<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 22, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to ____________________
COMMISSION FILE NUMBER 0-21203
DIEDRICH COFFEE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0086628
- ------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
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)
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 November 5, 1999, there were 12,616,833 shares of common stock of
the registrant outstanding.
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<PAGE> 2
DIEDRICH COFFEE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets.................................. 3
Condensed Consolidated Statements of Operations........................ 4
Condensed Consolidated Statements of Cash Flows........................ 5
Notes to Condensed Consolidated Financial Statements................... 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk............. 14
PART II - OTHER INFORMATION
Item 1 Legal Proceedings...................................................... 14
Item 5 Other Information...................................................... 14
Item 6 Exhibits and Reports on Form 8-K....................................... 15
Signatures............................................................. 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 22, JUNE 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS (NOTE 4)
Current Assets:
Cash $ 5,534,941 $ 552,124
Accounts receivable 3,489,060 335,903
Note receivable 100,000 100,000
Inventories (Note 3) 5,063,875 1,432,249
Prepaid expenses 1,011,891 153,113
Income taxes receivable 17,686 17,686
------------ ------------
Total current assets 15,217,453 2,591,075
Property and equipment, net 16,290,497 7,504,439
Costs in excess of net assets acquired, net 29,002,894 317,741
Note receivable - long-term 40,000 40,000
Other assets 832,433 1,329,185
------------ ------------
Total assets $ 61,383,277 $ 11,782,440
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of obligations under capital lease $ 281,887 $ 169,488
Current installments of long-term debt 2,000,000 1,000,000
Accounts payable 2,374,322 1,978,325
Accrued compensation 2,110,456 900,565
Accrued expenses 4,283,584 886,903
Reserve for disposal of stores (Note 2) 1,338,736 --
Reserve for store closings and restructuring costs 23,660 95,195
------------ ------------
Total current liabilities 12,412,645 5,030,476
Obligations under capital lease, excluding current installments 745,233 239,049
Long-term debt, excluding current installments (Note 4) 10,000,000 2,500,000
Deferred rent 441,012 233,548
------------ ------------
Total liabilities 23,598,890 8,003,073
------------ ------------
Stockholders' Equity: (Note 5)
Common stock 126,035 61,736
Additional paid-in capital 53,147,705 18,826,473
Accumulated deficit (15,489,353) (15,108,842)
------------ ------------
Total stockholders' equity 37,784,387 3,779,367
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 61,383,277 $ 11,782,440
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS THIRTEEN WEEKS
ENDED ENDED
SEPTEMBER 22, OCTOBER 28,
1999 1998
------------- --------------
<S> <C> <C>
Revenues:
Retail $ 10,463,138 $ 5,268,622
Wholesale and other 4,634,569 674,630
Franchise revenue 1,174,818 100,000
------------ ------------
Total revenues 16,272,525 6,043,252
------------ ------------
Cost and Expenses:
Cost of sales and related occupancy costs 7,961,390 2,718,436
Store operating expenses 4,952,351 2,187,605
Other operating expenses 462,160 165,595
Depreciation and amortization 806,879 490,531
General and administrative expenses 2,251,828 1,002,556
------------ ------------
Total 16,434,608 6,564,723
------------ ------------
Operating loss (162,083) (521,471)
Interest expense (286,889) (94,640)
Interest and other income 66,681 7,280
------------ ------------
Loss before income tax provision (382,291) (608,831)
Income tax provision 7,200 --
------------ ------------
Net loss $ (389,491) $ (608,831)
============ ============
Net loss per share - basic and diluted $ (0.03) $ (0.10)
============ ============
Weighted average shares outstanding -
basic and diluted 12,022,467 5,944,146
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS THIRTEEN WEEKS
ENDED ENDED
SEPTEMBER 22, OCTOBER 28,
1999 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (389,491) $ (608,831)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization 922,385 490,531
Changes in assets and liabilities:
Accounts receivable (799,084) 43,009
Inventories (88,149) (70,555)
Prepaid expenses (286,366) (56,825)
Income taxes receivable -- 1,677
Other assets (65,288) (25,000)
Accounts payable (260,060) 443,091
Accrued compensation 274,408 (93,532)
Accrued expenses and restructuring charge (1,234,032) 11,419
Deferred rent 7,400 8,595
------------ ------------
Net cash provided by (used in) operating activities (1,918,277) 143,579
------------ ------------
Cash flows from investing activities:
Capital expenditures for property and equipment (312,516) (291,574)
Cash paid for acquisition, net (22,937,351) --
Decrease in reserve for stores to be disposed of (237,980) --
------------ ------------
Net cash used in investing activities (23,487,847) (291,574)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 25,979,511 32,236
Proceeds from the issuance of note payable,
net of fees paid 11,645,558 --
Repayment of long-term debt (7,141,691) --
Repayment on capital lease obligations (94,437) (22,136)
------------ ------------
Net cash provided by financing activities 30,388,941 10,100
------------ ------------
Net increase (decrease) in cash 4,982,817 (137,895)
Cash at beginning of period 552,124 1,001,625
------------ ------------
Cash at end of period $ 5,534,941 $ 863,730
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 110,724 $ 55,950
============ ============
Income taxes $ 10,806 $ --
============ ============
Non-cash transactions:
Issuance of common stock to acquire Coffee People $ 8,415,000 $ --
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 22, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of Diedrich
Coffee, Inc. (the "Company") and subsidiaries have been prepared in accordance
with generally accepted accounting principles, the instructions to form 10-Q and
Article 10 of Regulation S-X. Information relating to the periods ending prior
to July 7, 1999 included in this report relates to the historical operations of
Diedrich Coffee, Inc. and, except as otherwise indicated, does not reflect the
operations of Coffee People, Inc., which the Company acquired on July 7, 1999.
These statements 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 and the Company's transition report on Form 10-Q for
the transition period January 28, 1999 to June 30, 1999.
In the opinion of management, all adjustments (consisting of normal,
recurring adjustments and accruals) considered necessary for a fair presentation
have been included. Operating results for interim periods are not necessarily
indicative of the results expected for a full year.
Change in Fiscal Year
In an effort to align its fiscal year with that of Coffee People, Inc.
("Coffee People"), which the Company acquired on July 7, 1999 (note 2), 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 condensed statements of operations and cash flows for the
twelve weeks ended September 22, 1999 are not necessarily comparable to the
accompanying thirteen weeks ended October 28, 1998.
2. ACQUISITION OF COFFEE PEOPLE, INC.
On July 7, 1999, the Company acquired Coffee People pursuant to an
Agreement and Plan of Merger. The acquisition was affected through the merger of
CP Acquisition Corp., an indirect wholly owned subsidiary of the Company, with
and into Coffee People. As a result of the acquisition, 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. At the time of the acquisition, Coffee
People owned 67 retail stores and franchised 253 retail stores in 36 states and
7 foreign countries under the names Gloria Jean's, Coffee People and Coffee
Plantation.
The Company, in recording the fair value of assets acquired and
liabilities assumed, has made certain estimates. These estimates consist
primarily of (i) recording property and equipment at estimated fair value and
(ii) providing for contractual lease obligations on negative operating cash
flows on certain underperforming stores. The acquisition has been accounted for
as a purchase and the resulting estimated costs in excess of net assets acquired
in the amount of $28,879,473 are being amortized using the straight-line method
over a 40 year period. The allocation of purchase price to the fair value of
assets acquired and liabilities assumed is dependent upon certain valuations and
other studies that have not progressed to a stage where there is sufficient
information to make a definitive allocation. Although the purchase price
allocation is preliminary, management is unaware of any significant changes
necessary to arrive at a final allocation.
6
<PAGE> 7
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 22, 1999
(UNAUDITED)
The assets acquired, including the costs in excess of net assets
acquired, and liabilities assumed in the acquisition of Coffee People are
summarized in the following table.
Fair value of tangible assets acquired $ 15,852,123
Costs in excess of net assets acquired 28,879,473
Liabilities assumed at fair value (13,379,245)
Common stock issued (8,415,000)
------------
Net cash paid for acquisition 22,937,351
Cash acquired in acquisition 1,780,578
------------
Cash paid for acquisition $ 24,717,929
============
In conjunction with the transaction, the Company acquired 29
Company-owned Gloria Jean's stores, of which 28 are intended to be closed or
disposed of by June 30, 2000. Under the provisions of Emerging Issues Task Force
87-11 Allocation of Purchase Price to Assets to Be Sold, the Company has
excluded the operating results of the 28 stores from the condensed consolidated
statement of operations for the twelve weeks ended September 22, 1999.
Additionally, the Company established a reserve of $1.6 million for the
estimated net cash holding costs of these stores until the estimated date of
closure or disposal.
The total revenues excluded from the Company's condensed consolidated
statement of operations for the twelve weeks ended September 22, 1999 totaled
$1.5 million and the related net losses totaled $238,000. Such net losses have
been charged against the reserve for disposal of stores.
The following table presents selected unaudited pro forma results of
operations for the Company, assuming the Coffee People acquisition had occurred
on July 1, 1998. The unaudited pro forma results of operations do not include
the operating results of the 28 Gloria Jean's Company-owned stores to be closed
or disposed of. The pro forma results of operations are not indicative of the
results of operations of the combined companies that would have occurred had the
acquisition occurred on July 1, 1998, nor are they indicative of future
operating results.
THIRTEEN WEEKS ENDED
OCTOBER 28, 1998
--------------------
Total revenues $ 17,049,457
Net loss $ (1,197,324)
Net loss per share - basic and diluted $ (0.10)
Weighted average shares outstanding --
basic and diluted 12,374,146
3. INVENTORIES
Inventories consist of the following:
SEPTEMBER 22, JUNE 30,
1999 1998
------------- ----------
Green coffee (raw materials) $1,862,561 $ 574,745
Roasted coffee (finished goods) 766,729 157,115
Accessory and specialty items 1,212,738 258,889
Other food, beverage and supplies 1,221,847 441,500
---------- ----------
$5,063,875 $1,432,249
========== ==========
7
<PAGE> 8
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 22, 1999
(UNAUDITED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 22, JUNE 30,
1999 1999
------------- -----------
<S> <C> <C>
NUVRTY, INC.
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999 -- $ 1,000,000
GRANDVIEW TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999 -- 750,000
OCEAN TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999 -- 750,000
BANCBOSTON, N.A
Note payable bearing interest at a rate of
8.31% as of September 22, 1999 and payable
in quarterly installments of $666,667,
commencing December 31, 1999, due July 6,
2004. Note is secured by the assets of the
Company and its subsidiaries' stock $12,000,000 --
----------- -----------
Less: Current installments 2,000,000 --
----------- -----------
Long-term debt, excluding current installments $10,000,000 $ 2,500,000
=========== ===========
</TABLE>
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, payable in quarterly installments of
$666,667. The Company used the proceeds of the term loan to repay existing
indebtedness and to pay expenses related to the acquisition of Coffee People.
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 an
adjusted Eurodollar rate.
5. STOCKHOLDERS' EQUITY
On July 7, 1999, the Company completed a secondary offering of
4,930,000 shares (including an over-allotment option). All of the shares of
common stock were sold on behalf of the Company, of which 330,000 shares of
common stock were sold pursuant to the exercise of the underwriters'
over-allotment option. The net proceeds of the offering to the Company, after
deducting approximately $3.5 million in underwriters' commissions and related
expenses, were approximately $26.0 million.
8
<PAGE> 9
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 22, 1999
(UNAUDITED)
On July 7, 1999, the Company issued 1,500,000 shares of the Company's
common stock to Coffee People stockholders in connection with the acquisition of
Coffee People.
6. SEGMENT AND RELATED INFORMATION
The Company has three reportable segments which include retail
operations, wholesale operations and franchise operations. The Company evaluates
performance of its operating segments based on income before income taxes.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The other assets consist of corporate
cash, costs in excess of net assets acquired and corporate property, plant and
equipment. The other component of segment profit before tax includes corporate
general and administrative expenses, amortization expense and interest expense.
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Twelve Weeks ended September 22, 1999
Revenues $ 10,463,138 $ 4,634,569 $ 1,174,818 $ -- $ 16,272,525
Interest expense -- -- -- 286,889 286,889
Depreciation and amortization 448,120 33,716 -- 325,043 806,879
Segment profit before tax 374,248 1,001,709 692,232 (2,450,480) (382,291)
Total assets as of September 22, 1999 $ 12,083,893 $ 4,655,902 $ 2,256,938 $ 42,386,544 $ 61,383,277
</TABLE>
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thirteen Weeks ended October 28, 1998
Revenues $ 5,268,622 $ 674,630 $ 100,000 $ -- $ 6,043,252
Interest expense -- -- -- 94,640 94,640
Depreciation and amortization 380,030 34,362 -- 76,139 490,531
Segment profit before tax (738,479) 81,328 48,320 -- (608,831)
Total assets as of June 30, 1999 $ 6,276,410 $ 1,579,591 $ 10,015 $ 3,916,424 $ 11,782,440
</TABLE>
7. SUBSEQUENT EVENT
On October 4, 1999, the Company signed a franchise area development
agreement by and between Gloria Jean's Gourmet Coffees Franchising Corp.
("GJGC") and Affluent Degree SDN, BHD (the "Developer"). The agreement calls for
the developer to open 30 Gloria Jean's stores and kiosks over the development
period of five years within the geographic area of Malaysia, Singapore and
Brunei. Concurrent with the execution of the agreement the Company received
$500,000 as a development fee and franchise fee for satisfaction of the
development quota.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
We make forward-looking statements in this document that are subject to
risks and uncertainties. These forward-looking statements include information
about possible or assumed future results of Diedrich Coffee's financial
condition, operations, plans, objectives and performance. Additionally, when we
use the words "believe," "expect," "anticipate," "estimate" or similar
expressions, we are making forward-looking statements. Many possible events or
factors could affect our future financial results and performance. This could
cause our results or performance to differ materially from those expressed in
our forward-looking statements. You should consider these risks when you review
this document, along with the following possible events or factors:
o our growth strategy may not be as successful as we expect if we
are unable to attract franchise area developers or single store
franchisees;
o our growth strategy may not be as successful if franchisees are
unable to secure attractive real estate;
o we may encounter difficulties and incur additional expenses as we
integrate Diedrich Coffee's and Coffee People's business, brands
or operating systems or retaining key personnel;
o competition within the retail specialty coffee market may
intensify;
o inclement weather or adverse political changes in the countries
where we source our green coffee may significantly increase our
coffee costs; and
o adverse changes may occur in the securities or financial markets.
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. Following our acquisition of Coffee People at the
beginning of this quarter, we became the second largest specialty coffee
retailer in the United States with annual systemwide sales of more than $150
million through 356 retail locations in 38 states and 6 foreign countries. Our
primary brands are Diedrich Coffee coffeehouses and Gloria Jean's, the nation's
largest chain of mall coffee stores. We sell specialty 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. We also sell our products
directly to customers through mail orders and our website.
Coffee People Acquisition. On July 7, 1999, we completed our
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 Diedrich Coffee, 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 our common stock. The cash payment to Coffee People stockholders was
financed by a portion of the net proceeds of a public equity offering of
4,930,000 shares of our common stock at a price of $6.00 per share.
10
<PAGE> 11
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, payable in quarterly installments with final maturity in July 2004. We
used the proceeds of the term loan to repay existing 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 an adjusted
Eurodollar rate plus 3.0%
Franchise Area Development Agreements. Management's franchise area
development goal is to enter into franchise area development agreements covering
most major U. S. markets. Presently, we have entered into six franchise area
development agreements calling for the development of up to 324 Diedrich
coffeehouses, as well as carts and kiosks, over the next 5 to 7 years. In
addition, one of these agreements contains options to develop an additional 103
coffeehouses in the San Francisco Bay Area.
Prior to the twelve week period ended September 22, 1999, we entered
into four franchise area development agreements calling for the development of
224 Diedrich coffeehouses with options to develop an additional 103
coffeehouses. We had also entered into an agreement covering the states of
Kentucky and Tennessee, which was subsequently terminated. On August 23, 1999,
we announced our fifth franchise area development agreement which calls for the
development of 50 coffeehouses in Wyoming, Montana and Colorado. In connection
with the signing of this agreement, we recognized an area development fee of
$4,000. On October 19, 1999 we announced our seventh franchise area development
agreement which provides for the development of 50 coffeehouses in various
counties in Southern California including Kern, San Luis Obispo, Ventura and
Santa Barbara as well as portions of Los Angeles, San Bernardino, Riverside and
Orange. In connection with the signing of this agreement, we will recognize an
area development fee of $20,000 in the second quarter of fiscal 2000.
We are currently in various stages of discussion and negotiations with
several additional potential area developers. We 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.
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 have investigated the
impact of the year 2000 problem on our business, including our operational,
information and financial systems. Based on our 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 failure to resolve any year 2000 problems could have a
material adverse impact on Diedrich Coffee. We have communicated 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 have modified certain applications and replaced some of the hardware
used in the processing of financial information. We believe we have addressed
any potential significant year 2000 issues. As of September 22, 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 are in the process of 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 the highest during the last fiscal quarter
(prior to the change in our fiscal year) which includes the December holiday
season. Hot weather tends to reduce revenues.
11
<PAGE> 12
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, our Annual Report on Form 10-K and our Transition
Report on Form 10-Q, the financial results for any individual quarter may not be
indicative of the results that may be achieved in a full fiscal year.
RESULTS OF OPERATIONS
Coffee People Acquisition. On July 7, 1999, we acquired Coffee People
in a transaction that was accounted for using the purchase method of accounting;
and accordingly, the assets acquired and liabilities assumed were recorded as of
their fair values on that date. The results of operations for Coffee People are
include in the accompanying financial statements from the date of acquisition,
accordingly, Diedrich Coffee's consolidated financial statements for the period
ended September 22, 1999 and October 29, 1998 are not comparable. The resulting
estimated costs in excess of net assets of the business acquired in the amount
of $28,879,473 are being amortized using the straight-line method over a 40 year
period.
Change in Fiscal Year. In an effort to align our fiscal year with that
of Coffee People 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 condensed consolidated
financial statements for the twelve weeks ended September 22, 1999 are not
necessarily comparable to the accompanying thirteen weeks ended October 28, 1998
nor are they indicative of a full fiscal years results of operations.
Twelve Weeks Ended September 22, 1999 Compared with the Thirteen Weeks Ended
October 28, 1998
Total revenues. Total revenues for the twelve weeks ended September 22,
1999 increased 169.3% to $16,272,525 from $6,043,252 for the thirteen weeks
ended October 28, 1998 principally due to the acquisition of Coffee People and
an increase in comparable store sales. During this most recent quarter, we
derived 64.3% of total revenues from our retail coffeehouse operations.
Wholesale and mail order revenue accounted for 28.5% of total revenues and
franchise revenues counted for 7.2% of total revenues.
Retail revenues for the twelve weeks ended September 22, 1999
increased 98.6% to $10,463,138 from $5,268,622 in the thirteen weeks October 28,
1998. This increase was a result of the acquisition of Coffee People and an
increase in comparable store sales. As of September 22, 1999, we operated 105
retail locations; whereas on October 28, 1998, we operated 43 retail locations.
The percentage increase in comparable store sales was 6.1% for the Diedrich
Coffee coffeehouses, 4.1% for the Gloria Jean's coffee stores, 0.7% for the
Coffee People concept, and 2.1% for the Coffee Plantation concept during the
twelve weeks ended September 22, 1999. This increase was principally a result of
improved targeted marketing programs.
Wholesale and other revenues increased 587.0% to $4,634,569 in the
twelve weeks ended September 22, 1999 from $674,630 for the thirteen weeks ended
October 28, 1998. The increase reflects the addition of the Gloria Jean's
franchisee operations which purchase roasted coffee from Diedrich Coffee.
Franchise revenue increased to $1,174,818 for the twelve weeks ended
September 22, 1999, from $100,000 for the thirteen weeks ended October 28, 1998.
Franchise revenue consists of initial franchise fees and royalties received on
sales made at each franchise location. As of September 22, 1999, we had three
franchised neighborhood coffeehouses and 252 franchised mall coffee stores.
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 twelve weeks ended September 22, 1999
increased to $7,961,390 from $2,718,436 for the thirteen weeks ended October 28,
1998. As a percentage of total revenue, cost of sales and related occupancy
costs increased to 48.9% in the twelve weeks ended September 22, 1999 from 45.0%
for the thirteen weeks ended October 28, 1998. The increase is primarily related
to the smaller margin received on coffee and products sold to franchisees.
12
<PAGE> 13
Store Operating Expenses. Store operating expenses increased to
$4,952,351 for the twelve weeks ended September 22, 1999 from $2,187,605 for the
thirteen weeks ended October 28, 1998. As a percentage of retail and franchise
revenues, store operating expenses increased to 42.6% in the twelve weeks ended
September 22, 1999 from 40.7% in the thirteen weeks ended October 28, 1998. The
increase can be attributed to an increase in labor expenses due to additional
staff training at the store level as well as the addition of the Coffee People
Oregon stores. Oregon has a higher minimum wage compared to the states in which
we were operating during the prior year.
Other Operating Expenses. Other operating expenses (those associated
with wholesale and other revenues) increased to $462,160 for twelve weeks ended
September 22, 1999 from $165,595 in thirteen weeks ended October 28, 1999. These
expenses, as a percentage of the revenues from the wholesale division, decreased
to 10.0% from 24.5%. The decrease can be attributed to a larger revenue base
with the addition of the Gloria Jean's' franchisees and a decline in franchise
bad debt expense due to improved credit and collection efforts.
Depreciation and Amortization. Depreciation and amortization increased
to $806,879 for the twelve weeks ended September 22, 1999 from $490,531 for the
thirteen weeks ended October 28, 1998. As a percentage of total revenue,
depreciation and amortization decreased to 5.0% in comparison to 8.1% for the
thirteen weeks ended October 28, 1998.
General and Administrative Expenses. General and administrative
expenses increased to $2,251,828 for the twelve weeks ended September 22, 1999
from $1,002,556 for the thirteen weeks ended October 28, 1999. As a percentage
of total revenue, general and administrative expenses decreased to 13.8% from
16.6%. This decrease in general and administrative expenses as a percentage of
total revenue was primarily a result of cost savings incurred with the
acquisition due to the result of the elimination of management personnel who
were not essential to our growth strategy.
Interest Expense. Interest expense increased to $286,889 for the twelve
weeks ended September 22, 1999 from $94,640 for the thirteen weeks ended October
28, 1998. The increase is a result of the $12 million term loan which closed on
July 7, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years principally
through public and private placements of our common stock and long-term debt. We
had working capital of $2,804,808 as of September 22, 1999 compared to working
capital deficit of $2,439,401 as of June 30, 1999. Cash provided by (used in)
operating activities for the twelve weeks ended September 22, 1999 totaled
$(1,918,277) as compared to $143,579 for the thirteen weeks ended October 28,
1998.
Net cash used in investing activities for the twelve weeks ended
September 22, 1999 totaled $23,487,847, which was primarily used for the
acquisition of Coffee People. Net cash provided by financing activities for the
twelve weeks ended September 22, 1999 totaled $30,388,941 which consisted of
proceeds from the issuance of common stock and long-term debt.
As of September 22, 1999, we had $12 million of long-term debt that
consisted of a term loan with BankBoston, N.A. that is secured by pledges of all
of our assets and subsidiaries' stock and was bearing interest at a rate of
8.31%. The credit agreement with BankBoston, N.A. also provides for a $3 million
revolving credit facility, which we have not presently drawn down. The term loan
and the revolving credit facility both require quarterly payments and have a
final maturity in July 2004. The Company used the proceeds of the term loan to
repay existing indebtedness and to pay expenses related to the acquisition of
Coffee People. The Company intends to use the remaining 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 an adjusted Eurodollar rate plus 3.00%.
Diedrich Coffee may change the interest rate from the BankBoston base rate to
the adjusted Eurodollar rate at any time with 3 day's notice and from the
adjusted Eurodollar rate to the BankBoston base rate at the end of each calendar
quarter.
We believe that the credit facility described above will be sufficient
to satisfy our working capital needs at the anticipated operating levels 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, the transition period ended June 30, 1999 nor in the
twelve weeks ended September 22, 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 September 22,
1999 these commitments totaled $3,387,000. 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 issues 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 financial
instruments outstanding as of September 22, 1999 was to changes in an adjusted
Eurodollar rate. We borrowed $12 million on July 7, 1999 in connection with our
acquisition of Coffee People, which bears interest at our option, at
BankBoston's base rate plus 1.25%, or an adjusted Eurodollar rate plus 3.0%.
Diedrich Coffee may convert the interest rate from the BankBoston base rate to
the adjusted Eurodollar rate at anytime with 3 day's notice. We may convert the
interest rate from the adjusted Eurodollar rate to the BankBoston base rate at
the end of each calendar quarter. The $12 million outstanding under the term
loan was bearing interest at the BankBoston base rate plus 1.25% from July 7,
1999 to July 10, 1999 at which time the interest rate was converted to the
adjusted Eurodollar rate plus 3.0% for the remainder of the twelve week period
ending September 22, 1999. At September 22, 1999 the adjusted Eurodollar rate
was 5.31%. At September 22, 1999, a hypothetical 100 basis point increase in the
rate would result in additional interest expense of $120,000 on an annualized
basis. The credit agreement also provides for a $3 million line of credit which
also bears interest at our option, at BankBoston's base rate plus 1.25%, or an
adjusted Eurodollar rate plus 3.00%
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of its business, we may become involved in legal
proceedings from time to time. During the twelve week period ending September
22, 1999, no material developments occurred in any material pending legal
proceedings. A discussion of our material pending legal proceedings appears in
our registration statement on Form S-1 (Reg. No. 333-78083) under the heading
"Business - Legal Proceedings."
ITEM 5. OTHER INFORMATION
Minimum Advance Notice of Stockholder Proposals. Diedrich Coffee
stockholders 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.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Set forth below is a list of the exhibits included as part of this
Quarterly Report.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Form of Agreement and Plan of merger by and 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 of the Company (1)
3.2 Bylaws of the Company (1)
4.1 Purchase Agreement for Series A Preferred Stock dated as of
December 11, 1992 by and among Diedrich Coffee, Martin R.
Diedrich, 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 conversation 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, Inc. (3)
4.6 Voting Agreement and Irrevocable Proxy dated as of March 16,
1999 by and among Diedrich Coffee, Inc., 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 Amended and Restated Diedrich Coffee 1996 Stock Incentive Plan *
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)
10.5 Separation agreement dated May 13, 1997 between Steven A.
Lupinacci and Diedrich Coffee, Inc. (4)
10.6 Letter agreement by and between the Company and John E. Martin
appointing Mr. Martin Chairman of the Board, dated as of
November 17, 1997 (5)
15
<PAGE> 16
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.7 Stock Option Plan and Agreement by and between the company and
John E. Martin granting Mr. Martin the option to purchase up to
850,000 shares of the Common Stock of the Company, dated as of
November 17, 1997 (5)
10.8 Common Stock Purchase Agreement by and between the company and
John E. Martin under which Mr. Martin agrees to purchase 333,333
shares of the Common Stock of the Company, dated as of November
17, 1997 (5)
10.9 Employment Agreement by and between the Company and Timothy J.
Ryan retaining Mr. Ryan as Chief Executive Officer, dated as of
November 17, 1997 (5)
10.10 Stock Option Plan and Agreement by and between the company and
Timothy J. Ryan granting Mr. Ryan up to 600,000 shares of the
Common Stock of the Company, dated as of November 17, 1997 (5)
10.11 Common Stock Purchase Agreement by and between the Company and
Timothy J. Ryan under which Mr. Ryan agrees to purchase 16,667
shares of the Common Stock of the Company, dated as of November
17, 1997 (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 Form of Common Stock and Option Purchase Agreement with
Franchise Mortgage Acceptance Company dated as of April 3, 1998
(7)
10.18 Separation and Release Agreement dated January 28, 1998 with
Kerry W. Coin (7)
10.19 Employment Agreement with Ann Wride dated April 8, 1998 (8)
10.20 Employment Agreement with Dolf Berle dated April 8, 1998 (9)
10.21 Employment Agreement with Catherine Saar dated June 11, 1998 (9)
10.22 Form of Franchise Agreement (10)
10.23 Form of Area Development Agreement (10)
10.24 Employment Agreement with Martin R. Diedrich dated June 29, 1998
(3)
10.25 Credit Agreement, dated, as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (11)
10.26 Security Agreement, dated, as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (11)
10.27 Securities Pledge Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries
(11)
16
<PAGE> 17
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.28 Trademark Security Agreement, dated, as of July 7, 1999, by
and among BankBoston, N.A., Diedrich Coffee and its subsidiaries
(11)
10.29 Form of Term Note made in favor of BankBoston, N.A. (11)
10.30 Form of Revolving Note made in favor of BankBoston, N.A. (11)
27 Financial Data Schedule*
- --------------
* Filed with this Form 10-Q
(1) Previously filed as an exhibit 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) Previously filed as Appendix A to Diedrich Coffee's Registration
Statement on Form S-4, filed with the Securities and Exchange
Commission on April 23, 1999.
(3) Previously filed as an exhibit to Diedrich Coffee's Registration
Statement on Form S-4, filed with the Securities and Exchange
Commission on April 23, 1999.
(4) Previously filed as an exhibit 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) Previously filed as an exhibit to Diedrich Coffee's Current Report on
Form 8-K, filed with the Securities and Exchange Commission on November
25, 1997.
(6) Previously filed as an exhibit 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.
(7) Previously filed as an exhibit to Diedrich Coffee's annual report on
Form 10-K, for the fiscal year ended January 28, 1998.
(8) Previously filed as an exhibit 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 June 11, 1998.
(9) Previously filed as an exhibit 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) Previously filed as an exhibit 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.
(11) Incorporated by reference to Diedrich Coffee's Transition Report on
Form 10-Q, for the period from January 28, 1999 to June 30, 1999, filed
with the Securities and Exchange Commission on August 16, 1999.
(b) REPORTS ON FORM 8-K
A report on form 8-K was filed on July 7, 1999 reporting that Diedrich
Coffee had completed its acquisition of Coffee People, Inc. The
financial statements of Coffee People, Inc. and pro forma financial
information were included in Amendment No. 1 to Form S-1, filed on June
7, 1999.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 5, 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)
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Form of Agreement and Plan of merger by and 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 of the Company (1)
3.2 Bylaws of the Company (1)
4.1 Purchase Agreement for Series A Preferred Stock dated as of
December 11, 1992 by and among Diedrich Coffee, Martin R.
Diedrich, 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 conversation 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, Inc. (3)
4.6 Voting Agreement and Irrevocable Proxy dated as of March 16,
1999 by and among Diedrich Coffee, Inc., 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 Amended and Restated Diedrich Coffee 1996 Stock Incentive Plan *
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)
10.5 Separation agreement dated May 13, 1997 between Steven A.
Lupinacci and Diedrich Coffee, Inc. (4)
10.6 Letter agreement by and between the Company and John E. Martin
appointing Mr. Martin Chairman of the Board, dated as of
November 17, 1997 (5)
<PAGE> 20
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.7 Stock Option Plan and Agreement by and between the company and
John E. Martin granting Mr. Martin the option to purchase up to
850,000 shares of the Common Stock of the Company, dated as of
November 17, 1997 (5)
10.8 Common Stock Purchase Agreement by and between the company and
John E. Martin under which Mr. Martin agrees to purchase 333,333
shares of the Common Stock of the Company, dated as of November
17, 1997 (5)
10.9 Employment Agreement by and between the Company and Timothy J.
Ryan retaining Mr. Ryan as Chief Executive Officer, dated as of
November 17, 1997 (5)
10.10 Stock Option Plan and Agreement by and between the company and
Timothy J. Ryan granting Mr. Ryan up to 600,00 shares of the
Common Stock of the Company, dated as of November 17, 1997 (5)
10.11 Common Stock Purchase Agreement by and between the Company and
Timothy J. Ryan under which Mr. Ryan agrees to purchase 16,667
shares of the Common Stock of the Company, dated as of November
17, 1997 (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 Form of Common Stock and Option Purchase Agreement with
Franchise Mortgage Acceptance Company dated as of April 3, 1998
(7)
10.18 Separation and Release Agreement dated January 28, 1998 with
Kerry W. Coin (7)
10.19 Employment Agreement with Ann Wride dated April 8, 1998 (8)
10.20 Employment Agreement with Dolf Berle dated April 8, 1998 (9)
10.21 Employment Agreement with Catherine Saar dated June 11, 1998 (9)
10.22 Form of Franchise Agreement (10)
10.23 Form of Area Development Agreement (10)
10.24 Employment Agreement with Martin R. Diedrich dated June 29, 1998
(3)
10.25 Credit Agreement, dated, as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (11)
10.26 Security Agreement, dated, as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (11)
10.27 Securities Pledge Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries
(11)
<PAGE> 21
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.28 Trademark Security Agreement, dated, as of July 7, 1999, by
and among BankBoston, N.A., Diedrich Coffee and its subsidiaries
(11)
10.29 Form of Term Note made in favor of BankBoston, N.A. (11)
10.30 Form of Revolving Note made in favor of BankBoston, N.A. (11)
27 Financial Data Schedule*
- --------------
* Filed with this Form 10-Q
(1) Previously filed as an exhibit 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) Previously filed as Appendix A to Diedrich Coffee's Registration
Statement on Form S-4, filed with the Securities and Exchange
Commission on April 23, 1999.
(3) Previously filed as an exhibit to Diedrich Coffee's Registration
Statement on Form S-4, filed with the Securities and Exchange
Commission on April 23, 1999.
(4) Previously filed as an exhibit 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) Previously filed as an exhibit to Diedrich Coffee's Current Report on
Form 8-K, filed with the Securities and Exchange Commission on November
25, 1997.
(6) Previously filed as an exhibit 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.
(7) Previously filed as an exhibit to Diedrich Coffee's annual report on
Form 10-K, for the fiscal year ended January 28, 1998.
(8) Previously filed as an exhibit 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 June 11, 1998.
(9) Previously filed as an exhibit 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) Previously filed as an exhibit 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.
(11) Incorporated by reference to Diedrich Coffee's Transition Report on
Form 10-Q, for the period from January 28, 1999 to June 30, 1999, filed
with the Securities and Exchange Commission on August 16, 1999.
<PAGE> 1
EXHIBIT 10.2
DIEDRICH COFFEE, INC.
AMENDED AND RESTATED
1996 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE OF PLAN
The Company has adopted this Plan to promote the interests of the
Company and its stockholders by using investment interests in the Company to
attract, retain and motivate its management and other persons, to encourage and
reward their contributions to the performance of the Company, and to align their
interests with the interests of the Company's stockholders.
ARTICLE II
EFFECTIVE DATE AND TERM OF PLAN
2.1 TERM OF PLAN. This Plan became effective as of the Effective Date
and shall continue in effect until the Expiration Date, at which time this Plan
shall automatically terminate.
2.2 EFFECT ON AWARDS. Awards may be granted during the Plan Term, but
no Awards may be granted after the Plan Term. Notwithstanding the foregoing,
each Award properly granted under this Plan during the Plan Term shall remain in
effect after termination of this Plan until such Award has been exercised,
terminated, or expired in accordance with its terms and the terms of this Plan.
2.3 STOCKHOLDER APPROVAL. This Plan shall be approved by the Company's
stockholders within 12 months after the Effective Date. The effectiveness of any
Awards granted prior to such stockholder approval shall be subject to such
stockholder approval.
ARTICLE III
SHARES SUBJECT TO PLAN
3.1 NUMBER OF SHARES. The maximum number of shares of Common Stock that
may be issued pursuant to Awards granted under this Plan shall be 1,275,000,
subject to adjustment as set forth in Section 3.4.
3.2 SOURCE OF SHARES. The Common Stock to be issued under this Plan
will be made available, at the discretion of the Board, either from authorized
but unissued shares of Common Stock or from previously issued shares of Common
Stock reacquired by the Company, including without limitation shares purchased
on the open market.
3.3 AVAILABILITY OF UNUSED SHARES. Shares of Common Stock subject to
unexercised portions of any Award granted under this Plan that expire, terminate
or are cancelled, and shares of Common Stock issued pursuant to an Award under
this Plan that are reacquired by the Company pursuant to the terms of the Award
under which such shares were issued, will again become available for the grant
of further Awards under this Plan.
<PAGE> 2
3.4 ADJUSTMENT PROVISIONS.
(a) If (i) the outstanding shares of Common Stock of the Company are
increased, decreased or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or any
stock or securities received with respect to such Common Stock), through merger,
consolidation, sale or exchange of all or substantially all of the properties of
the Company, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, spin-off or other distribution with respect to
such shares of Common Stock (or any stock or securities received with respect to
such Common Stock), or (ii) the value of the outstanding shares of Common Stock
of the Company is reduced by reason of an extraordinary cash dividend, an
appropriate and proportionate adjustment may be made in (1) the maximum number
and kind of shares subject to this Plan as provided in Section 3.1, (2) the
number and kind of shares or other securities subject to then outstanding
Awards, and/or (3) the price for each share or other unit of any other
securities subject to then outstanding Awards.
(b) No fractional interests will be issued under the Plan resulting
from any adjustments.
(c) To the extent any adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Administering Body, whose
determination in that respect shall be final, binding and conclusive.
(d) The grant of an Award pursuant to this Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(e) No adjustment to the terms of an Incentive Stock Option shall be
made unless such adjustment either (i) would not cause the Option to lose its
status as an Incentive Stock Option or (ii) is agreed to in writing by the
Administering Body and the Recipient.
3.5 RESERVATION OF SHARES. The Company will at all times reserve and
keep available such number of shares of Common Stock as shall equal at least the
number of shares of Common Stock subject to then outstanding Awards issuable in
shares of Common Stock under this Plan.
ARTICLE IV
ADMINISTRATION OF PLAN
4.1 ADMINISTERING BODY.
(a) Subject to the provisions of Section 4.1(b)(ii), this Plan shall be
administered by the Board or by a Committee of the Board appointed pursuant to
Section 4.1(b).
(b)(i) The Board in its sole discretion may from time to time appoint
a Committee of not less than two Board members to administer this Plan and,
subject to applicable law, to exercise all of the powers, authority and
discretion of the Board under this Plan. The Board may from time to time
increase or decrease (but not below two) the number of members of the Committee,
remove from membership on the Committee all or any portion of its members,
and/or appoint such person or persons as it desires to fill any vacancy existing
on the Committee, whether caused by removal, resignation or otherwise. The Board
may disband the Committee at any time and revest in the Board the administration
of this Plan.
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(ii) Notwithstanding the foregoing provisions of this Section
4.1(b) to the contrary, as long as the Company is an Exchange Act Registered
Company, (1) the Board shall appoint the Committee, (2) this Plan shall be
administered by the Committee, and (3) each of the Committee's members shall be
Disinterested Directors, and in addition, if Awards are to be made to persons
subject to Section 162(m) of the IRC and such Awards are intended to constitute
Performance Based Compensation, then each of the Committee's members shall, in
addition to being a Disinterested Director, also be an Outside Director.
(iii) The Committee shall report to the Board the names of Eligible
Persons granted Awards, the number of shares of Common Stock covered by each
Award, and the terms and conditions of each such Award.
4.2 AUTHORITY OF ADMINISTERING BODY.
(a) Subject to the express provisions of this Plan, the Administering
Body shall have the power to interpret and construe this Plan and any Award
Documents or other documents defining the rights and obligations of the Company
and Recipients hereunder and thereunder, to determine all questions arising
hereunder and thereunder, to adopt and amend such rules and regulations for the
administration hereof and thereof as it may deem desirable, and otherwise to
carry out the terms of this Plan and such Award Documents and other documents.
The interpretation and construction by the Administering Body of any provisions
of this Plan or of any Award shall be conclusive and binding. Any action taken
by, or inaction of, the Administering Body relating to this Plan or any Awards
shall be within the absolute discretion of the Administering Body and shall be
conclusive and binding upon all persons. Subject only to compliance with the
express provisions hereof, the Administering Body may act in its absolute
discretion in matters related to this Plan and any and all Awards.
(b) Subject to the express provisions of this Plan, the Administering
Body may from time to time in its discretion select the Eligible Persons to
whom, and the time or times at which, Incentive Awards shall be granted or sold,
the nature of each Incentive Award, the number of shares of Common Stock or the
number of rights that make up or underlie each Incentive Award, the period for
the exercise of each Incentive Award, and such other terms and conditions
applicable to each individual Incentive Award as the Administering Body shall
determine. The Administering Body may grant at any time new Incentive Awards to
an Eligible Person who has previously received Incentive Awards or other grants
(including other stock options) whether such prior Incentive Awards or such
other grants are still outstanding, have previously been exercised as a whole or
in part, or are cancelled in connection with the issuance of new Incentive
Awards. The Administering Body may grant Incentive Awards singly or in
combination or in tandem with other Incentive Awards as it determines in its
discretion. The purchase price, exercise price, initial value and any and all
other terms and conditions of the Incentive Awards may be established by the
Administering Body without regard to existing Incentive Awards or other grants.
(c) Any action of the Administering Body with respect to the
administration of this Plan shall be taken pursuant to a majority vote of the
authorized number of members of the Administering Body or by the unanimous
written consent of its members; provided, however, that (i) if the Administering
Body is the Committee and consists of two members, then actions of the
Administering Body must be unanimous, and (ii) if the Administering Body is the
Board, actions taken at a meeting of the Board shall be valid if approved by
directors constituting a majority of the required quorum for such meeting.
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4.3 NO LIABILITY. No member of the Board or the Committee or any
designee thereof will be liable for any action or inaction with respect to this
Plan or any Award or any transaction arising under this Plan or any Award except
in circumstances constituting bad faith of such member.
4.4 AMENDMENTS.
(a) The Administering Body may, insofar as permitted by applicable law,
rule or regulation, from time to time suspend or discontinue this Plan or revise
or amend it in any respect whatsoever, and this Plan as so revised or amended
will govern all Awards hereunder, including those granted before such revision
or amendment; provided, however, that no such revision or amendment shall alter,
impair or diminish any rights or obligations under any Award theretofore granted
under this Plan without the written consent of the Recipient to whom such Award
was granted. Without limiting the generality of the foregoing, the Administering
Body is authorized to amend this Plan to comply with or take advantage of
amendments to applicable laws, rules or regulations, including amendments to the
Securities Act, Exchange Act or the IRC or any rules or regulations promulgated
thereunder. No stockholder approval of any amendment or revision shall be
required unless (i) such approval is required by applicable law, rule or
regulation or (ii) an amendment or revision to this Plan would materially
increase the number of shares subject to this Plan (as adjusted under Section
3.4), materially modify the requirements as to eligibility for participation in
this Plan, extend the final date upon which Awards may be granted under this
Plan, or otherwise materially increase the benefits accruing to Recipients in a
manner not specifically contemplated herein, or affect this Plan's compliance
with Rule 16b-3 or applicable provisions of or regulations under the IRC, and
stockholder approval of the amendment or revision is required to comply with
Rule 16b-3 or applicable provisions of or rules under the IRC.
(b) The Administering Body may, with the written consent of a
Recipient, make such modifications in the terms and conditions of an Incentive
Award as it deems advisable. Without limiting the generality of the foregoing,
the Administering Body may, in its discretion with the written consent of the
Recipient, at any time and from time to time after the grant of any Incentive
Award accelerate or extend the vesting or exercise period of any Incentive Award
as a whole or in part, and adjust or reduce the purchase or exercise price of
Incentive Awards held by such Recipient by cancellation of such Incentive Awards
and granting of Incentive Awards at lower purchase or exercise prices or by
modification, extension or renewal of such Incentive Awards. In the case of
Incentive Stock Options, Recipients acknowledge that extensions of the exercise
period may result in the loss of the favorable tax treatment afforded incentive
stock options under Section 422 of the IRC.
(c) Except as otherwise provided in this Plan or in the applicable
Award Document, no amendment, revision, suspension or termination of this Plan
will, without the written consent of the Recipient, alter, terminate, impair or
adversely affect any right or obligation under any Award previously granted
under this Plan.
4.5 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for the Company, and this Plan shall not preclude the Company from establishing
any other forms of incentive or other compensation for employees, directors,
advisors or consultants of the Company, whether or not approved by stockholders.
4.6 PLAN BINDING ON SUCCESSORS. This Plan shall be binding upon the
successors and assigns of the Company.
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4.7 REFERENCES TO SUCCESSOR STATUTES, REGULATIONS AND RULES. Any
reference in this Plan to a particular statute, regulation or rule shall also
refer to any successor provision of such statute, regulation or rule.
4.8 ISSUANCES FOR COMPENSATION PURPOSES ONLY. This Plan constitutes an
"employee benefit plan" as defined in Rule 405 promulgated under the Securities
Act. Awards to eligible employees or directors shall be made for any lawful
consideration, including compensation for services rendered, promissory notes or
otherwise. Awards to consultants and advisors shall be made only in exchange for
bona fide services rendered by such consultants or advisors and such services
must not be in connection with the offer and sale of securities in a
capital-raising transaction.
4.9 INVALID PROVISIONS. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid and unenforceable provision were not contained herein.
4.10 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Delaware, without giving
effect to the principles of the conflicts of laws thereof.
ARTICLE V
GENERAL AWARD PROVISIONS
5.1 PARTICIPATION IN PLAN.
(a) A person shall be eligible to receive grants of Incentive Awards
under this Plan if, at the time of the grant of the Incentive Award, such person
is an Eligible Person.
(b) Incentive Stock Options may be granted only to Eligible Persons
meeting the employment requirements of Section 422 of the IRC.
(c) Notwithstanding anything to the contrary herein, the Administering
Body may, in order to fulfill the purposes of this Plan, modify grants of
Incentive Awards to Recipients who are foreign nationals or employed outside of
the United States to recognize differences in applicable law, tax policy or
local custom.
5.2 AWARD DOCUMENTS.
(a) Each Award granted under this Plan shall be evidenced by an
agreement duly executed on behalf of the Company and by the Recipient or, in the
Committee's discretion, a confirming memorandum issued by the Company to the
Recipient, setting forth such terms and conditions applicable to the Award as
the Committee may in its discretion determine. Award Documents may but need not
be identical and shall comply with and be subject to the terms and conditions of
this Plan, a copy of which shall be provided to each Recipient and incorporated
by reference into each Award Document. Any Award Document may contain such other
terms, provisions and conditions not inconsistent with this Plan as may be
determined by the Committee.
(b) In case of any conflict between this Plan and any Award Document,
this Plan shall control.
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5.3 EXERCISE OF STOCK OPTIONS. No Stock Option shall be exercisable
except in respect of whole shares, and fractional share interests shall be
disregarded. Not less than 100 shares of Common Stock (or such other amount as
is set forth in the applicable Award Documents) may be purchased at one time and
Stock Options must be exercised in multiples of 100 unless the number purchased
is the total number at the time available for purchase under the terms of the
Stock Option. A Stock Option shall be deemed to be exercised when the Secretary
or other designated official of the Company receives written notice of such
exercise from the Recipient, together with payment of the exercise price made in
accordance with Section 5.4 and any amounts required under Section 5.11.
Notwithstanding any other provision of this Plan, the Administering Body may
impose, by rule and/or in Award Documents, such conditions upon the exercise of
Stock Options (including without limitation conditions limiting the time of
exercise to specified periods) as may be required to satisfy applicable
regulatory requirements, including without limitation Rule 16b-3 and Rule 10b-5
under the Exchange Act, or as required under Section 5.12 hereof or other
applicable section of or regulation under the IRC.
5.4 PAYMENT FOR AWARDS.
(a) Payment of Exercise Price. The exercise price or other payment for
an Award shall be payable upon the exercise of a Stock Option or upon other
purchase of shares pursuant to an Award granted hereunder by delivery of legal
tender of the United States or payment of such other consideration as the
Administering Body may from time to time deem acceptable in any particular
instance.
(b) The Company may assist any person to whom an Award is granted
hereunder (including without limitation any officer or eligible director of the
Company) in the payment of the purchase price or other amounts payable in
connection with the receipt or exercise of that Award, by lending such amounts
to such person on such terms and at such rates of interest and upon such
security (if any) as shall be approved by the Administering Body.
(c) In the discretion of the Administering Body, Awards may be
exercised by capital stock of the Company delivered in transfer to the Company
by or on behalf of the person exercising the Award and duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, with signatures guaranteed
in accordance with the Exchange Act if required by the Administering Body, or
retained by the Company from the stock otherwise issuable upon exercise or
surrender of vested and/or exercisable Awards or other equity incentive awards
previously granted to the Recipient and being exercised (if applicable) (in
either case valued at Fair Market Value as of the exercise date); or such other
consideration as the Administering Body may from time to time in the exercise of
its discretion deem acceptable in any particular instance; provided, however,
that the Administering Body may, in the exercise of its discretion, (i) allow
exercise of an Award in a broker-assisted or similar transaction in which the
exercise price is not received by the Company until promptly after exercise,
and/or (ii) allow the Company to loan the exercise price to the person entitled
to exercise the Award, if the exercise will be followed by a prompt sale of some
or all of the underlying shares and a portion of the sale proceeds is dedicated
to full payment of the exercise price and amounts required pursuant to Section
5.11.
5.5 NO EMPLOYMENT RIGHTS. Nothing contained in this Plan (or in Award
Documents or in any other documents related to this Plan or to Awards granted
hereunder) shall confer upon any Eligible Person or Recipient any right to
continue in the employ of the Company or any Affiliated Entity or constitute any
contract or agreement of employment or engagement, or interfere in any way with
the right of the Company or any Affiliated Entity to reduce such person's
compensation or other benefits or to terminate the employment or engagement of
such Eligible Person or Recipient, with or without cause. Except as expressly
provided in this Plan or in any statement evidencing the grant of an Award
pursuant to this Plan, the Company shall have
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the right to deal with each Recipient in the same manner as if this Plan and any
such statement evidencing the grant of an Award pursuant to this Plan did not
exist, including without limitation with respect to all matters related to the
hiring, discharge, compensation and conditions of the employment or engagement
of the Recipient. Any question(s) as to whether and when there has been a
termination of a Recipient's employment or engagement, the reason (if any) for
such termination, and/or the consequences thereof under the terms of this Plan
or any statement evidencing the grant of an Award pursuant to this Plan shall be
determined by the Administering Body and the Administering Body's determination
thereof shall be final and binding.
5.6 RESTRICTIONS UNDER APPLICABLE LAWS AND REGULATIONS.
(a) All Awards granted under this Plan shall be subject to the
requirement that, if at any time the Company shall determine, in its discretion,
that the listing, registration or qualification of the shares subject to Awards
granted under this Plan upon any securities exchange or under any federal, state
or foreign law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such an Award or the issuance, if any, or purchase of shares in connection
therewith, such Award may not be exercised as a whole or in part unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company.
During the term of this Plan, the Company will use its reasonable efforts to
seek to obtain from the appropriate regulatory agencies any requisite
qualifications, consents, approvals or authorizations in order to issue and sell
such number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of this Plan. The inability of the Company to obtain from any such
regulatory agency having jurisdiction thereof the qualifications, consents,
approvals or authorizations deemed by the Company to be necessary for the lawful
issuance and sale of any shares of its Common Stock hereunder shall relieve the
Company of any liability in respect of the nonissuance or sale of such stock as
to which such requisite authorization shall not have been obtained.
(b) The Company shall be under no obligation to register or qualify the
issuance of Awards or underlying shares under the Securities Act or applicable
state securities laws. Unless the issuance of Awards and underlying shares have
been registered under the Securities Act and qualified or registered under
applicable state securities laws, the Company shall be under no obligation to
issue any Awards or underlying shares of Common Stock covered by any Award
unless the Awards and underlying shares may be issued pursuant to applicable
exemptions from such registration or qualification requirements. In connection
with any such exempt issuance, the Administering Body may require the Recipient
to provide a written representation and undertaking to the Company, satisfactory
in form and scope to the Company and upon which the Company may reasonably rely,
that such Recipient is acquiring such Awards and underlying shares for such
Recipient's own account as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares of stock, and that such
person will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act and
other applicable law, and that if shares of stock are issued without such
registration, a legend to this effect (together with any other legends deemed
appropriate by the Administering Body) may be endorsed upon the securities so
issued. The Company may also order its transfer agent to stop transfers of such
shares. The Administering Body may also require the Recipient to provide the
Company such information and other documents as the Administering Body may
request in order to satisfy the Administering Body as to the investment
sophistication and experience of the Recipient and as to any other conditions
for compliance with any such exemptions from registration or qualification.
5.7 ADDITIONAL CONDITIONS. Any Incentive Award may also be subject to
such other provisions (whether or not applicable to any other Award or
Recipient) as the Administering Body determines appropriate including without
limitation provisions to
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assist the Recipient in financing the purchase of Common Stock through the
exercise of Stock Options, provisions for the forfeiture of or restrictions on
resale or other disposition of shares of Common Stock acquired under any form of
benefit, provisions giving the Company the right to repurchase shares of Common
Stock acquired under any form of benefit in the event the Recipient elects to
dispose of such shares, and provisions to comply with federal and state
securities laws and federal and state income tax withholding requirements.
5.8 NO PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise set forth
herein, a Recipient or a permitted transferee of an Award shall have no rights
as a stockholder with respect to any shares issuable or issued in connection
with the Award until the date of the receipt by the Company of all amounts
payable in connection with exercise of the Award and performance by the
Recipient of all obligations thereunder. Status as an Eligible Person shall not
be construed as a commitment that any Award will be granted under this Plan to
an Eligible Person or to Eligible Persons generally. No person shall have any
right, title or interest in any fund or in any specific asset (including shares
of capital stock) of the Company by reason of any Award granted hereunder.
Neither this Plan (or any documents related hereto) nor any action taken
pursuant hereto shall be construed to create a trust of any kind or a fiduciary
relationship between the Company and any person. To the extent that any person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.
5.9 NONASSIGNABILITY. No Award granted under this Plan shall be
assignable or transferable except (i) by will or by the laws of descent and
distribution, or (ii) subject to the final sentence of this Section 5.9, upon
dissolution of marriage pursuant to a qualified domestic relations order or, in
the discretion of the Administering Body and under circumstances that would not
adversely affect the interests of the Company, pursuant to a nominal transfer
that does not result in a change in beneficial ownership. During the lifetime of
a Recipient, an Award granted to such person shall be exercisable only by the
Recipient (or the Recipient's permitted transferee) or such person's guardian or
legal representative. Notwithstanding the foregoing, (i) no Award owned by a
Recipient subject to Section 16 of the Exchange Act may be assigned or
transferred in any manner inconsistent with Rule 16b-3, and (ii) Incentive Stock
Options (or other Awards subject to transfer restrictions under the IRC) may not
be assigned or transferred in violation of Section 422(b)(5) of the IRC (or any
comparable or successor provision) or the regulations thereunder, and nothing
herein is intended to allow such assignment or transfer.
5.10 INFORMATION TO RECIPIENTS.
(a) The Administering Body in its sole discretion shall determine what,
if any, financial and other information shall be provided to Recipients and when
such financial and other information shall be provided after giving
consideration to applicable federal and state laws, rules and regulations,
including without limitation applicable federal and state securities laws, rules
and regulations.
(b) The furnishing of financial and other information that is
confidential to the Company shall be subject to the Recipient's agreement that
the Recipient shall maintain the confidentiality of such financial and other
information, shall not disclose such information to third parties, and shall not
use the information for any purpose other than evaluating an investment in the
Company's securities under this Plan. The Administering Body may impose other
restrictions on the access to and use of such confidential information and may
require a Recipient to acknowledge the Recipient's obligations under this
Section 5.10(b) (which acknowledgment shall not be a condition to Recipient's
obligations under this Section 5.10(b)).
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5.11 WITHHOLDING TAXES. Whenever the granting, vesting or exercise of
any Award granted under this Plan, or the transfer of any shares issued upon
exercise of any Award, gives rise to tax or tax withholding liabilities or
obligations, the Administering Body shall have the right to require the
Recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to issuance of such shares.
The Administering Body may, in the exercise of its discretion, allow
satisfaction of tax withholding requirements by accepting delivery of stock of
the Company or by withholding a portion of the stock otherwise issuable in
connection with an Award.
5.12 LEGENDS ON AWARDS AND STOCK CERTIFICATES. Each Award Document and
each certificate representing shares acquired upon vesting or exercise of an
Award shall be endorsed with all legends, if any, required by applicable federal
and state securities and other laws to be placed on the Award Document and/or
the certificate. The determination of which legends, if any, shall be placed
upon Award Documents or the certificates shall be made by the Administering Body
in its sole discretion and such decision shall be final and binding.
5.13 EFFECT OF TERMINATION OF EMPLOYMENT ON INCENTIVE AWARDS.
(i) Termination for Just Cause. Subject to subsection (iii) below,
and except as otherwise provided in a written agreement between the Company and
the Recipient, which may be entered into at any time before or after termination
of employment, in the event of a Just Cause Dismissal of a Recipient all of the
Recipient's unexercised Stock Options, whether or not vested, shall expire and
become unexercisable as of the date of such Just Cause Dismissal.
(ii) Termination other than for Just Cause. Subject to subsection
(iii) below, and except as otherwise provided in a written agreement between the
Company and the Recipient, which may be entered into at any time before or after
termination of employment, in the event of a Recipient's termination of
employment for:
(A) death, Permanent Disability or normal retirement, the
Recipient's unexercised Options shall, whether or not vested, expire
and become unexercisable as of the earlier of (1) the date such Stock
Options would expire in accordance with their terms had the Recipient
remained employed and (2) six months after the date of employment
termination.
(B) any reason other than for Just Cause Dismissal, death,
Permanent Disability or normal retirement, the Recipient's Stock
Options, whether or not vested, shall expire and become unexercisable
as of the earlier of (1) the date such Stock Options would expire in
accordance with their terms had the Recipient remained employed and (2)
thirty days after the date of employment termination.
(iii) Alteration of Vesting and Exercise Periods. Notwithstanding
anything to the contrary in subsections (i) or (ii) above, the Administering
Body may in its discretion designate shorter or longer periods to exercise Stock
Options following a Recipient's termination of employment; provided, however,
that any shorter periods determined by the Administering Body shall be effective
only if provided for in the instrument that evidences the grant to the Recipient
of such Stock Options or if such shorter period is agreed to in writing by the
Recipient. Notwithstanding anything to the contrary herein, Stock Options shall
be exercisable by a Recipient (or the Recipient's successor in interest)
following such Recipient's termination of employment only to the extent that
installments thereof had become exercisable on or prior to the date of such
termination; provided, however, that the Administering Body may, in its
discretion, elect to accelerate the vesting of all or any portion of any Stock
Options that had not become exercisable on or prior to the date of such
termination.
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(iv) Leave of Absence. In the case of any employee on an approved
leave of absence, the Administering Body may make such provision respecting
continuance of a Stock Option as the Administering Body in its discretion deems
appropriate, except that in no event shall a Stock Option be exercisable after
the date such Stock Options would expire in accordance with its terms had the
Recipient remained continuously employed.
5.15 LIMITS ON AWARDS TO CERTAIN ELIGIBLE PERSONS. Notwithstanding any
other provision of this Plan, no one Eligible Person shall be granted any Awards
with respect to more than 200,000 shares of Common Stock in any one calendar
year; provided, however, that this limitation shall not apply if it is not
required in order for the compensation attributable to Awards hereunder to
qualify as Performance-Based Compensation. The limitation set forth in this
Section 5.15 shall be subject to adjustment as provided in Section 3.4 or under
Article VII, but only to the extent such adjustment would not affect the status
of compensation attributable to Awards hereunder as Performance-Based
Compensation.
5.16 SPECIAL PROVISIONS REGARDING CALIFORNIA PERMITTED PLAN.
Notwithstanding any provisions of this Plan to the contrary, during any period
that this Plan constitutes a California Permitted Plan, the terms of any Awards
granted during such period shall comply with the California Commissioner's
guidelines for options granted to and share purchases by employees, directors
and consultants as set forth in the California Securities Rules Sections
260.140.41 and 260.140.42 in effect at the time the California Commissioner
issues the qualification permit for this Plan, unless and to the extent any such
compliance is waived by the California Commissioner. As of the Effective Date,
such guidelines require, among other matters (i) that the option exercise price
of Stock Options be not less than 85% of the fair value of the underlying shares
as of the grant date of the Stock Option, with the exercise price to be not less
than 110% of the fair value as of such date in the case of Stock Options granted
to Significant Shareholders; (ii) the right to exercise a Stock Option at a rate
of at least 20% per year over a five-year period commencing with the option
grant date; (iii) in the case of stock purchases, a purchase price of at least
85% of the fair value of the shares at the time the stock purchase right is
granted or consummated, with the price to be 100% of the fair value of the
shares at such dates in the case of stock purchases by Significant Stockholders;
and (iv) that Recipients receive financial statements of the Company at least
annually.
ARTICLE VI
INCENTIVE AWARDS
6.1 STOCK OPTIONS.
(a) Nature of Stock Options. Stock Options may be Incentive Stock
Options or Nonqualified Stock Options.
(b) Option Exercise Price. The exercise price for each Stock Option
shall be determined by the Administering Body as of the date such Stock Option
is granted. The exercise price may be greater than or less than the Fair Market
Value of the Common Stock subject to the Option, provided that in no event shall
the exercise price be less than the par value of the shares of Common Stock
subject to the Stock Option. The Administering Body may, with the consent of the
Recipient and subject to compliance with statutory or administrative
requirements applicable to Incentive Stock Options, amend the terms of any Stock
Option to provide that the exercise price of the shares remaining subject to the
Stock Option shall be reestablished at a price not less than 100% of the Fair
Market Value of the Common Stock on the effective date of the amendment. No
modification of any other term or provision of any Stock Option which is amended
in accordance with the foregoing shall be required, although the Administering
Body may, in its discretion, make such further modifications of any such Stock
Option as are not inconsistent with this Plan.
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(c) Option Period and Vesting. Stock Options granted hereunder shall
vest and may be exercised as determined by the Administering Body, except that
exercise of such Stock Options after termination of the Recipient's employment
shall be subject to Section 5.13. Each Stock Option granted hereunder and all
rights or obligations thereunder shall expire on such date as shall be
determined by the Administering Body, but not later than l0 years after the date
the Stock Option is granted and shall be subject to earlier termination as
provided herein or in the Award Document. The Administering Body may in its
discretion at any time and from time to time after the grant of a Stock Option
accelerate vesting of such Option as a whole or in part by increasing the number
of shares then purchasable, provided that the total number of shares subject to
such Stock Option may not be increased. Except as otherwise provided herein, a
Stock Option shall become exercisable, as a whole or in part, on the date or
dates specified by the Administering Body and thereafter shall remain
exercisable until the expiration or earlier termination of the Stock Option.
(d) Special Provisions Regarding Incentive Stock Options.
(i) Notwithstanding anything in this Section 6.1 to the contrary,
the exercise price and vesting period of any Stock Option intended to qualify as
an Incentive Stock Option shall comply with the provisions of Section 422 of the
IRC and the regulations thereunder. As of the Effective Date, such provisions
require, among other matters, that (A) the exercise price must not be less than
the Fair Market Value of the underlying stock as of the date the Incentive Stock
Option is granted, and not less than 110% of the Fair Market Value as of such
date in the case of a grant to a Significant Stockholder; and (B) that the
Incentive Stock Option not be exercisable after the expiration of five years
from the date of grant in the case of an Incentive Stock Option granted to a
Significant Stockholder.
(ii) The aggregate Fair Market Value (determined as of the
respective date or dates of grant) of the Common Stock for which one or more
Options granted to any Recipient under this Plan (or any other option plan of
the Company or any of its subsidiaries or affiliates) may for the first time
become exercisable as Incentive Stock Options under the federal tax laws during
any one calendar year shall not exceed $100,000.
(iii) Any Options granted as Incentive Stock Options pursuant to
this Plan that for any reason fail or cease to qualify as such shall be treated
as Nonqualified Stock Options.
6.2 RESTRICTED STOCK.
(a) Award of Restricted Stock. The Administering Body shall determine
the Purchase Price (if any), the terms of payment of the Purchase Price, the
restrictions upon the Restricted Stock, and when such restrictions shall lapse.
(b) Requirements of Restricted Stock. All shares of Restricted Stock
granted or sold pursuant to this Plan will be subject to the following
conditions:
(i) No Transfer. The shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, alienated or
encumbered until the restrictions are removed or expire;
(ii) Certificates. The Administering Body may require that the
certificates representing Restricted Stock granted or sold to a Recipient
pursuant to this Plan remain in the physical custody of an escrow holder or the
Company until all restrictions are removed or expire;
11
<PAGE> 12
(iii) Restrictive Legends. Each certificate representing
Restricted Stock granted or sold to a Recipient pursuant to this Plan will bear
such legend or legends making reference to the restrictions imposed upon such
Restricted Stock as the Administering Body in its discretion deems necessary or
appropriate to enforce such restrictions; and
(iv) Other Restrictions. The Administering Body may impose such
other conditions on Restricted Stock as the Administering Body may deem
advisable including without limitation restrictions under the Securities Act,
under the Exchange Act, under the requirements of any stock exchange upon which
such Restricted Stock or shares of the same class are then listed and under any
blue sky or other securities laws applicable to such shares.
(c) Lapse of Restrictions. The restrictions imposed upon Restricted
Stock will lapse in accordance with such terms or other conditions as are
determined by the Administering Body.
(d) Rights of Recipient. Subject to the provisions of Section 6.2(b)
and any restrictions imposed upon the Restricted Stock, the Recipient will have
all rights of a stockholder with respect to the Restricted Stock granted or sold
to such Recipient under this Plan, including without limitation the right to
vote the shares and receive all dividends and other distributions paid or made
with respect thereto.
(e) Termination of Employment. Unless the Administering Body in its
discretion determines otherwise, upon a Recipient's termination of employment
for any reason, all of the Recipient's Restricted Stock remaining subject to
restrictions imposed pursuant to this Plan on the date of such termination of
employment shall be repurchased by the Company at the Purchase Price (if any).
6.3 STOCK APPRECIATION RIGHTS.
(a) Granting of Stock Appreciation Rights. The Administering Body may
at any time and from time to time approve the grant to Eligible Persons of Stock
Appreciation Rights, related or unrelated to Stock Options.
(b) SARs Related to Options.
(i) A Stock Appreciation Right granted in connection with a Stock
Option granted under this Plan will entitle the holder of the related Stock
Option, upon exercise of the Stock Appreciation Right, to surrender such Stock
Option, or any portion thereof to the extent previously vested but unexercised,
with respect to the number of shares as to which such Stock Appreciation Right
is exercised, and to receive payment of an amount computed pursuant to Section
6.3(b)(iii). Such Stock Option will, to the extent surrendered, then cease to be
exercisable.
(ii) A Stock Appreciation Right granted in connection with a Stock
Option hereunder will be exercisable at such time or times, and only to the
extent that, the related Stock Option is exercisable, and will not be
transferable except to the extent that such related Stock Option may be
transferable.
(iii) Upon the exercise of a Stock Appreciation Right related to a
Stock Option, the Recipient will be entitled to receive payment of an amount
determined by multiplying: (i) the difference obtained by subtracting the
exercise price of a share of Common Stock specified in the related Stock Option
from the Fair Market Value of a share of Common Stock on the date of exercise of
such Stock Appreciation Right (or as of such other date or as of the occurrence
of such event as may have been specified in the instrument evidencing the grant
of the Stock Appreciation Right), by (ii) the number of shares as to which such
Stock Appreciation Right is exercised.
12
<PAGE> 13
(c) SARs Unrelated to Options. The Administering Body may grant Stock
Appreciation Rights unrelated to Stock Options to Eligible Persons. Section
6.3(b)(iii) shall be used to determine the amount payable at exercise under such
Stock Appreciation Right, except that in lieu of the Option exercise price
specified in the related Stock Option the initial base amount specified in the
Incentive Award shall be used.
(d) Limits. Notwithstanding the foregoing, the Administering Body, in
its discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right under this Plan.
(e) Payments. Payment of the amount determined under the foregoing
provisions may be made solely in whole shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the sole discretion of the Administering Body, in cash or in a
combination of cash and shares of Common Stock as the Administering Body deems
advisable. The Administering Body has full discretion to determine the form in
which payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right. If the Administering Body decides to
make full payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.
(f) Rule 16b-3. The Administering Body may, at the time a Stock
Appreciation Right is granted, impose such conditions on the exercise of the
Stock Appreciation Right as may be required to satisfy the requirements of Rule
16b-3 (or any other comparable provisions in effect at the time or times in
question).
6.4 STOCK PAYMENTS. The Administering Body may approve Stock Payments
of the Company's Common Stock to any Eligible Person for all or any portion of
the compensation (other than base salary) or other payment that would otherwise
become payable by the Company to the Eligible Person in cash.
6.5 DIVIDEND EQUIVALENTS. The Administering Body may grant Dividend
Equivalents to any Recipient who has received a Stock Option, SAR or other
Incentive Award denominated in shares of Common Stock. Such Dividend Equivalents
shall be effective and shall entitle the recipients thereof to payments during
the Applicable Dividend Period. Dividend Equivalents may be paid in cash, Common
Stock or other Incentive Awards; the amount of Dividend Equivalents paid other
than in cash shall be determined by the Administering Body by application of
such formula as the Administering Body may deem appropriate to translate the
cash value of dividends paid to the alternative form of payment of the Dividend
Equivalent. Dividend Equivalents shall be computed as of each dividend record
date and shall be payable to recipients thereof at such time as the
Administering Body may determine.
6.6 STOCK BONUSES. The Administering Body may issue shares of Common
Stock to Eligible Persons as bonuses for services rendered or for any other
valid consideration on such terms and conditions as the Administering Body may
determine.
6.7 STOCK SALES. The Administering Body may sell to Eligible Persons
shares of Common Stock on such terms and conditions as the Administering Body
may determine.
13
<PAGE> 14
6.8 PHANTOM STOCK. The Administering Body is authorized to grant Awards
of Phantom Stock. Phantom Stock is a cash bonus granted under this Plan measured
by the Fair Market Value of a specified number of shares of Common Stock on a
specified date, or measured by the excess of such Fair Market Value over a
specified minimum, which may but need not include a Dividend Equivalent.
6.9 OTHER STOCK-BASED BENEFITS. The Administering Body is authorized to
grant Other Stock-Based Benefits. Other Stock-Based Benefits are any
arrangements granted under this Plan not otherwise described above which (i) by
their terms might involve the issuance or sale of Common Stock or (ii) involve a
benefit that is measured, as a whole or in part, by the value, appreciation,
dividend yield or other features attributable to a specified number of shares of
Common Stock.
ARTICLE VII
REORGANIZATIONS
7.1 CORPORATE TRANSACTIONS NOT INVOLVING A CHANGE IN CONTROL. If the
Company shall consummate any Reorganization not involving a Change of Control in
which holders of shares of Common Stock are entitled to receive in respect of
such shares any securities, cash or other consideration (including without
limitation a different number of shares of Common Stock), each Award outstanding
under this Plan shall thereafter be exercisable, in accordance with this Plan,
only for the kind and amount of securities, cash and/or other consideration
receivable upon such Reorganization by a holder of the same number of shares of
Common Stock as are subject to that Award immediately prior to such
Reorganization, and any adjustments will be made in the sole discretion of the
Administering Body to the terms of the Award as the Administering Body may deem
appropriate to give effect to the Reorganization.
7.2 CORPORATE TRANSACTIONS INVOLVING A CHANGE IN CONTROL. As of the
effective time and date of any Change in Control this Plan and any then
outstanding Awards (whether or not vested) shall automatically terminate unless
(i) provision is made in writing in connection with such transaction for the
continuance of this Plan and for the assumption of such Awards, or for the
substitution for such Awards of new awards covering the securities of a
successor entity or an affiliate thereof, with appropriate adjustments as to the
number and kind of securities and exercise prices, in which event this Plan and
such outstanding Awards shall continue or be replaced, as the case may be, in
the manner and under the terms so provided; or (ii) the Board otherwise shall
provide in writing for such adjustments as it deems appropriate in the terms and
conditions of the then-outstanding Awards (whether or not vested), including
without limitation (A) accelerating the vesting of outstanding Awards, and/or
(B) providing for the cancellation of Awards and their automatic conversion into
the right to receive the securities, cash or other consideration that a holder
of the shares underlying such Awards would have been entitled to receive upon
consummation of such Change in Control had such shares been issued and
outstanding immediately prior to the effective date and time of the Change in
Control (net of the appropriate option exercise prices). If, pursuant to the
foregoing provisions of this Section 7.2, this Plan and the Awards shall
terminate by reason of the occurrence of a Change in Control without provision
for any of the action(s) described in clause (i) or (ii) hereof, then any
Recipient holding outstanding Awards shall have the right, at such time
immediately prior to the consummation of the Change in Control as the Board
shall designate, to exercise the Recipient's Awards to the full extent not
theretofore exercised, including any installments which have not yet become
vested.
14
<PAGE> 15
ARTICLE VIII
DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined shall
have the meanings set forth below:
"ADMINISTERING BODY" shall mean, subject to the provisions of Section
4.1(b)(ii) hereof, the Board as long as no Committee has been appointed and is
in effect and shall mean the Committee once the Committee has been appointed and
is in effect.
"AFFILIATED ENTITY" means any Parent Corporation or Subsidiary
Corporation.
"APPLICABLE DIVIDEND PERIOD" means (i) the period between the date a
Dividend Equivalent is granted and the date the related Stock Option, SAR, or
other Incentive Award is exercised, terminates, or is converted to Common Stock,
or (ii) such other time as the Administering Body may specify in the written
instrument evidencing the grant of the Dividend Equivalent.
"AWARD" means any Incentive Award.
"AWARD DOCUMENT" means the agreement or confirming memorandum setting
forth the terms and conditions of an Award.
"BOARD" means the Board of Directors of the Company.
"CALIFORNIA COMMISSIONER" means the Commissioner of Corporations of the
State of California.
"CALIFORNIA PERMITTED PLAN" means this Plan when at any time the
issuance of securities under this Plan is not exempt from qualification under
the California Securities Law and the issuance of securities under this Plan is
subject to a qualification permit issued by the California Commissioner.
"CALIFORNIA SECURITIES LAW" means the California Corporate Securities
Law of 1968, as amended.
"CALIFORNIA SECURITIES RULES" means the Rules of the California
Commissioner adopted under the California Securities Law.
"CHANGE IN CONTROL" means the following and shall be deemed to occur if
any of the following events occur:
(i) Any Person becomes the beneficial owner (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either
the then outstanding shares of Common Stock or the combined voting
power of the Company's then outstanding securities entitled to vote
generally in the election of directors; or
(ii) Individuals who, as of the effective date hereof, constitute
the Board of Directors of the Company ("Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors of
the Company, provided that any individual who becomes a director after
the effective date hereof whose election, or nomination for election by
the Company's stockholders, is approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered to be a member of the Incumbent Board unless that individual
was nominated or elected by any Person having the power to exercise,
through beneficial ownership, voting agreement and/or proxy, 20% or
more of either the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors, in
which case that individual shall not be considered to be a member of
the Incumbent Board unless such individual's election or nomination for
election by the Company's stockholders is approved by a vote of at
least two-thirds of the directors then comprising the Incumbent Board;
or
15
<PAGE> 16
(iii) Consummation by the Company of the sale or other disposition
by the Company of all or substantially all of the Company's assets or a
Reorganization of the Company with any other person, corporation or
other entity, other than:
(A) a Reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto (or, in
the case of a reorganization or merger or consolidation that is
preceded or accomplished by an acquisition or series of related
acquisitions by any Person, by tender or exchange offer or otherwise,
of voting securities representing 5% or more of the combined voting
power of all securities of the Company, immediately prior to such
acquisition or the first acquisition in such series of acquisitions)
continuing to represent, either by remaining outstanding or by being
converted into voting securities of another entity, more than 50% of
the combined voting power of the voting securities of the Company or
such other entity outstanding immediately after such reorganization or
merger or consolidation (or series of related transactions involving
such a reorganization or merger or consolidation), or
(B) a Reorganization effected to implement a recapitalization
or reincorporation of the Company (or similar transaction) that does
not result in a material change in beneficial ownership of the voting
securities of the Company or its successor; or
(iv) Approval by the stockholders of the Company or an order by a
court of competent jurisdiction of a plan of liquidation of the
Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the committee appointed by the Board to administer
this Plan pursuant to Section 4.1.
"COMMON STOCK" means the common stock of the Company, $.01 par value
per share, as constituted on the Effective Date of this Plan, and as thereafter
adjusted as a result of any one or more events requiring adjustment of
outstanding Awards under Section 3.4 above.
"COMPANY" means Diedrich Coffee, Inc., a Delaware corporation.
"DISINTERESTED DIRECTOR" means any non-employee director of the Company
who qualifies as "disinterested" within the meaning of Rule 16b-3.
"DIVIDEND EQUIVALENT" means a right granted by the Company under
Section 6.5 to a holder of a Stock Option, Stock Appreciation Right or other
Incentive Award denominated in shares of Common Stock to receive from the
Company during the Applicable Dividend Period payments equivalent to the amount
of dividends payable to holders of the number of shares of Common Stock
underlying such Stock Option, Stock Appreciation Right, or other Incentive
Award.
"EFFECTIVE DATE" means July 16, 1996, which is the date this Plan was
adopted by the Board.
"ELIGIBLE PERSON" shall include directors, officers, employees,
consultants and advisors of the Company or of any Affiliated Entity; provided,
however, that Disinterested Directors shall not be Eligible Persons at any time
the Company is an Exchange Act Registered Company.
16
<PAGE> 17
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE ACT REGISTERED COMPANY" means that the Company has any class
of any equity security registered pursuant to Section 12 of the Exchange Act.
"EXPIRATION DATE" means the tenth anniversary of the Effective Date.
"FAIR MARKET VALUE" of a share of the Company's capital stock as of a
particular date shall be: (i) if the stock is listed on an established stock
exchange or exchanges (including for this purpose, the Nasdaq National Market),
the mean between the highest and lowest sale prices of the stock quoted for such
date in the Transactions Index of each such exchange as averaged with such mean
price as reported on any and all other exchanges, as published in The Wall
Street Journal and determined by the Administering Body, or, if no sale price
was quoted in any such Index for such date, then as of the next preceding date
on which such a sale price was quoted; or (ii) if the stock is not then listed
on an exchange or the Nasdaq National Market, the average of the closing bid and
asked prices per share for the stock in the over-the-counter market as quoted on
The Nasdaq Small Cap Market on such date (in the case of (i) or (ii), subject to
adjustment as and if necessary and appropriate to set an exercise price not less
than 100% of the fair market value of the stock on the date an option is
granted); or (iii) if the stock is not then listed on an exchange or quoted in
the over-the-counter market, an amount determined in good faith by the
Administering Body; provided, however, that (A) when appropriate, the
Administering Body in determining Fair Market Value of capital stock of the
Company may take into account such other factors as it may deem appropriate
under the circumstances and (B) if the stock is traded on the Nasdaq Small Cap
Market and both sales prices and bid and asked prices are quoted or available,
the Administering Body may elect to determine Fair Market Value under either
clause (i) or (ii) above. Notwithstanding the foregoing, the Fair Market Value
of capital stock for purposes of grants of Incentive Stock Options shall be
determined in compliance with applicable provisions of the IRC. The Fair Market
Value of rights or property other than capital stock of the Company means the
fair market value thereof as determined by the Committee on the basis of such
factors as it may deem appropriate.
"INCENTIVE AWARD" means any Stock Option, Restricted Stock, Stock
Appreciation Right, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock,
Dividend Equivalent, or Other Stock-Based Benefit granted or sold to an Eligible
Person under this Plan.
"INCENTIVE STOCK OPTION" means a Stock Option that qualifies as an
incentive stock option under Section 422 of the IRC.
"IRC" means the Internal Revenue Code of 1986, as amended.
"JUST CAUSE DISMISSAL" shall mean a termination of a Recipient's
employment for any of the following reasons: (i) the Recipient violates any
reasonable rule or regulation of the Board, the Company's Chief Executive
Officer or the Recipient's superiors that results in damage to the Company or
which, after written notice to do so, the Recipient fails to correct within a
reasonable time; (ii) any willful misconduct or gross negligence by the
Recipient in the responsibilities assigned to the Recipient; (iii) any willful
failure to perform the Recipient's job as required to meet Company objectives;
(iv) any wrongful conduct of a Recipient which has an adverse impact on the
Company or which constitutes a misappropriation of Company assets;
17
<PAGE> 18
(v) the Recipient's performing services for any other person or entity which
competes with the Company while the Recipient is employed by the Company,
without the written approval of the Chief Executive Officer of the Company; or
(vi) any other conduct that the Administering Body determines constitutes Just
Cause for Dismissal; provided, however, that if a Recipient is party to an
employment agreement with the Company providing for just cause dismissal (or
some comparable notion) of Recipient from Recipient's employment with the
Company, "Just Cause Dismissal" for purposes of this Plan shall have the same
meaning as ascribed thereto or to such comparable notion in such employment
agreement.
"NONQUALIFIED STOCK OPTION" means a Stock Option that is not an
Incentive Stock Option.
"OTHER STOCK-BASED BENEFITS" means an Incentive Award granted under
Section 6.9 of this Plan.
"OUTSIDE DIRECTOR" means an "outside director" as defined in the
regulations adopted under Section 162(m) of the IRC.
"PARENT CORPORATION" means any Parent Corporation as defined in Section
424(e) of the IRC.
"PAYMENT EVENT" means the event or events giving rise to the right to
payment of a Performance Award.
"PERFORMANCE-BASED COMPENSATION" means performance-based compensation
as described in Section 162(m) of the IRC. If the amount of compensation an
Eligible Person will receive under any Award is not based solely on an increase
in the value of Common Stock after the date of grant or award, the Committee, in
order to qualify an Award as performance-based compensation under Section 162(m)
of the IRC, can condition the grant, award, vesting, or exercisability of such
an Award on the attainment of a preestablished, objective performance goal. For
this purpose, a preestablished, objective performance goal may include one or
more of the following performance criteria: (a) cash flow, (b) earnings per
share (including earnings before interest, taxes, and amortization), (c) return
on equity, (d) total stockholder return, (e) return on capital, (f) return on
assets or net assets, (g) income or net income, (h) operating income or net
operating income, (i) operating margin, (j) return on operating revenue, and (k)
any other similar performance criteria.
"PERSON" means any person, entity or group, within the meaning of
Section 13(d) or 14(d) of the Exchange Act, but excluding (i) the Company and
its subsidiaries, (ii) any employee stock ownership or other employee benefit
plan maintained by the Company that is qualified under ERISA and (iii) an
underwriter or underwriting syndicate that has acquired the Company's securities
solely in connection with a public offering thereof.
"PERMANENT DISABILITY" shall mean that the Recipient becomes physically
or mentally incapacitated or disabled so that the Recipient is unable to perform
substantially the same services as the Recipient performed prior to incurring
such incapacity or disability (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such incapacity or
disability, and the determination of such physician to be binding upon the
Company and the Recipient), and such incapacity or disability continues for a
period of three consecutive months or six months in any 12-month period or such
other period(s) as may be determined by the Committee with respect to any Award,
provided that for purposes of determining the period during which an Incentive
Stock Option may be exercised pursuant to Section 5.13(ii) hereof, Permanent
Disability shall mean "permanent and total disability" as defined in Section
22(e) of the IRC.
18
<PAGE> 19
"PHANTOM STOCK" means an Incentive Award granted under Section 6.8 of
this Plan.
"PLAN" means this Amended and Restated 1996 Stock Incentive Plan of the
Company.
"PLAN TERM" means the period during which this Plan remains in effect
(commencing the Effective Date and ending on the Expiration Date).
"PURCHASE PRICE" means the purchase price (if any) to be paid by a
Recipient for Restricted Stock as determined by the Committee (which price shall
be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).
"RECIPIENT" means a person who has received an Award under this Plan.
"REORGANIZATION" means any merger, consolidation or other
reorganization.
"RESTRICTED STOCK" means Common Stock that is the subject of an Award
made under Section 6.2 and which is nontransferable and subject to a substantial
risk of forfeiture until specific conditions are met as set forth in this Plan
and in any statement evidencing the grant of such Incentive Award.
"RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT STOCKHOLDER" is an individual who, at the time a Stock
Option is granted to such individual under this Plan, owns more than ten percent
(10%) of the combined voting power of all classes of stock of the Company or of
any Parent Corporation or Subsidiary Corporation (after application of the
attribution rules set forth in Section 424(d) of the IRC).
"STOCK APPRECIATION RIGHT" or "SAR" means a right granted under Section
6.3 to receive a payment that is measured with reference to the amount by which
the Fair Market Value of a specified number of shares of Common Stock
appreciates from a specified date, such as the date of grant of the SAR, to the
date of exercise.
"STOCK BONUS" means an issuance or delivery of unrestricted or
restricted shares of Common Stock under Section 6.6 of this Plan as a bonus for
services rendered or for any other valid consideration under applicable law.
"STOCK PAYMENT" means a payment in shares of the Company's Common Stock
to replace all or any portion of the compensation (other than base salary) that
would otherwise become payable to a Recipient.
"STOCK OPTION" means a right to purchase stock of the Company granted
under Section 6.1 of this Plan.
"STOCK SALE" means a sale of Common Stock to an Eligible Person under
Section 6.7 of this Plan.
"SUBSIDIARY CORPORATION" means any Subsidiary Corporation as defined in
Section 425(f) of the IRC.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIEDRICH
COFFEE, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE TWELVE WEEKS ENDED AND AS
OF SEPTEMBER 22, 1999 CONTAINED IN COMPANY'S 1ST QUARTER 2000 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-22-1999
<CASH> 5,534,941
<SECURITIES> 0
<RECEIVABLES> 3,489,060
<ALLOWANCES> 0
<INVENTORY> 5,063,875
<CURRENT-ASSETS> 15,217,453
<PP&E> 32,115,680
<DEPRECIATION> 12,651,126
<TOTAL-ASSETS> 61,383,277
<CURRENT-LIABILITIES> 12,412,645
<BONDS> 0
0
0
<COMMON> 126,035
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 61,383,277
<SALES> 16,272,525
<TOTAL-REVENUES> 16,272,525
<CGS> 7,961,390
<TOTAL-COSTS> 7,961,390
<OTHER-EXPENSES> 8,473,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286,889
<INCOME-PRETAX> (382,291)
<INCOME-TAX> 7,200
<INCOME-CONTINUING> (389,491)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (389,491)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
