five year period prior to the date hereof, any
material labor dispute against or affecting any Company or any Store, other than
employee grievances arising in the ordinary course of business which are not, in
the aggregate, material; and (e) each of the Companies and each Store has
complied with (or corrected in full any prior noncompliance) and is in
compliance with the provisions of the Fair Labor Standards Act and regulations
thereunder.
4.21 Year 2000 Compliance. The Borrowers have (a) reviewed the areas
within their business and operations which could be adversely affected by
failure to become "Year 2000 Compliant" (that is that computer application,
imbedded microchips and other systems used by the Borrowers will be able
properly to recognize and perform date sensitive functions involving certain
dates prior to and any date after December 31, 1999); (b) developed a detailed
plan and timetable to become Year 2000 Compliant in a timely manner; and (c)
committed adequate resources to support its Year 2000 plan. Based on such review
and plan, the Borrowers reasonably believe that they will become Year 2000
Compliant on a timely basis except to the extent that a failure to do so will
not have a Material Adverse Effect.
SECTION 5. FINANCIAL COVENANTS. Each of the Borrowers covenants and
agrees that, until all Commitments have been terminated, all Letters of Credit
have terminated or expired, and all Obligations have been indefeasibly paid in
full in cash, the Borrowers will not cause or permit:
5.1 Maximum Leverage Ratio. The ratio of Consolidated Funded
Indebtedness at any date to Consolidated EBITDA for the most recently ended
Reference Period ending on the Quarterly Date falling nearest to the dates
identified in the table below to be greater than the ratio specified below
opposite such date.
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Date Maximum Leverage Ratio
- ---- ----------------------
9/30/99 3.25:1.00
12/31/99 3.00:1.00
3/31/00 2.75:1.00
6/30/00 2.25:1.00
9/30/00 and all Reference 2.00:1.00
Periods thereafter
5.2 Minimum Fixed Charges Coverage Ratio. The ratio of Consolidated
Cash Flow for any Reference Period ending on any Quarterly Date falling nearest
to the dates identified in the table below to Consolidated Financial Obligations
for such Reference Period to be less than the ratio specified below opposite
such date.
Minimum Fixed
Date Charges Coverage Ratio
- ---- ----------------------
9/30/99 through 3/31/00 1.25:1.00
6/30/00 1.10:1.00
9/30/00 1.25:1.00
12/31/00 1.40:1.00
3/31/01 1.50:1.00
6/30/01 through 9/30/01 2.00:1.00
12/31/01 through 6/30/02 2.50:1.00
9/30/02 and each Reference 2.75:1.00
Period thereafter
5.3 Minimum Interest Coverage Ratio. The ratio of Consolidated EBITDAR
for any Reference Period ending on any Quarterly Date falling nearest to the
dates identified in the table below to Consolidated Interest Expense for such
Reference Period to be less than the ratio specified below opposite such date.
Minimum Interest
Date Coverage Ratio
- ---- ----------------
9/30/99 through 6/30/00 1.25:1.00
9/30/00 through 12/31/00 1.50:1.00
3/31/01 1.75:1.00
6/30/01 2.00:1.00
9/30/01 2.50:1.00
12/31/01 2.75:1.00
3/31/02 3.00:1.00
6/30/02 3.25:1.00
9/30/02 through 3/31/03 3.50:1.00
6/30/03 and each Reference 4.00:1.00
Period thereafter
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5.4 Maximum Capital Expenditures. Make or agree to make, or incur any
obligations with respect to, any Capital Expenditures in excess of the maximum
amounts set forth below for the fiscal years listed, plus the lesser of the
unused portion, if any, or 35% of the maximum Capital Expenditures amount for
the immediately preceding fiscal year (in either case, the "Carryforward
Amount"); provided, however, there shall be excluded from Capital Expenditures
for purposes of the calculation hereof expenditures constituting the purchase
price for Permitted Acquisitions. For purposes of determining the Carryforward
Amount in any fiscal year, Capital Expenditures shall first be applied to reduce
any Carryforward Amount from the immediately preceding fiscal year and then to
reduce the maximum amount specified herein.
Fiscal Year Maximum Capital Expenditures
----------- ----------------------------
(ending in June each year)
2000 $ 6,500,000
2001 9,000,000
2002 14,500,000
2003 16,500,000
2004 21,000,000
SECTION 6. AFFIRMATIVE COVENANTS. Each of the Borrowers covenants and
agrees that, until all Commitments have been terminated, all Letters of Credit
have terminated or expired, and all Obligations have been indefeasibly paid in
full in cash:
6.1 Financial Reporting. The Borrowers will furnish to the Lender:
(a) as soon as available, but in any event within 90 days after each
fiscal year-end, the Parent's consolidated balance sheet as at the end of, and
related consolidated statements of operations and cash flow for, such year,
prepared in accordance with GAAP consistently applied and audited by the
Accountants; and concurrently with such financial statements, consolidating
financial statements and a written statement by the Accountants that, in
conducting such audit, they have obtained no knowledge of any Default or Event
of Default (or, if such an event exists, a statement as to its nature and
status), provided that the Accountants shall not be liable to the Lender for
failure to obtain knowledge of any Default or Event of Default;
(b) as soon as available, but in any event within 45 days after the end
of each fiscal quarter, the Parent's consolidated balance sheet as at, the end
of, and related consolidated statements of operations and cash flow for, the
portion of the year then ended and the fiscal quarter then ended, prepared in
accordance with GAAP, together with a comparison of such results to budgeted
results and to the results for the comparable period in the prior fiscal year,
prepared on a consolidated basis and, in the case of Store Cash Flow only, a per
Store basis, in each case certified by the Parent's chief financial officer or
controller; together with updated Schedules 4.1, 4.5 and 4.6 hereto, if any
changes thereto;
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(c) as soon as available, but in any event within 45 days after the end
of each fiscal quarter, a covenant compliance report in substantially the form
of Exhibit 6.1, signed by the Parent's chief financial officer or controller,
and updated Schedules 4.1, 4.5 and 4.6 if any changes thereto;
(d) as soon as available, but in any event within 30 days after the end
of each month, the Parent's consolidated income statement and the coffee house
"controllables ranking" report of the Companies;
(e) promptly as they become available, a copy of each report (including
any so-called management letters) submitted to any Company by the Accountants in
connection with each annual, interim or special audit of its books;
(f) promptly as they become available, copies of all such financial
statements, proxy material and reports as any Company shall send or make
available to its stockholders and copies of all material reports filed with the
FTC or state or local franchising authorities and all 10K, 10Q and other reports
filed by any Company with the SEC;
(g) within 30 days after the beginning of each fiscal year, pro forma
projections for the Companies for such fiscal year, prepared on a quarterly
basis, consisting of a projected balance sheet, projected statements of income,
cash flow and projections of Capital Expenditures, all prepared on a basis
consistent with the financial statements required by Section 6.1(a);
(h) no more than five Business Days after any Company gives or is
required to give notice to the PBGC of any "Reportable Event" (as defined in
Section 4043 of ERISA) with respect to any Plan that might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that any member
of the Controlled Group or the plan administrator of any Plan has given or is
required to give notice of any such Reportable Event, a copy of the notice of
such Reportable Event given or required to be given to the PBGC;
(i) promptly upon becoming aware of the existence of any condition or
event that constitutes an Event of Default or would reasonably be likely to
result in a Material Adverse Effect, written notice thereof specifying the
nature and duration thereof and the action being or proposed to be taken with
respect thereto;
(j) no more than five Business Days after becoming aware of any
litigation or of any investigative proceedings by a governmental agency or
authority commenced or threatened against any Company, the outcome of which
could reasonably be likely to have a Material Adverse Effect, written notice
thereof and of the action being or proposed to be taken with respect thereto;
(k) no more than five Business Days after becoming aware of any
investigative proceedings by a governmental agency or authority commenced or
threatened against any Company regarding any potential violation of
Environmental Laws, any spill, release, discharge or disposal of any Hazardous
Material or any other material event required to be reported to any such
governmental agency or authority in respect of Environmental Laws or Hazardous
Material, written notice thereof and of the action being proposed to be taken
with respect thereto;
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(l) Prior to the consummation of any Asset Sale, if the Net Sale
Proceeds of all Asset Sales received by the Companies in the fiscal year in
which such Asset Sale occurs are equal to or in excess of $250,000, written
notice thereof, specifying the purchase price, payment terms and closing date
thereof;
(m) At the same time as written notice, if any, is required to be given
to the Lender concerning an Asset Sale or concerning a Permitted Acquisition,
updated Schedules 4.1, 4.5 and 4.6 to this Agreement, giving effect to such
Permitted Sale or Permitted Acquisition, as the case may be; and
(n) as soon as reasonably possible and in any event within 10 days
after request therefor, such other information regarding the operations, assets,
business, affairs and financial condition of any Company or any Store as the
Lender may reasonably request.
6.2 Conduct of Business. Each of the Companies will (a) duly observe
and comply in all material respects with all applicable laws and all
requirements of any governmental authorities relative to its corporate
existence, rights and franchises, to the conduct of its business and to its
property and assets (including without limitation all applicable health laws,
restaurant licensing laws, FTC laws, SEC laws, Environmental Laws and ERISA);
(b) maintain and keep in full force and effect all licenses and permits
necessary to the proper conduct of its business; (c) comply in all material
respects with all material agreements (including without limitation material
leases and supplier contracts) to which it is a party; (d) maintain its
corporate existence except for mergers and consolidations to the extent
permitted hereunder; and (e) remain or engage in the business of owning and
operating coffee retail Stores and manufacturing and selling specialty coffees
wholesale, and in no other business. Each of Coffee People Worldwide, Inc. and
Gloria Jean's, Inc. will be qualified as a foreign corporation in good standing
in the State of California on or before August 15, 1999 and shall supply the
Lender and its counsel with evidence thereof on or before such date. No Company
will engage in any business unless it is a Borrower hereunder.
6.3 Maintenance and Insurance. Each of the Companies will maintain and
keep its properties in good repair, working order and condition, and from time
to time make all needful and proper repairs, renewals, replacements, additions
and improvements thereto so that its business may be properly and advantageously
conducted at all times. Each of the Companies and each Store at all times will
maintain, or cause to be maintained, insurance covering it and its tangible
property in such amounts (including, without limitation, so-called "all perils"
coverage at replacement value, "broad form" liability coverage, and fidelity and
business interruption insurance), against such hazards and liabilities and for
such purposes as is customary in the industry for companies of established
reputation engaged in the same or similar businesses and owning or operating
similar properties. The Lender shall be named as loss payee (pursuant to a
standard "lender's loss payable" endorsement) on property insurance policies and
additional insured on liability insurance policies and shall be given at least
10 days' advance notice of any cancellation, change in form or renewal of
insurance. Such insurance shall insure the Lender's interest regardless of any
breach or violation of the underlying policies by any Company or any other
Person. Each of the Companies shall insure, or cause to be insured, its assets
in amounts sufficient to prevent the application of any co-insurance provisions.
The Borrowers shall evidence their compliance with this Section by delivering a
certificate with respect to each policy concurrently with the execution hereof,
annually thereafter and
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at any time upon the Lender's request. If any Company fails to provide or cause
to be provided such insurance, the Lender, in its sole discretion, may provide
such insurance and charge the cost to any of the Borrowers' deposit accounts
with the Lender.
6.4 Taxes. Each of the Companies will pay or cause to be paid all
taxes, assessments or governmental charges on or against it or its properties
prior to such taxes becoming delinquent; except for any tax, assessment or
charge (other than any charge for required environmental cleanup costs) which is
being contested in good faith by appropriate legal or other proceedings or
actions and with respect to which adequate reserves have been established and
are being maintained in accordance with GAAP, if no Encumbrance shall have been
filed to secure such tax, assessment or charge.
6.5 Inspection by the Lender. Each of the Companies will at all
reasonable times (and upon reasonable notice if no Event of Default exists),
during normal business hours permit the Lender or its designees, to (a) visit
and inspect the Stores and other properties of the Companies and (b) examine and
make copies of and take abstracts from the Companies' and the Stores' books and
records. Without limiting the foregoing, the Lender may conduct as many
commercial credit examinations of the Companies and the Stores as it reasonably
deems necessary (but not more than one such examination per calendar year if no
Event of Default exists), whether or not an Event of Default exists, and the
Borrowers will reimburse the Lender the reasonable costs of all such credit
examinations.
6.6 Accounting System. The Companies will maintain an accurate system
of accounting in accordance with GAAP, will at all times be part of a
consolidated group for accounting purposes, and, without the Lender's prior
written consent, will not change their fiscal year from the June 30 fiscal year
end used in the preparation of the Initial Financial Statements for Coffee
People.
6.7 Further Assurances. From time to time hereafter, the Companies will
execute and deliver, or cause to be executed and delivered, such additional
instruments, certificates and documents, and take all such actions, as the
Lender shall reasonably request for the purpose of implementing or effectuating
the provisions of this Agreement, the Notes, the Letter of Credit Documents or
the other Loan Documents, and upon the exercise by the Lender of any power,
right, privilege or remedy pursuant to this Agreement, the Notes, the Letter of
Credit Documents or the other Loan Documents which requires any consent,
approval, registration, qualification or authorization of any governmental
authority or instrumentality, exercise and deliver all applications,
certifications, instruments and other documents and papers that the Lender may
be so required to obtain.
6.8 Environmental Laws. Each of the Companies will comply in all
material respects with, and perform or cause to be performed any and all
Remedial Work necessary under, all Environmental Laws applicable (now or in the
future) to it or to its business.
6.9 Depository. The Borrowers shall maintain a depository account or
accounts with the Lender to facilitate borrowings and payments hereunder. Each
of the Companies hereby irrevocably authorizes the Lender to debit such
depository account or accounts in order to effect the making of any such
payments not paid when due.
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SECTION 7. NEGATIVE COVENANTS. Each of the Borrowers covenants and
agrees that, until all Commitments have been terminated, all Letters of Credit
have terminated or expired, and all Obligations have been indefeasibly paid in
full in cash:
7.1 Indebtedness; Contingent Liabilities. No Company will create,
incur, assume, guarantee or be or remain liable with respect to any Consolidated
Funded Indebtedness except:
(a) Indebtedness of the Companies to the Lender;
(b) Indebtedness not constituting Capitalized Leases or purchase money
Indebtedness in the amounts existing on the date hereof and described in
Schedule 7.1 (but no refinancings, renewals or extensions thereof without the
Lender's prior written consent);
(c) Guarantees in respect of endorsements of negotiable instruments for
collections in the ordinary course of business (and refinancings, renewals or
extensions thereof);
(d) Capitalized Leases and purchase money Indebtedness which relate to
outstanding Indebtedness in the aggregate not exceeding $2,000,000 at any time
secured by Permitted Encumbrances under Section 7.3(f);
(e) unsecured Indebtedness of any Borrower to any other Borrower
hereunder, evidenced by promissory notes pledged and delivered to the Lender
pursuant to the Security Documents (the "Intercompany Notes");
(f) Guarantees incurred by the Parent (1) of Indebtedness otherwise
permitted hereunder of any other Borrower and (2) of real estate Leases of
franchisees of the Borrowers in the ordinary course of business;
(g) Indebtedness in respect of Hedging Arrangements not exceeding
$5,000,000 in aggregate net exposure at any one time outstanding, provided that
such Hedging Arrangements are entered into for legitimate purposes related to
the business of the Companies and not for speculative purposes;
(h) unsecured Indebtedness in respect of contractual commitments
related to future purchases of inventory;
(i) provided no Default then exists or could reasonably be expected to
result therefrom, Debt Issuance, provided the Net Debt/Equity Proceeds therefrom
are paid to the Lender to the extent required hereunder; and
(j) additional Indebtedness of the Borrowers in an aggregate principal
amount (for all Borrowers) not to exceed $1,000,000 at any one time outstanding.
7.2 Sale and Leaseback. No Company will enter into any arrangement (a
"Sale Leaseback"), directly or indirectly whereby any of them shall sell or
transfer any of its property
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acquired prior to the date of this Agreement in order to lease such property or
lease other property that any Company intends to use for substantially the same
purpose as such property being sold or transferred.
7.3 Encumbrances. No Company will create, incur, assume or suffer to
exist any mortgage, pledge, security interest, lien or other charge or
encumbrance, including the lien or retained security title of a conditional
vendor upon or with respect to any of its property or assets ("Encumbrances"),
or assign or otherwise convey any right to receive income, including the sale or
discount of accounts receivable with or without recourse, except the following
("Permitted Encumbrances"):
(a) Encumbrances in favor of the Lender under the Loan Documents;
(b) Encumbrances existing as of the date of this Agreement and
disclosed in Schedule 7.3;
(c) liens for taxes, fees, assessments and other governmental charges
to the extent that payment of the same may be postponed or is not required in
accordance with the provisions of Section 6.4;
(d) landlord's and lessors' liens in respect of rent not in default or
liens in respect of pledges or deposits under worker's compensation,
unemployment insurance, social security laws, or similar legislation (other than
ERISA) or in connection with appeal and similar bonds incidental to litigation;
mechanics', laborers' and materialmen's and similar liens, if the obligations
secured by such liens are not then delinquent or are released by appropriate
statutory release bonds; liens securing the performance of bids, tenders,
contracts (other than for the payment of money); and statutory obligations
incidental to the conduct of its business and that do not in the aggregate
materially detract from the value of its property or materially impair the use
thereof in the operation of its business;
(e) judgment liens that shall not have been in existence for a period
of longer than 30 days after the creation thereof or, if a stay of execution
shall have been obtained, for a period longer than 30 days after the expiration
of such stay;
(f) Encumbrances in respect of Capital Leases and purchase money
obligations incurred within 120 days of purchase which in the aggregate do not
secure Indebtedness in excess of $1,000,000 for tangible personal property other
than inventory used in its business, provided that any such Encumbrances shall
not extend to property and assets not financed by such Capitalized Lease or
purchase money obligation and shall not secure Indebtedness greater than the
lesser of the cost or fair market value of such tangible personal property so
acquired; and
(g) easements, rights of way, restrictions and other similar
Encumbrances relating to real property and not interfering in a material way
with the ordinary conduct of its business.
7.4 Disposition of Assets, Etc. No Company will sell, lease, transfer
or otherwise dispose of any of its properties, assets, rights, licenses or
franchises to any Person, except for (a)
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dispositions of inventory in the ordinary course of business (which dispositions
may be made free from the Encumbrances of the Loan Documents), the disposition
in the ordinary course of business, without replacement, of equipment which is
obsolete or no longer needed in the conduct of its business and the disposition
and replacement in the ordinary course of business of equipment or other
tangible personal property with other equipment of at least equal utility and
value (provided that, except for purchase money security interests and rights of
lessors of equipment if permitted hereunder, the Lender's lien upon such newly
acquired equipment shall have the same priority as the Lender's lien upon the
replaced equipment); and (b) so long as no Default exists or could reasonably be
expected to result therefrom, (i) the sale of the Coffee People Sale Stores for
not less than the fair market value thereof and (ii) any other sale of tangible
assets (other than the sale of all or substantially all of the assets of any
Company and other than, in any four-quarter period, the sale of greater than 5%
of the value of Consolidated Net Assets as of any date therein) for not less
than the fair market value thereof (each such permitted sale being referred to
as a "Permitted Sale"), provided that prior notice thereof is given to the
Lender, if required, pursuant to Section 6.1(l) and the Sale Proceeds Payment
with respect thereto is made, if and to the extent required, pursuant to Section
2.7 of this Agreement.
7.5 Amendment to Charter or Partnership Documents. Except for mergers
or consolidations to the extent permitted hereunder, each of the Companies will
not permit or suffer any amendment of its Organizational Documents without the
Lender's prior written consent, which consent shall not be unreasonably
withheld. Without limiting the foregoing, no Company will amend any
Organizational Document in any manner which could materially adversely affect
its financial condition or adversely affect (in light of the entire transaction
in which it is a part) the rights of the Lender hereunder or under the Loan
Documents (it being expressly agreed that the inclusion in any such charter
documents of any provision similar to those set forth in Section 102(b)(2) of
Title 8 of the Delaware General Corporation Law is prohibited under this
Section).
7.6 Mergers; Consolidations; Issuance of Securities; Etc. No Company
will dissolve, liquidate, merge or consolidate into or with any other Person;
provided that any Borrower may merge with any other Borrower (so long as the
Parent is the surviving entity of any merger to which it is a party). No Company
other than the Parent will issue any additional shares of Capital Stock or any
securities convertible thereto.
7.7 Restricted Payments. No Company will make any Restricted Payment;
provided, that (a) so long as no Default or Event of Default exists or could
reasonably be likely to result therefrom, the Parent may make Distributions to
the extent required for any repurchase, redemption or other acquisition for
value of any Capital Stock of the Parent held by any member of the Parent's
management pursuant to any management equity subscription agreement or stock
option agreement or similar agreement upon their death, disability, retirement
or termination of employment or departure from the Board of Directors of the
Parent (provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Capital Stock shall not exceed $500,000 in any
twelve-month period), (b) the Subsidiaries of the Borrowers may make
Distributions to the Borrowers, and the Subsidiaries of the Borrowers shall
declare and pay cash distributions to the Borrowers, if the same comply with
applicable law, to the extent required to ensure that the Borrowers at all times
pay and perform when due their Obligations under the Loan Documents, and (c) the
Borrowers may make regularly scheduled payments on Debt Issuance to the extent
expressly
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permitted by the applicable terms of subordination of such Debt Issuance agreed
to in writing by Lender.
7.8 Investments, Loans and Acquisitions. No Company will (a) purchase
or acquire any share of capital stock, partnership interest, evidence of
Indebtedness or other equity security of any other Person, (b) acquire all or
substantially all of the assets of any Person or any division of any Person, (c)
make any loan, advance or extension of credit to, or contribution to the capital
of, any other Person other than loans to employees not to exceed $500,000 and to
Franchisees not to exceed $500,000, in each case in the aggregate at any time
outstanding, advances pursuant to customary indemnification provisions in favor
of officers and directors of the Borrowers, extensions of trade credit in the
ordinary course of business consistent with past practices, Interest Rate
Protection Agreements permitted under Section 7.1 and notes received as part of
the settlement of litigation or satisfaction of debts owed by any other Person
in the ordinary course of business, (d) purchase any real estate for sale or
investment, (e) purchase any commodities futures contracts other than in
connection with bona fide hedging transactions in the ordinary course of
business, (f) make any other investment in any Person, (g) form any Subsidiary
(except to the extent the Parent determines that the formation of a Subsidiary
is necessary or appropriate in connection with a Permitted Acquisition), or (h)
make any commitment or acquisition of any option or enter into any other
arrangement for the purpose of making any of the foregoing investments, loans or
acquisitions, except the following:
(i) Qualified Investments;
(ii) Permitted Acquisitions;
(iii) Loans and capital contributions from the Parent to
Subsidiaries who are Borrowers hereunder pursuant to Section 7.1(e);
(iv) the existing investments referred to in Schedule 7.8
hereto; and
(v) other investments in an aggregate amount at any one time
outstanding not to exceed $250,000.
7.9 ERISA. No Company nor any member of the Controlled Group shall
permit any Plan maintained by it to (a) engage in any "prohibited transaction"
(as defined in Section 4975 of the Code), (b) incur any "accumulated funding
deficiency" (as defined in Section 302 of ERISA) whether or not waived, or (c)
terminate any Plan in a manner that could result in the imposition of a lien or
encumbrance on the assets of any Company pursuant to Section 4068 of ERISA.
7.10 Transactions with Affiliates. Except as otherwise expressly
permitted by this Agreement, no Company will directly or indirectly (i) make any
Investment in any Affiliate, (ii) sell, lease or otherwise dispose of any assets
or services to, or purchase, lease or otherwise acquire any Assets or services
from, any Affiliate, or (iii) directly or indirectly engage in any other
transaction with or for the benefit of, or make any payment or distribution to,
any Affiliate; provided, that: (i) any employee (or former employee) of any
Company owning any Capital Stock of the Parent may serve as an employee or
director of the Parent and receive reasonable compensation (including stock
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options and other customary incentive compensation) and customary indemnities,
(ii) the Companies may make loans and advances to employees for moving,
entertainment, travel and other similar expenses in the ordinary course of
business not to exceed $500,000 in the aggregate at any time outstanding, (iii)
any Borrower may enter into any transaction with another Borrower provided such
transaction is not disadvantageous to the Borrowers taken as a whole, and (iv)
any Borrower may enter into any transaction with any Affiliate providing for the
rendering or receipt of services or the purchase, sale or lease of assets in the
ordinary course of business if the monetary or business consideration arising
therefrom would be as advantageous to the Borrowers taken as a whole as the
monetary or business consideration which it would obtain in a comparable arm's
length transaction with a Person not an Affiliate, and such transaction is
accurately reflected on the books of the Borrowers.
7.11 Amendment of Certain Agreements. No Company will amend or modify
any of its material agreements if the same would be likely to have a material
adverse effect upon its business, its ability to fulfill any of its obligations
under the Loan Documents, or any of the Lender's rights under any of the Loan
Documents.
7.12 Negative Pledges, Etc. No Company will enter into any agreement,
amendment or arrangement (excluding this Agreement or any other Loan Document)
prohibiting or restricting (a) it from amending or otherwise modifying this
Agreement or any other Loan Document, (b) the creation or assumption of any
Encumbrances upon its properties, revenues or assets, whether now owned or
hereafter acquired, or (c) the ability of any Subsidiary to make any payment or
distribution, directly or indirectly, to the Parent; provided that this Section
7.13 shall not apply to (i) purchase money obligations or Capitalized Leases (or
refinancings thereof that impose no more restrictive restrictions than those
applicable to the obligation being refinanced) for property acquired in
accordance with Section 7.1 that impose restrictions solely on the property so
acquired which are in effect at the time of acquisition of such property and
(ii) restrictions arising by reason of customary non-assignment or no-subletting
clauses in leases or other contracts entered into in the ordinary course of
business.
SECTION 8. DEFAULTS.
8.1 Events of Default. There shall be an Event of Default hereunder if
any of the following events occurs:
(a) any Borrower shall fail to pay when due (whether on the date fixed
for such payment, mandatory prepayment, by acceleration or otherwise) any amount
of principal of any Loan, any LC Draw Obligation or any principal on any other
Obligation or to pay within three Business Days of when due (whether on the date
fixed for such payment, mandatory prepayment, by acceleration or otherwise) any
interest thereon, or fees or expenses constituting any Obligation; or
(b) any Company shall fail to perform any term, covenant or agreement
contained in Section 5, Section 6.1 (other than Section 6.1(m)), or Section 7
hereof;
(c) any Company shall fail to perform any term, covenant or agreement
contained in this Agreement or any default shall occur on the part of any
Company under any other Loan Document,
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other than those referred to in Sections 8.1(a) and (b) above, and such default
shall continue for 30 days after the earlier of (i) written notice thereof from
the Lender to the Borrowers, or (ii) actual knowledge thereof by any executive
officer of any Company; or
(d) any representation or warranty by or on behalf of any Company made
in this Agreement or any other Loan Document or in any report, certificate or
financial statement delivered hereunder shall prove to have been false in any
material respect upon the date when made or deemed to have been made; or
(e) any Company shall fail to pay at maturity, or within any applicable
period of grace, any obligations which, together with all other such obligations
of the Companies, exceed $500,000 in the aggregate, or any Company shall fail to
observe or perform any term, covenant or agreement evidencing or securing such
obligations, the result of which failure is to permit the holder or holders of
such obligations to cause the indebtedness relating thereto to become due prior
to its stated maturity upon delivery of required notice, if any; or
(f) any Company shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator or
similar official of itself or of all or a substantial part of its property, (ii)
be generally not paying its debts as such debts become due, (iii) make a general
assignment for the benefit of its creditors, (iv) commence a voluntary case
under the Federal Bankruptcy Code (as now or hereafter in effect), (v) take any
action or commence any case or proceeding under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts, or
any other law providing for the relief of debtors, (vi) fail to contest in a
timely or appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code or other
law, (vii) take any action under the laws of its jurisdiction of incorporation
or organization similar to any of the foregoing, or (viii) take any action for
the purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced with respect to any
Company, without the application or consent of such in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it, under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts or any other law providing for the relief of
debtors, and such proceeding or case shall continue undismissed, or unstayed and
in effect, for a period of 60 days; or an order for relief shall be entered in
an involuntary case under the Federal Bankruptcy Code, against any Company; or
action under the laws of the jurisdiction of incorporation or organization of
any Company similar to any of the foregoing shall be taken with respect to any
Company and shall continue unstayed and in effect for any period of 60 days; or
(h) a judgment or order for the payment of money shall be entered
against any Company by any court, or a warrant of attachment or execution or
similar process shall be issued or levied against property of any Company, that,
together with all other such judgments and attachments against the Companies
exceeds $250,000 in the aggregate in value and such judgment, order, warrant or
process shall continue undischarged, unstayed or not bonded over in full for 30
days, any
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action shall be legally taken by a judgment creditor to levy upon assets or
properties of any Company to enforce any such judgment; or
(i) any Company or any member of the Controlled Group shall fail to pay
when due an amount or amount that it shall have become liable to pay to the PBGC
or to a Plan under Title IV of ERISA and which, together with all such amounts,
exceeds $500,000 in the aggregate; or notice of intent to terminate a Plan or
Plans shall be filed under Title IV of ERISA by any Company, any member of the
Controlled Group, any plan administrator or any combination of the foregoing and
such action could reasonably be expected to have a Material Adverse Effect; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans against
any Company and such proceedings shall not have been dismissed within 30 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must be
terminated and such action could reasonably be expected to have a Material
Adverse Effect; or
(j) for any reason, there shall have occurred a Change in Control; or
(k) for any reason, any Security Documents shall not be in full force
or effect in all material respects, or any party thereto shall contest the
validity thereof or disaffirm its obligations thereunder or default with respect
to any of its material obligations thereunder.
8.2 Remedies. Upon the occurrence of an Event of Default described in
Section 8.1(f) or (g), immediately and automatically, and upon the occurrence
and continuance of any other Event of Default, or if on any date that a draft is
presented under a Letter of Credit or any date that a Letter of Credit is sought
to be issued, extended or renewed, the conditions precedent to the issuance,
extension or renewal of Letters of Credit are not satisfied, at the Lender's
option and upon the Lender's declaration: (a) the Commitments and any obligation
to issue, extend or renew Letters of Credit shall terminate; and (b) the unpaid
principal amount of the Loans, together with accrued interest, all LC Draw
Obligations and all other Obligations shall become immediately due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived. Upon termination of the Commitments and
acceleration of the Loans and the LC Draw Obligations, the Lender may exercise
any and all rights it has under this Agreement, the Security Documents or any
other Loan Documents, or at law or in equity, and proceed to protect and enforce
the Lender's rights by any action at law, in equity or other appropriate
proceeding. In the event that the Lender shall apply for the appointment of, or
the taking of possession by, a trustee, receiver or liquidator of any Company or
of any other similar official to hold or liquidate all or any substantial part
of the properties or assets of any Company following the occurrence of a default
in payment of any amount owed hereunder and following any applicable notice or
cure period, each of the Companies hereby consents to such appointment and
taking of possession and agrees to execute and deliver any and all documents
requested by the Lender relating thereto (whether by joining in a petition for
the voluntary appointment of, or entering no contest to a petition for the
appointment of, such an official or otherwise, as appropriate under applicable
law).
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8.3 Letters of Credit. If any one or more Events of Default shall at
any time occur, the Lender may also, by written notice to the Borrowers, take
any or all of the following actions, at the same or different times:
(a) The Lender may send notices to all or any of the beneficiaries of
the Letters of Credit advising such beneficiaries of the intention and desire of
the Lender to effect the termination, cancellation and surrender of such Letters
of Credit in 30 days; provided, however, that the Lender shall not send any such
notice to any beneficiary unless the Lender has requested that the Borrowers
deliver cash collateral to the Lender pursuant to paragraph (b) below and the
Borrowers have failed to deliver such cash collateral to the Lender within 10
days after such request; and
(b) The Lender may require that the Borrowers deliver to the Lender
first priority perfected cash collateral in an amount equal to the face amount
of all Letters of Credit which remain outstanding.
SECTION 9. MISCELLANEOUS.
9.1 Notices. Unless otherwise specified herein, all notices hereunder
to any party hereto shall be in writing and shall be deemed to have been given
(a) when delivered by hand, (b) three days after mailing by certified mail,
return receipt requested, or (c) one day after delivery or electronic facsimile
transmission, or to the overnight courier; in each case addressed to such party
at its address indicated below:
(a) If to the Borrowers:
Diedrich Coffee, Inc.
2144 Michelson Drive
Irvine, CA 92612
Attention: Ms. Ann Wride
Telecopier No.: (949) 756-1144
with a copy (which shall not constitute notice) to:
John M. Williams III, Esq.
Gibson, Dunn & Crutcher, LLP
4 Park Plaza
Irvine, CA 92614
Telecopier No.: (949) 451-4220
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(c) If to the Lender:
BankBoston, N.A.
100 Federal Street
Mail Stop: 01-09-05
Boston, MA 02110
Attention: Debra L. Zurka, Director
Telecopier No.: (617) 434-0637
with a copy (which shall not constitute notice) to:
Susan E. Siebert, Esq.
Edwards & Angell, LLP
101 Federal Street, 23rd Floor
Boston, MA 02110
Telecopier No.: (617) 439-4170
or to any other address specified by such party in writing.
9.2 Expenses. The Borrowers will pay jointly and severally on demand
all reasonable expenses of the Lender in connection with the preparation, waiver
or amendment of this Agreement or any other Loan Documents or the default or
collection of the Loans, the LC Draw Obligations or any other Obligation or in
connection with the Lender's exercise, preservation or enforcement of any of its
rights, remedies or options thereunder, including without limitation the
reasonable fees and expenses of outside legal counsel or the allocated costs of
in-house legal counsel, accounting, consulting, brokerage or other similar
professionals and any reasonable fees or expense associated with any travel or
other costs relating to any appraisals or credit or other examinations conducted
in connection with the Obligations or any Collateral therefor, and the amount of
all such expenses shall, unless paid within 30 days after submission of
statements therefor to the Borrowers, thereafter bear interest until paid in
full at the highest rate applicable to principal hereunder (including any
default rate). All such expenses may be charged against any deposit account
maintained by any Borrower with the Lender.
9.3 Indemnification. Each of the Borrowers shall absolutely and
unconditionally indemnify and hold the Lender harmless against any and all
claims, demands, suits, actions, causes of action, expenses and all other
liabilities whatsoever which shall at any time or times be incurred or sustained
by it or by any of its shareholders, directors, officers, employees,
subsidiaries, affiliates or agents (except any of the foregoing incurred or
sustained as a result of the gross negligence or willful misconduct of such
Person) on account of, or in relation to, or in any way in connection with, any
of the arrangements or transactions contemplated by, associated with or
ancillary to any of the Loan Documents, whether or not all or any of the
transactions contemplated by, associated with or ancillary to this Agreement or
any of such documents are ultimately consummated.
9.4 Term of Agreement. This Agreement shall continue in force and
effect until all Commitments have been terminated, all Letters of Credit have
been terminated or expired, and all Obligations have been indefeasibly paid in
full in cash.
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9.5 No Waivers. No failure or delay by the Lender in exercising any
right, power or privilege hereunder or under any other documents or agreements
executed in connection herewith shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein, in the Notes and in the other Loan Documents are cumulative and
not exclusive of any rights or remedies otherwise provided by agreement or law.
9.6 Governing Law. This Agreement shall be deemed to be a contract made
under seal and shall be construed in accordance with and governed by the laws of
Massachusetts (without giving effect to any conflicts of laws provisions
contained therein).
9.7 Entire Agreement; Amendments. This Agreement, the Notes and the
other Loan Documents constitute the final agreement of the parties hereto and
supersede any prior agreement or understanding, written or oral, with respect to
the matters contained herein and therein. No modification or waiver of any
provision hereof or of the Notes or any other Loan Document, nor consent to the
departure by any Borrower or any of its Subsidiaries therefrom, shall be
effective unless the same is in writing, and then such waiver or consent shall
be effective only in the specific instance, and for the purpose, for which
given. The Lender's failure to insist upon the strict performance of any term,
condition or other provision of this Agreement, the Notes, or any of the other
Loan Documents, or to exercise any right or remedy hereunder or thereunder,
shall not constitute a waiver by the Lender of any such term, condition or other
provision or Default or Event of Default in connection therewith, nor shall a
single or partial exercise of any such right or remedy preclude any other or
future exercise, or the exercise of any other right or remedy; and any waiver of
any such term condition or other provision or of any such Default or Event of
Default shall not affect or alter this Agreement, the Notes or any of the other
Loan Documents, and each and every term, condition and other provision of this
Agreement, the Notes and the other Loan Documents shall, in such event, continue
in full force and effect and shall be operative with respect to any other then
existing or subsequent Default or Event of Default in connection therewith. An
Event of Default hereunder and a Default under the Notes or under any of the
other Loan Documents shall be deemed to be continuing unless and until cured to
the Lender's reasonable satisfaction or waived in writing by the Lenders.
9.8 Assignments; Participations. This Agreement shall be binding upon
and inure to the benefit of the Borrowers and their successors and to the
benefit of the Lender and their respective successors and assigns. Except
pursuant to mergers in which a Borrower is the surviving entity to the extent
permitted hereunder, the rights and obligations of the Borrowers under this
Agreement shall not be assigned or delegated without the prior written consent
of the Lender, and any purported assignment or delegation without such consent
shall be void. Each of the Borrowers authorizes the Lender to disclose to any
participant or assignee any prospective participant or assignee of any and all
information in the Lender's possession concerning the Companies which has been
delivered to the Lender by or on behalf of the Companies pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Companies in connection with the Lender's credit evaluation prior to becoming a
party to this Agreement. The Lender may at any time pledge or assign all or any
portion of such Lender's rights under this Agreement and the other Loan
Documents to a Federal
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<PAGE> 55
Reserve bank; provided, however, that no such pledge or assignment shall release
such Lender from its obligations hereunder or any other Loan Document.
9.9 Counterparts; Partial Invalidity. This Agreement may be signed in
any number of counterparts with the same effect as if the signatures hereto and
thereto were upon the same instrument. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
9.10 WAIVER OF JURY TRIAL. EACH OF BORROWERS AND THE LENDER AGREES THAT
NEITHER IT NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT
OF, THIS AGREEMENT, EITHER NOTE, ANY SECURITY DOCUMENT OR ANY OTHER LOAN
DOCUMENT, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN ANY
BORROWER OR THE LENDER, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO,
AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE LENDER NOR
ANY BORROWER HAS AGREED WITH OR REPRESENTED TO ANY OTHER THAT THE PROVISIONS OF
THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
9.11 CONSENT TO JURISDICTION. EACH OF THE BORROWERS HEREBY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, AS WELL AS TO
THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL MAY BE TAKEN OR OTHER REVIEW
SOUGHT FROM THE AFORESAID COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF ANY BORROWERS' OBLIGATIONS UNDER OR WITH RESPECT TO
THE NOTES, ANY SECURITY DOCUMENT OR ANY OTHER LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREBY, AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS
IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS.
9.12 Joint and Several Liability. Each of the Borrowers acknowledges
and agrees that it is jointly and severally liable for all Obligations under the
Loan Documents.
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<PAGE> 56
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal by their duly authorized officers as of the day and year
first above written.
LENDER:
BANKBOSTON, N.A.
By: /s/
--------------------------------------
BORROWERS:
DIEDRICH COFFEE, INC.
By: /s/ Ann Wride
--------------------------------------
COFFEE PEOPLE, INC.
By: /s/ Ann Wride
--------------------------------------
COFFEE PEOPLE WORLDWIDE, INC.
By: /s/ Ann Wride
--------------------------------------
GLORIA JEAN'S, INC.
By: /s/ Ann Wride
--------------------------------------
(SIGNATURES CONTINUED)
<PAGE> 57
EDGLO ENTERPRISES, INC.
By: /s/ Ann Wride
--------------------------------------
GLORIA JEAN'S GOURMET COFFEES CORP.
By: /s/ Ann Wride
--------------------------------------
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By: /s/ Ann Wride
--------------------------------------
<PAGE> 1
EXHIBIT 10.26
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT is made as of July 7, 1999, by and among
DIEDRICH COFFEE, INC., COFFEE PEOPLE, INC., COFFEE PEOPLE WORLDWIDE, INC.,
GLORIA JEAN'S, INC., EDGLO ENTERPRISES, INC., GLORIA JEAN'S GOURMET COFFEES
CORP., GLORIA JEAN'S GOURMET COFFEES FRANCHISING CORP., and all future
Subsidiaries who hereafter become parties hereto (collectively, the "Debtors"
and each individually, a "Debtor") and BANKBOSTON, N.A. (the "Secured Party").
FOR VALUE RECEIVED, the receipt of which is hereby acknowledged,
including without limitation, enabling the Debtors to obtain credit or other
financial accommodations from the Secured Party, each Debtor hereby agrees as
follows:
Section 1. Definitions. All capitalized terms used herein or in any
certificate, report or other document delivered pursuant hereto shall have the
meanings assigned to them below (unless otherwise defined). Except as otherwise
defined, terms defined in the Uniform Commercial Code shall have the meanings
set forth therein.
Accounts. All rights of any Debtor to payment for goods sold or leased
or for services rendered, all sums of money or other proceeds due or becoming
due thereon, all instruments pertaining thereto, all guarantees and security
therefor, and such Debtor's rights pertaining to and interest in such goods,
including the right of stoppage in transit, replevin or reclamation; all chattel
paper; all credit card receivables; all franchise and development fees and other
fees under franchising agreements or otherwise; all royalties; all amounts due
from Affiliates of such Debtor whether under intercompany notes or otherwise;
all other rights and claims to the payment of money, under contracts or
otherwise, including amounts due from Affiliates, tax refunds and insurance
proceeds; and all other property constituting "accounts" as such term is defined
in the Uniform Commercial Code.
Business Day. The meaning specified for such term in the Credit
Agreement.
Collateral. See Section 2.
Credit Agreement. The Credit Agreement of even date herewith among the
Debtors and the Secured Party, as amended, restated, replaced, supplemented or
otherwise modified from time to time.
Encumbrance. The meaning specified for such term in the Credit
Agreement.
Equipment. All machinery, equipment and fixtures, restaurant equipment
and fixtures, office furniture, furnishings and trade fixtures, specialty tools
and parts, motor vehicles and materials handling equipment of any Debtor,
together with such Debtor's interest in, and right to, any and all manuals,
computer programs, data bases and other materials relating to the use,
<PAGE> 2
operation or structure of any of the foregoing; and all other property
constituting "equipment" as such term is defined in the Uniform Commercial Code.
Event of Default. The meaning specified for such term in the Credit
Agreement.
General Intangibles. All of the Debtors' presently existing or
hereafter acquired or arising general intangibles (including, those arising
under concession agreements, franchise agreements, lease agreements or other
agreements) and other personal property including any and all royalties,
franchise fees, choses or things in action, recipes, all rights with respect to
all patents, together with any reissue, extension or renewal thereof, all patent
applications, all patent licenses, all trademarks, service marks, trademark and
service mark applications, trade names, trade styles, patents, copyrights, mask
works and trade-secrets information and all goodwill associated with the
foregoing, and all other proprietary rights and rights to prevent others from
doing acts that constitute unfair competition with any Debtor or
misappropriation of its property, including without limitation any sums (net of
expenses) that any Debtor may receive arising out of any claim for infringement
of its rights in any of the foregoing, and all rights of any Debtor under
contracts to enjoy performance by others or to be entitled to enjoy rights
granted by others, including without limitation any licenses (including liquor
licenses to the extent a security interest may be granted in a liquor license
under applicable law), franchises and purchase orders; all rights to prevent
others from entering into competition with any Debtor; all tax refunds and tax
refund claims; all deposit accounts; all rights, title and interest of each
Debtor in and to all literature, reports, catalogs, documents, books, records
and other information (on whatever medium recorded, and including without
limitation computer programs, tapes, discs, punch cards, data processing
software and related property and rights) maintained by such Debtor that reflect
the conduct of such Debtor's business, such as financial records, marketing and
sales records, research and development records, and design, engineering and
manufacturing records; all rights under service bureau service contracts; all
computer data and the concepts and ideas on which said data is based; all
developmental ideas and concepts, papers, plans, schematics, drawings,
blueprints, sketches and documents; all data bases; all monies due or
recoverable from pension funds; all economic interests (including money due or
to become due) under partnership agreements, whether as a general partner or a
limited partner; all Intercompany Notes; all customer lists and route lists; and
all other property constituting "general intangibles" as such term is defined in
the Uniform Commercial Code.
Inventory. All goods, merchandise and other personal property
(including warehouse receipts and other negotiable and non-negotiable documents
of title covering any such property) of any Debtor that are held for sale, lease
or other disposition, or for display or demonstration, or leased or consigned,
or that are raw materials, piece goods, work-in-process or materials used or
consumed or to be used or consumed in such Debtor's business, whether in transit
or in the possession of such Debtor or another, including without limitation all
goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and goods located on the premises of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents or other
third parties; all proprietary rights, patents, plans, drawings, diagrams,
schematics, assembly and display materials relating to any of the foregoing; and
all other property constituting "inventory" as such term is defined in the
Uniform Commercial Code.
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<PAGE> 3
Obligations. The meaning specified for such term in the Credit
Agreement.
Perfection Certificate. A certificate signed by a responsible officer
of a Debtor in the form attached hereto as Exhibit A and delivered concurrently
herewith.
Permitted Encumbrances. The meaning specified for such term in the
Credit Agreement.
Securities. All of the securities and instruments held by any Debtor,
including without limitation all stocks, bonds, U.S. Treasury bills,
certificates of deposit, mutual or money market fund shares; and all
distributions made and all sums due or to become due on any of the foregoing,
and all securities, instruments or other property purchased or acquired as a
result of the investment and reinvestment thereof as hereinafter provided, and
all other property constituting "investment property" and "securities
entitlements" as such term is defined in the Uniform Commercial Code.
Uniform Commercial Code. The Uniform Commercial Code as in effect in
The Commonwealth of Massachusetts.
Section 2. Grant.
(a) To secure the payment and performance of the Obligations, each
Debtor hereby assigns and pledges to the Secured Party all of its rights, title
and interest in, and grants to the Secured Party a continuing security interest
in, the following described property: Accounts, Equipment, Inventory, General
Intangibles and Securities; whether now owned or existing or hereafter arising
or acquired, together with all goods, instruments, documents of title, policies
and certificates of insurance, securities, chattel paper, deposit accounts, cash
or other property owned by such Debtor or in which such Debtor has an interest;
any and all additions, substitutions, replacements and accessions thereto; and
all proceeds and products of respect any of the foregoing (collectively, the
"Collateral").
(b) Notwithstanding the foregoing provisions of Section 2(a) or
elsewhere in this Agreement, so long as no Event of Default has occurred and is
continuing, the Secured Party shall not take any act or omit to take any act
toward perfection of the Encumbrance granted to the Secured Party pursuant to
Section 2(a), above, in the following described property of any Debtor: motor
vehicles and, to the extent the same are held by third parties and not Lender,
deposit, checking or other bank accounts.
(c) Notwithstanding the foregoing provisions of Section 2(a), such
grant of security interest shall not extend to and the term "Collateral" shall
not include, any chattel paper and general intangibles which are now or
hereafter held by the Debtor as licensee, lessee or otherwise, to the extent
that (i) such chattel paper and general intangibles are not assignable or
capable of being encumbered as a matter of law or under the terms of the
license, lease or other agreement applicable thereto (but solely to the extent
that any such restriction shall be enforceable under applicable law), without
the consent of the licensor or lessor thereof or other applicable party thereto
consent of the licensor or lessor thereof or other applicable party thereto and
(ii) such consent has not been obtained; provided, however, that the foregoing
grant of security interest shall extend to, and the term "Collateral" shall
include, (A) any and all proceeds of such chattel paper and general intangibles
to the extent that the assignment or encumbering of
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<PAGE> 4
such proceeds is not so restricted and (B) upon any such licensor, lessor or
other applicable party consent with respect to any such otherwise excluded
chattel paper or general intangibles being obtained, thereafter such chattel
paper or general intangibles as well as any and all proceeds thereof that might
have theretofore have been excluded from such grant of a security interest and
the term "Collateral".
Section 3. Representations, Warranties and Covenants. Each Debtor
hereby (a) confirms the representations, warranties and covenants set forth in
the Credit Agreement, which are incorporated by reference herein, (b) makes the
following representations and warranties and (c) agrees to the following
covenants, each of which representations, warranties and covenants shall be
continuing and in force so long as this Agreement is in effect:
3.1 Perfection Certificate. The information contained in such Debtor's
Perfection Certificate is true, correct and complete, except for changes which
would not affect perfection of the Secured Party's security interest in the
Collateral.
3.2 Name; Debtor/Collateral Location; Changes.
(a) The name of each Debtor set forth on the first page hereof is the
true and correct legal name of such Debtor, and except as otherwise disclosed in
the Perfection Certificate, within the last five years such Debtor has not done
business as or used any other name.
(b) The address of each Debtor set forth in such Debtor's Perfection
Certificate and identified as its chief executive office is such Debtor's chief
executive office and the place where its business records are kept. All tangible
Collateral other than Securities and items in transit in the ordinary course of
business is located at the addresses specified in such Debtor's Perfection
Certificate.
(c) No Debtor will change its name, identity or organizational
structure or chief executive office or place where its business records are
kept, or move any tangible Collateral (other than Securities and items in
transit - in the ordinary course of business) to a location other than those set
forth in its Perfection Certificate (or to new store locations which would not
affect perfection of the Secured Party's security interest in any of the
Collateral), or merge into or consolidate with any other entity, unless such
Debtor shall have given the Secured Party at least 30 days' prior written notice
thereof and shall have delivered to the Secured Party such new Uniform
Commercial Code financing statements or other documentation as may be necessary
or required by the Secured Party to ensure the continued perfection and priority
of the security interests granted by this Agreement. An updated Perfection
Certificate for such Debtor shall be delivered to the Secured Party with any
such notice.
3.3 Ownership of Collateral; Absence of Liens and Restrictions. The
Debtors are, and in the case of property acquired after the date hereof, will
be, the sole legal and equitable owners of the Collateral, holding good and
marketable title to the same free and clear of all Encumbrances except for the
security interests granted hereunder or Permitted Encumbrances, and have good
right and legal authority to assign, deliver, and create a security interest in
the Collateral in the manner herein contemplated.
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<PAGE> 5
3.4 Security Interest. Subject to Section 2(b), above, this Agreement,
together with the filing of Uniform Commercial Code financing statements in the
appropriate offices for the locations of Collateral listed in the Perfection
Certificate, create in favor of the Secured Party a valid and continuing lien on
and perfected security interest in the Collateral (except for property located
in the United States in which a security interest may not be perfected by filing
under the Uniform Commercial Code), and, based on the information listed in the
Perfection Certificate, such security interest is prior to all other
Encumbrances, except Permitted Encumbrances, and is enforceable as such against
creditors of any Debtor. Other than as disclosed in the Perfection Certificate,
no financing statement under the Uniform Commercial Code of any state or other
instrument evidencing an Encumbrance that names any Debtor as debtor is on file
in any jurisdiction and no Debtor has signed any such document or any agreement
authorizing the filing of any such financing statement or instrument.
3.5 Maintenance; Taxes; Sales; Encumbrances; Insurance. The Debtors
will: (a) keep the Collateral in good order and repair; (b) not use the
Collateral in violation of law or any policy of insurance thereon; (c) except as
may be permitted in the Credit Agreement, pay promptly when due all taxes and
assessments on the Collateral or on its use or operation; (d) except as may be
permitted in the Credit Agreement, not sell, grant, assign or transfer any
interest in, or permit to exist any Encumbrances on, any of the Collateral other
than Permitted Encumbrances; (e) defend their title to, and the Secured Party's
interest in, the Collateral against all claims and take any action necessary to
remove any Encumbrances other than Permitted Encumbrances and defend the right,
title and interest of the Secured Party in and to any of the Debtors' rights in
the Collateral; and (f) keep the Collateral insured at all times as required in
the Credit Agreement.
3.6 Fixture Conflicts; Required Waivers. The Debtors intend, to the
extent not inconsistent with applicable law, that the Collateral shall remain
personal property of the Debtors and shall not be deemed to be a fixture
irrespective of the manner of its attachment to any real estate. Each Debtor
will use reasonable efforts to deliver to the Secured Party such disclaimer,
waiver, or other document as the Secured Party may request, executed by each
person having an interest in such real estate, which efforts shall include,
without limitation, delivering any such disclaimer, waiver, or document in
executable form to each such person.
3.7 Accounts: Collection and Delivery of Proceeds. Until the Secured
Party exercises its rights to collect the Accounts pursuant to this Agreement,
each Debtor will, in accordance with its customary business practices,
diligently collect all of its Accounts constituting Collateral. So long as any
Event of Default has occurred and is continuing, each Debtor shall, at the
request of the Secured Party, notify account debtors of the security interest of
the Secured Party in any Account and that payment thereof is to be made directly
to the Secured Party. So long as any Event of Default has occurred and is
continuing, any proceeds of Accounts or Inventory constituting Collateral
received by any Debtor, whether in the form of cash, checks, notes or other
instruments, shall be held in trust for the Secured Party and the Debtors shall
deliver said proceeds daily into a Bank Account (as defined in Exhibit B)
designated and controlled by the Secured Party without commingling, in the
identical form received (properly endorsed or assigned where required to enable
the Secured Party to collect same).
3.8 Further Assurances. Subject to Section 2(b), above, upon the
written request of the Secured Party, and at the sole expense of the Debtors,
the Debtors will promptly execute and deliver such further instruments and
documents and take such further actions as the Secured
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<PAGE> 6
Party may reasonably deem desirable to obtain the full benefits of this
Agreement and of the rights and powers herein granted, including, without
limitation, filing of any financing statement under the Uniform Commercial Code;
execution of collateral assignments of General Intangibles, pledges or
designations of Inventory and assignments of Accounts (giving the Secured Party
full power to collect, compromise or otherwise deal with the assigned accounts
receivable as the sole owner thereof subject to the terms hereof), all in form
and substance satisfactory to the Secured Party; and transfer of Collateral to
the Secured Party's possession to the extent necessary to perfect the same. When
an Event of Default has occurred and is continuing, upon the written request of
the Secured Party, and at the sole expense of the Debtors, the Secured Party may
take any act or omit to take any act the Secured Party deems desirable to
perfect its security interest in Debtors' property listed in Section 2(b),
above, including, without limitation, at such time, the immediate execution and
delivery by the Debtors to the Secured Party of an Agency Agreement ("Agency
Agreement"), substantially in the form of Exhibit B hereto (with all blanks
appropriately completed) with respect to each deposit, checking or other bank
account maintained by each Debtor, and Debtors shall so execute and deliver the
same, upon Secured Party's request. Each Debtor authorizes the Secured Party to
file any such financing statement without the signature of a Debtor to the
extent permitted by applicable law, and to file a copy of this Agreement in lieu
of a financing statement. If any amount in excess of $25,000 payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be
immediately delivered to the Secured Party, duly endorsed in a manner
satisfactory to it, provided, that, so long as any Event of Default has occurred
and is continuing, all such notes or instruments, regardless of amount shall be
immediately delivered to the Secured Party, duly endorsed in a manner
satisfactory to the Secured Party, and provided, further, that, until the
occurrence of an Event of Default, the Debtors shall be entitled to collect the
proceeds of such notes and instruments.
Section 4. Notices and Reports Pertaining to Collateral. Each Debtor
will, with respect to the Collateral:
(a) promptly furnish to the Secured Party, from time to time upon the
Secured Party's reasonable request, reports regarding the Collateral, in form
and detail satisfactory to the Secured Party, including those reports required
in the Credit Agreement;
(b) promptly notify the Secured Party of any Encumbrance asserted
against the Collateral, including any attachment, levy, execution or other legal
process levied against any of the Collateral, and of any other material
information received by any Debtor relating to the Collateral, including the
Accounts, the account debtors, or other persons obligated in connection
therewith, that may in any way materially and adversely affect the value of the
Collateral or the rights and remedies of the Secured Party with respect thereto;
and
(c) promptly after the application by any Debtor for registration of
any General Intangibles, notify the Secured Party thereof.
Each Debtor authorizes the Secured Party to destroy all invoices, delivery
receipts, reports and other types of documents and records submitted to the
Secured Party in connection with the transactions contemplated herein at any
time subsequent to 12 months from the time such items are delivered to the
Secured Party.
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<PAGE> 7
Section 5. Secured Party's Rights with respect to Collateral. Each
Debtor hereby appoints the Secured Party as its lawful attorney-in-fact, with
full power of substitution, in the name of such Debtor, for the sole use and
benefit of the Secured Party, but at such Debtor's expense, at the Secured
Party's option and at any time, after the occurrence of an Event of Default, and
during the continuance thereof, without notice or demand on such Debtor, to
exercise all or any of following powers with respect to the Collateral:
(a) with respect to any Accounts: (i) notify account debtors of the
security interest of the Secured Party in such Accounts and that payment thereof
is to be made directly to the Secured Party (which notice shall not affect the
duties of the Debtors described in Section 3.6); (ii) demand, collect, and
receipt for any amounts relating thereto, as the Secured Party may determine;
(iii) commence and prosecute any actions in any court for the purposes of
collecting any such Accounts and enforcing any other rights in respect thereof;
(iv) defend, settle or compromise any action brought and, in connection
therewith, give such discharges or releases as the Secured Party may deem
appropriate; (v) receive, open and dispose of mail addressed to such Debtor and
endorse checks, notes, drafts, acceptances, money orders, bills of lading,
warehouse receipts or other instruments or documents evidencing payment,
shipment or storage of the goods giving rise to such Accounts or securing or
relating to such Accounts, on behalf of and in the name of such Debtor; and (vi)
sell, assign, transfer, make any agreement in respect of, or otherwise deal with
or exercise rights in respect of, any such Accounts or the goods or services
which have given rise thereto, as fully and completely as though the Secured
Party were the absolute owner thereof for all purposes;
(b) with respect to any Equipment and Inventory: (i) make, adjust and
settle claims under any insurance policy related thereto and place and pay for
appropriate insurance thereon; (ii) discharge taxes and other Encumbrances at
any time levied or placed thereon; (iii) make repairs or provide maintenance
with respect thereto; and (iv) pay any necessary filing fees and any taxes
arising as a consequence of any such filing (it being understood and agreed that
the Secured Party shall have no obligation to make any such expenditures nor
shall the making thereof relieve such Debtor of its obligation to make such
expenditures); and
(c) with respect to any Securities (i) transfer them at any time to
itself, or to its nominee, and receive the income thereon and hold the same as
Collateral hereunder or apply it to any matured Obligations; and (ii) demand,
sue for, collect or make any compromise or settlement it deems desirable.
Except as otherwise provided herein, the Secured Party shall have no duty as to
the collection or protection of the Collateral nor as to the preservation of any
rights pertaining thereto, beyond the safe custody of any Collateral in its
possession.
Section 6. Secured Party's Rights and Remedies.
(a) So long as any Event of Default shall have occurred and be
continuing, the Secured Party shall have all of the following rights and
remedies:
(i) The Secured Party may, at its option, without notice or
demand (other than as provided for in the Credit Agreement), cause all
of the Obligations to become immediately due and payable and take
immediate possession of the Collateral, and for that
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<PAGE> 8
purpose the Secured Party may, so far as the Debtors can give authority
therefor, enter upon any premises on which any of the Collateral is
situated and remove the same therefrom or remain on such premises and
in possession of such Collateral for purposes of conducting a sale or
enforcing the rights of the Secured Party.
(ii) Each Debtor will, upon demand, assemble the Collateral
and make it available to the Secured Party at such places and times
designated by the Secured Party that are reasonably convenient to both
parties.
(iii) The Secured Party may collect and receive all income and
proceeds in respect of the Collateral and exercise all rights of any
Debtor with respect thereto, including without limitation the right to
exercise all voting and corporate rights at any meeting of the
shareholders of the issuer of any Securities and to exercise any and
all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any Securities as if the Secured
Party were the absolute owner thereof, including the right to exchange,
at its discretion, any and all of any Securities upon the merger,
consolidation, reorganization, recapitalization or other readjustment
of the issuer thereof, all without liability except to account for
property actually received (but the Secured Party shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall
not be responsible for any failure to do so or delay in so doing).
(iv) The Secured Party may sell, lease or otherwise dispose of
the Collateral at a public or private sale, with or without having the
Collateral at the place of sale, and upon such terms and in such manner
as the Secured Party may determine, and the Secured Party may purchase
any Collateral at any such sale. Unless the Collateral threatens to
decline rapidly in value or is of the type customarily sold on a
recognized market, the Secured Party shall send to the Debtors prior
written notice (which, if given within ten days of any sale, shall be
deemed to be reasonable) of the time and place of any public sale of
the Collateral or of the time after which any private sale or other
disposition thereof is to be made. Each Debtor agrees that upon any
such sale the Collateral shall be held by the purchaser free from all
claims or rights of every kind and nature, including any equity of
redemption or similar rights, and all such equity of redemption and
similar rights are hereby expressly waived and released by the Debtors.
In the event any consent, approval or authorization of any governmental
agency is necessary to effectuate any such sale, the Debtors shall
execute all applications or other instruments as may be required.
(v) In any jurisdiction where the enforcement of its rights
hereunder is sought, the Secured Party shall have, in addition to all
other rights and remedies, the rights and remedies of a secured party
under the Uniform Commercial Code.
(b) So long as any Event of Default shall have occurred and be
continuing, prior to any disposition of Collateral pursuant to this Agreement
the Secured Party may, at its option, cause any of the Collateral to be repaired
or reconditioned (but not upgraded unless mutually agreed) in such manner and to
such extent as to make it salable.
(c) The Secured Party is hereby granted a license or other right to
use, so long as any Event of Default shall have occurred and be continuing,
without charge, any Debtor's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and
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<PAGE> 9
advertising matter, or any property of a similar nature, relating to the
Collateral, in completing production of, advertising for sale and selling any
Collateral; and (subject to Section 2(b)) all Debtors' rights under all licenses
and all franchise agreements shall inure to the Secured Party's benefit.
(d) Each Debtor recognizes that the Secured Party may be unable to
effect a public sale of all or a part of the Securities by reason of certain
prohibitions contained in the Securities Act of 1933 (as amended from time to
time, the "Securities Act") or the securities laws of various states (the "Blue
Sky Laws"), but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, other things, to
acquire the Securities for their own account, for investment and not with a view
to the distribution or resale thereof. Each Debtor acknowledges that private
sales so made may be at prices and upon other terms less favorable to the seller
than if the Securities were sold at public sales. Each Debtor agrees that the
Secured Party has no obligation to delay sale of any of the Securities for the
period of time necessary to permit the Securities to be registered for public
sale under the Securities Act or the Blue Sky Laws, and that private sales made
under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner.
(e) So long as any Event of Default shall have occurred and be
continuing, the Secured Party shall be entitled to retain and to apply the
proceeds of any disposition of the Collateral, first, to its reasonable expenses
of retaking, holding, protecting and maintaining, and preparing for disposition
and disposing of, the Collateral, including attorneys' fees and other legal
expenses incurred by it in connection therewith; and second, to the payment of
the Obligations in such order of priority as the Secured Party shall determine.
Any surplus remaining after such application shall be paid to the Debtors or to
whomever may be legally entitled thereto, provided that in no event shall any
Debtor be credited with any part of the proceeds of the disposition of the
Collateral until such proceeds shall have been received in cash by the Secured
Party. The Debtor shall remain liable for any deficiency.
Section 7. Waivers. Each Debtor waives presentment, demand, notice,
protest, notice of acceptance of this Agreement, notice of any loans made,
credit or other extensions granted, collateral received or delivered or any
other action taken in reliance hereon and all other demands and notices of any
description, except for such demands and notices as are expressly required to be
provided to such Debtor under this Agreement or any other document evidencing
the Obligations. With respect to both the Obligations and the Collateral, each
Debtor assents to any extension or postponement of the time of payment or any
other forgiveness or indulgence, to any substitution, exchange or release of
Collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromise or adjustment of any thereof, all in such manner and at
such time or times as the Secured Party may deem advisable. The Secured Party
may exercise its rights with respect to the Collateral without resorting, or
regard, to other among collateral or sources of reimbursement for Obligations.
The Secured Party shall not be deemed to have waived any of its rights with
respect to the Obligations or the Collateral unless such waiver is in writing
and signed by the Secured Party. No delay or omission on the part of the Secured
Party in exercising any right shall operate as a waiver of such right or any
other right. A waiver on any one occasion shall not bar or waive the exercise of
any right on any future occasion. All rights and remedies of the Secured Party
in the Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers,
-9-
<PAGE> 10
are cumulative and not exclusive of any remedies provided by law or any other
agreement, and may be exercised separately or concurrently.
Section 8. Expenses. Each Debtor shall, on demand, pay or reimburse the
Secured Party for all reasonable expenses (including attorneys' fees of outside
counsel or allocation costs of in-house counsel) incurred or paid by the Secured
Party in connection with the preparation, negotiation and closing, and the
administration or enforcement, of this Agreement, its commercial credit
examinations (subject to any limitations in the Credit Agreement) and any other
amounts permitted to be expended by the Secured Party hereunder, including
without limitation such expenses as are incurred to preserve the value of the
Collateral and the validity, perfection, priority and value of any security
interest created hereby, the collection, sale or other disposition of any of the
Collateral or the exercise by the Secured Party of any of the rights conferred
upon it hereunder.
Section 9. Notices. Any demand upon or notice to the Debtors that the
Secured Party may give shall be effective when delivered in accordance with the
Credit Agreement.
Section 10. General. This Agreement may not be amended or modified
except by a writing signed by the Debtors and the Secured Party, nor may the
Debtors assign any of their rights hereunder. Section headings are for
convenience of reference only and are not a part of this Agreement. This
Agreement shall be binding upon the Debtors, their successors and assigns, and
shall inure to the benefit of and be enforceable by the Secured Party and its
successors and assigns.
SECTION 11. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF TRIAL BY
JURY.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER SEAL AND
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING REFERENCE TO ANY CONFLICTS OF LAW
PROVISIONS THEREIN) EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF A
SECURITY INTEREST GRANTED HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE REQUIRED TO BE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS.
(b) EACH OF THE DEBTORS AND THE SECURED PARTY AGREES THAT NEITHER IT
NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, ANY COLLATERAL OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN SUCH DEBTOR AND THE SECURED PARTY OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. NEITHER THE SECURED PARTY NOR ANY DEBTOR HAS
-10-
<PAGE> 11
AGREED WITH OR REPRESENTED TO ANY OTHER THAT THE PROVISIONS OF THIS PARAGRAPH
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
(c) EACH DEBTOR HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS AND THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM
WHICH AN APPEAL MAY BE TAKEN OR OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS,
FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF
THE DEBTORS' OBLIGATIONS UNDER OR WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, AND EXPRESSLY
WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS.
Section 12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same Agreement.
-11-
<PAGE> 12
IN WITNESS WHEREOF, each of the Debtors and the Secured Party have
caused this Agreement to be duly executed as an instrument under seal as of the
date first written above.
DEBTORS:
DIEDRICH COFFEE, INC.
By: /s/ Ann Wride
---------------------------------
COFFEE PEOPLE, INC.
By: /s/ Ann Wride
---------------------------------
COFFEE PEOPLE WORLDWIDE, INC.
By: /s/ Ann Wride
---------------------------------
GLORIA JEAN'S, INC.
By: /s/ Ann Wride
---------------------------------
EDGLO ENTERPRISES, INC.
By: /s/ Ann Wride
---------------------------------
GLORIA JEAN'S GOURMET COFFEES CORP.
By: /s/ Ann Wride
---------------------------------
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By: /s/ Ann Wride
---------------------------------
SECURED PARTY:
BANKBOSTON, N.A.
By: /s/
---------------------------------
-12-
<PAGE> 13
State of California
-----------------------------
County of Orange June 30 1999
----------------------------- ----------------------,------
Then personally appeared the above named Ann Wride, and acknowledged
that he/she executed the foregoing Agreement as his/her free act and deed before
me on behalf of each of the foregoing Debtors, as duly authorized agent thereof.
/s/
-------------------------
Notary Public
My commission expires:
-13-
<PAGE> 14
EXHIBIT A
---------
PERFECTION CERTIFICATE
to
SECURITY AGREEMENT
dated July 7, 1999
of
DIEDRICH COFFEE, INC., COFFEE PEOPLE, INC., COFFEE PEOPLE WORLDWIDE, INC.,
GLORIA JEAN'S, INC., EDGLO ENTERPRISES, INC., GLORIA JEAN'S GOURMET
COFFEES CORP., and GLORIA JEAN'S GOURMET COFFEES FRANCHISING CORP.
The undersigned, the Vice President and Chief Financial Officer of
DIEDRICH COFFEE, INC., and the Secretary and Treasurer of each of COFFEE PEOPLE,
INC., COFFEE PEOPLE WORLDWIDE, INC., GLORIA JEAN'S, INC., EDGLO ENTERPRISES,
INC., GLORIA JEAN'S GOURMET COFFEES CORP. and GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP., and all future Subsidiaries who hereafter become parties
hereto (collectively, the "Debtors" and each individually a "Debtor"), hereby
certify solely in such capacity, with reference to a certain Security Agreement
dated of even date herewith (terms defined in such Security Agreement having the
same meanings herein as specified therein), among the Debtors and BankBoston,
N.A., (the "Secured Party"), to the Bank as follows:
1. NAMES.
(a) THE EXACT CORPORATE NAME OF EACH DEBTOR AS IT APPEARS ON ITS
ORGANIZATIONAL DOCUMENTS AND ITS TAXPAYER IDENTIFICATION NUMBER IS AS FOLLOWS:
Diedrich Coffee, Inc.
Tax ID No.: 33-0086628
Coffee People, Inc.
Tax ID No.: 93-1073218
Coffee People Worldwide, Inc.
Tax ID No.: 33-0862454
Gloria Jean's Inc.
Tax ID No.: 86-0743352
<PAGE> 15
Edglo Enterprises, Inc.
Tax ID No.: 36-3401583
Gloria Jean's Gourmet Coffees Corp.
Tax ID No.: 36-3185413
Gloria Jean's Gourmet Coffees
Franchising Corp.
Tax ID No.: 36-3447732
(b) THE FOLLOWING IS A LIST OF ALL OTHER NAMES (INCLUDING TRADE NAMES
OR SIMILAR APPELLATIONS) USED BY THE DEBTOR, OR ANY OTHER BUSINESS OR
ORGANIZATION TO WHICH THE DEBTOR BECAME THE SUCCESSOR BY MERGER, CONSOLIDATION,
ACQUISITION, CHANGE IN FORM, NATURE OR JURISDICTION OF ORGANIZATION OR
OTHERWISE, NOW OR AT ANY PREVIOUS TIME:
Barn Owl, Inc.
CP Acquisition
CP Old, Inc.
Gloria Jean's Corp.
Coffee Midwest Corp.
Gourmet Roasters Corp.
Gloria Jean's Coffee Bean Corp.
Gloria Jean's Coffee Bean Franchising Corp.
The Coffee Bean, Inc.
2. LOCATIONS.
(a) THE CHIEF EXECUTIVE OFFICE OF EACH DEBTOR IS LOCATED AT THE
FOLLOWING ADDRESSES:
Diedrich Coffee, Inc. at 2144 Michelson Drive, Irvine, CA 92602
Coffee People, Inc. at 11480 Commercial Parkway, Castroville, CA 95012
Gloria Jean's, Inc., Gloria Jean's Gourmet Coffees Corp., Gloria Jean's
Gourmet Coffees Franchising Corp., and Edglo Enterprises, Inc. at
11480 Commercial Parkway, Castroville, CA 95012
(b) THE FOLLOWING IS A LIST OF ALL OTHER LOCATIONS IN WHICH ANY DEBTOR
MAINTAINS ANY BOOKS OR RECORDS RELATING TO ANY OF THE COLLATERAL CONSISTING OF
ACCOUNTS, CHATTEL PAPER, GENERAL INTANGIBLES OR MOBILE GOODS:
Currently:
Street and Number County State Zip Code
----------------- ------ ----- --------
See Attachment B
-2-
<PAGE> 16
Within the last four months, if different:
Street and Number County State Zip Code
----------------- ------ ----- --------
None.
(c) THE FOLLOWING ARE ALL THE OTHER PLACES OF BUSINESS OF ANY DEBTOR:
Currently:
Street and Number County State Zip Code
----------------- ------ ----- --------
See Attachment B
Within the last four months, if different:
Street and Number County State Zip Code
----------------- ------ ----- --------
Crossroads Mall Omaha NE 68114
(d) THE FOLLOWING ARE ALL THE OTHER LOCATIONS WHERE ANY OF THE
COLLATERAL (OTHER THAN SECURITIES AND ANY DEPOSIT ACCOUNTS) IS LOCATED:
Currently:
Street and Number County State Zip Code
----------------- ------ ----- --------
None.
Within the last four months, if different:
Street and Number County State Zip Code
----------------- ------ ----- --------
See Attachment C
-3-
<PAGE> 17
(e) THE FOLLOWING ARE THE NAMES AND ADDRESSES OF ALL PERSONS OR
ENTITIES OTHER THAN ANY OF THE DEBTORS, SUCH AS LESSEES, CONSIGNEES,
WAREHOUSEMEN, POUNDERKEEPERS OR PURCHASERS OF CHATTEL PAPER, THAT HAVE
POSSESSION OR ARE INTENDED TO HAVE POSSESSION OF ANY OF THE COLLATERAL
CONSISTING OF CHATTEL PAPER, INVENTORY OR EQUIPMENT:
Currently:
Street and Number County State Zip Code
----------------- ------ ----- --------
See Attachment D
Within the last four months, if different:
Street and Number County State Zip Code
----------------- ------ ----- --------
None.
-4-
<PAGE> 18
IN WITNESS WHEREOF, we have hereunto signed this Certificate as an
instrument under seal as of July 7,1999.
DIEDRICH COFFEE, INC.
By:
---------------------------------
Title:
COFFEE PEOPLE, INC.
By:
---------------------------------
Title:
COFFEE PEOPLE WORLDWIDE, INC.
By:
---------------------------------
Title:
GLORIA JEAN'S, INC.
By:
---------------------------------
Title:
EDGLO ENTERPRISES, INC.
By:
---------------------------------
Title:
GLORIA JEAN'S GOURMET COFFEES CORP.
By:
---------------------------------
Title:
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By:
---------------------------------
Title:
-5-
<PAGE> 19
EXHIBIT B
---------
AGENCY AGREEMENT
--------------------------------
Telephone:
------------------
Telecopier:
------------------
Dated:
----------------------
[Agency Account Institution]
[Address]
Re: Account No.
--------------------
Ladies and Gentlemen:
This letter refers to Account No. _________ and all other accounts
(collectively, the "Bank Account") which ___________________________ (the
"Company") maintains with you (the "Bank").
The Company hereby notifies you that it has entered into certain
financial arrangements with BankBoston, N.A. ("BKB") and certain other lenders
and, in connection with those financial arrangements, it has transferred
exclusive control of the Bank Account to BKB, as agent for itself and such
lenders.
By its execution and delivery of this letter to BKB, the Bank
irrevocably acknowledges and agrees as follows: (a) the Bank has been advised
that all funds which may from time to time be on deposit in the Bank Account are
subject to a lien and security interest in favor of BKB; (b) the Bank shall
disclose to BKB such information relating to the Bank Account and the debits and
credits thereto as the BKB may from time to time reasonably request; (c) except
as set forth below, the Bank will not exercise any right of set-off, banker's
lien or any similar right in favor of itself or any other person in connection
with any monies, checks, drafts, instruments or other items of payment deposited
into the Bank Account, or any funds on deposit thereon; (d) the Bank will
collect all monies, checks, drafts, instruments and other items of payment
deposited into the Bank Account; and (e) upon the Bank's receipt of written
notice from BKB, it will on a daily basis transfer the collected available
balance of funds standing to the credit of the Bank Account by wire transfer (or
other means acceptable to BKB) solely to:
<PAGE> 20
BankBoston, N.A.
Account No. _________________
ABA No. ____________________
Re: Diedrich Coffee, Inc. and its Subsidiaries
Attn: ________________________
(the "BKB Concentration Account") or such other destination as BKB shall
designate. BKB hereby notifies you that BKB will from time to time access the
Bank Account for the sole purpose of facilitating the transfer of funds therein
to the BKB Concentration Account pursuant to the instructions set forth in the
foregoing sentence.
Notwithstanding anything in this letter to the contrary, the Bank shall
have the right to deduct from or set off against amounts from time to time in
the Bank Account (i) your usual and customary costs and expenses in respect of
interest on overdrafts and any return items, and your usual and customary fees
and expenses associated with any such return item, overdraft and/or the
maintenance of the Bank Account and (ii) the face amount (or portion thereof) of
any check, instrument or other item which was deposited in the Bank Account and
which has been returned unpaid for reasons of insufficient funds or has
otherwise not been collateral. You hereby acknowledge and agree that all such
interest, costs, fees and expenses shall be for the account of the Company and
in the event the amounts in the Bank Account are insufficient to reimburse you
for the same, the Company hereby agrees to reimburse you for such interest,
costs, fees and/or expenses immediately upon your demand therefor in immediately
available funds.
The Bank shall have no duty to inquire into the source or use of any
monies, checks, drafts, instruments or other items or amounts deposited into the
Bank Account. The Company hereby agrees that any deposits of monies, checks,
drafts, instruments or other items into or withdrawals from the Bank Account now
or hereafter directed by BKB are authorized by the Company and the Company
acknowledges that it has no right to withdraw or direct the transfer of any or
all credit balances at any time, except to the extent provided on a written
notice from BKB. The Bank shall be fully protected in acting on any instruction
of BKB with respect to the Bank Account without making any inquiry as to BKB's
authority to give such instruction.
The Company consents and agrees to the foregoing, authorizes the Bank
to enter into this letter agreement, and agrees to indemnify and hold harmless
the Bank from and against any and all claims, actions and suits (whether
groundless or otherwise), losses, damages, costs, expenses and liabilities of
every nature and character arising out of the Bank's compliance with the terms
of this letter, except such as result from the Bank's gross negligence or
willful misconduct, and in no event shall the Bank be liable for any
consequential, indirect or special damages.
This letter agreement is binding upon each of the undersigned and you
and each of our respective successors and assigns and shall inure to the benefit
of each of us and other respective successors and assigns. It supersedes all
prior agreements, oral or written, with respect to the subject matter hereof,
and may not be modified without the prior written consent of each of the parties
hereto. In addition, the terms of this letter agreement may not be modified
without the prior written consent of BKB.
This letter agreement may be terminated only as follows: (i) you may
terminate this letter agreement and the Bank Account at any time which is thirty
(30) days or more after the date you
-2-
<PAGE> 21
shall have given written notice of such termination to BKB and to the Company
and (ii) BKB may terminate this letter agreement and the Bank Account at any
time which is ten (10) days or more after the date BKB shall have given written
notice of such termination (sent to each of the Company and you). In addition,
the terms of this letter agreement may not be modified without the prior written
consent of BKB.
Any notice hereunder shall be delivered to the relevant party hereto at
the address and to the attention of such party set forth below, or at such other
address or to the attention of such other party as the party to be addressed may
specify by written notice delivered to each other party hereto. No termination
shall affect or impair any of the agreements, rights or obligations hereunder of
any party with respect to any periods of time prior to the date of such
termination.
This letter agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts and applicable
federal law. This letter agreement shall become effective immediately upon being
executed by all of the parties hereto.
Very truly yours,
-------------------------------------
Name of Company
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address:
-----------------------------
Telephone:
---------------------------
Telecopier:
---------------------------
Attention:
---------------------------
BANKBOSTON, N.A.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: 100 Federal Street
Boston, MA 02110
Attention:
---------------------------
Telephone:
---------------------------
Telecopier:
---------------------------
(signatures continued)
-3-
<PAGE> 22
Acknowledged and agreed to this _____ day of _________, _____.
-----------------------------
[Name of Bank]
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Address:
---------------------
Telephone:
-------------------
Telecopier:
------------------
Attention:
------------------
-4-
<PAGE> 1
EXHIBIT 10.27
SECURITIES PLEDGE AGREEMENT
---------------------------
THIS SECURITIES PLEDGE AGREEMENT made as of July 7, 1999, by and among
DIEDRICH COFFEE, INC., COFFEE PEOPLE, INC., COFFEE PEOPLE WORLDWIDE, INC.,
GLORIA JEAN'S, INC., EDGLO ENTERPRISES, INC., GLORIA JEAN'S GOURMET COFFEES
CORP., and GLORIA JEAN'S GOURMET COFFEES FRANCHISING CORP. (collectively, the
"Pledgors" and each individually a "Pledgor"); and BANKBOSTON, N.A., (together
with its successors and assigns, the "Secured Party").
RECITALS
A. The Pledgors and the Secured Party entered into a Credit Agreement
dated on or about June 30, 1999 (as the same may be amended, restated, renewed,
replaced, supplemented or otherwise modified from time to time, the "Credit
Agreement"), pursuant to which the Secured Party is extending credit to the
Pledgors. Capitalized terms used herein without definition have the meanings
assigned to them in the Credit Agreement.
B. It is a condition to the Secured Party's willingness to enter into
the Credit Agreement and provide to the Pledgors the financing contemplated
thereby that the Pledgors shall have pledged to the Secured Party, for the
benefit of the Secured Party, all of the issued and outstanding capital stock,
partnership interests, member interests and other equity interests of now or
hereafter held legally or beneficially by any Pledgor, including without
limitation all equity interests of their existing and future Subsidiaries.
C. Each Pledgor will benefit materially from the extensions of credit
contemplated by the Credit Agreement and, as a material inducement to the
Secured Party to enter into the Credit Agreement and to extend credit to the
Pledgors as contemplated thereby, wishes hereby to pledge to the Secured Party
such capital stock and interests.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
parties hereby agree as follows:
Section 1. Pledge.
(a) For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, each Pledgor hereby delivers, pledges, grants
security interests in and assigns to the Secured Party all of such Pledgor's
right, title and interest in and to, whether now existing or hereafter coming
into existence, the securities, shares of capital stock, warrants, options,
partnership interests, member interests, and other equity and ownership
interests now or hereafter standing in the name of or otherwise now or hereafter
held legally or beneficially by such Pledgor (the "Ownership Interests") in any
issuer (a "Company" and, collectively, the "Companies"), and all certificates
(if any) representing or evidencing such Ownership Interests standing in such
Pledgor's name, all such Ownership Interests as of the date hereof being more
particularly described on Exhibit A attached hereto, and all other rights of
such Pledgor under any and all agreements, including, without limitation, all
right, title and interest (if any) of such
<PAGE> 2
Pledgor as a partner or director, as the case may be, to participate in the
operation or management of any Company and all rights of such Pledgor to the
property, assets, partnership interests and distributions under the
Organizational Documents, and all present and future rights of such Pledgor to
receive payment of money or other distributions or payments arising out of or in
connection with the Ownership Interests of such Pledgor in any Company and its
rights under the Organizational Documents, any and all other related agreements
and all general intangibles relating thereto and proceeds resulting therefrom as
collateral security, and all rights of any Pledgor with respect to the pledge of
any Ownership Interests pursuant to the terms and conditions of the
Organizational Documents or any other agreement or instrument, for (i) the
payment and performance of all obligations of the Pledgors under the Credit
Agreement; (ii) the due and punctual payment of the Notes, as defined in the
Credit Agreement and issued pursuant thereto, to the Secured Party, including,
without limitation, all interest payable on the Notes at the interest rates
provided therein and in the Credit Agreement, regardless of the extent allowed
as a claim in any proceeding in respect of the bankruptcy, reorganization or
insolvency of any Pledgor (a "Reorganization"); (iii) the due and punctual
payment of any of the Pledgors' notes or instruments as may hereafter from time
to time be issued in addition to, in place of, or in amendment of, the Notes
under the Credit Agreement, including, without limitation, all interest payable
on such notes or instruments at the interest rates provided therein, regardless
of the extent allowed as a claim in any Reorganization; (iv) the payment and
performance of all indebtedness, liabilities and obligations of the Pledgors
under the other Security Documents contemplated by the Credit Agreement; (v) the
payment and performance of all obligations, indebtedness and liabilities of any
of the Pledgors to the Secured Party under the other Security Documents
contemplated by the Credit Agreement; (vi) the performance of all of the
obligations of each of the Pledgors to the Secured Party contained in any of the
Loan Documents contemplated by the Credit Agreement; and (vii) the payment of
all other future advances and other obligations of any Pledgor to the Secured
Party including, without limitation any future loans and advances made to any
Pledgor by the Secured Party prior to, during or following any Reorganization,
and any and all other indebtedness, liabilities and obligations of any Pledgor
to the Secured Party of every kind and description, direct, indirect or
contingent, now or hereafter existing, due or to become due (all of the
foregoing hereinafter called the "Obligations").
(b) In the case of certificated securities, each Pledgor shall promptly
pledge and deposit hereunder with the Secured Party, any stock or other
certificates, warrants, options or other rights to acquire a certificate of
Ownership Interests acquired by such Pledgor in addition to the securities
referred to on Exhibit A attached hereto, whether by (i) new purchase or (ii)
new issuance or by declaration of a dividend or distribution with respect to, or
a split of, or conversion of, any securities now or hereafter held in pledge
(all in suitable form for transfer by delivery or accompanied by (a) duly
executed instruments of transfer or assignments in blank, and (b) any required
transfer tax stamps). Such stock or other certificate, equity securities,
warrants, options, voting or other rights shall stand pledged and assigned as
collateral security for the Obligations in the same manner as the property
described in the first paragraph hereof and this paragraph. Nothing contained in
this Section 1 shall be deemed to permit any issuances of debt or equity
securities, exercise of rights, distributions, payments or other actions not
otherwise permitted by the Credit Agreement. In the case of uncertificated
securities, each Pledgor shall comply with the provisions of Section 2(h)
hereunder and cause the lien on the Pledged Securities to be registered in the
books and records maintained by the applicable Company. (All
-2-
<PAGE> 3
of the property described in the first paragraph hereof and this paragraph is
hereinafter collectively called the "Pledged Securities".)
Section 2. Representations, Warranties and Covenants of the Pledgors.
Each Pledgor hereby represents, warrants and covenants as follows with respect
to the Pledged Securities held in such Pledgor's name:
(a) Except for the security interest and pledge hereunder and
any security interest and pledge permitted under the Credit Agreement,
(i) such Pledgor is the legal and beneficial owner of the Pledged
Securities and such Pledgor holds the Pledged Securities free and clear
of any Encumbrance or restriction on transfer (in the case of
restrictions on transfer, except as may be imposed by any state or
local governmental authorities), (ii) there are no restrictions upon
the voting rights of any of the Pledged Securities (other than as may
be imposed by any state or local governmental authorities), (iii) the
Pledged Securities are duly and validly issued, fully paid and
non-assessable, and (iv) such Pledgor has the right to pledge said
securities to the Secured Party hereunder free of any Encumbrances.
(b) Such Pledgor shall promptly pay any and all taxes,
assessments and governmental charges upon the Pledged Securities
pledged by such Pledgor hereunder when due other than those contested
in good faith by appropriate proceedings for which adequate funds for
the payment thereof shall have been set aside.
(c) Except as permitted under the Credit Agreement, such
Pledgor shall not sell or otherwise assign, transfer or dispose of the
Pledged Securities or any interest therein during such time as they
shall be pledged to the Secured Party as contemplated hereby.
(d) Such Pledgor shall keep the Pledged Securities free from
any Encumbrance except for the pledge provided hereby and shall take
such actions reasonably necessary to protect such Pledged Securities
against all claims and demands of all persons at any time claiming any
interest therein.
(e) The Pledged Securities are duly and validly issued, fully
paid and nonassessable, and in the case of certificated securities,
such Pledgor or the Secured Party holds a certificate or instrument
evidencing the Pledged Securities issued in the name of such Pledgor as
described on Exhibit A.
(f) The Pledged Securities represent, and the Pledgors are,
the legal and beneficial holders of, all of the issued and outstanding
equity interests of the Companies listed on Exhibit A.
(g) Such Pledgor will not, without the prior written consent
of the Secured Party, which consent will not be unreasonably withheld
or delayed, amend or
-3-
<PAGE> 4
modify any of the Organizational Documents, as in effect on
the date hereof provided however, each Pledgor agrees to
amend immediately any Organizational Documents which contain provisions
similar to those set forth in Section 102(b)(2) of Title 8 of the
Delaware General Corporation Law in order to delete any such provision.
(h) Such Pledgor shall execute and deliver written
instructions to the applicable Company to register the Encumbrance
created hereunder in any uncertificated equity interests in the books
and records maintained by such Company for such registrations and cause
such Company to execute and deliver to the Secured Party a written
confirmation and account control agreement to the effect that the
Encumbrance created hereunder in such equity interests has been duly
registered in such books and records and is perfected.
(i) Such Pledgor will perform and observe, or cause to be
performed and observed, all of such Pledgor's obligations under the
Organizational Documents.
(j) The execution and delivery of, and performance by such
Pledgor of its respective obligations under the Security Documents to
which it is a party will not violate any provision of law, any order,
judgment or decree of any court or other agency of government, the
Organizational Documents or any indenture, agreement or other
instrument to which such Pledgor is a party, or by which such Pledgor
is bound, or be in conflict with, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under, or result
in the creation or imposition of any Encumbrance of any nature
whatsoever upon any of the property or assets of such Pledgor pursuant
to, any such indenture, agreement or instrument.
(k) Such Pledgor is not required to obtain any consent,
approval or authorization from, or to file any declaration or statement
with, any governmental instrumentality or other agency or any other
Person in connection with or as a condition to the execution, delivery
or performance of any of the Security Documents to which such Pledgor
is a party, except such consents as have already been obtained.
(l) Exhibit A accurately and completely lists each Pledgor's
correct legal name and principal address and amount of Ownership
Interests in any of the Companies and whether the same are
certificated, all as of the date hereof.
(m) This Agreement and other agreements and instruments
relating hereto constitute the valid and binding obligations of such
Pledgor, enforceable against it in accordance with its terms, subject,
however to bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the rights and remedies of creditors generally
or the application of principles of equity, whether in any action in
law or proceeding in equity, and subject to the availability of the
remedy of specific performance or of any other equitable remedy or
relief to enforce any right under any such agreement.
-4-
<PAGE> 5
Section 3. Right to Receive Distributions on Pledged Securities.
(a) Unless and until an Event of Default (as defined in Section 5
hereof) has occurred, and if the Secured Party has notified any Pledgor in
writing of its election to exercise the Secured Party's rights under this
Section 3, such Pledgor shall be entitled to receive and retain for its own use
any and all dividends, interest and other payments and distributions made upon
or with respect to the Pledged Securities (subject to any restrictions thereon
set forth in the Credit Agreement or any other Loan Document referred to
therein), except
(i) dividends or distributions payable in securities or other
property (other than cash dividends or distributions);
(ii) dividends or distributions on dissolution or on partial or
total liquidation or in connection with a reduction of
capital, capital surplus or paid-in surplus; and
(iii) any other securities issued with respect to or in lieu of
the Pledged Securities in any manner whatsoever (whether
upon conversion of any convertible securities included
therein or through a split, spin-off, split-off,
reclassification, merger, consolidation, sale of assets,
combination of securities or otherwise).
All of the foregoing, together with all new, substituted or additional
certificates, warrants, options, notes or other rights, or other securities
issued in addition to or in respect of all or any of the Pledged Securities
shall be delivered to the Secured Party hereunder as required by Section 1
hereof, to be held as collateral pursuant to the terms hereof in the same manner
as the Pledged Securities delivered to the Secured Party on the date hereof.
Nothing in this Section 3 shall be deemed to permit any issuance of debt or
equity securities, exercise of rights, distributions, payments or other actions
not otherwise permitted by the Credit Agreement.
(b) Notwithstanding any provision herein to the contrary, if any Event
of Default shall have occurred, upon the giving of the written notice referred
to in subsection (a) above, then and whether or not any holder of the
Obligations exercises any available option to declare such Obligations due and
payable or seeks or pursues any other relief or remedy available to such holder
under this Agreement or any instrument or agreement evidencing or securing any
Obligations, all dividends, distributions, or interest or principal payments, as
the case may be, on the Pledged Securities shall be paid directly to the Secured
Party, and retained by it as part of the Pledged Securities, subject to the
terms of this Agreement, and, if the Secured Party shall so request in writing,
the Pledgor agrees to execute and deliver to the Secured Party appropriate
additional distribution and other orders and documents to that end.
-5-
<PAGE> 6
Section 4. Right to Vote Pledged Securities.
(a) Unless and until an Event of Default has occurred, and if the
Secured Party shall have notified any Pledgor in writing of its election to
exercise the Secured Party's rights under this Section 4, each Pledgor shall
have the right, from time to time, to vote and to give consents, ratifications
and waivers with respect to the Pledged Securities held in such Pledgor's name
and to exercise conversion rights with respect to any convertible securities
included therein; provided, however, that no vote shall be cast, and no consent
shall be given or member action taken, which would have the effect of impairing
the position or interest of the Secured Party with respect to the Pledged
Securities or Secured Party's rights and remedies under, or which would
authorize or effect any action then prohibited by, the Credit Agreement or any
other Loan Document referred to therein.
(b) Notwithstanding any provision herein to the contrary, if any Event
of Default shall have occurred, upon the giving of the written notice referred
to in subsection (a) above, then and whether or not any holder of the
Obligations exercises any available option to declare such Obligations due and
payable or seeks or pursues any other relief or remedy available to such holder
under this Agreement or any instrument or agreement evidencing or securing any
Obligations, the Secured Party, or its nominee, shall forthwith, without further
action on the part of any person, have the sole and exclusive right to exercise
all voting and other powers of ownership pertaining to the Pledged Securities
and shall exercise such powers in such manner as the Secured Party shall
determine to be necessary, appropriate or advisable. Each Pledgor hereby agrees
to execute and deliver to the Secured Party such additional powers,
authorizations, proxies, dividends and such other documents as the Secured Party
may reasonably request to secure the Secured Party the rights, powers and
authority intended to be conferred upon by this subsection (b).
Section 5. Events of Default. Each Pledgor shall be in default under
this Agreement upon the occurrence of any of one of the following events (herein
referred to as an "Event of Default"):
(a) default by such Pledgor in the due observance or
performance of any covenant or agreement contained herein, which
default, if curable, is not cured within 10 days of the earlier of
receipt by such Pledgor of notice thereof or such Pledgor's actual
knowledge thereof;
(b) breach by such Pledgor in any material respect of any
representation or warranty herein contained; or
(c) the occurrence of any "Event of Default" under (and as
defined) in the Credit Agreement.
Section 6. Remedies Upon Event of Default.
(a) If any Event of Default shall occur, the Secured Party may exercise
all the rights and remedies of a secured party under the Uniform Commercial
Code. Without limitation of the foregoing, unless the Obligations shall have
been paid in full in cash, the Secured Party may, in the Secured Party's sole
discretion, without further demand, advertisement or notice, except as
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<PAGE> 7
expressly provided for in subsection (i) below, apply the cash, if any, then
held by it as collateral hereunder, for the purposes and in the manner provided
in Section 7 hereof, and, if there shall be no such cash or the cash so applied
shall be insufficient to make payment in full of all payments provided in
Section 7 hereof,
(i) Sell the Pledged Securities, or any part thereof, in one
or more sales, at public or private sale, conducted by any officer or
agent of the Secured Party, at a place of business of the Secured Party
or elsewhere, for cash, upon credit or future delivery, and at such
price or prices as the Secured Party shall determine, and, to the
extent permitted by law, the Secured Party may be the purchaser of any
or all of the Pledged Securities so sold. Upon any such sale, the
Secured Party shall have the right to deliver, assign and transfer to
the purchaser thereof the Pledged Securities so sold. Each purchaser
(including the Secured Party) at any such sale shall hold the Pledged
Securities so sold, absolutely free from any claim or right of
whatsoever kind, including, without limitation, any equity or right of
redemption of any Pledgor which such Pledgor, to the extent it may
lawfully do so, hereby specifically waives. Unless the Pledged
Securities are of a type sold on a recognized market, the Secured Party
shall give such Pledgor at least 10 days' advance written notice of its
intention to make any such public or private sale. Secured Party and
Pledgor agree that such notice constitutes "reasonable notification"
within the meaning of Section 9-504(3) of the Uniform Commercial Code.
Such notice, in case of a public sale shall state the time and place
fixed for such sale. Such notice in the case of a private sale or
disposition, shall state the time after which any private sale or other
intended disposition is to be made. The Secured Party shall not be
obligated to make any sale pursuant to any such notice. The Secured
Party may, without notice or publication, adjourn any public or private
sale from time to time by announcement at the time and place fixed for
such sale, or any adjournment thereof, and any such sale may be made at
any time or place to which the same may be so adjourned without further
notice or publication. In case of any sale of all or any part of the
Pledged Securities for credit or for future delivery, the Pledged
Securities so sold may be retained by the Secured Party until the
selling price is paid by the purchaser thereof, but the Secured Party
shall not incur any liability in case of the failure of such purchaser
to pay for the Pledged Securities so sold, and in case of any such
failure, such Pledged Securities may again be sold under and pursuant
to the provisions hereof; or
(ii) Proceed by a suit or suits at law or in equity to
foreclose upon this Pledge Agreement and sell the Pledged Securities,
or any portion thereof, under a judgment or decree of a court or courts
of competent jurisdiction.
(b) If at any time when the Secured Party shall determine to exercise
its right to sell all or any part of the Pledged Securities pursuant to
subsection (a)(i) of this Section, and if such Pledged Securities or the part
thereof to be sold shall not, for any reason whatsoever, be effectively
registered under the Securities Act of 1933, as from time to time in effect (the
"Securities Act") or the securities laws of any state, the Secured Party, in its
sole and absolute
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<PAGE> 8
discretion, is hereby expressly authorized to sell such Pledged Securities or
such part thereof by private sale in such manner and under such circumstances as
the Secured Party may reasonably determine in order that such sale may legally
be effected without such registration. The Secured Party may sell all or any
part of the Pledged Securities at any price which is commercially reasonable
under the circumstances, in their sole and absolute discretion.
(c) The Secured Party as attorney-in-fact pursuant to Section 8 hereof
may, in the name and stead of each Pledgor, make and execute all conveyances,
assignments and transfers of the Pledged Securities sold in accordance with this
Agreement. Each Pledgor shall, if so requested by the Secured Party ratify and
confirm any sale or sales by executing and delivering to the Secured Party, or
to such purchaser or purchasers, all such instruments as may, in the judgment of
the Secured Party, be advisable for such purpose.
(d) The receipt of the Secured Party of the purchase money paid at any
such sale made by it shall be a sufficient discharge therefor to any purchaser
(other than the Secured Party) of the Pledged Securities, or any portion
thereof, sold as aforesaid; and no such purchaser (or his or its representatives
or assigns) (other than the Secured Party), after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any part thereof or in any manner whatsoever be answerable for
any loss, misapplication or nonapplication of any such purchase money, or any
part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(e) The Secured Party shall incur no liability as a result of the sale
of the Pledged Securities, or any part thereof, at any private sale pursuant to
Section 6 hereof. Each Pledgor hereby waives any claims against the Secured
Party arising by reason of the fact that the price at which the Pledged
Securities may have been sold at such private sale was less than the price that
might have been obtained at a public sale or was less than the aggregate amount
of the secured Obligations, even if the Secured Party accepts the first offer
received and does not offer the Pledged Securities to more than one offeree, so
long as the terms of the sale were commercially reasonable.
(f) In connection with the exercise by the Secured Party of any of its
rights and remedies under this Agreement, the Pledgor consents to the assignment
of any Ownership Interests (including any economic interest therein and all
voting rights and respect thereof) in any of the Companies and agrees that no
such assignment and no foreclosure thereunder or other remedies in respect
thereof in accordance herewith shall in itself effect a termination or
dissolution of any Company. Effective as of the date that the Secured Party
takes title to the Pledged Securities pledged hereunder, voluntarily or
involuntarily by way of foreclosure or agreement, in accordance with the
provisions of this Agreement, the Secured Party shall be entitled to all rights
benefits and privileges of a holder of such Ownership Interests except that the
Secured Party shall be obligated to make any capital contributions not expressly
assumed by them in writing.
Section 7. Application of Proceeds. The proceeds of any sale, or of
collection, of all or any part of the Pledged Securities shall be applied by the
Secured Party, without any marshaling of assets, in the following order:
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<PAGE> 9
(a) first, to the payment of all of the costs and expenses of
such sale, including, without limitation, reasonable legal fees, and
all other expenses, liabilities and advances made or incurred by the
Secured Party in connection therewith (including, without limitation,
costs and expenses incurred in connection with any bankruptcy,
reorganization or insolvency proceeding);
(b) second, to the payment of the Obligations in such order as
the Lender in its sole discretion shall determine, until payment in
full thereof; and
(c) finally, ratably in accordance with their relative sharing
ratios, to each Pledgor, its, his or her successors, assigns, legal
representatives or heirs, or to whomsoever may be lawfully entitled to
receive the same.
Section 8. The Secured Party Appointed Attorney-in-Fact. Each Pledgor
hereby appoints the Secured Party as the Pledgor's lawful attorney, with full
power of substitution, in the name of such Pledgor, for the sole use and benefit
of the Secured Party, but at such Pledgor's expense, to take any action and
execute any instruments which the Secured Party may deem necessary or advisable
to accomplish the purposes hereof. Such appointment as attorney is irrevocable
and coupled with an interest.
Section 9. Record Ownership of Pledged Securities. Upon the occurrence
of an Event of Default and subject to the requirements of mandatory law, the
Secured Party may cause, upon receipt of written notification to any Pledgor,
any or all of the Pledged Securities to be transferred of record into the
Secured Party's name. Each Pledgor shall, upon request, promptly give to the
Secured Party copies of any notices or other communications received by such
Pledgor with respect to the Pledged Securities registered in the such Pledgor's
name.
Section 10. Perfection. Prior to or concurrently with the execution and
delivery of this Agreement, each Pledgor shall (i) deliver the certificates
representing the Pledged Securities hereunder if any, to the Secured Party or
register the same for purposes of Article 8 of the Uniform Commercial Code; and
(ii) execute such financing statements and other documents in such offices as
the Secured Party may reasonably request to perfect the security interest
granted by such Pledgor pursuant to Section 1 of this Agreement and will permit
the same to be filed by the Secured Party.
Section 11. No Waiver. No failure on the part of the Secured Party to
exercise, and no delay on the part of the Secured Party in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise by the Secured Party of any right, power or
remedy hereunder preclude any other or further right, power or remedy.
Section 12. Survival of Obligations; Termination of Pledge. This Pledge
Agreement and the warranties, representations, agreements and covenants
contained herein and in any certificates or instruments delivered pursuant
hereto shall survive the making of the Loans and the execution and delivery of
the Notes, regardless of any investigation made by the Secured Party or any
person on behalf of the Secured Party, and shall continue for so long as any of
the
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<PAGE> 10
Obligations shall remain outstanding or the Secured Party shall have any
obligation to advance funds to any Pledgor. Upon the repayment and performance
in full indefeasibly in cash of all the Obligations and the expiration or
termination of any obligations of the Secured Party to advance funds to the
Pledgors, the Secured Party shall forthwith assign, transfer and deliver to each
Pledgor or its assignees, without representation, warranty or recourse, against
appropriate receipts, all the Pledged Securities, if any, then held by it in
pledge hereunder and all duly executed instruments of transfer or assignments in
blank relating thereto and any other property held by the Secured Party pursuant
to this Agreement free and clear of the Encumbrance of this Agreement and the
other Loan Documents, except that such Encumbrance shall survive with respect to
any payment made or received by the Secured Party in respect of the Obligations
that is subsequently voided as a fraudulent conveyance, preference or otherwise.
Section 13. Consent to Jurisdiction. Each Pledgor hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the Commonwealth of Massachusetts, the courts of the United
States of America for the District of Massachusetts, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such Pledgor at its address as set forth in the Credit
Agreement or at such other address of which the Secured Party shall
have been notified pursuant to the terms of this Agreement;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
Section 14. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE SECURED
PARTY HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION
BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT OR ANY OTHER AGREEMENTS EXECUTED IN
CONNECTION HEREWITH.
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<PAGE> 11
Section 15. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the legal representatives, heirs, successors
and assigns of each Pledgor and the Secured Party, and any subsequent holder of
any of the Obligations.
Section 16. Additional Instruments and Assurance. Each Pledgor hereby
agrees, at such Pledgor's own expense: (i) to execute and deliver, from time to
time, any and all further, or other, instruments and to perform such acts, as
shall be reasonably required to effect the purposes of this Agreement to secure
to the Secured Party, and to all persons who may from time to time be the holder
of any of the Obligations, the benefits of all right, authorities and remedies
conferred upon the Secured Party by the terms of this Agreement, and (ii) to
otherwise cooperate fully with the Secured Party in taking any action which they
may reasonably request in order to cause the Secured Party to obtain and enjoy
their full rights and benefits under the Loan Documents, including without
limitation, using its best efforts to assist the Security Party in obtaining the
approval or any state municipality or other governmental authority for any
action or transaction contemplated by any of the Loan Documents which is then
required under applicable law.
Section 17. Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telecopied
communication) and mailed or telecopied or delivered to the applicable party at
the addresses indicated below.
If to the Secured Party, to its address or telecopy number set forth in
the Credit Agreement,
with a copy (which shall not constitute notice) to:
Susan E. Siebert, Esq.
Edwards & Angell, LLP
101 Federal Street
23rd Floor
Boston, Massachusetts 02110
Telecopy No: (6l7) 439-4170
If to any Pledgor to the Borrowers' address or telecopy number as set
forth in the Credit Agreement,
with a copy (which shall not constitute notice) to:
John M. Williams III, Esq.
Gibson, Dunn & Crutcher, LLP
4 Park Plaza
Irvine, California 92614
Telecopy No.: (949) 451-4220
or, as to each party, at such other address as shall be designated by such
parties in a written notice to the other parties complying as to delivery with
the terms of this Section. All such
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<PAGE> 12
notices, requests, demands and other communication shall be deemed given upon
receipt by the party to whom such notice is directed.
Section 18. Severability. In case any one or more of the provisions of
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had not been
included. The rights, powers and remedies provided herein in favor of the
Secured Party shall not be deemed exclusive, but shall be cumulative, and shall
be in addition to all other rights and remedies in favor of the Secured Party
existing at law or in equity, including (without limitation) all of the rights,
powers and remedies available to a secured party under any law or regulation.
Section 19. Savings Clause. Anything in this Agreement to the contrary
notwithstanding, this Pledge Agreement shall not constitute an agreement to
pledge or assign, if an attempted pledge or assignment, without the consent of a
third party thereto, would constitute a breach of any Organizational Agreement
relating thereto or in any way effect the respective rights of the Pledgor or
the Secured Party thereunder, unless such consent is obtained. If such consent
is not obtained, or if an attempted pledge or assignment thereof would be
ineffective or would effect the rights thereunder so that the Secured Party
would not receive all such rights, each of the Pledgors will cooperate with the
Secured Party to provide to the Secured Party the benefits of such Ownership
Interests and Pledged Securities and claims or rights and benefits arising
thereunder or resulting therefrom.
Section 20. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED EXECUTED AS A
SEALED INSTRUMENT AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AS A CONTRACT TO BE EXECUTED AND
PERFORMED WITHIN THE COMMONWEALTH OF MASSACHUSETTS.
Section 21. Miscellaneous. The headings of the Sections of this
Agreement have been inserted for convenience of reference only and shall in no
way affect the construction or interpretation of this Agreement. In the event
this Agreement shall be enforced by suit or otherwise, each Pledgor will
reimburse the Secured Party and the holder or holders of the Obligations, upon
demand, for all reasonable expenses incurred in connection therewith, including
without limitation, reasonable attorneys' fees (including, without limitation,
all such costs, charges and expenses incurred by the Secured Party in connection
with any Reorganization). This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same Agreement.
Section 22. Permitted Transfers to Secured Party. Notwithstanding the
provisions of any Organizational Document or any other agreement to the
contrary:
(a) The Pledgors hereby (i) consent to the collateral assignment and
pledge of the Ownership Interests of Pledgors (and all economic interests
therein) pursuant to this Agreement; (ii) in connection with the exercise by the
Secured Party of any of its rights and remedies under this Agreement, consent to
the assignment of any of such Ownership Interests (including any
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<PAGE> 13
economic interests therein) to any other Person (and to the substitution of such
other Person as a substitute partner, member, manager and/or shareholder, as the
case may be, holding the Ownership Interest(s) so assigned), and (iii) agree
that no such assignment (or substitution) and no foreclosure thereunder or other
remedies in respect thereof shall effect a termination or dissolution of any
Company.
(b) Without limiting the generality of the foregoing, each Pledgor
hereby agrees that upon the occurrence of any Event of Default hereunder, to the
extent not permitted by applicable law:
(i) with respect to each Ownership Interest (and economic
interest therein) assigned by any Pledgor, the Secured Party, at its
election, shall thereupon be admitted (or shall have the right to have
one or more designees of its choice admitted) as a substitute
stockholder, member, limited partner or otherwise, as the case may be
(in each such case (whether the Secured Party or its designee) being
hereinafter referred to as the "New Equity Owner") with no further
action by any Pledgor or any other Person being necessary, and the
Pledgors hereby consent to such admission and agrees to execute and
deliver such instruments, if any, as shall be necessary to effect or
further evidence the foregoing;
(ii) with respect to the Secured Party and any other New
Equity Owner, the Pledgors waive the right to enforce the voting
restrictions set forth in any Organizational Documents and consents to
the Secured Party and any New Equity Owner not being bound by such
voting restrictions;
(iii) in connection with the admission of any New Equity
Owner, no capital contribution by such New Equity Owner shall be
required;
(iv) as provided herein, no New Equity Owner shall have any
liability with respect to the obligations of any Pledgor under the
Credit Agreement or other Loan Documents; and
(v) on and after the admission of any New Equity Owner, such
New Equity Owner shall have all powers, statutory and otherwise,
possessed at law and shall have the authority to manage the business
and affairs of such Company. Except as otherwise provided herein or in
any applicable laws, the Pledgors thereafter shall have no further
powers or privileges with respect to the management of such Company.
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<PAGE> 14
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the parties hereto by their duly authorized representatives all as
of the day and year first above written.
SECURED PARTY:
--------------
BANKBOSTON, N.A.
By: /s/
--------------------------------
PLEDGORS:
DIEDRICH COFFEE, INC.
By: /s/ Ann Wride
--------------------------------
COFFEE PEOPLE, INC.
By: /s/ Ann Wride
--------------------------------
COFFEE PEOPLE WORLDWIDE, INC.
By: /s/ Ann Wride
--------------------------------
GLORIA JEAN'S, INC.
By: /s/ Ann Wride
--------------------------------
EDGLO ENTERPRISES, INC.
By: /s/ Ann Wride
--------------------------------
GLORIA JEAN'S GOURMET COFFEES CORP.
By: /s/ Ann Wride
--------------------------------
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By: /s/ Ann Wride
--------------------------------
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<PAGE> 15
STATE OF California
-----------------------
COUNTY OF Orange
-----------------------
The foregoing Pledge Agreement was executed and acknowledged before me this 30th
day of June, 1999 by Ann Wride, personally known to me to be the an executive
officer of each of the foregoing Pledgors on behalf of such Pledgors.
/s/
---------------------------------
Notary Public
My Commission Expires:
-----------
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<PAGE> 16
EXHIBIT A
PLEDGED SECURITIES
<TABLE>
<CAPTION>
===========================================================================================================================
OWNERSHIP INTEREST
(percentage; no. and
NAME AND ADDRESS type of interests, CERTIFICATE
OF PLEDGOR ISSUER shares) NOS. (if any)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diedrich Coffee, Inc. 100%
2144 Michelson Drive Coffee People 1,000 shares of
Irvine, California 92612 Worldwide, Inc. Common Stock 1
- ---------------------------------------------------------------------------------------------------------------------------
Coffee People Worldwide, Inc. 100%
2144 Michelson Drive CP Acquisition Corp. n/k/a 1,000 shares of
Irvine, California 92612 Coffee People, Inc. Common Stock 2
- ---------------------------------------------------------------------------------------------------------------------------
Coffee People, Inc. 100%
2144 Michelson Drive 261 shares of
Irvine, California 92612 Gloria Jean's, Inc. Common Stock 4
- ---------------------------------------------------------------------------------------------------------------------------
Gloria Jean's, Inc. 100%
2144 Michelson Drive 1,000 shares of
Irvine, California 92612 Edglo Enterprises, Inc. Common Stock 6
- ---------------------------------------------------------------------------------------------------------------------------
Edglo Enterprises, Inc. 100%
2144 Michelson Drive Gloria Jean's Gourmet 1,000 shares of Common
Irvine, California 92612 Coffee Corp. Common Stock 9
- ---------------------------------------------------------------------------------------------------------------------------
Edglo Enterprises, Inc. 100%
2144 Michelson Drive Gloria Jean's Gourmet Coffees 50,000 shares of
Irvine, California 92612 Franchising Corp. Common Stock 2
===========================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.28
TRADEMARK SECURITY AGREEMENT
This Agreement dated as of July 7, 1999 among DIEDRICH COFFEE, INC.,
COFFEE PEOPLE, INC., COFFEE PEOPLE WORLDWIDE, INC., GLORIA JEAN'S, INC., EDGLO
ENTERPRISES, INC., GLORIA JEAN'S GOURMET COFFEES CORP., GLORIA JEAN'S GOURMET
COFFEES FRANCHISING CORP., and all future Subsidiaries who hereafter become
parties hereto (collectively, the "Borrowers" and each individually, a
"Borrower") and BANKBOSTON, N.A., located at 100 Federal Street, Boston,
Massachusetts 02110, (together with its successors and assigns, the "Secured
Party") under, and as defined in, the Credit Agreement dated on or about the
date hereof as from time to time in effect (the "Credit Agreement"), between the
Borrower and the Secured Party. Terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so defined.
1. Grant of Security Interest. Each of the Borrowers hereby grants to
the Secured Party and its successors and assigns a security interest in the
items referred to below, whether now owned or hereafter acquired, and all
proceeds thereof (collectively, the "Collateral") to secure the Obligations:
1.1. All of the right, title and interest of such Borrower in
and to all existing and hereafter arising service marks and trademarks
(collectively, the "Marks"), all existing and hereafter arising registrations
for the Marks (collectively, the "Registrations") and all existing and hereafter
arising service mark and trademark applications for the Marks (collectively, the
"Applications"). Such Registrations and Applications shall include without
limitation all registrations and applications of the Borrowers described in
Exhibit A hereto.
1.2. The goodwill of the business of all Borrowers symbolized
by each of the Marks.
1.3. All right, title and interest of such Borrower in and to
any cause of action that has heretofore arisen or that may arise with respect to
unconsented use or infringement of the Marks, the Registrations or the
Applications.
2. Further Assurances. Each of the Borrowers shall execute, or use its
reasonable efforts at its reasonable expense to cause to be executed, such
further documents as may be reasonably requested by the Secured Party in order
to effectuate fully the grant of security interest set forth in Section 1
hereof.
3. Agreement to Assign Collateral. Each of the Borrowers shall execute
and deliver to the Secured Party on the date of this Agreement a written
Assignment of Trademarks to the Secured Party in substantially the form attached
hereto as Exhibit B (the "Assignment"). The Secured Party shall hold the
Assignment in escrow, and the Assignment shall have no legal effect and shall
not be binding on the Borrowers, until the occurrence and continuance of an
Event of Default, at which time the Secured Party may file the Assignment with
the U.S. Patent and
<PAGE> 2
Trademark Office and, upon such filing, the Assignment shall take effect as a
legal document binding upon the Borrowers.
4. Foreclosure. Upon the occurrence and during the continuance of an
Event of Default, in addition to all other rights and remedies granted by this
Agreement and the Assignment, the Secured Party may exercise the rights and
remedies of a secured party enacted in any of the jurisdictions in which the
Collateral may be located. Without limiting the generality of the foregoing,
upon the occurrence and during the continuance of an Event of Default, without
demand or notice (except as set forth next below), all of which are waived, and
without advertisement, the Secured Party may sell at public or private sale or
otherwise realize upon, in the Commonwealth of Massachusetts or elsewhere, all
or from time to time any of the Collateral, or any interest which any of the
Borrowers may have therein. Notice of any sale or other disposition of the
Collateral shall be given to the Borrowers at least 10 days before the time of
any intended public or private sale or other disposition of the Collateral is to
be made, which the Borrowers agree shall be reasonable notice of such sale or
other disposition. At any such sale or other disposition, any holder of any
Obligation or any Secured Party may, to the extent permissible under applicable
law, purchase the whole or any part of the Collateral (including associated
goodwill) free from any right or redemption on the part of the Borrowers, which
right is waived and released. After deducting from the proceeds of sale or other
disposition of the Collateral and associated goodwill all expenses (including
reasonable expenses for brokers' fees and legal services), the balance of such
proceeds shall be applied toward the payment of the Obligations. Any remainder
of the proceeds after payment in full of the Obligations shall be paid over to
the Borrowers.
5. Defeasance. Upon payment in full of the Obligations and termination
of the commitments therefor, the Secured Party shall, at the Borrowers' expense,
release the security interest in the Collateral granted under this Agreement and
execute and deliver such instruments and other documents and take such further
actions as may be necessary to carry out such release, including cancellation of
this Agreement by written notice to the U.S. Patent and Trademark Office and
delivery back to the Borrowers of the Assignment upon request of the Borrowers.
6. Covenants. Each of the Borrowers covenants and agrees as follows:
6.1. Such Borrower shall not abandon any Marks, Registrations
or Applications included in the Collateral except such Marks, Registrations or
Applications, the abandonment of which could not reasonably be expected to have
a material adverse effect on the business, financial conditions or operations of
the Borrowers.
6.2. Such Borrower shall maintain all rights held by such
Borrower relating to the Marks, Registrations and Applications except such
Marks, Registrations or Applications which the failure to maintain could not
reasonably be expected to have a material adverse effect on the business,
financial conditions or operations of the Borrowers.
6.3. Until all of the Obligations shall have been paid
indefeasibly in full in cash and all commitments therefor and the Credit
Agreement have been terminated, such Borrower shall not enter into any agreement
(including without limitation a license agreement) which
-2-
<PAGE> 3
conflicts with such Borrower's obligations under this Agreement other than
agreements that could not reasonably be expected to affect the value of any of
the Collateral in any material respect, without the Secured Party's prior
written consent (which consent will not be unreasonably withheld or delayed).
6.4. If such Borrower shall obtain any rights to any
registrable service marks or trademarks after the date hereof, the provisions of
Section 1 shall automatically apply thereto and such Borrower shall within 30
days after obtaining such rights give to the Secured Party written notice
thereof, execute an amendment to Exhibit A including such after-acquired
Registrations and Applications, and take any other action reasonably necessary
to record the Secured Party's interest in such Marks, Registrations and
Applications with the U.S. Patent and Trademark Office and other applicable
filing offices.
6.5 Such Borrower has used, and will continue to use, proper
statutory notice in connection with its use of the Collateral to the extent
commercially practicable and customary within the relevant industry.
7. Representations and Warranties of Title. Each of the Borrowers
represents and warrants to the Secured Party (which representations and
warranties are made as of the date hereof and shall survive the delivery of this
Agreement) as follows:
7.1. Exhibit A sets forth as of the date hereof all Marks,
Registrations and Applications owned by such Borrower or in which such Borrower
has any interest.
7.2. As of the date hereof, all of the Collateral set forth on
Exhibit A is subsisting and has not been adjudged invalid or unenforceable.
7.3. As of the date hereof, no claim has been made that the
use of any of the Collateral violates the rights of any third person and no
Borrower is aware of any basis for any such claim to be asserted.
7.4. Such Borrower is the sole and exclusive owner of the
entire right, title and interest in and to the Collateral, free and clear of any
Encumbrances, including without limitation, pledges, assignments, licenses,
registered user agreements and covenants by the Borrower not to sue third
persons (other than Permitted Encumbrances and licenses in favor of other
Borrowers and the Secured Party).
7.5. Such Borrower has the full power and authority to enter
into this Agreement and perform its terms.
8. General.
8.1. No course of dealing among the Borrowers and the Secured
Party, nor any failure to exercise, nor any delay in exercising on the part of
the Secured Party, any right, power or privilege hereunder or under the Credit
Agreement shall operate as a waiver thereof; nor shall
-3-
<PAGE> 4
any single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
right, power or privilege.
8.2. All of the Secured Party's rights and remedies with
respect to the Collateral, whether established hereby or by the Credit
Agreement, or by any other agreement or by law shall be cumulative and may be
exercised singularly or concurrently.
8.3. If any clause or provision of this Agreement shall be
held invalid and unenforceable in whole or in part in any jurisdiction, then
such invalidity or unenforceability shall affect only such clause or provision,
or part thereof, in such jurisdiction, and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or provision
of this Agreement in any jurisdiction.
8.4. This Agreement is subject to modification only by a
writing signed by the parties, except as otherwise provided in Section 6.4
hereof.
8.5. The benefits and obligations of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties.
8.6. The validity and interpretation of this Agreement and the
rights and obligations of the parties shall be governed by the laws (other than
the conflict of laws rules) of the Commonwealth of Massachusetts.
8.7. This Agreement is a Loan Document (as defined in the
Credit Agreement) and may be executed in any number of counterparts, which
together shall constitute one instrument.
8.8. (a) THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER SEAL AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING REFERENCE TO ANY CONFLICTS OF
LAW PROVISIONS THEREIN) EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF
A SECURITY INTEREST GRANTED HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE REQUIRED TO BE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS.
(b) EACH OF THE BORROWERS AND THE SECURED PARTY AGREES THAT NEITHER IT
NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, ANY COLLATERAL OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN SUCH BORROWER AND THE SECURED PARTY OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE
-4-
<PAGE> 5
PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER
THE SECURED PARTY NOR ANY BORROWER HAS AGREED WITH OR REPRESENTED TO ANY OTHER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
(c) EACH BORROWER HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE COMMONWEALTH OF MASSACHUSETTS AND THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM
WHICH AN APPEAL MAY BE TAKEN OR OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS,
FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF
SUCH BORROWER'S OBLIGATIONS UNDER OR WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, AND EXPRESSLY
WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS.
-5-
<PAGE> 6
Each of the undersigned has caused this Agreement to be signed by its
duly authorized officer as of the date first written above.
BORROWERS:
DIEDRICH COFFEE, INC.
By: /s/ Ann Wride
--------------------------------
COFFEE PEOPLE, INC.
By: /s/ Ann Wride
--------------------------------
COFFEE PEOPLE WORLDWIDE, INC.
By: /s/ Ann Wride
--------------------------------
GLORIA JEAN'S, INC.
By: /s/ Ann Wride
--------------------------------
EDGLO ENTERPRISES, INC.
By: /s/ Ann Wride
--------------------------------
GLORIA JEAN'S GOURMET COFFEES CORP.
By: /s/ Ann Wride
--------------------------------
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<PAGE> 7
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By: /s/ Ann Wride
--------------------------------
SECURED PARTY:
BANKBOSTON, N.A.
By: /s/
--------------------------------
-7-
<PAGE> 8
EXHIBIT A
---------
TO
TRADEMARK SECURITY AGREEMENT
DATED AS OF JULY 7, 1999
<PAGE> 9
EXHIBIT A
---------
TO TRADEMARK SECURITY AGREEMENT
-------------------------------
DIEDRICH TRADEMARKS:
1. BANTU, 75-679078, PENDING- INITIALIZED
2. JAVA TO THE PEOPLE, 75-679080, PENDING- INITIALIZED
3. PAPUA NEW GUINEA, 75-679093, PENDING- INITIALIZED
4. MORNING EDITION BLEND, 75-679096, PENDING- INITIALIZED
5. NEPENTHE BLEND, 75-679097, PENDING- INITIALIZED
6. DIEDRICH COFFEE, 75-679620, PENDING- INITIALIZED
7. CUPID'S CUP, 75-679673, PENDING- INITIALIZED
8. EL DORADO, 75-651603, PENDING- INITIALIZED
9. DIEDRICH COFFEE EXPRESS, 75-358949, PENDING
10. WHERE FRIENDS GATHER, 2,248,287, REGISTERED
11. SCOOP-A-CCINO, 2,230,175, REGISTERED
12. HARVEST PEAK, 2,192,477, REGISTERED
13. WIENER MELANGE BLEND, 1,894,232, REGISTERED
14. FLOR DE APANAS, 1,840,738, REGISTERED
15. DIEDRICH COFFEE, 1,925,384, REGISTERED
COFFEE PEOPLE TRADEMARKS:
1. VELVET NIGHT, (WORDS ONLY), 75-325921, PUBLISHED
2. CHANGE THE WORLD ONE CUP AT A TIME, (WORDS ONLY), 2,121,622, REGISTERED
3. COFFEE PEOPLE AERO MOKA, (WORDS AND DESIGN), 2,105,089, REGISTERED
<PAGE> 10
4. COFFEEGRAM, (WORDS ONLY), 2,052,685, REGISTERED
5. NONE, (DESIGN ONLY), 1,938,159, REGISTERED
6. NONE, (DESIGN ONLY), 1,938,160, REGISTERED
7. COFFEE PEOPLE AERO MOKA, (WORDS AND DESIGN), 2,046,259, REGISTERED
8. JAVA NOIR, (WORDS ONLY), 1,843,093, REGISTERED
9. BLACK TIGER, (WORDS AND DESIGN), 1,809,442, REGISTERED
10. M, (LETTER AND DESIGN), 1,808,232, REGISTERED
11. M, (LETTER AND DESIGN), 1,813,936, REGISTERED
12. COFFEE PEOPLE, (WORDS ONLY), 1,883,745, REGISTERED
13. MOTORIST'S ESPRESSO BAR, (WORDS ONLY), 1,820,886, REGISTERED
14. COFFEE PEOPLE, (WORDS ONLY), 1,793,115, REGISTERED
15. BEST COFFEE IN PORTLAND, (WORDS ONLY), 1,820,880, REGISTERED
16. MOTOR MOKA, (WORDS ONLY), 1,796,594, REGISTERED
17. GOOD COFFEE-NO BACK TALK, (WORDS ONLY), 1,796,472, REGISTERED
18. COFFEE PLANTATION, (WORDS AND DESIGN), 1,782,839, REGISTERED
19. BLACK TIGER, (WORDS ONLY), 1,640,694, REGISTERED
20. SLAMMER, (WORDS ONLY), OR T27085, RENEWED
21. MOTOR MOKA, (WORDS ONLY), OR S27086, RENEWED
22. SLAMMAHAMMA, (WORDS ONLY), OR T27088, RENEWED
23. COFFEE PEOPLE "GOOD COFFEE NO BACKTALK", (WORDS AND DESIGN), OR
TS30794, REGISTERED
24. COFFEE PEOPLE, (WORDS AND DESIGN), OR TS30795, REGISTERED
25. VELVET NIGHT, (WORDS ONLY), OR T31700, REGISTERED
GLORIA JEAN'S GOURMET COFFEES CORP. TRADEMARKS:
- -----------------------------------------------
2
<PAGE> 11
1. GLORIA JEAN'S COFFEES, (WORD AND DESIGN), 75-521458,
PENDING - INITIALIZED
2. CARAMELATTE, (WORDS ONLY), 75-386172, PENDING
3. MOCHA TRUFFLE, (WORDS ONLY), 75-386171, PENDING
4. GLORIA JEAN'S COFFEES, (WORDS AND DESIGN), 2,208,443, REGISTERED
5. NONE, (DESIGN ONLY), 1,896,366, REGISTERED
6. GLORIA JEAN'S GOURMET COFFEES, (WORDS AND DESIGN), 1,912,998,
REGISTERED
7. GLORIA JEAN'S GOURMET COFFEES, (WORDS AND DESIGN), 1,962,645,
REGISTERED
8. GREAT BEANS, GREAT COFFEE!, (WORDS ONLY), 1,825,337, REGISTERED
9. CAROLYN JEAN'S, (WORDS ONLY), 1,931,885, REGISTERED
10. AMERICA'S LARGEST PURVEYOR OF FINE COFFEES, (WORDS ONLY), 1,838,153,
REGISTERED
11. GLORIA JEAN'S, (WORDS ONLY), 1,703,976, REGISTERED
12. IF YOU DON'T KNOW GLORIA JEAN'S, YOU DON'T KNOW BEANS, (WORDS ONLY),
1,675,466, REGISTERED
13. NONE, (DESIGN ONLY), 1,659,049, REGISTERED
14. EIGHT DAYS A WEEK, (WORDS ONLY), 1,616,940, REGISTERED
15. GLORIA JEAN'S COFFEE BEAN, (WORDS AND DESIGN), 1,578,273, REGISTERED
16. GLORIA JEAN'S, (WORDS AND DESIGN), 1,576,977, REGISTERED
17. GLORIA JEAN'S COFFEE BEAN, (WORDS AND DESIGN), 1,577,970, REGISTERED
18. GLORIA JEAN'S, (WORDS AND DESIGN), 1,577,971, REGISTERED
19. GLORIA JEAN'S COFFEE BEAN, (WORDS ONLY), 1,366,020, REGISTERED
20. GLORIA JEAN'S, (WORDS ONLY), 1,362,248, REGISTERED
21. GLORIA JEAN'S COFFEE BEAN, (WORDS ONLY), IL 55521, RENEWED
3
<PAGE> 12
22. GLORIA JEAN'S COFFEE BEAN, (WORDS ONLY), IL 55522, RENEWED
23. GLORIA JEAN'S COFFEE BEAN, (WORDS ONLY), WI 477624, REGISTERED
EXCEPTIONS:
1. Coffee People, Inc. and its subsidiaries have been utilizing The Second
Cup Ltd.'s "Paradiso" mark, Canadian registration number TMA 492735,
dated April 9, 1998, without written licenses or other written
agreements from Second Cup Ltd.
2. Gloria Jean's Gourmet Coffees Corp. currently utilizes the "Motor Moka"
trademark without a written license or other written agreement from
Coffee People, Inc.
3. Gloria Jean's Gourmet Coffees Corp. is registering its new logo with
the U.S. Patent and Trademark Office. Application number 75/521458,
filed on July 20, 1998.
4. Coffee People, Inc. is aware of a possible infringement of its
unregistered trademarks -Mindsweeper(TM) and Velvet Hammer(TM) - by a
coffee retailer in Boise, Idaho, and of the trademark Velvet Hammer(TM)
by a company in Minnesota. No action has been taken to stop these
companies from using these names.
5. Coffee People, Inc. owns and is the licensor of certain trademarks to
Cascade Glacier Ice Cream, Inc., which pays certain graduated royalties
to Coffee People, Inc. for the sale of products bearing the trademarks.
6. Gloria Jean's trademarks numbers 8 and 10 through 20 above are possibly
subject to liens that were originally granted in connection with
indebtedness that has been repaid. These liens, if any, will be
released promptly following closing.
7. A break in the chain of title exists between Coffee People, Inc. and
Coffee Plantation for Coffee People trademark number 18 above.
4
<PAGE> 13
ASSIGNMENT OF TRADEMARKS
This Assignment of Trademarks (the "Assignment") dated as of July 7,
1999 among DIEDRICH COFFEE, INC., COFFEE PEOPLE, INC., COFFEE PEOPLE WORLDWIDE,
INC., GLORIA JEAN'S, INC., EDGLO ENTERPRISES, INC., GLORIA JEAN'S GOURMET
COFFEES CORP., GLORIA JEAN'S GOURMET COFFEES FRANCHISING CORP., and all future
Subsidiaries who hereafter become parties hereto (collectively, the "Borrowers"
each individually, a "Borrower") and BANKBOSTON, N.A., located at 100 Federal
Street, Boston, Massachusetts 02110, (together with its successors and assigns,
the "Secured Party") under, and as defined in, the Credit Agreement dated on or
about the date hereof as from time to time in effect (the "Credit Agreement"),
between the Borrower and the Secured Party. Terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the meanings so
defined. This Assignment is made pursuant to that certain Trademark Security
Agreement dated as of this date (the "Security Agreement") between the Borrowers
and the Secured Party.
BACKGROUND
Section 3 of the Security Agreement provides that the Borrowers shall
execute this Assignment of the items listed in Exhibit A thereto (collectively,
the "Collateral"), as amended from time to time (and attached hereto as Exhibit
1A), and that the Secured Party may file this Assignment upon the occurrence and
during the continuance of an Event of Default.
ASSIGNMENT
1. Assignment. Subject to the occurrence and continuance of an Event of
Default, each of the Borrowers hereby assigns to the Secured Party and
its successor and assigns, the items referred to below (collectively,
the "Assigned Material"):
(a) All of the right, title and interest of the Borrowers in and
to all service marks and trademarks (collectively, the
"Marks"), the registrations relating to the Marks
(collectively, the "Registrations") and all service marks and
trademark applications relating to the Marks (collectively,
the "Registrations"), now owned or hereafter acquired by the
Borrowers. Such Marks, Registrations and Applications shall
include without limitation all existing United States and
foreign registrations and applications of the Borrowers
described in Exhibit 1A.
(b) The goodwill of the business of the Borrowers symbolized by
each of the Marks.
(c) All right, title and interest of the Borrowers in and to any
cause of action that has heretofore arisen or that may arise
with respect to unconsented use or infringement of the Marks,
the Registrations or the Applications.
2. Further Assurances. Each of the Borrowers shall execute, or use its
reasonable efforts at its reasonable expense to have carefully
executed, any further documents as may be reasonably requested by the
Secured Party in order to fully effectuate this Assignment.
3. General. The provisions of this Assignment shall be read cumulatively
with the provisions of Sections 4, 5, 6, 7 and 8 of the Security
Agreement. Upon filing with the U.S. Patent and Trademark Office (or
any other applicable foreign filing office with respect to
Registrations which are not United States Registrations), and not
before, this Assignment amends the Security Agreement by deleting
Sections 1, 2 and 3 of the Security Agreement with respect to Assigned
Material relating to such filing office, which Sections 1, 2 and 3
shall be of no further force or effect in respect of such Assigned
Material. This Assignment is a Loan Document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 14
Each of the undersigned has caused this Assignment to be signed by its
duly authorized officer as of the day and year first written above.
BORROWERS:
DIEDRICH COFFEE, INC.
By:
--------------------------------
Title:
COFFEE PEOPLE, INC.
By:
--------------------------------
Title:
COFFEE PEOPLE WORLDWIDE, INC.
By:
--------------------------------
Title:
GLORIA JEAN'S, INC.
By:
--------------------------------
Title:
EDGLO ENTERPRISES, INC.
By:
--------------------------------
Title:
GLORIA JEAN'S GOURMET COFFEES CORP.
By:
--------------------------------
Title:
-3-
<PAGE> 15
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By:
--------------------------------
Title:
SECURED PARTY:
BANKBOSTON, N.A.
By:
--------------------------------
Title:
-4-
<PAGE> 16
State of
-------------------------
County of
-------------------------
Then personally appeared the above named ____________________________ ,
and acknowledged that he/she executed the foregoing Assignment as his/her free
act and deed before me on behalf of each of the foregoing Borrowers, as duly
authorized agent thereof.
-----------------------------------
Notary Public
My commission expires:
-5-
<PAGE> 1
EXHIBIT 10.29
TERM NOTE
$12,000,000 Dated as of July 7, 1999
FOR VALUE RECEIVED, DIEDRICH COFFEE, INC. and all of its direct and
indirect Subsidiaries (collectively, the "Borrowers"), hereby jointly and
severally promise to pay to the order of BANKBOSTON, N.A. (hereinafter, together
with its successors and assigns, called the "Lender"), at the office of the
Lender pursuant to the Credit Agreement (as amended or extended from time to
time, the "Credit Agreement"), dated as of June 30, 1999, among the Borrowers
and the Lender, the principal sum of $12,000,000, together with interest on the
principal balance thereof from time to time outstanding from the date hereof
until payment in full, without set-off, deduction or counterclaim, on the dates
and in such amounts as specified in the Credit Agreement, and at the final
maturity of this Note, whether by payment or prepayment, acceleration or
otherwise. Interest accruing on the unpaid balance hereof from time to time
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.
Overdue principal (whether at maturity, by reason of acceleration or
otherwise) and, to the extent permitted by applicable law, overdue interest and
fees or any other amounts payable under the Credit Agreement due to the
Borrowers' failure to pay the same in full shall bear interest from and
including the due date thereof until paid, at a rate or rates per annum
determined in accordance with the Credit Agreement, which interest shall be
compounded daily and payable on demand.
All payments under this Note shall be made to the Lender, at the head
office of the Lender, at 100 Federal Street, Boston, Massachusetts 02110 (or at
such other place as the Lender may designate from time to time in writing) in
lawful money of the United States of America in immediately available funds.
The outstanding principal amount of this Note and accrued and unpaid
interest thereon shall be due and payable as provided in the Credit Agreement.
The Borrowers have the right in certain circumstances and the obligation in
certain other circumstances to prepay this Note in whole or in part on the terms
and conditions provided in the Credit Agreement.
This Note is the "Term Note" referred to in the Credit Agreement and
evidences a Term Loan thereunder. This Note is entitled to the benefits of the
Credit Agreement (including the Schedules thereto) and all other instruments
evidencing and/or securing the indebtedness hereunder; but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrowers to pay the
principal of and interest on this Note as herein provided. The occurrence or
existence of an "Event of Default" as defined in the Credit Agreement shall
constitute a default under this Note and the entire indebtedness hereunder may
become or be declared due and payable as may be provided for in the Credit
Agreement.
All agreements involving the Borrowers and the Lender are hereby
expressly limited so that in no contingency or event whatsoever shall the amount
paid or agreed to be paid to the Lender for the use or forbearance of the
indebtedness evidenced hereby exceed the maximum amount which the Lender is
permitted to receive under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof or of the Credit Agreement, at
the time performance of such provision shall be due, shall involve exceeding
such amount, then the obligation to be fulfilled shall automatically be reduced
to the limit of such validity, and if from any circumstance the Lender should
ever receive as interest an amount which would exceed such maximum amount, such
amount which would be excessive interest shall be applied to the reduction of
the principal balance evidenced hereby and not to the payment of interest. As
used herein, the term "applicable law" shall mean the law in effect as of the
date hereof; provided, however, that in the event there is a change in
<PAGE> 2
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. This provision shall
control every provision of all agreements involving the Borrowers and the
Lender.
Each of the Borrowers and every endorser and guarantor of this Note or
the obligation represented hereby waives presentment, demand, notice, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, assent
to any extension or postponement of the time of payment or any other indulgence,
to any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondarily liable.
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed in
its corporate name under seal by its duly authorized officer as of the day and
year first above written.
DIEDRICH COFFEE, INC.
By: /s/ Ann Wride
-------------------------------
COFFEE PEOPLE, INC.
By: /s/ Ann Wride
-------------------------------
COFFEE PEOPLE WORLDWIDE, INC.
By: /s/ Ann Wride
-------------------------------
GLORIA JEAN'S, INC.
By: /s/ Ann Wride
-------------------------------
(SIGNATURES CONTINUED)
-2-
<PAGE> 3
EDGLO ENTERPRISES, INC.
By: /s/ Ann Wride
-------------------------------
GLORIA JEAN'S GOURMET COFFEES CORP.
By: /s/ Ann Wride
-------------------------------
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By: /s/ Ann Wride
-------------------------------
-3-
<PAGE> 1
EXHIBIT 10.30
REVOLVING NOTE
$3,000,000 Dated as of July 7, 1999
FOR VALUE RECEIVED, DIEDRICH COFFEE, INC. and all of its direct and
indirect Subsidiaries (collectively, the "Borrowers"), hereby jointly and
severally promise to pay to the order of BankBoston, N.A. (hereinafter, together
with its successors and assigns, called the "Lender"), at the office of the
Lender pursuant to the Credit Agreement (as amended or extended from time to
time, the "Credit Agreement"), dated as of June 30, 1999, among the Borrowers
and the Lender, the principal sum of $3,000,000 or, if less, the aggregate
unpaid principal amount of Revolving Loans advanced by the Lender to any of the
Borrowers pursuant to the Credit Agreement, together with interest on the
principal balance thereof from time to time outstanding from the date hereof
until payment in full, without set-off, deduction or counterclaim, on the dates
and in such amounts as specified in the Credit Agreement, and at the final
maturity of this Note, whether by payment or prepayment, acceleration or
otherwise. Interest accruing on the unpaid balance hereof from time to time
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.
Overdue principal (whether at maturity, by reason of acceleration or
otherwise) and, to the extent permitted by applicable law, overdue interest and
fees or any other amounts payable under the Credit Agreement due to the
Borrowers' failure to pay the same in full shall bear interest from and
including the due date thereof until paid, at a rate or rates per annum
determined in accordance with the Credit Agreement, which interest shall be
compounded daily and payable on demand.
All payments under this Note shall be made to the Lender, at the head
office of the Lender, at 100 Federal Street, Boston, Massachusetts 02110 (or at
such other place as the Lender may designate from time to time in writing) in
lawful money of the United States of America in immediately available funds.
The outstanding principal amount of this Note and accrued and unpaid
interest thereon shall be due and payable as provided in the Credit Agreement.
The Borrowers have the right in certain circumstances and the obligation in
certain other circumstances to prepay this Note in whole or in part on the terms
and conditions provided in the Credit Agreement.
This Note is the "Revolving Note" referred to in the Credit Agreement
and evidences Revolving Loans thereunder. This Note is entitled to the benefits
of the Credit Agreement (including the Schedules thereto) and all other
instruments evidencing and/or securing the indebtedness hereunder; but neither
this reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrowers to pay the
principal of and interest on this Note as herein provided. The occurrence or
existence of an "Event of Default" as defined in the Credit Agreement shall
constitute a default under this Note and the entire indebtedness hereunder may
become or be declared due and payable as may be provided for in the Credit
Agreement.
The Lender shall, and is hereby irrevocably authorized by the Borrowers
to, endorse on the schedule attached to this Note or a continuation of such
schedule attached hereto and made a part hereof, an appropriate notation
evidencing advances and repayments of principal of this Note, provided that
failure by the Lender to make any such notations shall not affect any of the
Borrowers' obligations or the validity of any repayments made by any of the
Borrowers in respect of this Note.
All agreements involving the Borrowers and the Lender are hereby
expressly limited so that in no contingency or event whatsoever shall the amount
paid or agreed to be paid to the Lender for the use or forbearance of the
indebtedness evidenced hereby exceed the maximum amount which the
<PAGE> 2
Lender is permitted to receive under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof or of the Credit Agreement, at
the time performance of such provision shall be due, shall involve exceeding
such amount, then the obligation to be fulfilled shall automatically be reduced
to the limit of such validity, and if from any circumstance the Lender should
ever receive as interest an amount which would exceed such maximum amount, such
amount which would be excessive interest shall be applied to the reduction of
the principal balance evidenced hereby and not to the payment of interest. As
used herein, the term "applicable law" shall mean the law in effect as of the
date hereof; provided, however, that in the event there is a change in the law
which results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. This provision shall control
every provision of all agreements involving the Borrower and the Lender.
Each of the Borrowers and every endorser and guarantor of this Note or
the obligation represented hereby waives presentment, demand, notice, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, assent
to any extension or postponement of the time of payment or any other indulgence,
to any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondarily liable.
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed
in its corporate name under seal by its duly authorized officer as of the day
and year first above written.
DIEDRICH COFFEE, INC.
By: /s/ Ann Wride
-----------------------------------
COFFEE PEOPLE, INC.
By: /s/ Ann Wride
-----------------------------------
COFFEE PEOPLE WORLDWIDE, INC.
By: /s/ Ann Wride
-----------------------------------
(SIGNATURES CONTINUED)
-2-
<PAGE> 3
GLORIA JEAN'S, INC.
By: /s/ Ann Wride
-----------------------------------
EDGLO ENTERPRISES, INC.
By: /s/ Ann Wride
-----------------------------------
GLORIA JEAN'S GOURMET COFFEES CORP.
By: /s/ Ann Wride
-----------------------------------
GLORIA JEAN'S GOURMET COFFEES
FRANCHISING CORP.
By: /s/ Ann Wride
-----------------------------------
-3-
<PAGE> 4
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF PRINCIPAL BALANCE OF
REVOLVING PAID OR PRINCIPAL NOTATION
DATE LOAN PREPAID UNPAI MADE BY
- ---- --------- --------- ---------- --------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIEDRICH
COFFEE, INC.'S FINANCIAL STATEMENTS FOR THE TWENTY-TWO WEEKS ENDED AND AS OF
JUNE 30, 1999 CONTAINED IN DIEDRICH COFFEE, INC.'S TRANSITION REPORT FOR THE
PERIOD FROM JANUARY 28, 1999 TO JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-28-1999
<PERIOD-END> JUN-30-1999
<CASH> 552,124
<SECURITIES> 0
<RECEIVABLES> 335,903
<ALLOWANCES> 0
<INVENTORY> 1,432,249
<CURRENT-ASSETS> 2,591,075
<PP&E> 13,310,212
<DEPRECIATION> 5,805,773
<TOTAL-ASSETS> 11,782,440
<CURRENT-LIABILITIES> 5,030,476
<BONDS> 0
0
0
<COMMON> 61,736
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,782,440
<SALES> 10,362,157
<TOTAL-REVENUES> 10,362,157
<CGS> 4,681,136
<TOTAL-COSTS> 4,681,136
<OTHER-EXPENSES> 7,734,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282,937
<INCOME-PRETAX> (2,345,770)
<INCOME-TAX> 2,800
<INCOME-CONTINUING> (2,348,570)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,348,570)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
