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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 33-960-70-LA
THANKSGIVING COFFEE COMPANY, INC.
(Exact name of small business issuer
as specified in its charter)
California 94-2823626
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
19100 South Harbor Drive
Fort Bragg, California 95437
(Address of principal executive officers) (Zip Code)
Issuer's telephone number, including area code: (707) 964-0118
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any
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amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $6,222,128
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing: $1,320,938 as of February 6, 1998.
As of December 31, 1997, there were issued and outstanding 1,236,744
shares of common stock of the issuer.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents if incorporated by reference and the Part
of this Form 10-KSB into which the document is incorporated: None.
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THANKSGIVING COFFEE COMPANY, INC.
INDEX
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Page No.
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PART I.
Item 1. Description of Business...................................... 1
Item 2. Description of Property...................................... 9
Item 3. Legal Proceedings.............................................. 10
Item 4. Submission of Matters to a Vote of
Security Holders............................................... 10
PART II.
Item 5. Market for Common Equity and Related
Stockholder Matters............................................ 10
Item 6. Management's Discussion and Analysis or
Plan of Operation.............................................. 11
Item 7. Financial Statements........................................... 15
Item 8. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure..................................................... 15
PART III.
Item 9. Directors and Executive Officers of the
Registrant..................................................... 15
Item 10. Executive Compensation......................................... 17
Item 11. Security Ownership of Management and
Certain Others................................................. 17
Item 12. Certain Relationships and Related
Transactions................................................... 18
Item 13. Exhibits and Reports on Form 8-K............................... 19
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PART I
ITEM 1: BUSINESS
FORWARD LOOKING INFORMATION
Certain information in this Form 10-KSB, including planned expansions into
new and existing markets and trends in the operations of Thanksgiving Coffee
Company, Inc. (the "Company"), may be perceived to be forward looking
statements. Any such statements should be considered in light of various risks
and uncertainties that could cause results to differ materially from
expectations, estimates or forecasts expressed. The various risks and
uncertainties include, but are not limited to: changes in general economic
conditions, changes in business conditions in the coffee industry, fluctuations
in consumer demand for coffee products and in the availability and costs of
green coffee beans, increased competition within the Company's businesses, the
management challenges of rapid growth, variances from budgeted sales mix and
growth rate, consumer acceptance of the Company's new products, inability to
secure adequate capital to fund its operating losses and working capital
requirements, inability to hire, train and retain qualified personnel,
concentration of production and sales in Northern California, the loss of one or
more major customers, inability to successfully implement its business plan,
weather and other risks identified herein. The Company does not undertake to
update any forward looking statement that may be made from time to time by or on
its behalf.
GENERAL
For more than twenty-five years, Thanksgiving Coffee Company, Inc. (the
"Company") has purchased, roasted and marketed high quality coffee beans to the
specialty coffee market. The Company buys green coffee beans through Sustainable
Harvest, Inc.("Sustainable Harvest"), a supplier of shade grown, arabica coffee
beans which was a wholly-owned subsidiary of the Company in fiscal 1997, and
through six other importers. At the end of fiscal 1997, the Company sold
Sustainable Harvest but has an agreement to purchase beans from Sustainable
Harvest for five years. See "Green Bean Coffee Supply and Availability."
The Company was incorporated as a California corporation on May 10, 1982.
Prior to that time, the Company was operated as a partnership.
The Company retails over 100 varieties of its coffee and tea through its
own distribution system in the Northern California market. In other parts of
the nation the Company distributes either direct to retailers or through
brokers. The Company also
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markets directly to consumers through both the print and electronic media. It
publishes a mail order catalogue which features most of the Company's coffee and
tea products, in addition to complementary products and accessories of third
parties. The same product offerings are made on the Company's web site on the
internet. The Company also markets its coffee and tea products in its retail
bakery (the "Bakery"), located on the north Mendocino coast of California. At
the end of February 1998, the Company closed its retail coffee shop (the
"Cafe"), which had previously marketed the Company's coffee and tea products.
In October 1996, the Company completed its offering of shares of Common
Stock. During the subsequent twelve months, the Company added a division
director and two fulfillment clerks to the direct marketing department, hired a
new controller, increased its sales staff by five in its direct sales division
and by one in its national sales distribution and added a designer responsible
for graphic art, web site design and maintenance, and marketing. As of December
31, 1997, 1,341 shareholders held shares of the Company's Common Stock which
represents approximately 21% of the outstanding shares.
SOCIAL RESPONSIBILITY
It has been the hallmark of the Company to not only provide an excellent
cup of quality coffee but also procure, roast, package and market its products
in a fair manner to all its customers. The Company's motto, "Not Just a Cup, but
a Just Cup,"(TM) reflects the Company's commitment to local coffee growers in
developing nations. It donates $0.15 per package of selected organic coffees for
the benefit of local coffee co-operatives to help diversify their economies and
improve their economic future.
The clear cutting of the rain forests to provide land for sun- grown coffee
has destroyed the habitat of neo-tropical song birds. To assist the preservation
of this bird habitat in coffee growing nations and to support the promotion of
public awareness of this destruction, the Company provides cash rebates to the
American Birding Association. It provides a $0.15 rebate for every Song Bird
coffee package sold and a $0.15 rebate for every pound of bulk Song Bird coffee
sold.
The Company also contributes coffee, money and employee time to a number of
causes aligned with its commitment to social and environmental responsibility.
PRODUCTS
COFFEE. The Company roasts a wide variety of whole bean caffeinated,
decaffeinated, flavored, blended and unblended
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coffees. With the exception of its high-caffeinated coffees, the Company roasts
only high quality arabica beans with a focus on organics and shade grown beans.
Arabica beans are grown at high altitudes where the cooler climate results in
slow growth and high quality. Packages have been custom-designed for retailers'
particular products. Currently, the Company is producing custom products for the
American Birding Association under an exclusive ten-year contract and
private-label products for over 100 retail and serving accounts, in addition to
its full line of classic specialty and estate coffees from over 20 countries.
TEA. The Company's Royal Gardens Tea Company ("Royal Gardens") division
currently offers eleven traditional teas from China, India, Sri Lanka and Japan.
Royal Gardens packages its tea in gauze fabric bags which can expand to
accommodate whole leaf teas and allow proper infusion, unlike most teas which
are packaged in paper bags. Since the ability of paper to expand on immersion is
limited compared to gauze fabric, paper tea bags contain crushed leaves of
lower quality teas. The Company believes that Royal Gardens tea is the only tea
product that is packaged in fabric tea bags, and that this distinction is a
competitive advantage for the Company.
Supplies of tea are secured from traditional sources which are readily
available in the marketplace. Royal Gardens is a founding member of
the American Premium Tea Institute.
COMPLEMENTARY PRODUCTS. The Company sells a wide variety of complementary
coffee and tea products and accessories, such as coffee and espresso makers,
grinders, thermal carafes, books, T- shirts, mugs, CD's and chocolate covered
espresso beans. The Company's complementary products are purchased in quantities
for its mail order catalog and can be discontinued if no longer available.
The Company sells its coffees and teas through a multi-channel distribution
network consisting of wholesale operations, a Company- owned Bakery and direct
marketing operations. The Company offers its complementary products through its
Bakery and direct mail operations. The Company generally provides its wholesale
customers with brewing, grinding and related equipment (leased from
manufacturers) and product displays (designed and manufactured by the Company)
at no charge if predetermined sales volumes are reached. The Company believes
that its ability to construct its own display fixtures gives it a competitive
advantage because supermarkets, which constitute a significant portion of the
target market, require custom design fixture programs at low cost, with
accelerated delivery times. The Company believes that its major competitors
outsource the manufacture of their displays, and that such outsourcing
makes it more difficult for competitors
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to meet the supermarkets' quick delivery requirements.
In fiscal 1997, coffee and tea sales comprised approximately 95% and 2%,
respectively, of the Company's core revenues (exclusive of revenues from the
Cafe, Bakery and Sustainable Harvest), with complementary products accounting
for approximately 3% of the Company's core revenues.
COFFEE INDUSTRY
Specialty coffee is one of the fastest growing segments of the coffee
industry. According to the Specialty Coffee Association of America, the
production of mild arabica coffees, which are the basis of specialty coffee
sales, represents approximately $6.7 billion or 47% of the estimated total world
coffee trade valued at $14 billion in 1997. In 1997, the U.S. specialty coffee
industry purchased over 2.5 million bags of arabica coffees, which represent
$396 million or approximately 5% of the world's output. In the United States
during the past five years, specialty coffee beverage retailers have become the
fastest growing distribution channel in the specialty coffee industry. The
industry is expected to continue to be fragmented with only a few specialty
coffee companies possessing a nationally distributed brand. Costs of green
specialty coffee increased greatly in fiscal 1997 due to the inability of green
coffee suppliers to meet the growing world wide demand for coffee, the
unfavorable weather conditions in certain growing regions and the limited
inventories of high quality and organic coffee beans in the consuming nations.
MARKETING STRATEGY
The Company's sales and marketing efforts are organized in three different
segments:
1. Wholesale, direct delivery -- This segment includes customers in
northern California counties contiguous to the Company plant in Fort Bragg, CA,
and serviced by Company trucks. The Company owns or leases trucks and delivers
coffee within a 200 mile radius of Fort Bragg, California.
2. Wholesale, delivery by other means -- This segment includes accounts
which are serviced by UPS or other common carriers. Delivery is made to over 500
loyal accounts which span all 50 states of the United States.
3. Direct Marketing -- This segment includes accounts serviced through
catalogue or online programs.
During fiscal 1997, the Company made a dramatic shift in its blend of
product sales. This shift, which is expected to continue
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through fiscal 1998, is based on the introduction of Song Bird Coffee(TM) to the
marketplace. The Company has embarked on a campaign to market coffees to bird
lovers under an exclusive ten-year agreement with the American Birding
Association ("ABA") to produce and market Song Bird Coffee(TM) worldwide. Song
Bird Coffee(TM) is a registered trademark of the American Birding Association
("ABA"), one of America's most active and prestigious birding membership
associations with over 19,000 members.
The Company's strategy of "repositioning" its coffee products by
targeting bird lovers instead of coffee lovers is predicated on the fact that
migratory birds are in population decline due to loss of habitat, which results
from the clearing of shade tree canopy to allow coffee to grow in the sun. The
Smithsonian Migratory Bird Center's landmark 1996 study reported that as much as
60% of the migratory bird population of North America has disappeared since
1972, and traced this disappearance to the reduction of forest habitat in
Central and South America caused by the "technification" of coffee agriculture.
The Company's environmental concerns have meshed perfectly with the birding
community, and the Company's marketing efforts have been extremely successful to
date. Between April and December 1997, the Company opened over 250 new accounts
to exclusively retail Song Bird Coffee(TM).
In fiscal 1997, the Company pioneered the sale of the Song Bird Coffee(TM)
in bird stores, home and garden centers and drug stores. It also began to offer
Song Bird Coffee(TM) through more traditional retail venues such as
supermarkets, restaurants and cafes, and in its direct marketing catalogue.
This effort is intended to increase the awareness of the coffee drinking public
and the birding community that production of sun grown coffee on previously
forested lands was a major factor in the deterioration of the world's rain
forests and habitat of migratory song birds. By educating consumers through
packaging and special venue sales, such as bird stores, the Company's aim is
the creation of a strong market for shade grown coffees which preserves bird
habitat. Support by consumers could influence coffee farms to be replanted to
limited or natural shade, and thus, help stop the destruction of the
environment before additional losses occur in the song bird population.
The Company believes that its relationship with the ABA has
distinguished the Company's role and image in the marketplace. Since the
inception and introduction of Song Bird Coffee(TM), several significant changes
in the coffee industry have occurred:
1. The Specialty Coffee Association of America ("SCAA") has changed its
14-year old mission statement to include the words: "social
responsibility", "environmental sensitivity", and "sustainability".
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2. A Second National Conference on Coffee and the Environment, which is
co-sponsored by the SCAA and the Smithsonian Migratory Bird Center, will
be held on April 17, 1998, in Denver, Colorado. The Company's Chief
Executive Officer, Paul Katzeff, is co-chairman of the conference.
3. The international community of coffee producers has accepted the goal
of "sustainability" as the economic direction of choice.
4. Shade grown coffee now appears on the "offer" lists of most
coffee brokers and importers and is offered by a majority of small to
mid-size coffee roasters of specialty coffee.
5. Coffee producing countries, such as Costa Rica, have begun shade
replantings on their sun coffee farms to improve the quality of their
coffee beans and to benefit from premium prices paid for shade coffee.
The Company believes these positive developments are attributable in part
to the presence of Song Bird Coffee(TM) in the marketplace. The devotion of
more of the Company's resources to the production of Song Bird Coffee(TM) has
resulted in a corresponding increase in the percentage of the Company's
packaged and bulk roasted shade grown and organic coffee varieties, from
approximately 30% of sales in fiscal 1996 to just over 33% of sales in fiscal
1997. On an annualized basis, sales of Song Bird Coffee(TM), which was first
introduced to the market in April 1997, represented 10% of the Company's
packaged and bulk roasted coffee sales in fiscal 1997.
This rapid shift in the Company's product mix had an adverse impact on
the Company's gross margins in fiscal 1997, because cost of sales for shade
grown and organic coffee beans generally cost up to 41% more than sun grown
coffee. The Company's management recognized this problem late in the fourth
quarter of fiscal 1997, and has revised the Company's pricing structure to
enable sales to become profitable.
In fiscal 1997, in addition to its marketing emphasis on shade grown and
organic coffee, the Company embarked on an aggressive prospecting campaign to
increase the number of names in its direct mail marketing list. This effort
required significant cash outlays for purchasing and renting lists, advertising
and mailing. In addition, significant outlays were needed for catalogue
designing and printing which generated higher sales. As a result, over 25,000
names were added to the Company's mailing list and annual mail order sales
volume increased by 40% in fiscal 1997. Sales from the
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internet catalogue continue to increase with the addition of two new web sites
for Song Bird Coffee (TM) and "Zip" coffee.
COMPETITION
The specialty coffee market is highly competitive, and the Company competes
against all sellers of specialty coffee. At the wholesale level, the Company
competes with several nationally known premium coffee brands, such as Proctor &
Gamble's Millstone label and Nestle's Sarks label, as well as other lesser known
brands and store brands. The Company also competes regionally in Northern
California with small regional specialty roasters for retail shelf space and
with large regional roasters for food service trade. In the direct mail area,
the Company competes with established suppliers such as Gevalia, a division of
General Foods Corporation, as well as with other direct mail companies,
including Starbuck's, a leading independent specialty coffee retailer with a
limited wholesale operation.
The Company competes primarily on the basis of the quality of its products,
the superiority of its graphics, and its social and environmental philosophies.
While the Company believes it competes favorably with respect to these factors,
many of the Company's competitors are larger than the Company and have
significantly greater financial, marketing and other resources than the Company,
and there can be no assurance that it will be able to compete or maintain or
expand sales successfully in the future.
The Company's philosophy on competition is to lead rather than follow.
The Company attempts to cooperate with retailers in introducing novel products
which face little or no competition and to place its products in markets where
such products have not previously been sold. For example, Song Bird Coffee(TM)
is marketed in stores where bird lovers purchase birdseed and bird houses. The
Company calls this strategy "repositioning". See "Marketing Strategy."
Similarly, the Company sells organic coffee in the socially responsible
marketplace, repositioning its products as carriers of issues as well as flavor.
In fiscal 1997, the Company's coffee products were served and sold by
prestigious environmental organizations such as The World Wildlife Fund, Natural
Resource Defense Council, Monterey Bay Aquarium, the Cape May Bird Observatory
and by several other national institutions where social and environmental action
can be achieved through earmarked spending policies.
The Company cannot guarantee successful competition against more highly
funded coffee companies. The Company believes its focus on repositioning and
partnering has enabled it to find a
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niche in the coffee market, however there can be no assurance that the Company's
marketing efforts will be successful.
GREEN BEAN COFFEE SUPPLY AND AVAILABILITY
The Company purchases green beans from a number of importers as well as
from farmer representatives and small producer cooperatives. Although most
coffee trades in the worldwide commodities markets, coffee of the quality sought
by the Company tends to trade on a negotiated basis at a substantial premium or
"differential" above commodity coffee pricing, depending upon the supply and
demand at the time of purchase. Supply and price can be affected by multiple
factors, such as weather, politics and economics in the producing countries.
In addition, in its attempt to reduce the cost risk resulting from
market fluctuations in the cost of coffee beans, the Company does from time to
time purchase coffee option contracts when it is not able to enter into coffee
purchase commitments. Changes in the market value of option contracts are
reported by the Company in the period in which the change occurs and are
included as part of cost of sales.
With respect to organic and shade grown coffee, the Company has entered
into a five-year agreement with Sustainable Harvest to secure a supply of
organic and shade grown coffee beans. Under this agreement, the Company must
purchase and Sustainable Harvest must provide a minimum annual amount of beans
at a fixed mark-up above cost. This agreement is intended to ensure a supply of
organic and shade grown coffee for the Company's production of Song Bird
Coffee(TM).
The Company believes its long-term relationships with coffee bean brokers,
including Sustainable Harvest, provide adequate sources of supply of
high-quality green beans to meet its needs for the foreseeable future. However,
a worldwide supply shortage of the high quality arabica coffees the Company
purchases, and a shortage of organic and shade grown beans in particular, could
have an adverse impact on the Company. The Company is pursuing long-term
contracts with its Nicaraguan, Costa Rican and Mexican producers.
SUMMARY OF RECENT DEVELOPMENTS
In the fiscal quarter ended March 31, 1997, the Company commenced
operations of its wholly-owned subsidiary, Sustainable Harvest, which imports
green coffee beans for resale. Sustainable Harvest's operations were intended to
provide the Company with a supply of shade coffees that would meet the standards
set by the Company's 5-year market plan. Effective December 31, 1997, the
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Company sold all the outstanding stock of Sustainable Harvest to Mr. David
Griswold, an officer of Sustainable Harvest, and entered into a five-year
agreement with Sustainable Harvest for the purchase of organic and shade grown
coffee beans. These transactions were intended to establish and secure for the
Company a source of supply without the risks associated with the operations a
green coffee importing company and without the need for large capital outlays to
finance purchases of container loads of coffee, which could impact negatively on
the cash flow of the Company. In fiscal 1997, the Company recorded a loss of
$29,471 from the sale of Sustainable Harvest.
The results of the Company's Cafe, which previously retailed the
Company's coffee and tea products, did not meet expectations, and accordingly,
in an effort to reduce operating costs and overhead, management closed the Cafe
effective February 1998.
CUSTOMERS
In fiscal 1997, no customer accounted for more than 8% of the Company's
revenue from coffee sales. However, significant reduction in sales to any of the
Company's principal customers, or the loss of one or more major customers, may
have an adverse impact on the Company. In fiscal 1997, the Company continued its
efforts to expand its customer base and added over 250 new accounts to its
wholesale business by introducing Song Bird Coffee(TM) to birding stores, lawn
and garden centers and national park gift shops. See "Marketing Strategy."
INTELLECTUAL PROPERTY
The Company holds various federal registrations in the United States for
the following trademarks and service marks: Thanksgiving Coffee Company, Royal
Gardens Tea Company, Pony Express, Time Bandits, Grand Slam Coffee, "Not Just a
Cup...But a Just Cup," "Many Beans are Picked, Few are Chosen," Mayan Harvest,
and Inca Harvest. Federal trademark and service mark registrations must be
renewed every 10 years. Some of the Company's registered marks may require
renewal in the near future. The Company also has several applications pending
for registration of additional trademarks and service marks including the
Zapotec Powerline mark. The Company does not hold any patents.
GOVERNMENT REGULATION
The Company's roasting plant has been certified by the Organic Crop
Improvement Association (OCIA). The OCIA has also certified the organic
practices of several farms from which the Company receives green beans. The
certification criteria of the OCIA, an independent organization, meet the
standards promulgated under the
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Organic Foods Production Act of 1990 (OFPA). The Company believes that new
federal regulations regarding organic and natural food products will not
adversely affect the Company because it already adheres to OCIA standards that
are as stringent as the new regulations.
EMPLOYEES
As of December 31, 1997, the Company had approximately fifty-eight
full-time employees and seventeen part-time employees. Subsequent to the sale of
Sustainable Harvest effective December 31, 1997, and the closing of the
Company's Cafe in February 1998, the Company had approximately fifty-four
full-time employees and fifteen part-time employees. None of the Company's
employees are covered by a collective bargaining agreement. The Company has
never suffered a work stoppage due to adverse labor conditions with its
employees. The Company believes that it maintains good relations with its
employees.
ITEM 2: PROPERTIES
The executive offices of the Company occupy approximately 14,500 square
feet at 19100 South Noyo Harbor Drive, Fort Bragg, California 95437, which also
includes a warehouse and the capacity for manufacturing operations. The Company
leases an additional 1,626 square feet of storage space on the Fort Bragg
waterfront. These facilities are currently being leased for a five-year term
expiring March 31, 2000, at a rate of approximately $8,500 per month in fiscal
1997 and $8,600 per month in fiscal 1998, from affiliates of the Company, Joan
and Paul Katzeff, who are founders, principal shareholders, officers and
directors of the Company. The Company has an option to extend this lease for
three additional five-year periods. The Company believes this lease represents
an arms-length rate and arms-length terms for comparable space in the Fort Bragg
area. See Item 12, "Certain Relationships and Related Transactions."
The Company's Bakery in Mendocino is approximately 1,617 square feet and is
leased from an unaffiliated third party. The Company currently pays rent of
approximately $2,700 per month for the Bakery pursuant to a ten-year lease that
commenced on October 1, 1990. The Bakery has an option to extend its lease
through September 30, 2010.
The Company believes that its current facilities are adequate for its
current and expected operations, and that suitable additional space will be
available in the Fort Bragg area when and if additional space is required. The
Company owns no real property.
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The "month-to-month" lease for the Sustainable Harvest premises has been
assumed by the new owner of Sustainable Harvest. The Company is currently in
negotiations to sub-lease the Cafe premises to another tenant.
ITEM 3: LEGAL PROCEEDINGS
The Company is not currently party to any material pending legal
proceeding.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
quarter ending December 31, 1997.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Trades in the Company's Common Stock are made through Mutual Securities,
Inc., ("Mutual Securities") in Ukiah, California, an order matching service. No
established trading market exists for the Company's Common Stock. The Company's
Common Stock is not listed on any exchange nor the NASDAQ system, and the
Company does not currently intend to seek such listing in fiscal 1998.
There were no trades in the Company's Common Stock prior to the second
quarter of fiscal 1997. During the second, third and fourth quarters of fiscal
1997, the Company was aware of only 29 trades of the Company's Common Stock
totaling 14,700 shares of Common Stock. Since all transactions were individually
negotiated between the buyer and seller through Mutual Securities as
intermediary, the Company was not informed of the exact purchase price for the
Common Stock sold in each of these transactions. The Company, however, was
informed by Mutual Securities that the Company's Common Stock traded at $5.25 in
the second quarter of fiscal 1997, at $5.00 in the third quarter of fiscal 1997,
and at $5.00, $5.125 and $5.25 in the fourth quarter of fiscal 1997.
The Company has not declared nor paid any cash dividend since its
inception. The Company intends to retain all earnings for use in its business
and therefore does not anticipate paying any cash dividends in the near future.
The Company's bank credit agreement prohibits the payment of cash dividends
without the bank's consent.
As of December 31, 1997, there were 1,341 holders of record of the Common
Stock.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The following discussion of financial condition and results of operations
should be read in conjunction with the Company's audited financial statements
and notes thereto appearing elsewhere in the Form 10KSB.
The Company suffered a net loss of approximately $802,868 in fiscal 1997,
and the Company's current liabilities exceeded its current assets by $3,944 as
of December 31, 1997. Management recognizes that it must address this
deterioration in the Company's financial condition during fiscal 1997 to meet
future obligations. The Company has therefore developed a business plan to
modify its operations to continue operating with available resources. This plan
is designed to reduce costs and return the Company to profitability, and calls
for downsizing the Company's workforce, increasing roasted coffee prices and
introducing new food products at the Company's Bakery. However, there can be no
assurance that such business plan will adequately address the circumstances and
situations which resulted in the Company's performance in fiscal 1997, or that
the Company's efforts to implement its business plan will be successful.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
REVENUES. Total revenues increased 43.9% to $6,222,138 for fiscal 1997
compared to $4,323,481 for fiscal 1996. Of this increase approximately 32% was
due to sales by Company's Cafe and Bakery, which did not commence operations
until the fourth quarter of fiscal 1996, approximately 36% was due to the sales
by Sustainable Harvest, which did not exist in fiscal 1996, and approximately
32% increase in wholesale and direct consumer sales over comparable sales in
fiscal 1996. The Company sold Sustainable Harvest on December 31, 1997 and
closed its Cafe in February 1998.
GROSS MARGIN. Gross margin (gross profit as a percentage of net sales)
declined to 38.9% in fiscal 1997 from 45.9% in fiscal 1996. Gross margins
declined primarily due to the lower margins of Sustainable Harvest and the
Cafe/Bakery. An increased proportion of relatively lower margin sales
represented of organic and shade grown coffees and the higher costs of specialty
green beans (primarily organics, shade grown, Asian and African coffee beans)
which were unhedged and purchased on the spot market to meet increased green
bean demand also contributed to the decline in gross margins. These factors
driving the decline in gross margins were partially offset by the realization of
a $97,000 gain on coffee options contracts purchased by the Company. The Company
does not designate such contracts as a hedge, and accordingly, changes in the
market value of option contracts are reported by the Company in the period in
which the change occurs and are included
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as part of cost of sales. See Note 1 to Financial Statements.
Management expects an increase in gross margins in the first half of
fiscal 1998 due to the availability of lower cost green beans for which the
Company has already contracted.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1,168,220 or 61.0% from $1,915,632 in
fiscal 1996 to $3,083,902 in fiscal 1997. As a percentage of total sales,
selling, general and administrative expenses increased from 44.3% in 1996 to
49.6% in fiscal 1997. Of the $1,168,220 increase approximately 24% reflects the
hiring of additional management personnel following the completion of the stock
offering in the third quarter of fiscal 1996, approximately 34% reflects
overhead attributable to the Company's new retail and green bean operations,
approximately 4% reflects increased promotional activity in support of the
Company's major marketing efforts (including its campaign to build its direct
mail marketing list), approximately 10% reflects higher mail order costs, and
approximately 8% reflects additional legal, accounting and shareholder related
expenses.
Depreciation and amortization expenses as a percentage of total sales
increased to 2.7% in fiscal 1997 from 2.4% in fiscal 1996, due primarily to
depreciation for additional equipment related to sales growth, the depreciation
of start up costs and leasehold improvements of the retail outlets and the
amortization of good will related to the bakery purchase.
OTHER INCOME. In fiscal 1997, miscellaneous income contains an audit
adjustment for $7,675 which relates to the transfer of the Bakery's accounting
records from an outside bookkeeping agency to the Company's accounting system.
The remaining $10,029 booked in miscellaneous income relates to a variety of
events, but about $8,000 relates to freight that the Company charged a third
party to make deliveries in the same geography as the Company's routes in
Northern California.
LOSS ON SALE OF SUBSIDIARY. The sale of Sustainable Harvest
resulted in a loss of $29,471.
INTEREST EXPENSE. Interest expense as a percentage of total sales
increased to 2.1% for fiscal 1997, from 1.8% for the same time period in fiscal
1996, due primarily to the increase in short-term borrowings.
NET LOSS. As a result of the foregoing, the net loss for fiscal 1997
amounted to $802,868 or 12.9% of total sales compared to a net income of $25,500
or 0.6% of total sales in fiscal 1996.
<PAGE> 17
1996 COMPARED TO 1995
REVENUES. Total revenues increased 5.2% to $4,323,481 for
fiscal 1996 compared to $4,111,224 for fiscal 1995.
GROSS MARGIN. Gross Margin (gross profit as a percentage of net sales)
increased to 45.9% in fiscal 1996 from 39.3% in fiscal 1995. Gross margins
increased as a result of lower costs of specialty green beans.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $288,081 or 17.7% from $1,627,551 in fiscal
1995 to $1,953,632 in fiscal 1996. As a percentage of total sales, selling,
general and administrative expenses increased from 39.6% in fiscal 1995 to 44.3%
in fiscal 1996.
Depreciation and amortization expenses as a percentage of total sales
increased to 2.4% in fiscal 1996 from 2.1% in fiscal 1995, due primarily to
depreciation for additional equipment related to sales growth.
INTEREST EXPENSE. Interest expense as a percentage of total
sales decreased slightly to 1.8% for fiscal 1996, from 1.9% for
fiscal 1995.
NET GAIN. As a result of the foregoing, the net gain for fiscal 1996
amounted to $25,500 or 0.6% of total sales compared to a net loss of $64,063 or
1.6% of total sales in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997 the Company had $78,391 in cash and short term
investments.
Working capital as of December 31, 1997 totalled a deficiency of $3,944 as
compared to working capital of $914,715 at December 31, 1996.
For fiscal 1997, and for fiscal 1996, cash provided by operating activities
showed a deficiency of $626,980 and $66,674, respectively.
Net cash used in 1997 for investing activities, which primarily consisted
of expenditures for equipment to service new accounts and sales growth, was
$232,979 as compared to cash provided in 1996 of $411,431. Net cash provided by
investing activities in 1996 was primarily attributable to receipts from the
Company's public offering of stock, offset in part by cash used to purchase
equipment for $333,297, to purchase intangible assets for
<PAGE> 18
$299,882 and to an increase in prepaid stock offering costs of $234,404.
Net cash provided by financing activities in 1997, which consisted
primarily of proceeds from notes payable, was $507,794 compared to net cash used
in 1996 of $73,979. Net cash provided by investing activities in 1997 consisted
of a $555,059 net increase of notes payable offset by a $47,265 net increase of
notes receivable. In 1996, cash used for financing activities consisted of the
net $32,243 reduction of notes payable and the $41,736 increase of notes
receivable.
The Company maintains a revolving line of credit of up to $650,000. The
credit agreement was renewed in the third quarter of fiscal 1997 for a one-year
term and will expire on August 10, 1998. Borrowings under the line of credit are
secured by the Company's accounts receivable, inventory, equipment, fixtures and
improvements. The terms of this facility contain certain limitations of
additional indebtedness, which if violated could be used as a basis for
termination of the agreement. There were total borrowings of $1,109,507,
including $601,636, outstanding under the credit agreement at December 31, 1997.
The Company is dependent on successfully executing its business plan to
achieve profitable operations, obtaining additional sources of borrowings
(including normal trade credit), and securing favorable financing arrangements
(including lease financing) to finance its immediate working capital needs.
There can be no assurance that the Company will be successful in this regard. If
the Company is not able to renew or replace its credit agreement on comparable
terms or at all, the Company may be unable to fund its working capital
requirements and the Company's business could be adversely affected.
YEAR 2000
The Company has substantially completed the implementation of an
established third party package of integrated financial applications to replace
most of its existing management information systems. The new applications are
Year 2000 compliant. The Company does not expect any material adverse impact on
the Company's results from operations in connection with Year 2000 compliance.
In fiscal 1997, the Company expended approximately $5,000 to modify its software
to operate correctly for the year 2000.
SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE
The Company's business is seasonal in nature. The seasonal
availability of green bean coffee in the first two quarters of the
<PAGE> 1
EXHIBIT 10.2.1
EXTENSION OF TERM AND
FURTHER AMENDMENT TO LEASE AGREEMENT
This document is enter into by and between Paul Katzeff and Joan Katzeff,
husband and wife (hereinafter referred to as "Lessor") and Thanksgiving Coffee
Company, Inc. (hereinafter referred to as "Lessee") who agree as follows:
1. Lessee entered into a written Commercial Lease Agreement dated March 1, 1986
with Lessor's predecessor in title, Sun Terminals, for certain improved premises
located on the waterfront on the southerly side of Noyo Harbor on South Harbor
Drive, Fort Bragg, California (hereinafter referred to as the "Waterfront
Premises"). The terms of the Waterfront Premises Lease was amended in 1987, 1988
and last in May of 1989.
2. Lessee also entered into a written Commercial Lease and Deposit Receipt dated
November 1, 1987 with Lessor for improved premises located at 19100 S. Noyo
Harbor Drive, Fort Bragg, California (hereinafter referred to as the "Main
Facilities"). By reason of the exercise of options and the renegotiation of
terms in connection therewith, said Main Facilities Premises Lease has been
extended to the present.
3. Lessee is currently paying $5,000 per month for the use and occupancy of the
entire Main Facilities Premises and for a specifically designated 25% of the
Waterfront Premises, both on a triple net basis for each entire building.
4. The parties acknowledge that Lessee has paid the rent timely and fully and is
otherwise in full compliance with the terms of both of the Leases described
above through March 31, 1992. The parties acknowledge that the current monthly
rent is $5,000.
5. Lessor has recently acquired certain additional real property improvements
primarily consisting of a building suitable as a shipping facility for Lessee's
use which Lessee desires to lease (hereinafter referred to as the "Shipping
Facility"), while concurrently adjusting Lessee's obligations for its use of the
25% of the Waterfront Premises which it is presently using.
6. Now the parties desire to modify, coordinate set forth their revised and
mutual arrangements for the lease, use and payment of rentals for the Waterfront
Premises, the Main Facilities Premises and the Shipping Facility Premises, as
follows.
A. Effective as of April 1, 1992 Lessee shall have the use of the entire Main
Facilities Premises and the neighboring Shipping Facility Premises and of the
specified 25% of the Waterfront Premises ("The Premises").
B. Lessee shall pay $5,000 each month for the Main Facilities Premises and the
neighboring Shipping Facility Premises and $1,000 for the Waterfront Premises,
for a total of $6,000 for the Premises which shall be due on the first day of
each month, and late on the 10th.
C. In addition, Lessee shall be responsible for and shall pay all taxes,
insurance, maintenance and costs of occupation and use of the Main Facilities
Premises, Shipping Facility Premises and Waterfront Premises so as to achieve a
"triple net lease" specifically including, but not limited to all items on the
secured real property tax bill, all charges for
<PAGE> 2
utilities and other services provided to or used on the Main Facilities
Premises, Shipping Facility Premises and Waterfront Premises, all premiums for
casualty and extended coverage insurance on the improvements located on the Main
Facilities Premises, Shipping Facility Premises and Waterfront Premises, all
costs for maintenance, repairs and supplies required during the term, excepting
those for the roof, foundation, and structural elements of the improvements,
which shall remain and continue as Lessors' responsibility. If Lessee fails to
pay any such item timely, Lessor may pay same and Lessee shall immediately
reimburse Lessor the amount paid, including any penalties, as an additional rent
due hereunder.
7. The parties now agree to extend the term of the Leases for an additional
three years to March 31, 1995 on all of the same terms and conditions as are
presently set forth in the two Lease documents, except as modified hereby.
8. This document constitutes an extension of and an amendment to the existing
Waterfront Premises Lease and Main Facilities Premises Lease between Lessor and
Lessee as previously amended. To the extent that it specifically conflicts with
the provisions of said Leases, the provisions hereof shall control. In all other
respects, the Leases shall continue in full force and effect during the extended
term. This document, when read together with said Leases and all prior
amendments constitutes the entire agreement between Lessor and Lessee. All
modifications hereto must be in writing and signed by the party or parties to be
charged.
Dated: April 1, 1992
LESSOR: /s/Paul Katzeff
--------------------
Paul Katzeff
/s/Joan Katzeff
--------------------
Joan Katzeff
LESSEE: Thanksgiving Coffee Company,
Inc., a California Corporation
by: /s/Joan Katzeff
--------------------
Joan Katzeff, President
<PAGE> 1
EXHIBIT 10.3
LEASE OF COMMERCIAL PREMISES
This lease is between MENDOSA BROTHERS, a co-partnership (Lessor) and LAOMA
BRYANT (Lessee).
1. DESCRIPTION OF THE PREMISES Lessor leases to Lessee and Lessee hires from
Lessor, as herein provided, premises described as Mendosa Brothers Unit #25,
and Mendosa Brothers Unit #6, 10483 Lansing Street, Mendocino, including the
alley between said units, except for a six-foot pathway running east from
Lansing Street to the chimney approximately 22 feet east, then a seven-foot
pathway running to the end of the said rented units. This area shall be used for
the placement of tables and benches.
2. TERM The term of this lease shall be for a period of ten (10) years, and
shall commence October 1, 1990.
3. RENT Lessee agrees to pay to Lessor said amount in monthly installments as
follows:
<TABLE>
<CAPTION>
TERM
MONTH
<S> <C>
October 1, 1990 through March 31, 1991 $1,420.00
April 1, 1991 through September 30, 1992 1,570.00
October 1, 1992 through December 31, 1993 1,720.00
January 1, 1994 through April 30, 1995 1,978.00
May 1, 1995 through September 30, 1996 2,175.00
October 1, 1996 through February 28, 1998 2,375.00
March 1, 1998 through June 30, 1999 2,700.00
July 1, 1999 through September 30, 2000 3,000.00
</TABLE>
In addition, until further notice, the sum of $115.00 shall be added to the
above monthly payment for the MCSD Chair Assessment.
4. SEWER ASSESSMENT Lessee agrees that if, during the term of this lease,
Lessor's sewer assessment for the leased premises is increased, the above
monthly rental amounts shall be increased in a sum equal to the assessment
increase.
5. LATE RENT That any rental installment not paid or postmarked by the third day
of each month shall accrue a late charge at the rate of $30.00 per day
commencing on the fourth day of each month.
6. Security Deposit That Lessor acknowledges receipt of a security deposit
totaling $175.00.
That upon termination of the lease, Lessor shall use said security
deposit in payment of:
A. Cost to repair the premises to restore it to the condition as when
Lessee took occupancy;
B. Rental late charges;
C. Past due rent;
D. Attorney's fees and costs incurred in connection with Lessee's breach of this
lease.
That Lessee agrees not to apply any portion of the security
deposit to any rental agreement.
<PAGE> 2
Within thirty (30) days after redelivery of the premises, Lessor
shall return the unused portion of the security deposit to Lessee.
7. USE OF THE PREMISES The premises are to be used as a retail and wholesale
bakery. Lessee agrees to restrict its use to such purpose and not to use or
permit the use of the premises for any other purpose without first obtaining
consent in writing of the Lessor.
Lessee acknowledges and agrees that this lease does not restrict
the Lessor from leasing any other properties or portions thereof, to others
engaged in the sale of food products even if some of said products are the same
or similar to those sold by Lessee. Lessor agrees not to lease any other
properties or portions thereof to a retail or wholesale bakery.
In the event of the sale of the business by Lessee prior to
expiration of the lease, Lessor shall be notified and shall become a part of the
sales negotiations relative to the dollar amount of rent for one year beyond
expiration of this lease and to give approval of the prospective buyer. The
prospective buyer shall be required to fill out a credit application with
Mendosa Brothers and receive approval by Mendosa Brothers of subject credit. All
correspondence relative to a sale shall be in writing. Lessor shall have the
right to approve or veto a prospective buyer based upon the prospective buyer's
credit rating and compatibility with Lessor. Lessor agrees that approval of a
prospective buyer shall not be withheld unreasonably.
8. FIRE INSURANCE Lessee agrees to maintain fire insurance on Lessee's personal
property and business with coverage equal to the replacement cost of said
personal property. That said fire insurance policy shall contain a waiver of
subrogation provision against Lessor.
9. LIABILITY INSURANCE Lessee agrees to purchase and maintain during the term of
the lease bodily injury and property damage liability insurance coverage in the
minimum sum of $1,000,000.00 naming Lessor as an additional insured. In the
event that Lessee fails to purchase said insurance coverage, Lessor may purchase
coverage and bill Lessee the premium.
10. INDEMNITY AND HOLD HARMLESS That Lessee agrees to indemnify and hold
harmless Lessor from all claims, actions, causes of action, and damages arising
out of Lessee's and Lessee's employees' and agents' use and occupancy of the
leased premises and common areas.
11. UTILITIES Lessee agrees to pay for all utilities and services furnished to
the leased premises including but not limited to PG&E, telephone and garbage.
Lessor agrees to provide an exterior space for a trash dumpster used by Lessee's
business.
12. WATER Lessor shall provide the Lessee with a maximum supply of water equal
to approximately twenty percent (20%) of the total recovery of Lessor's well(s)
used to supply the leased premises. (This amount as of September 1, 1986 is
being measured as equal to 577 gallons per day based upon Lessor's well
producing 2,885 gallons per day.)
Lessee hereby stipulates that 577 gallons per day is a sufficient
supply of water to meet the needs of the Lessee during the term of this lease.
In the event that production from the Lessor's wells supplying the
leased premises decreases and is no longer able to meet the needs of the Lessee,
Lessor agrees to provide without additional charge a site for a water storage
tank and sites for supply lines, to be installed at Lessee's expense and to
remain Lessee's property. Lessee shall pay for the storage tank, supply lines,
all water, and transportation of all water used in connection with said storage
tank. This paragraph shall become null and
<PAGE> 3
void in the event the premises becomes serviced by a municipal water
system.
13. MUNICIPAL WATER SYSTEM In the event that the Mendocino Community Services
District, or any other public entity, installs a municipal water system during
the term of this lease, any assessments, hook-up fees, monthly or periodic
charges of any nature concerned with such service to the leased premises shall
be allocated on an equivalent basis in accordance with standards adopted by the
Mendocino Community Services District, or other such public entity, for business
of the type and size of that operated by Lessee. All such costs shall be added
to the monthly rents stated in this lease.
14. DELIVERY, ACCEPTANCE, AND SURRENDER OF THE PREMISES Lessor represents and
Lessee acknowledges that the premises are in a fit condition and a good state of
repair. Lessee agrees to surrender the premises at the end of this lease to the
Lessor in the same condition as when he took possession.
15. LESSEE'S RIGHT TO MAKE ALTERATIONS Lessee may construct interior partition
walls and install trade fixtures at his own cost and expense provided that:
A. Lessee obtains Lessor's written consent pursuant to written plans and
specifications;
B. All construction shall be performed in a good and workmanlike manner
consistent with the architecture, decor and construction of the building and
comply with all building regulations.
That upon termination of this lease:
A. Lessee, at Lessee's cost, shall remove all improvements and restore the
entire premises to the same condition as when Lessee took occupancy; or
B. At Lessor's option, Lessor may in writing waive this condition in which event
all of said tenant improvements shall remain and shall be owned by Lessor.
16. LESSOR'S ENTRY FOR INSPECTION AND MAINTENANCE Lessor reserves the right to
enter the premises at reasonable times to inspect them, perform necessary
maintenance and repairs, or to make additions or alterations to any part of the
building in which the leased premises are located, and Lessee agrees to permit
Lessor to do so.
17. REPAIRS AND MAINTENANCE Lessee will maintain the premises and keep it in
good repair at his own expense except for the exterior walls which Lessor agrees
to maintain in good condition.
18. ASSIGNMENT OR SUBLEASE Lessee agrees not to assign or sublease the premises
or any part thereof, or any right or privilege connected therewith, without
first obtaining Lessor's written consent. Lessee's unauthorized assignment,
sublease, or license to occupy shall be void, and shall terminate the lease at
Lessor's option.
19. LESSEE'S DEFAULT The occurrence of any of the following shall constitute
default by Lessee:
A. Failure to pay rent when due, if the failure continues for three (3)
days after notice has been given to Lessee;
B. Abandonment of the premises for 30 or more consecutive days;
<PAGE> 4
C. Failure to perform any other provision of this lease if the failure to
perform is not cured within 30 days after notice has been give to Lessee.
20. REMEDIES ON LESSEE'S BREACH If Lessee breaches this lease, Lessor shall have
the following remedies in addition to his other rights and remedies in such
event:
A. Lessor may re-enter the premises immediately, and remove all Lessee's
personal property therefrom. Lessor may store the property in a public warehouse
or at another place of his own choosing at Lessee's expense;
B. After re-entry, Lessor may terminate the lease on giving five (5) days
written notice of such termination to Lessee;
C. Otherwise re-entry will not terminate the lease;
D. After re-entering, Lessor may re-let the premises or any part thereof for any
term, and without terminating the lease, at such rent and on such terms as he
may choose. Lessor, at his option, may apply the rent received from re-letting
the premises either to reduce Lessee's indebtedness to Lessor under this lease,
and not including indebtedness for rent; to expenses of re-letting and
alterations and repairs made; to rent due under this lease; to pay on the future
rent on the lease as it becomes due.
21. ATTORNEY'S FEES If an action is filed to enforce any provision of this lease
or for the breach of any provision of this lease, the prevailing party in such
litigation shall be entitled to reasonable attorney's fees and actual costs of
suit to be fixed by the court.
22. NOTICES Notices given pursuant to the provisions of this lease shall be in
writing and delivered personally to whom the notice is to be given or mailed
postage prepaid to such person.
Lessor's address for purposes of notice shall be Post Office Box
84, Mendocino, California 95460. Lessee's address for purposes of notices shall
be Post Office Box 1501, Mendocino, California 95460.
23. SUCCESSORS AND ASSIGNS This lease shall be binding upon the heirs,
successors and assigns of the parties hereto.
24. TIME IS OF THE ESSENCE Time is of the essence under this lease.
25. ENTIRE AGREEMENT This lease contains the entire agreement of the parties. No
other agreement, statement or promise made by or to either party shall be
binding unless it is in writing and signed by Lessor and Lessee.
Dated: Feb. 16, 94 MENDOSA BROTHERS, A Co-Partnership
/s/Robert Bradley
-------------------------------
ROBERT BRADLEY, Lessor
Dated: Feb. 16, 94 /s/Laoma Bryant
-------------------------------
LAOMA BRYANT, Lessee
ADDENDUM TO LEASE OF COMMERCIAL PREMISES
Mendosa Brothers, a co-partnership, as Lessor, and Laoma Bryant, as Lessee,
agree that the following provision shall be added to the Lease of Commercial
Premises attached hereto and executed by Lessee Bryant 14 February 1994.
<PAGE> 5
"Lessor grants Lessee a right of first refusal to lease the premises on the
terms and conditions contained in said Lease, upon expiration of said Lease;
with increases similar to existing lease but not higher than the highest rates
per square feet on Lansing St.
Lessee must exercise their right of first refusal by signing the
proposed Lease within 45 days prior to the end of the term of this Lease.
If Lessee is in default on the date of giving written option
notice, said notice shall be null and void. If the Lessee is in default on the
date the extended term is to commence, the extended term shall not commence and
this Lease shall expire at the end of the initial term."
Agreeing to the within Addendum, we are:
/s/Laoma Bryant
- -------------------------------
Dated: Feb. 16, 94
LAOMA BRYANT, Lessee
/s/Robert Bradley
- -------------------------------
Dated: Feb. 16, 94
ROBERT BRADLEY, for Mendosa Brothers,
a co-partnership
ASSIGNMENT OF LEASE AND CONSENT TO ASSIGNMENT
1. Assignment of Lease
A. Robert Bradley, for Mendosa Brothers, a co-partnership (hereinafter
"Lessor"), entered into a Lease of Commercial Premises commencing October 1,
1990, consisting of 9 pages plus 2 pages of its Addendum of 2/14/94 and the
Clarification thereto, (hereinafter collectively "the Lease") with Laoma Bryant
as Lessee, for the premises designated as Mendosa Brothers Units #25 and #6 of
10483 Lansing Street, Mendocino, California including the outside area described
in the Lease ("Premises"). A true copy of all pages of the Lease are, or shall
be, attached hereto and incorporated therein by this reference as though set
forth in full.
B. Laoma Bryant owns Mendocino Bakery, Inc. which has operated and is now
operating the Mendocino Bakery in the Premises (hereinafter "Assignor").
C. Conditional upon the closing of the sale of the Bakery business and assets,
to Thanksgiving Coffee, Inc., by Assignor, assigns and transfers to Thanksgiving
Coffee Company, Inc., a California corporation (hereinafter "Assignee") all of
its right, title and interest in and to the Lease effective as of October 31,
1996 ("Effective Date").
D. Assignor represents to Assignee that:
1. Assignor is the sole and lawful owner of the Lease and of the leasehold
estate created thereby;
2. The Lease is now in full force and effect in accordance with its terms, and
has not been modified except as referenced above;
3. Assignor has received no notice of default from the Lessor and to the best of
its knowledge, Assignor is not in default of any provision of the Lease; and
4. Landlord is in full compliance with its obligations under the Lease and is
not in default of any provision of the Lease and Assignor is not entitled to any
offset or amount from the Landlord for any purpose.
<PAGE> 6
II. Acceptance of Assignment of Lease and Assumption of Liabilities
A. The undersigned, Thanksgiving Coffee Company, Inc., a California corporation,
accepts the foregoing assignment of the Lease, acknowledges that it has read the
Lease and agrees to be bound by and to faithfully, timely and fully perform all
of the terms, conditions, covenants and agreements contained in the Lease and to
pay promptly all rents and other payments due under the Lease of whatever nature
due on and after the Effective Date. Assignee agrees to hold Assignor free and
harmless from any and all liability and obligations due under the Lease arising
after the Effective Date.
B. As between Assignor and Assignee, rent, utilities and other obligations
arising under the Lease or involving the occupancy of the Premises shall be
prorated as of the Effective Date.
III. Lessor's Consent: Lessor consents to the assignment and acknowledges
that:
1. The Lease is in full force and effect;
2. The right of first refusal to extend the Lease until 9/30/2010 is in effect.
3. No due but unpaid amounts are due to Lessor from Lessee and no notice(s) of
default to Lessee are outstanding or pending;
4. The assignment complies with the terms of the Lease;
5. The current condition of the Premises is consistent with reasonable wear and
tear and if the Lease were terminated now the Lessor would not require any
repairs to the Premises to restore them to the condition at the commencement of
Laoma Bryant's occupancy to be performed at Lessee's cost, except as stated on
the attached schedule, if any;
6. Lessor shall not require Lessee to remove the tenant improvements made to the
Premises at the expiration of the Lease.
IV. Other Terms:
A. This document may be executed in several counterparts, and all so executed
shall constitute one agreement, binding on all parties hereto, notwithstanding
that all the parties are not signatory to the original or the same counterpart.
Assignor:
Dated: 10/28/96 ,1996 /s/Laoma Bryant
---------------
Laoma Bryant, Lessee
Mendocino Bakery, Inc
Dated: 10/28 , 1996 By /s/Laoma Bryant
-----------------
Laoma Bryant, President
Assignee:
Thanksgiving Coffee Co., Inc.
Dated: 11/1/96 ,1996 By /s/Joan Katzeff
------------------
<PAGE> 7
Joan Katzeff, President
Lessor's Consent:
The undersigned, having due authority, consents to the foregoing Assignment:
Dated: 10/28 ,1996 /s/Robert Bradley
------------------
Robert Bradley, for Mendosa Brothers, a co-
partnership, Lessor
<PAGE> 1
EXHIBIT 10.5
PROMISSORY NOTE
$33,000.00 April 17, 1996
IN CONSIDERATION OF A LOAN OF FUNDS hereby acknowledged received,
THANKSGIVING COFFEE COMPANY, INC. (hereinafter referred to as the "Undersigned")
promises to pay to PAUL KATZEFF, or order (hereinafter referred to as the
"Holder"), the amount of THIRTY THREE THOUSAND DOLLARS ($33,000.00) (the
outstanding balance of which is hereinafter referred to as the "Principal") in
quarter annual amortized payments of $3,229.26 of principal and interest,
payable quarter annually in arrears on the 17th day of July, October, January
and April commencing July 17, 1996. Interest shall accrue at 10.25% per annum.
In all events, all outstanding principal and all accrued and unpaid interest
shall be due in full on July 17, 1989.
Payments shall be made in lawful currency of the United States of
America at such reasonable place and to or for the benefit of the Holder as may
be designated from time to time by the Holder.
If any payment due hereunder is not paid within ten (10) days of
due date therefor, a late charge equal to five percent (5%) of such unpaid
amount shall be added to the total amount then due hereunder.
This Note may be prepaid in whole or in part at any time without
penalty. On payment of any portion of Principal, interest shall cease accruing
against the amount so credited to Principal.
Notwithstanding the repayment terms specified above, if the
employment of PAUL KATZEFF by THANKSGIVING COFFEE COMPANY, INC. should terminate
or if he should become separated from employment with THANKSGIVING COFFEE
COMPANY, INC. for any reason, all amounts due under the Note shall become
immediately due and payable.
If the Undersigned defaults in the payment when due of any
installment of interest or principal, or any part thereof, all sums of accrued
interest and principal due under this Note shall immediately become due and
payable without notice of default, presentment or demand for payment, protest or
notice of non-payment or dishonor, or any other notices or demands of any kind
of character.
This Note is unsecured.
This Note contains all of the understandings, conditions and
promises made between the Undersigned and the Holder. The obligations due under
this Note are not affected by the terms of any agreement between the parties
hereto. All modifications must be in writing.
Dated: April 17, 1996
By /s/ Joan Katzeff
-------------------------------
JOAN KATZEFF, President
<PAGE> 1
EXHIBIT 10.6
PROMISSORY NOTE
$100,000.00 Fort Bragg, California
December 30, 1990
In consideration of a loan of funds, at such times as hereinafter stated,
Thanksgiving Coffee Company, Inc. (hereinafter referred to as the "Undersigned")
promises to pay to Paul and Joan Katzeff, husband and wife, or order
(hereinafter referred to as the "Holder"), the amount of One Hundred Thousand
Dollars Even ($100,000.00) (hereinafter referred to as the "Principal") plus
interest on the outstanding Principal balance commencing at 12% annual interest
in interest only payments due on the first day of each month commencing February
1, 1991. This note is due in full six months after demand on the Undersigned by
the Holder. All such interest shall be calculated from the date hereof until
payment in full of the outstanding Principal, computed on the basis of a three
hundred sixty (360) day year and actual days elapsed. In all events and whether
demand be made or not, all accrued and unpaid interest and all unpaid Principal
due hereunder shall be paid in full on the fifth anniversary of the execution of
this Note.
This Note may be prepaid in whole or in part at any time without penalty.
Payments shall be made in lawful currency of the United States of America to the
Holder in Fort Bragg, California or at such other reasonable place as may be
designated from time to time by the Holder.
If any portion of any payment due hereunder is not paid within ten (10) days of
the due date, a late charge equal to 6% of such unpaid amount shall be added to
the total amount then due hereunder. This paragraph does not authorize late
payment and shall not limit the Holder's right, under this Note, or otherwise,
to compel prompt performance of the Undersigned's obligations and to declare a
default if any payment due is late. Any failure to completely and timely perform
any provision hereof shall constitute a default hereunder.
Upon any default hereunder, the Undersigned agrees to add to the Principal all
costs of collection and attorneys' fees incurred in collecting this Note, or in
connection with the curing of any default under this Note or in exercising any
judicial or nonjudicial remedies available to the Holder.
Each payment received shall be credited in the following order: late payment
charges; collection costs; attorneys' fees; interest; and Principal to the
extent of any balance. On payment of any portion of Principal, interest shall
cease accruing against the amount so credited to Principal.
If any default hereunder should occur, the Undersigned agrees that all accrued
interest and all Principal shall immediately become due and payable on 5 days
notice of default. Protest is waived.
This note contains all of the understandings, conditions and promises made
between the Undersigned and the original payee of this Note. The obligations due
under this Note are not affected by the terms of any other agreement between the
parties hereto. All modifications must be in writing.
In witness whereof, the Undersigned have executed and delivered this Promissory
Note on the first date written above and acknowledge that this Note consists of
two pages.
Thanksgiving Coffee Company, Inc., a California Corporation
By: /s/Joan Katzeff
-------------------------------
Its: President
/s/Paul Katzeff
- -------------------------------
Paul Katzeff
/s/Joan Katzeff
- -------------------------------
Joan Katzeff
<PAGE> 1
EXHIBIT 10.7
AMENDED AGREEMENT OF PURCHASE AND SALE OF
ALL STOCK OF SUSTAINABLE HARVEST, INC.
This agreement is made effective December 31, 1997, at Emeryville, California,
between DAVID GRISWOLD ("GRISWOLD" hereafter) as Buyer, THANKSGIVING COFFEE
COMPANY ("TCC" hereafter), a California Corporation as Selling Shareholder, and
SUSTAINABLE HARVEST, INC., ("SH" hereafter) as Corporation being bought. This
agreement supersedes all previous agreements for the purchase and sale of
Sustainable Harvest stock.
I. RECITALS
1.1 TCC has represented that it owns all the outstanding stock of SH. GRISWOLD
desires to purchase SH free and clear of all prior SH debts and obligations, and
TCC desires to sell to GRISWOLD all the outstanding stock of SH (the Shares) so
that GRISWOLD takes SH free and clear of all prior existing debts and
obligations; SH desires that this transaction be consummated. In consideration
of the mutual covenants, agreements representations and warranties contained in
this agreement, the parties agree as follows:
1.2 Subject to the terms and conditions set forth in this agreement, on the
closing date, Shareholder TCC will transfer and convey the SH Shares to Buyer
GRISWOLD, and Buyer GRISWOLD will acquire the SH Shares from Shareholder TCC.
II. PAYMENT
2.1 SH and GRISWOLD, jointly and severally, promise to pay to TCC, or order, the
Principal sum of Eighty-Nine Thousand Dollars ($89,000), plus interest on the
outstanding Principal balance at the Bank of America reference rate ("Prime"),
redetermined annually as of the anniversary date hereof, interest to be
calculated from the effective date of this Agreement until payment in full of
the outstanding Principal computed on the basis of a three hundred sixty-five
(365) day year and actual days elapsed.
2.2 Payments shall be made by GRISWOLD and/or SH as follows:
A. December 1, 1998 - $10,000, plus interest
B. December 1, 1999 - $10,000, plus interest
C. December 1, 2000 - $10,000, plus interest
D December 1, 2001 - $10,000, plus interest
E. December 1, 2002 - Balance of principal, plus interest
2.3 All prepayments shall be credited against Principal due.
2.4 Payments shall be made in lawful currency of the United States of America at
such reasonable place as may be designated from time to time by TCC.
<PAGE> 2
2.5 Each payment received on or after the due date shall be credited in the
following order: late payment charges; fees, charges, advances and obligations;
collection costs; attorneys' fees; interest; and Principal to the extent of any
balance. On payment of any portion of Principal, interest shall cease accruing
against the amount so credited to Principal.
III. SECURITY FOR PAYMENTS
3.1 The promise to pay by GRISWOLD and/or SH pursuant to this Agreement is
secured by the granting to TCC of a first priority security interest, which
secures the obligations herein, in all the Stock in SH acquired by GRISWOLD and
in all the assets of SH, specifically including, but not limited to, the
"Sustainable Harvest" trademark, all SH trade relationships, and all the certain
tangible and intangible personal property which is located at 1480 - 68th
Street, Emeryville, CA wherein SH's business (the "Business") is being
transacted. Public notice of said security interest rights are intended to be
given by the filing of a Financing Statement (form UCC-1) with the California
Secretary of State in Sacramento, California which shall be executed and
delivered to TCC on demand if not concurrently with this Agreement. For this
purpose GRISWOLD grants to TCC a pledge of the Stock.
3.2 If GRISWOLD and/or SH sells, transfers and/or conveys in any manner
whatsoever all, or substantially all, of the security for this Agreement, all
accrued interest and all principal must be paid in full concurrently with
consummation of such transaction, unless TCC consents in writing to such
transaction prior to its consummation and permits the assumption of some or all
of the obligations hereunder. Such consent may be not be unreasonably withheld.
IV. TCC'S RIGHTS ON DEFAULT
4.1 A. Upon default of any payment hereafter due from GRISWOLD and/or SH to TCC
hereunder, TCC shall give GRISWOLD and SH thirty (30) days written notice of
default. If said default is not cleared, waived, compromised or otherwise the
subject of letter agreement between the parties executed within said thirty
(30)-day period until arrearages are cured in full, interest shall be increased
and shall accrue at an adjusted applicable rate of one and one-half percent
(1.5%) per month and any unpaid interest shall be added to the Principal monthly
thereafter and if unpaid shall accrue like interest until paid. Any amount due
hereunder, whether principal, interest, late charges or otherwise, which is not
paid when due shall itself bear interest at such rate.
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B. All reasonable costs of collection, litigation costs and attorneys's fees
actually incurred in collecting the amounts due under the Agreement, or in
connection with the curing of any Default shall be added to the Principal.
4.2 Defaults are any failure to completely and timely perform any provision
hereof and includes:
A. A general assignment for benefit of creditor;
B. Filing of a bankruptcy petition or a petition for relief under the provisions
of any bankruptcy act by GRISWOLD and/or SH.
C. Appointment of a receiver or trustee to take possession of the property of
GRISWOLD and/or SH.
V. COFFEE OWNERSHIP
5.1 GRISWOLD and SH agree and acknowledge that on December 2, 1997 no green bean
inventory remains under the control of SH and no green bean inventory remains
which is the sole and exclusive property of TCC.
VI. Coffee Purchases by TCC
TCC will purchase from SH coffee beans in a manner consistent with current
business practices between the two companies as follows:
6.1 TCC shall purchase from SH not less than *** pounds (which is ***% of the
1997 volume) of coffee beans per year for a period of five (5) years for
delivery between December 31, 1997, and December 31, 2002, at a price of *** per
pound over "landed coffee costs."
6.2 As used herein "landed coffee costs" means the price of coffee as billed by
the producing country exporter, shipping costs, customs charges, organic
royalties and other normal coffee costs of delivering the coffee to Oakland
warehouse facilities.
6.3 The *** per per pound SH margin is intended to reflect the normal sales
price charged by SH to other roasters who buying a similar product in terms of
selection criteria, volume and quality, and payment conditions. TCC shall have
the right to inspect, on reasonable notice during business hours GRISWOLD's
and/or SH's books to verify such sales information.
6.4 If the TCC purchase is less than *** pounds in any year between December 31,
1997 and December 31, 2002 the
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obligation of GRISWOLD and/or SH to pay the amount set forth in para. 2.2 for
said year shall be proportionately reduced for that year and said reduction
shall not be thereafter due.
6.5 If DG/SH terminate or substantially terminate business operations or their
relationship with organic and/or shade-grown sources during the pendency of
this agreement so as to be unable to provide organic and/or shade-grown coffees
in accordance with the history of TCC/SH business dealings than all amounts due
hereunder shall immediately be due and payable, notwithstanding that the SH/TCC
Sales Calculation for the year in which such event occurs will decrease by
reason of such event.
6.6 All purchase orders from TCC will be made by written PO's. SH will provide
TCC with information and credentials on each supply source for TCC's use and
ability to verify appropriate sources consistent with its stated intent and
consistent with the manner of business occurring between the two companies in
1997.
VII. WARRANTIES OF SELLING PARTY TCC
TCC warrants that:
7.1 SH is a corporation duly organized validly existing, and in good standing
under the laws of California; is duly qualified to do intrastate business; and
is in good standing in all states and countries in which it conducts business.
7.2 The authorized capital stock of SH consist of 1,000,000 shares of common
stock, with no par value of which 1,000 shares (the Shares) are issued and
outstanding. All the 1,000 Shares are validly issued, fully paid, and
nonassessable, and such shares have been so issued in full compliance with all
federal and state securities laws. There are no outstanding subscriptions,
options, rights, warrants convertible securities, or other agreements or
commitments obligating Corporation to issue or to transfer from treasury any
additional shares of its capital stock of any class.
7.3 Shareholder TCC is the owner, beneficially and of record, of all the 1,000
SH Shares free and clear of all liens, encumbrances, security agreements,
equities, options, claims, charges, and restrictions, other than the restriction
set forth in a permit dated February 18, 1997, issued to SH by the California
Commissioner of Corporations. Shareholder has full power to transfer the SH
Shares to Buyer without obtaining the consent or approval of any other person or
governmental authority, other than the consent of the Commissioner of
Corporations required by the permit referred to in the preceding sentence.
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7.4 On the year end financial reports of SH as of December 2, 1998, the
following items appears as assets:
1. Intercompany accounts payable due to TCC from SH - $74,851.23.
2. Inventory - $-0-.
3. Cash - $7,476.53.
4. Accounts Receivable due SH - $9,496.00
5. Prepaid coop coffee contract/producer receivable - $30,000.00
6. Physical Assets - $4,496.00
The parties agree as follows with respect to these enumerated assets
treated herein as part of the payment of the purchase price by GRISWOLD to TCC:
1. Item 1. Is eliminated. Neither GRISWOLD nor SH shall be obligated to pay said
$74,851.53 upon closing of this agreement or any other time.
2. GRISWOLD shall immediately close the account containing the sum of $7,476.53
(item 3) and shall promptly pay TCC said sum. TCC shall immediately credit said
sum against the sales price hereunder of $89,000.00 plus interest, if any,
thereon.
3. GRISWOLD shall liquidate items 4 and 5 as soon as possilbe but in any event
not later than March 1, 1998 and shall promptly pay TCC the proceeds of said
liquidation. TCC shall immediately credit the sums received against the sales
price hereunder of $89,000.000 plus interest thereon.
7.5 TCC is responsible for all operating expenses of SH up to and including
December 2, 1997. GRISWOLD and/or SH is responsible for all operating expenses
of SH commencing December 3, 1997.
7.6 Since December 2, 1997 SH has entered into no transactions except in the
ordinary course of business.
7.7 Except as otherwise set forth herein GRISWOLD purchases SH shares hereunder
free and clear of any and all SH debts and obligations which arose on or before
December 2, 1997. Except as otherwise set forth herein GRISWOLD and SH have no
obligation for any debt or obligation of SH which arose on or before December 2,
1997.
VIII. REPRESENTATIONS AND WARRANTIES
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8.1 TCC warrants that it has done nothing which would make the intended
achievement of the purpose of the Agreement impossible, nor has it modified the
capital structure or stock ownership of SH in any manner since its formation.
8.2 GRISWOLD warrants that he has done nothing which would make the intended
achievement of the purpose of the Agreement impossible, nor has it modified the
capital structure or stock ownership of SH in any manner since its formation.
8.3 Neither party is aware of any fact or problem which has not been previously
disclosed which if disclosed would materially affect the other party's decision
to proceed.
8.4 The execution and delivery of this Agreement and the performance of TCC's
obligations under it have been duly authorized by the necessary corporate
action.
8.5 Effective concurrently herewith, all persons other than GRISWOLD who hold
officer or director positions have resigned such positions.
8.6 GRISWOLD warrants that he has full power and authority to execute this
Agreement.
8.7 GRISWOLD agrees that he has no claim against TCC arising out of or related
to the ownership, or operations of SH that arise before or after December 2,
1997.
8.8 GRISWOLD represents that he will be the sole owner of the SH stock and
indirectly in the Business, as his sole and separate property. GRISWOLD warrants
and represents that he has full power and authority to execute this Agreement on
behalf of any and all other persons who have any interest in the subject matter
hereof and who are aligned in any way with his interests hereunder or in SH,
such as a spouse or undisclosed partner.
IX. CONDITIONS PRECEDENT TO GRISWOLD'S PERFORMANCE
9.1 This Agreement has been duly and valid authorized and, when executed and
delivered by TCC, will be valid, binding, and enforceable in accordance with its
terms, except as limited by bankruptcy and insolvency laws and by other laws and
equitable principles affecting the rights of creditors generally.
9.2 TCC is the record owner of all issued shares of stock of SH. On the transfer
and delivery of the Shares to GRISWOLD in accordance with the Agreement,
GRISWOLD will acquire the rights in the shares had by buyer free of any adverse
claim, except for the restrictions set forth herein.
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9.3 The execution and delivery of this Agreement and the performance of TCC's
covenants and obligations under it, will have been duly authorized by all
necessary corporate action, and GRISWOLD will have received copies of all
resolutions pertaining to that authorization.
9.4 TCC will have delivered to GRISWOLD, except as otherwise requested by
GRISWOLD, the written resignations of all the officers and directors of SH, and
will cause any other action to be take with respect to these resignations that
GRISWOLD may reasonable request.
X. THE CLOSING
10.1 The closing will take place prior to February 15, 1998 at a location
mutually agreed upon by the parties.
XI. TCC'S INDEMNITY
11.1 TCC will indemnify, defend, and hold harmless GRISWOLD against and in
respect of claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficience, including interest, penalties, and
reasonable attorney fees, that he may incur or suffer, which arise, result from
or relate to any breach of, or failure by TCC to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by TCC under this Agreement.
A. Notwithstanding paragraph 11.1 herein, TCC's indemnity obligation shall not
apply to liability (1) arising out of or related to any contract entered into by
GRISWOLD in carrying forward the business of SH which contract was not disclosed
by GRISWOLD to TCC or which contract was otherwise unknown to TCC on the
effective date of this agreement; (2) arising out of or related to any acts
undertaken by GRISWOLD inc carrying forward the business of SH concerning which
TCC had no knowledge on the effective date of this agreement; and (3) arising
out of or related to any failure or failures to act by GRISWOLD in a matter
concerning which GRISWOLD had the exclusive duty and responsibility to ct in
carrying forward the business of SH and which failure or failures to act are
unknown to TCC on the effective date of this agreement.
B. To the extent that paragraph 11.1 A applies to any contract or act or failure
to act GRISWOLD and SH shall be jointly and severally liable for any costs
and/or expenses incurred by TCC in connection therewith.
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11.2 Except as stated herein, GRISWOLD agrees that he holds no claim of any kind
against TCC or hereby irrevocably waives and releases such claims, if any.
11.3 Except as stated herein, TCC agrees that they hold no claim of any kind
against GRISWOLD or hereby irrevocably waives and releases such claims, if any.
11.4 GRISWOLD and TCC each acknowledge that this Agreement has been entered into
to completely settle all matter between GRISWOLD on one hand and TCC on the
other for any purpose and GRISWOLD land TCC each waive with respect to such
claims any benefits accruing by reason of California Civil Code Section 1542,
which provides:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor."
11.5 The term TCC as used herein with respect to the above release and indemnity
provision hereof shall mean and include TCC as identified above, and its
affiliates, officers, shareholders and directors, and specifically Paul Katzeff
and Joan Katzeff, any and all entities owned or controlled by any of the
foregoing and the representatives, agents, attorneys, accountants, and lenders
of each and all other persons having any interest whatsoever, whether through
community property, joint ownership, partnership, joint enterprise, or otherwise
in the subject matter hereof, and the successors, heirs, and assigns of each to
the fullest possible including of persons and entities.
XII. EXPENSES AND RELATED PROVISION
12.1 Each party will pay all costs and expenses incurred or to be incurred by it
in negotiating and preparing this Agreement and in closing and carrying out the
transactions contemplated by this Agreement.
12.2 This Agreement constitutes the entire Agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understands of the parties. No
supplement, modification, or amendment of this Agreement will be binding unless
executed in writing by all the parties. No waiver of any of the provisions of
this agreement will constitute a waiver of any other provision, whether or not
similar, nor will any waiver constitute a continuing waiver. No waiver will be
binding unless executed in writing by the party making the waiver.
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12.3 This agreement will be binding on, and will inure to the benefit of, the
parties to it and their respective heirs, legal representatives, successors, and
assigns.
12.4 All notices, requests, demands and other communications under this
Agreement must be in writing and will be considered to have been duly given on
the date of service if served personally on the party to whom notice is to be
given, or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
To Selling Parties at: Thanksgiving Coffee
P.O. Box 1918
Fort Bragg, CA 95437
To Buyer at: David GRISWOLD
3 Commodore Drive, #355
Emeryville, CA 94608
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set forth above.
12.5 The failure of any party at any time to require performance by the other
parties of any provision hereof shall not be taken or held to be a waiver of the
provision itself.
12.6 The parties will execute any additional documents necessary or appropriate
to carry out the intent of this Agreement.
12.7 No party hereto is currently subject to the jurisdiction of any bankruptcy
court in receivership.
12.8 The facsimile transmission of a signed copy hereof to the other party or to
such party's attorney, followed by a faxed acknowledgment of receipt, shall
constitute delivery of said signed document. The parties agree to confirm such
delivery by subsequent mailing or personal delivery of a signed copy to the
other party or such party's attorney.
12.9 This Agreement shall be considered a contract made under California law,
and the right and obligations of the parties hereto shall be construed in
accordance with such law.
12.10 This instrument contains all of the agreement, understandings,
representations, conditions, warranties and covenants made between the parties
hereto with respect to GRISWOLD's purchase of SH from TCC. TCC and GRISWOLD
shall only be liable for representations included in this written
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document and no others. All modifications and amendments hereto must be in
writing and signed by the parties.
12.11 If any provision of this Agreement is held invalid or unenforceable by any
court of final jurisdiction, it is the intent of the parties that all other
provisions of this agreement be construed to remain fully valid, enforceable,
and binding on the parties.
In witness whereof, the parties of this Agreement have duly executed it on the
day and year first above written.
Dated: 2/12/98 /s/ David GRISWOLD
-------------------------------
Dated: 2/12/98 Thanksgiving Coffee Company, Inc.
Shareholder
By /s/ Paul Katzeff
-------------------------------
Dated:2/12/98 SUSTAINABLE HARVEST, INC.
By /s/ David Griswold
-------------------------------
President
By /s/ Joan Katzeff
-------------------------------
SECRETARY/OWNER/DIRECTOR
By /s/ Paul Katzeff
-------------------------------
DIRECTOR and OWNER
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EXHIBIT 10.8
SUMMARY OF MATERIAL MODIFICATIONS
To: All Participants under the Thanksgiving Coffee Company, Inc.
Profit Sharing Plan and Trust
This notice, called a "Summary of Material Modification," advises you of the
changes in the information presented in your Summary Plan Description (SPD).
These changes have resulted from an amendment made to the Plan.
Please do the following:
1. Read this notice in its entirety, paying particular attention to the changes
listed below. If you have any questions regarding these changes, please contact
the Plan Administrator.
2. Keep this notice with your Summary Plan description for future reference.
3. Mark the sections in your Summary Plan Description that has changed, so that
when you refer to the sections in the future, you will be reminded of the
changes described in this notice.
The Change
The SPD has changed as follows:
1. Plan Year: The Plan year is the period in which the Plan maintains its
records: The 12 consecutive month period ending December 31. The Plan Year had
been a twelve month period ending March 31, 1995. The Plan Year was changed
resulting in a short Plan year beginning on April 1, 1995 and ending December
31, 1995.
2. Plan Entry Date: For the short Plan Year ended December 31, 1995, the Entry
Date shall be October 1, 1995. For subsequent Plan Years, the entry dates shall
be the first day of the Plan year (January 1) and the first day of the seventh
month of the Plan year.
3. Hours of Service Condition for Allocation: A participant must complete 1,000
hours of service during a Plan year. With respect to the short Plan ending
December 31, 1995, the requirement for 1,000 hours of service shall be
multiplied by the fraction of months in the short Plan year divided by 12.
4. Hours of Service for Vesting Computation Period: The minimum number of hours
of service an employee must complete during a vesting computation period to
receive credit for a year of service is 1,000 hours of service. With respect to
the short Plan
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ending December 31, 1995, the requirement for 1,000 hours of service shall be
measured from January 1, 1995 through December 31, 1995.
5. The Plan will use the calendar year election for purposes of identifying
highly compensated employees.
Summary Plan Description for the Thanksgiving Coffee Company,
Inc. Profit Sharing Plan and Trust
1. GENERAL The legal name, address and federal Employer identification number of
the Employer are:
Thanksgiving Coffee Company, Inc.
P.O. Box 1918
Fort Bragg, CA 95437
94-2823626
The Employer has established a retirement Plan ("Plan") to supplement your
income upon retirement. In addition to retirement benefits, the Plan may provide
benefits in the event of your death or disability or in the event of your
termination of employment prior to normal retirement. If after reading this
summary you have any questions, please ask the Plan Administrator. We emphasize
this summary Plan description is a highlight of the more important provisions of
the Plan. If there is a conflict between a statement in this summary Plan
description and in the Plan, the terms of the Plan control.
2. IDENTIFICATION OF PLAN The Plan is known as Thanksgiving Coffee Company, Inc.
Profit Sharing Plan and Trust.
The Employer has assigned 001 as the Plan identification number. The Plan year
is the period on which the Plan maintains its records: the twelve consecutive
month period ending every March 31.
3. TYPE OF PLAN The Plan is commonly known as a profit sharing Plan. Section 8,
"Employer's Contribution," explains how you share in the Employer's annual
contributions to the trust fund and the extent to which the Employer has an
obligation to make annual contributions to the trust fund.
Under this Plan, there is no fixed dollar amount of retirement benefits. Your
actual retirement benefit will depend on the amount of your account balance at
the time of retirement. Your account balance will reflect the annual
allocations, the period of time you participate in the Plan and the success of
the Plan in investing and reinvesting the assets of the trust fund. Furthermore,
a governmental agency known as the Pension Benefit Guaranty Corporation (PBGC)
insures the benefits payable under Plans which provide for fixed and
determinable retirement
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benefits. The Plan does not provide a fixed and determinable retirement benefit.
Therefore, the PBGC does not include this Plan within its insurance program.
4. PLAN ADMINISTRATOR The Employer is the Plan Administrator. The Employer's
telephone number is 707-964-0118. The Employer has designated Joan Katzeff to
assist the Employer with the duties of Plan Administrator. You may contact Joan
Katzeff at the Employer's address. The Plan Administrator is responsible for
providing you and other participants information regarding your rights and
benefits under the Plan. The Plan Administrator also has the primary authority
for filing the various reports, forms and returns with the Department of Labor
and the Internal Revenue Service. The name of the person designated as agent for
service of legal process and the address where a processor may serve legal
process upon the Plan are:
Joan Katzeff and Paul Katzeff
Thanksgiving Coffee Company, Inc.
P.O. Box 1918
Fort Bragg, CA 95437
A legal processor may also serve the Trustee of the Plan or the Plan
Administrator.
The Plan permits the Employer to appoint an Advisory Committee to assist in the
administration of the Plan. The Advisory Committee has the responsibility for
making all discretionary determinations under the Plan and for giving
distribution directions to the trustee. If the Employer does not appoint an
Advisory Committee, the Plan Administrator assumes these responsibilities. The
members of the Advisory Committee may change from time to time. You may obtain
the names of the current members of the Advisory Committee from the Plan
Administrator.
5. TRUSTEE/TRUST FUND The Employer has appointed Joan Katzeff and Paul Katzeff
to hold the office of trustee. The trustee will hold all amounts the Employer
contributes to it in a trust fund. Upon the direction of the Advisory Committee,
the trustee will make all distribution and benefit payments from the trust fund
to participants and beneficiaries. The trustee will maintain trust fund records
on a Plan year basis.
6. HOURS OF SERVICE The Plan and this summary Plan description include
references to hours of service. To become eligible to participate in the Plan,
to advance on the vesting schedule or to share in the allocation of Employer
contributions for a Plan year, the Plan requires you to complete a minimum
number of hours of service during a specified period. The sections covering
eligibility to participate, vesting and Employer contributions explain this
aspect of the Plan in the context of those topics.
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<PAGE> 4
However, hours of service has the same meaning for all purposes of the Plan.
The Department of Labor, in its regulations, has prescribed various methods
under which the Employer may credit hours of service. The Employer has selected
the "actual" method for crediting hours of service. Under the actual method, you
will receive credit for each hour for which the Employer pays you, directly or
indirectly, or for which you are entitled to payment, for the performance of
your employment duties. You also will receive credit for certain hours during
which you do not work if the Employer pays you for those hours, such as paid
vacation.
If an employee's absence from employment is due to maternity or paternity leave,
the employee will receive credit for unpaid hours of service related this leave,
not to exceed 501 hours. The Advisory Committee will credit these hours of
service to the first period during which the employee otherwise would incur a 1-
year break in service as a result of the unpaid absence.
7. ELIGIBILITY TO PARTICIPATE To become a participant, an employee must complete
one year of service. You do not have to complete any form for entry into the
Plan. You will become a participant on the April 1 immediately preceding your
completion of the service requirement.
The Plan defines "year of service" as a 12-month period in which you work 1,000
hours of service for the Employer. The first eligibility service period starts
on your first day of employment with the Employer. For example, if you begin
work on February 15 and work 1,000 hours from that February 15 through the
following February 14, you would enter the Plan on the April 1 immediately
preceding the completion of the one year of service. After the first 12-month
eligibility service period, the Plan will measure your eligibility service
period on a Plan year basis. In the prior example, on a Plan year basis, the
second 12-month period would begin with the first Plan year starting after your
February 15 employment date and other 12-month periods would be the following
Plan years. The Plan will need to measure more that one 12-month period, for
example, if you do not complete a year of service in the first 12-month period.
If you terminate employment after becoming a participant in the Plan and later
return to employment, you will re-enter the Plan on your re-employment date.
Also, if you terminate employment after satisfying the Plan's eligibility
conditions but before actually becoming a participant in the Plan, you will
become a participant in the Plan on the later of your scheduled entry date or
your reemployment date.
The following employees are not eligible to participate in the Plan:
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employees working in a classification of employees covered by a collective
bargaining agreement.
A nonresident alien who does not receive any earned income from the Employer
which constitutes United States source income.
employees of a member of the Employer's related group who does not participate
in this Plan.
If by reason of this exclusion, you should become ineligible to participate in
the Plan, you may not receive an allocation of the Employer's contribution
during the period of your exclusion, but during this period your account balance
will continue to share in trust fund earnings or losses.
8. EMPLOYER'S CONTRIBUTIONS Each Plan year, the Employer will contribute to the
Plan the amount determined by the Employer at its discretion. The Employer may
choose not to contribute to the Plan for a particular Plan year.
For each Plan year the Employer contributes to the Plan, the Advisory Committee
will allocate this contribution to the separate accounts maintained for
participants. The Advisory Committee will base your allocation upon your
proportionate share of the total compensation paid during that Plan year to all
participants in the Plan. For example, if your compensation for that Plan year
is 10% of the total compensation for all participants for that particular Plan
year, the Advisory Committee will allocate 10% of the total Employer
contribution for the Plan year to your separate account.
ALLOCATION OF FORFEITURES The Plan allocates participant forfeitures as if the
forfeitures were additional Employer contributions for the Plan year in which
the forfeiture occurs.
COMPENSATION The Plan defines compensation as the total compensation paid to the
employee for services rendered to the Employer, with the following
modifications:
exclude compensation treated as reimbursements or other expense allowances,
fringe benefits (cash and noncash), moving expenses, deferred compensation and
welfare benefits. With limited exceptions, the Plan includes an employee's
compensation only for the part of the Plan year in which he actually is a
participant.
CONDITIONS FOR ALLOCATION With limited exceptions, to be entitled to an
allocation of Employer contributions, you must complete 1,000 hours of service
during the Plan year and you must be employed by the Employer on the last day of
the Plan year.
The contribution allocations described in this Section 8 may vary
for certain employees if the Plan is top heavy. Generally, the
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Plan is top heavy if more than 60% of the Plan's assets are allocated to the
accounts of key employees (certain owners and officers). If the Plan is top
heavy, any participant who is not a key employee and who is employed on the last
day of the Plan year, may not receive a contribution allocation which is less
that a certain minimum. Usually that minimum is 3%, but if the contribution
allocation for the Plan year is less than 3% for all the key employees, the top
heavy minimum is the smaller allocation rate. If you are a participant in the
Plan, your allocation described in this Section 8 in most cases will be equal to
or greater than the top heavy minimum contribution allocation. The Plan also may
vary the definition of the top heavy minimum contribution to take into account
another Plan maintained by the Employer.
The law limits the amount of "addition" (other than trust earnings) which the
Plan may allocate to your account under the Plan. Your additions may never
exceed 25% of your compensation for a particular Plan year, but may be less if
25% of your compensation exceeds a dollar amount announced by the Internal
Revenue Service each year. The Plan may need to reduce this limitation if you
participate (or have participated) in any other Plans maintained by the
Employer. The discussion of Plan allocations in this Section 8 is subject to
this limitation.
9. EMPLOYEE CONTRIBUTIONS The Plan does not permit nor require you to make
employee contributions to the trust fund. The only source of contributions under
the Plan is the annual Employer contribution.
10. VESTING IN EMPLOYER CONTRIBUTIONS Your interest in the contributions the
Employer makes to the Plan for your benefit becomes 100% vested when you attain
normal retirement age (as defined in Section 11). Prior to normal retirement
age, your interest in the contributions the Employer makes on your behalf become
vested in accordance with the following schedule:
NON TOP HEAVY SCHEDULE
<TABLE>
<CAPTION>
Years of Service Percent of Nonforfeitable Interest
<S> <C>
Less than 1 0%
1 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
TOP HEAVY SCHEDULE
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<TABLE>
<CAPTION>
Years of Service Percent of Nonforfeitable Interest
<S> <C>
Less than 1 0%
1 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
SPECIAL VESTING RULE FOR DEATH OR DISABILITY If you die or become disabled while
still employed by the Employer, your entire Plan interest becomes 100% vested,
even if you otherwise would have a vested interest less that 100%.
The top heavy schedule shown above will apply in the Plan year for which the
Plan first is top heavy and then in all subsequent Plan years.
YEARS OF SERVICE To determine your percentage under a vesting schedule, a year
of service means a 12-month vesting service period in which you complete at
least 1,000 hours of service. The Plan measures the vesting service period as
the Plan year. If you complete at least 1,000 hours of service during a Plan
year, you will receive credit for a year of service even though you are not
employed by the Employer on the last day of that Plan year.
You will receive credit for years of service with the Employer prior to the time
the Employer established the Plan and for years of service prior to the time you
became a participant in the Plan.
The Plan provides two methods of vesting forfeiture which may apply before a
participant becomes 100% vested in his entire interest under the Plan. The
primary method of vesting forfeiture is the "forfeiture break in service" rule.
The secondary method of forfeiture is the "cash out" rule. Also see Section 15
relating to loss or denial of benefits.
FORFEITURE BREAK IN SERVICE RULE Termination of employment alone will not result
in forfeiture under the Plan unless you do not return to employment with the
Employer before incurring a forfeiture break in service. A forfeiture break in
service is a period of 5 consecutive vesting service periods in which you do not
work more than 500 hours in each vesting service period comprising the 5 year
period.
EXAMPLE Assume you are 60% vested in your account balance. After working 400
hours during a particular vesting service period, you terminate employment and
perform no further service for the Employer during the next 4 vesting service
periods. Under this example, you would have a forfeiture break in service during
the fourth vesting service period following the vesting service
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period in which you terminated employment because you did not work more than 500
hours during each vesting service period of 5 consecutive vesting service
periods. Consequently, you would forfeit the 40% non-vested portion of your
account. If you had returned to employment with the Employer at any time during
the 5 consecutive vesting service periods and worked more than 500 hours during
any vesting service period within that 5-year period, you would not incur a
forfeiture under the forfeiture break in service rule.
CASH OUT RULE The cash out rule applies if you terminate employment and receive
a total distribution of the vested portion of your account balance before you
incur a forfeiture break in service. For example, assume you terminated
employment during a particular vesting service period after completing 800 hours
of service. Assume further the total value of your account balance is $6,000 in
which you have a 60% vested interest. Before you incur a "forfeiture break in
service," you receive a distribution of the $3,600 vested portion ($6,000 X 60%)
of your account balance. Upon payment of the $3,600 vested portion of your
account balance, you would forfeit the $2,400 nonvested portion. If you return
to employment before you incur a forfeiture break in service, you may have the
Plan restore your "cash out" forfeiture by repaying the amount of the
distribution you received attributable to Employer contributions. This repayment
right applies only if you do not incur a "forfeiture break in service." You must
make this repayment no later than the date 5 years after you return to
employment with the Employer. Upon your reemployment with the Employer, you may
request the Advisory Committee to provide you a full exPlanation of your rights
regarding this repayment option. If the vested portion of your account balance
does not exceed $3,500, the Plan will distribute that vested portion to you in a
lump sum, without your consent. This involuntary cash-out distribution will
result in the forfeiture of your nonvested account balance, in the same manner
as an employee who voluntarily elects a cash-out distribution. Also, upon
reemployment you would have the same repayment option as an employee who elected
a cash-out distribution, if you return to employment before incurring a
"forfeiture break in service."
If you are 0% vested in your entire interest in the Plan, the Plan will treat
you as having received a cash-lout distribution of $0. This distribution results
in a forfeiture of your entire Plan interest. Normally, this forfeiture occurs
on the date you terminate employment with the Employer. However, if you are
entitled to an allocation of Employer contributions for the Plan year in which
you terminate employment with the Employer, this forfeiture occurs as of the
first day of the next Plan year. If you return to employment before you incur a
forfeiture break in service, the Plan will restore this forfeiture, as if you
repaid a cash-out distribution.
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11. PAYMENT OF BENEFITS AFTER TERMINATION OF EMPLOYMENT After you terminate
employment with the Employer, the time at which the Plan will commence
distribution to you and the form of that distribution depends on whether your
vested account balance exceeds $3,500. If you receive a distribution from the
Plan before you attain age 59 1/2, the law imposes a 10% penalty on the amount
of the distribution you receive to the extent you must include the distribution
in your gross income, unless you qualify for an exception from this penalty. You
should consult a tax advisor regarding this 10% penalty. This summary makes
references to your normal retirement age. Normal retirement age under this Plan
is the later of the date you attain age 65 or the 5th anniversary of the first
day of the Plan year in which you became a participant in the Plan.
If your vested account balance does not exceed $3,500, the Plan will distribute
that portion to you, in a lump sum, on the earliest administratively feasible
date after you terminate employment with the Employer, or as soon as
administratively practicable following that date. If you already have attained
normal retirement age when you terminate employment, the Plan must make this
distribution no later than the 60th day following the close of the Plan year in
which your employment terminates, even if the normal distribution date would
occur later. The Plan does not permit you to receive distribution in any form
other than a lump sum if your vested account balance does not exceed $3,500.
If your vested account balance exceeds $3,500, the Plan will commence
distribution to you at the time you elect to commence distribution. The Plan
permits you to elect distribution:
as of any distribution date following your termination of
employment with the Employer.
A distribution date under the Plan means the first day of each month of the Plan
year. You may not actually receive distribution on the distribution date you
elect. The Plan provides the trustee an administratively reasonable time
following a particular distribution date to make actual distribution to a
participant.
No later than 30 days prior to your earliest possible distribution date, the
Advisory Committee will provide you a notice explaining your right to elect
distribution from the Plan and the forms necessary to make your election. If you
do not make a distribution election, the Plan will commence distribution to you
on the 60th day following the close of the Plan year in which the latest of
three events occurs: 1. Your attainment of normal retirement age; 2. Your
attainment of age 62, or 3. Your termination of employment with the Employer. To
determine whether your vested account balance exceeds $3,500, the Plan normally
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looks to the last valuation of your account prior to the scheduled distribution
date.
With limited exceptions, you may not commence distribution of your vested
account balance later that April 1 of the calendar year following the calendar
year in which you attain age 70 1/2, even if you have not terminated employment
with the Employer. This required distribution date overrides any contrary
distribution date described in this summary. If the Employer terminates the Plan
before you receive complete distribution of your vested benefits, the Plan might
make distribution to you before you otherwise would elect distribution. Upon
Plan termination, if your vested account balance exceeds $3,5000, you will
receive an exPlanation of your distribution rights.
For purposes of making a distribution of any portion of your vested account
balance, the Plan refers to the latest valuation of your account balance. The
Plan requires valuation of the trust fund, and adjustment of participant's
accounts, as of the last day of each Plan year. The Advisory Committee also may
require a valuation on any other date. You will not receive any adjustment to
your account balance for trust fund earnings after the latest valuation date. In
general, the Plan allocates trust fund earnings, gains or losses for a valuation
period on the basis of each participant's opening account balance at the
beginning of the valuation period, less any distributions and charges to each
participant's account during the valuation period.
Forms of Benefit Payment If your vested account balance exceeds $3,500, the Plan
permits you to elect distribution under any one of the following methods:
a. Lump sum.
b. Part lump sum and part installments, as described in c.
c. Installment payments (annually, quarterly or monthly) over a specified period
of time, not exceeding your life expectancy or the joint life expectancy of you
and your designated beneficiary.
d. A joint and survivor annuity.
Under an installment distribution, the Advisory Committee may direct to have the
Plan segregate the amount owed to you in a separate account apart from other
trust fund assets. Your separate account will continue to draw interest during
the period the Plan is making retirement payments to you. If the Plan does not
segregate the amount owed to you in a separate account, your retirement account
will remain a part of the trust fund and continue to share in trust fund
earnings, gains or losses.
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<PAGE> 11
A joint and survivor annuity means you would receive an annuity for your life
and, upon your death, your surviving spouse would receive an annuity for his or
her life in an amount equal to 50% of your life annuity. For example, if, under
the joint and survivor annuity, a participant was receiving (or would have
received) a monthly pension of $400 at the time of his death, the surviving
spouse would receive a monthly pension of $200 upon the participant's death for
the remainder of his or her life. If you are not married at the time benefit
payments commence, the joint and survivor annuity simply is a life annuity,
meaning you receive an annuity for your life and payments end upon your death.
To provide the joint and survivor annuity, the trustee would use your vested
account balance to purchase that type of annuity contract from an insurance
company. The exact monthly annuity payable to you would depend upon the amount
of the account balance and the insurance company's annuity rates at the time of
the purchase. No later than 30 days prior to your earliest distribution date,
the Advisory Committee will provide you a written notice explaining the joint
and survivor annuity, your waiver rights and the spousal consent requirements.
The Advisory Committee will provide you an appropriate form to receive your
benefits in the form of a joint and survivor annuity, or to elect not to receive
your benefits in that form. The form the Advisory Committee will provide you
with will explain the economic effect of taking your benefits in the form of a
joint and survivor annuity. The Plan must make any distribution described in
Sections 11, 12, and 13 in the form of the joint and survivor annuity if the
participant's account balance exceeds $3,500, unless the participant properly
elects a different form of payment. If you are married, your spouse must consent
in writing to any election not to take a joint and survivor annuity form of
payment.
The benefit payment rules described in Sections 11 through 14 reflect the
current Plan provisions. If an Employer amends its Plan to change benefit
payment options, some options may continue for those participants or
beneficiaries who have account balances at the time of the change. If an
eliminated option continues to apply to you, the information you receive from
the Advisory Committee at the time you are first eligible for distribution from
the Plan will include an exPlanation of that option.
12. PAYMENT OF BENEFITS PRIOR TO TERMINATION OF EMPLOYMENT Prior to your
termination of employment with the Employer, you may elect to withdraw all or
any portion of your vested account balance:
if you continue to work for the Employer after attaining normal
retirement age.
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<PAGE> 12
The Advisory Committee will provide you a withdrawal election form. Other than
the withdrawal right described in this Section 12 and the post-age 70 1/2
distribution requirement described in Section 11, the Plan does not permit you
to receive payment of any portion of your account balance for any other reason,
unless you terminate employment with the Employer.
13. DISABILITY BENEFITS If you terminate employment because of disability, the
Plan will pay your vested account balance to you in lump sum at the same time as
it would pay your vested account balance for any other termination of
employment. However, if your vested account balance exceeds $3,500, the
disability distribution rules are subject to any election requirements described
in Section 11. In general, disability under the Plan means because of a physical
or mental disability you are unable to perform the duties of your customary
position of employment for an indefinite period which, in the opinion of the
Advisory Committee, will be of long continued duration. The Advisory Committee
also considers you disabled if you terminate employment because of a permanent
loss or loss of use of a member or function of your body or a permanent
disfigurement. The Advisory Committee may require a physical examination in
order to confirm the disability.
14. PAYMENT OF BENEFITS UPON DEATH If you die prior to receiving all of your
benefits under the Plan, the Plan will pay the balance of your account to your
beneficiary. If the Employer permits the trustee to purchase life insurance on
your life with a portion of your account balance, your account balance also will
receive any life insurance proceeds payable by reason of your death.
If your death occurs before you commence distribution of your vested account
balance, the Plan will pay a preretirement survivor annuity to your surviving
spouse, unless you waive this annuity benefit, with your spouse's consent, or
unless you and your spouse are not married for the one year period ending on
your date of death. A preretirement survivor annuity means your surviving spouse
would receive an annuity for life. To provide the preretirement survivor
annuity, the trustee would use 50% of your vested account balance to purchase
that type of annuity contract from an insurance company. The exact monthly
annuity payable to your surviving spouse would depend upon the amount of your
account balance, and the insurance company's annuity rates at the time of the
purchase. The Advisory Committee will provide you an appropriate form to elect
to have the Plan pay a preretirement survivor annuity or to elect not to have
the Plan pay that annuity. The form the Advisory Committee will provide you will
explain the economic effect of taking death benefits in the form of a
preretirement survivor annuity. If your death occurs after you commence
distribution under the Plan, this preretirement survivor annuity coverage does
not apply, even if
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you and your spouse had not waived that coverage, and your surviving spouse's
interest in your remaining account balance would be subject to the distribution
election described in Section 11.
After making a reduction for the portion of your vested account balance used to
purchase the preretirement survivor annuity benefit described in the preceding
paragraph, the Plan will pay your vested account balance remaining in the Plan
at the time of your death to your designated beneficiary. The Advisory Committee
will provide you with an appropriate form for naming a beneficiary. If you are
married, your spouse must consent to the designation of any nonspouse
beneficiary only if you have waived the preretirement survivor annuity coverage
described in the preceding paragraph. If your vested account balance payable to
your designated beneficiary does not exceed $3,500, the Plan will pay the
benefit, in a lump sum, to your designated beneficiary as soon as
administratively practicable after your death. If your vested account balance
payable to your designated beneficiary exceeds $3,500, the Plan will pay the
benefit to your designated beneficiary, in the form and at the time elected by
the beneficiary, unless, prior to your death, you specify the timing and form of
the beneficiary's distribution. The benefit payment election generally must
complete distribution of your vested account balance within five years of your
death, unless distribution commences within one year of your death to your
designated beneficiary or unless benefits had commenced prior to your death
under the mandatory post-age 70 1/2 distribution requirements described in
Section 11.
15. DISQUALIFICATION OF PARTICIPANT STATUS - LOSS OR DENIAL OF BENEFITS There
are no specific Plan provisions which disqualify you as a participant or which
cause you to lose Plan benefits, except as provided in Sections 7 and 10.
However, if you become disabled and do not receive compensation from the
Employer, you will not receive an allocation of the Employer's contribution to
the Plan during the period of disability. In addition, if your Plan benefits
become payable after termination of employment and the Advisory Committee is
unable to locate you at your last address of record, you may forfeit your
benefits under the Plan. Therefore, it is very important that you keep the
Employer apprised of your mailing address even after you have terminated
employment. Finally, if the Employer terminates the Plan, which it has the right
to do, you would receive benefits under the Plan based on your account balance
accumulated to the date of the termination of the Plan. Termination of the Plan
could occur before you attain normal retirement age. If the Employer terminates
the Plan, your account will become 100% vested, if not already 100% vested,
unless you forfeited the nonvested portion prior to the termination date.
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The fact that the Employer has established this Plan does not confer any right
to future employment with the Employer. Furthermore, you may not assign your
interest in the Plan to another person or use your Plan interest as collateral
for a loan from a commercial lender.
16. CLAIMS PROCEDURE You need not file a formal claim with the Advisory
Committee in order to receive your benefits under the Plan. When an event occurs
which entitles you to a distribution of your benefits under the Plan, the
Advisory Committee automatically will notify you regarding your distribution
rights. However, if you disagree with the Advisory Committee's determination of
the amount of your benefits under the Plan or with respect to any other decision
the Advisory Committee may make regarding your interest in the Plan, the Plan
contains the appeal procedure you should follow. In brief, if the Advisory
Committee of the Plan determines it should deny benefits to you, the Plan
Administrator will give you written notice of the specific reasons for the
denial. The notice will refer you to the pertinent provisions of the Plan
supporting the Advisory Committee's decision. If you disagree with the Advisory
Committee, you, or a duly authorized representative, must appeal the adverse
determination in writing to the Advisory Committee within 75 days after the
receipt of the notice of denial of benefits. If you fail to appeal a denial
within the 75-day period, the Advisory Committee's determination will be final
and binding.
If you appeal to the Advisory Committee, you, or your duly authorized
representative, must submit the issues and comments you feel are pertinent to
permit the Advisory Committee to reexamine all facts and make a final
determination with respect to the denial. The Advisory Committee, in most cases,
will make a decision within 60 days of a request on appeal unless special
circumstances would make the rendering of a decision within the 60-day period
unfeasible. In any event, the Advisory Committee must render a decision within
120 days after its receipt of a request for review. The same procedures apply
if, after your death, your beneficiary makes a claim for benefits under the
Plan.
17. RETIRED PARTICIPANT, SEPARATED PARTICIPANT WITH VESTED BENEFIT, BENEFICIARY
RECEIVING BENEFITS If you are a retired participant or beneficiary receiving
benefits, the benefits you presently are receiving will continue in the same
amount and for the same period provided in the mode of settlement selected at
retirement. If you are a separated participant with a vested benefit, you may
obtain a statement of the dollar amount of your vested benefit upon request to
the Plan Administrator. There is no Plan provision which reduces, changes,
terminates, forfeits, or suspends the benefits of a retired participant, a
beneficiary
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receiving benefits or a separated participant's vested benefit amount, except as
provided in Section 15.
18. PARTICIPANT'S RIGHTS UNDER ERISA As a participant in this Plan, you are
entitled to certain rights and protections under the Employee Retirement Income
Security Act of 1974 (ERISA). ERISA provides that all Plan participants are
entitled to:
a. Examine, without charge, at the Plan Administrator's office and at other
specified locations (such as work sites), all Plan documents, including
insurance contracts and copies of all documents filed by the Plan with the U.S.
Department of Labor, such as detailed annual reports and Plan descriptions.
b. Obtain copies of all Plan documents and other Plan information upon written
request to the Plan Administrator. The Plan Administrator may make a reasonable
charge for the copies.
c. Receive a summary of the Plan's annual financial report. ERISA requires the
Plan Administrator to furnish each participant with a copy of this summary
annual report.
d. Obtain a statement telling you that you have a right to receive a retirement
benefit at the normal retirement age under the Plan and what your benefit could
be at normal retirement age if you stop working under the Plan now. If you do
not have a right to a retirement benefit, the statement will advise you of the
number of additional years you must work to receive a retirement benefit. You
must request this statement in writing. The law does not require the Plan
Administrator to give this statement more than once a year. The Plan must
provide the statement free of charge.
In addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit Plan.
The people who operate this Plan, called "fiduciaries" of the Plan, have a duty
to do so prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your Employer, your union or any other person
may fire you or otherwise discriminate against you in any way to prevent you
from obtaining a retirement benefit or from exercising your rights under ERISA.
If your claim for a retirement benefit is denied in whole or in part, you must
receive a written exPlanation of the reason for the denial. You have the right
to have the Plan review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive the
materials within 30 days, you may file suit in a Federal court. In such a case,
the court may require the Plan
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Administrator to provide the materials and pay you up to $100 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of the Plan Administrator. If you have a claim for benefits
which is denied or ignored, in whole or in part, you may file suit in a state or
Federal court. If it should happen that Plan fiduciaries misuse the Plan's
money, or if you are discriminated against for asserting your rights, you may
seek assistance from the U.S. Department of Labor, or you may file suit in a
Federal court. The court will decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to pay these
costs and fees. If you lose, the court may order to pay these costs and fees,
for example, if it finds your claim is frivolous.
If you have any questions about your Plan, you should contact the Plan
Administrator. If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest area office of the U.S.
Labor-Management Services Administration, Department of Labor.
19. FEDERAL INCOME TAXATION OF BENEFITS PAID Existing federal income tax laws do
not require you to report as income the portion of the annual Employer
contribution allocated to your account. However, when the Plan later distributes
your account balance to you, such as upon your retirement, you must report as
income the Plan distributions you receive. The federal tax laws may permit you
to report a Plan distribution under a special averaging provision. Also, it may
be possible for you to defer federal income taxation of a distribution by making
a "rollover" contribution to your own rollover individual retirement account.
Mandatory income tax withholding rules apply to some distributions you do not
rollover directly to an individual retirement account or to another Plan. At the
time you receive a distribution, you also will receive a notice discussing
withholding requirement and the options available to you. We emphasize you
should consult your own tax adviser with respect to the proper method of
reporting any distribution you receive from the Plan.
20. PARTICIPANT LOANS This Plan permits the Advisory Committee to adopt a policy
under which the Plan may make loans to participants and beneficiaries. A copy of
the loan policy adopted by the Advisory Committee is attached to this summary
Plan description as Exhibit A.
Acknowledgment of Receipt of Summary Plan Description of the
Thanksgiving Coffee Company, Inc. Profit Sharing Plan and Trust
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I hereby acknowledge receipt of a copy of the Summary Plan Description ("SPD")
on the above Plan. I received a copy of the SPD on the date indicated below.
Dated:
Participant's Name - Printed
Signature of Participant
Participant Loan Policy
(Addendum to the Summary Plan Description)
The Advisory Committee of the Thanksgiving Coffee Company, Inc. Profit Sharing
Plan and Trust ("Plan") adopts the following loan policy pursuant to the terms
of the Plan. As a participant or beneficiary under the Plan, you may receive a
loan only as permitted by this loan policy.
1. LOAN APPLICATION Any Plan participant may apply for a loan from the Plan.
EXCEPT participants who own greater than 10% of an unincorporated business OR
participants who own greater than 5% of an S-corporation. For purposes of this
loan policy, the term "participant" means any participant or beneficiary with
respect to the Plan. A participant must apply for each loan in writing with an
application which specifies the amount of the loan desired, the requested
duration for the loan and the source of security for the loan. The Advisory
Committee will not approve any loan if a participant is not credit worthy. In
order to be credit worthy, the participant must have established in his or her
community, a reputation which would entitle him or her to a similar loan from a
commercial or business lender. In applying for the loan from the Plan, each
participant must give full authority to investigate his or her credit
worthiness.
2. LIMITATION ON LOAN AMOUNT/PURPOSE OF LOAN The Advisory Committee will not
approve any loan to a participant in an amount which exceeds 50% of his or her
nonforfeitable accrued benefit (account balance), as reflected by the books and
records of the Plan. The maximum aggregate dollar amount of loans outstanding to
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any participant may not exceed $50,000 as aggregated with all participant loans
from other Employer qualified Plans, reduced by the excess of the participant's
highest outstanding participant loan balance during the 12-month period ending
on the date of the loan over the participant's current outstanding participant
loan balance on the date of the loan. A participant may not request a loan for
less that $1,000.
A participant loan may be for the purpose of one or any combination of the
following reasons: 1. the purchase, construction or improvement of a residence
or other real estate; 2. the purchase of a vehicle (including an automobile,
van, truck, or recreational vehicle); 3. tuition and other educational expenses;
4. medical and dental expenses; 5. funeral expenses of a family member; 6. to
consolidate or retire other loans or credit card balances; or 7. for any other
financial need deemed by the Advisory Committee as being of a significant
importance to merit a participant loan.
3. EVIDENCE AND TERMS OF LOAN The Advisory Committee will document every loan in
the form of a promissory note signed by the participant for the face amount of
the loan, together with a commercially reasonable rate of interest. The Advisory
Committee will determine the appropriate interest rate by obtaining at least one
quote from a financial institution, as chosen by the Advisory Committee, that is
in the business of lending money. The interest rate quote(s) must take into
account the term of the loan, the security on that loan, the credit worthiness
of the participant, whether the interest rate is adjustable during the term of
the loan, and the intended use of the loan proceeds, if known, and must reflect
a commercially reasonable rate for the geographic region in which the
participant lives. If participants in the Plan live in different geographic
regions, the Advisory Committee may establish a uniform commercially reasonable
interest rate applicable to all regions based on information obtained from at
least one region in which participants live. The Advisory Committee must
reevaluate interest rates for loans made more than one month since the last loan
made by the Plan.
A loan my provide a fixed rate of interest or an adjustable rate of interest, as
negotiated between the Advisory Committee and the participants. The Advisory
Committee will determine whether the interest rate is commercially reasonable at
the time it approves the loan and, in the case of an adjustable rate loan, at
the time of each scheduled adjustment. The loan must provide at least quarterly
payments under a level amortization schedule.
The loan may permit a suspension of payments for a period not exceeding one year
which occurs during an approved leave of absence. The Advisory Committee will
fix the term for repayment of any loan, however, in no instance may the term of
repayment be greater than five years, unless the loan qualifies as a home
-95-
<PAGE> 19
loan. The Advisory Committee may fix the term for repayment of a home loan for a
period not to exceed fifteen (15) years. A "home loan" is a loan used to acquire
a dwelling unit which, within a reasonable time, the participant will use as a
principal residence.
Participants should note the law treats the amount of any loan (other than a
home loan) not repaid five years after the date of the loan as a taxable
distribution on the last day of the five year period or, if sooner, at the time
the loan is in default. If a participant extends a non-home loan having a five
year or less repayment term beyond five years, the balance of the loan at the
time of the extension is a taxable distribution to the participant.
4. SECURITY FOR LOAN A participant must secure each loan with an irrevocable
pledge and assignment of 50% of the nonforfeitable amount of the borrowing
participant's accrued benefit under the Plan or other security (e.g., principal
residence) the Advisory Committee may request the borrowing participant to
secure each loan with additional collateral acceptable to the Advisory Committee
or to substitute collateral given for the loan. The Advisory Committee may
require greater security for a participant loan from a participant not employed
by the Employer at the date of the loan.
5. FOR OF PLEDGE If the participant secures the loan wholly or partly with 50%
of his or her vested accrued benefit, the pledge and assignment of the portion
of his or her accrued benefit will be in the form attached to this Loan Policy.
6. Default/Risk of Loss The Advisory Committee will treat this loan in default
if:
a. Any scheduled payment remains unpaid more than 90 days.
b. The making or furnishing of any representation or statement to the Plan by or
on behalf of the participant which proves to have been false in any material
respect when made or furnished;
c. loss, theft, damage, destruction, sale or encumbrance to or of
any of the collateral, or the making of any levy seizure or
attachment thereof or thereon;
d. death, dissolution, insolvency, business failure, appointment of receiver of
any part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding under any bankruptcy or insolvency laws of, by or
against the participant.
The participant will have the opportunity to repay the loan, resume current
status of the loan by paying any missed payment
-96-
<PAGE> 20
plus interest, or if distribution is available under the Plan, request
distribution of the notes. If the loan remains in default, the Advisory
Committee has the option of foreclosing on any other security it holds or, to
the extent a distribution to the participant is permissible under the Plan,
offset the participant's vested account balance by the outstanding balance of
the loan. The Advisory Committee will treat the note as repaid to the extent of
any permissible offset. Pending final disposition of the note, the participant
remains obligated for any unpaid principal and accrued interest.
The Plan intends this loan program not to place other participants at risk with
respect to their interests in the Plan. In this regard, the Advisory Committee
may administer any participant loan as a participant directed investment of that
portion of the participant's vested account balance equal to the outstanding
principal balance of the loan. If the Advisory Committee chooses to treat the
participant loan as a participant directed investment, the Plan will credit that
portion of the participant's account with the interest earned on the note and
with principal payments received by the participant. The Plan may also charge
that portion of the participant's account balance with expenses directly related
to the organization, maintenance and collection of the note. Should the Advisory
Committee decide to treat the participant loan as an investment of the overall
Plan, then interest earned will be treated in the same manner as other
investment earnings.
It is the intention of the Advisory Committee to operate this Participant Loan
Policy in strict accordance with Department of Labor regulations.
Dated this 30 day of March, 1995.
Advisory Committee
/s/Joan Katzeff
- -------------------------------
Joan Katzeff
/s/Paul Katzeff
- -------------------------------
Paul Katzeff
-97-
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Sustainable Harvest, Inc. (sold in fiscal 1997)
-98-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME, WHICH ARE IN THE COMPANY'S
FORM 10-KSB FILED HEREWITH AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<PERIOD-START> JAN-01-1997
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 47
<SECURITIES> 32
<RECEIVABLES> 480
<ALLOWANCES> (22)
<INVENTORY> 513
<CURRENT-ASSETS> 1,252
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 1,256
<BONDS> 488
0
0
<COMMON> 873
<OTHER-SE> (87)
<TOTAL-LIABILITY-AND-EQUITY> 2,596
<SALES> 6,222
<TOTAL-REVENUES> 6,222
<CGS> 3,800
<TOTAL-COSTS> 3,800
<OTHER-EXPENSES> 3,067
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> (790)
<INCOME-TAX> 13
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (803)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
