ASSET PURCHASE AGREEMENT

Exhibit 10.12(a)

 

 

ASSET PURCHASE AGREEMENT

 

by and between

 

TULLY’S COFFEE JAPAN CO., LTD.

 

and

 

TULLY’S COFFEE CORPORATION

 

Dated August 19, 2005

 

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

 

Schedules :

 

Schedule A – Business Names

 

Schedule B-I – Registered Trademarks

 

Schedule B-II – TM Rights

 

Schedule C – Domain Names

 

Exhibits :

 

Exhibit A – Kent Central, LLC Payoff Letter

 

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ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (this “ Agreement ”) is entered into as of August 19, 2005 (the “ Effective Date ”) by and between Tully’s Coffee Japan Co., Ltd., a corporation organized under the laws of Japan (“ Buyer ”), and Tully’s Coffee Corporation, a Washington corporation (“ Seller ”). Each of Buyer and Seller is a “ Party ” and together, the “ Parties .”

 

RECITALS

 

A. Seller is in the business of developing and operating specialty stores featuring coffee drinks and other beverages and a light food menu for on and off premises consumption and which offer retail sales of whole beans and ground coffee, tea, herbal teas, and related goods (referred to herein as a “ Tully’s Store ” or as “ Tully’s Stores ”). Tully’s Stores are operated with uniform design, formats, signs, equipment, layout, systems, and procedures utilizing the know-how, confidential business information and proprietary trade dress and designs of Seller.

 

B. Seller owns rights in and currently licenses to Buyer (i) the business names and trade names currently or previously used in connection with the Tully’s Stores in Japan and shown in Schedule A (together, the “ Business Names ”); (ii) the registered trademarks and service marks and pending applications to register trademarks and service marks in Japan and as shown on Schedule B-I (together, the “ Registered Trademarks ”); (iii) the trademarks, service marks, trade dress and product designs currently or previously used in connection with the goods and services produced, provided and sold by Tully’s Stores in Japan and shown in Schedule B-II (the “ TM Rights ” and, together with the Registered Trademarks, the “ Trademarks ”); and (iv) the Web addresses, sites and domain names that incorporate the Trademarks that are currently or previously used to market the Tully’s Stores in Japan and shown in Schedule C (together, the “ Domain Names ”);

 

C. On April 26, 2001, Seller and Foodx Globe Co., Ltd. (“ Foodx ”) (formerly known as Tully’s Coffee Japan Co., Ltd.) entered into that certain Tully’s Coffee License Agreement, as amended by (i) that certain First Amendment to Tully’s Coffee License Agreement dated October 1, 2001, (ii) that certain Second Amendment to Tully’s Coffee License Agreement dated February 14, 2002, (iii) that certain Third Amendment to Tully’s Coffee License Agreement dated August 31, 2003, (iv) that certain Fourth Amendment to Tully’s Coffee License Agreement dated January 16, 2004, and (v) that certain letter agreement (the “ Letter Agreement ”) with respect to the License Agreement and the Supply Agreement (as so amended to date, collectively, the “ License Agreement ”). Buyer succeeded to all rights and obligations of Foodx under the License Agreement on August 1, 2002 pursuant to a corporate split of Foodx under the Commercial Code of Japan. ACFX Inc., which was a wholly owned subsidiary of AC-Tully’s, Inc. (“ AC-Tully’s ”) and referenced in the License Agreement, was liquidated after the completion of a takeover bid for outstanding shares of Foodx and delisting of Foodx from the Hercules Market operated by the Osaka Securities Exchange. AC-Tully’s and Foodx merged on March 25, 2005, with AC-Tully’s as the surviving entity, which was renamed Foodx Globe Co., Ltd. and is currently the parent company of Buyer.

D. In addition, Buyer and Seller entered into that certain Tully’s Coffee Supply Agreement dated April 26, 2001, as amended by (i) that certain First Amendment to Supply Agreement dated October 1, 2001, (ii) that certain Second Amendment to Supply Agreement dated February 14, 2002, and (iii) the Letter Agreement (as so amended to date, collectively, the “ Supply Agreement ”).

 

E. Seller desires to sell, and Buyer desires to purchase, all of Seller’s rights with respect to the ownership and use of Business Names, Trademarks and Domain Names in Japan that are primarily related to, used in, or necessary to the operation of the business of Buyer in Japan (the “ Business ”) on the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE , in consideration of the foregoing and of the mutual promises contained in this Agreement, the Parties hereby agree as follows:

 

1.	CONSTRUCTION AND DEFINITIONS

 

1.1 Definitions . The following capitalized terms have the meanings set forth below:

 

(a) “ Affiliate ” means any entity that controls, is controlled by or is under common control with a Party. An entity shall be regarded as in “control” of another entity, if it owns or possesses, directly or indirectly: (i) voting shares or other securities, representing more than fifty percent (50%) of the outstanding shares or securities entitled to vote for the election of the board of directors or similar managing authority of such controlled entity; or (ii) if such controlling entity does not have voting shares or other securities, more than fifty percent (50%) of the ownership interest that represents the right to make decisions, including the election of directors, for such controlled entity.

 

(b) “ Bankruptcy Event ” means any of the following events: (i) Seller or Buyer, as applicable, commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Seller or Buyer, as applicable; (ii) there is commenced against Seller or Buyer, as applicable, any such case or proceeding that is not dismissed within 60 days after commencement; (iii) Seller or Buyer, as applicable, is adjudicated insolvent or bankrupt, or any order or relief or other order approving any such case or proceeding is entered; (iv) Seller or Buyer, as applicable, suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (v) Seller or Buyer, as applicable, makes a general assignment for the benefit of creditors; (vi) Seller or Buyer, as applicable, fails to pay, or states that it is unable to pay or is unable to pay, its debts generally as they become due; (vii) Seller or Buyer, as applicable, calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (viii) Seller or Buyer, as applicable, by any act or failure to act, indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

(c) “ Governmental Entity ” means any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission.

 

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(d) “ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind whatsoever in respect of such asset.

 

(e) “ Person ” means an individual, partnership, corporation, limited liability company, association, joint venture, trust, unincorporated organization or Governmental Entity.

 

(f) “ Tax ” and “ Taxes ” means (i) any and all federal, state, local and foreign taxes, assessments, and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value-added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts; (ii) any liability for the payment of any amounts of the type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group for any period; and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii) above as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person or entity with respect to such amounts and including any liability for taxes of a predecessor entity.

 

(g) “ Tax Returns ” means all returns, estimates, information statements and reports filed with a taxing authority.

 

1.2 Construction .

 

(a) For purposes of this Agreement, whenever the context requires: the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; the feminine gender will include the masculine and neuter genders; and the neuter gender will include the masculine and feminine genders.

 

(b) The Parties hereto agree that they have had the opportunity to discuss this Agreement with and obtain advice from their legal counsel, have had sufficient time to, and have carefully read and fully understand all the provisions of this Agreement, and are knowingly and voluntarily entering into this Agreement. Therefore, the Parties waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

 

(c) As used in this Agreement, the words “include” and “including,” and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.”

 

(d) Except as otherwise indicated, all references in this Agreement to “Sections” and “Schedules” are intended to refer to Sections of this Agreement and Schedules to this Agreement.

 

(e) The headings in this Agreement are for convenience of reference only, will not be deemed to be a part of this Agreement, and will not be referred to in connection with the construction or interpretation of this Agreement.

 

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2.	PURCHASE AND SALE

 

2.1 Transferred Assets . Seller agrees to and hereby does sell, transfer and assign to Buyer, and Buyer agrees to and hereby does purchase from Seller irrevocably and in perpetuity, all of Seller’s rights, title and interest (including all intellectual property rights and other rights to protection of interests) in and to all of the following assets of Seller solely to the extent such assets are owned, held and/or used in Japan (collectively the “ Transferred Assets ”), free and clear of all Liens:

 

(a) all of the following to the extent they currently exist and are used (or have been used) by Buyer in Japan: Tully’s Store designs, formats, signs, equipment, layout, systems, procedures, copyrights, works of authorship, inventions, discoveries, know-how, techniques, processes, supplier lists, software, technology, technical data, confidential business information and recipes as currently used by Buyer in its Business as of the Closing Date, and the goodwill associated with each of the foregoing (collectively, the “ Rights ”), to the extent such Rights are severable and transferable on a jurisdiction by jurisdiction basis;

 

(b) the Business Names, the Trademarks, and the Domain Names, and all goodwill in Japan associated with each of the foregoing;

 

(c) all claims for past, present, and future infringement or misappropriation of any rights associated with the Transferred Assets in Japan, including all rights to sue for and to receive and recover all profits and damages accruing from an infringement or misappropriation prior to the Closing Date as well as the right to grant releases for past infringement and misappropriation; and

 

(d) the goodwill in Japan associated with the Business.

 

2.2 Termination of License Agreement .

 

(a) Termination . The License Agreement shall terminate effective upon the Closing and no additional royalties or other payments shall be due from Buyer to Seller except for the royalties and fees for periods ending on or prior to July 31, 2005, which shall be paid to Seller as provided in Section 2.4. The Parties agree and acknowledge that upon Closing, Buyer shall be free to use the Transferred Assets in Japan in any manner that it wishes. For the avoidance of doubt, the Parties also agree and acknowledge that Buyer may, among other things, (i) freely elect (A) to continue to operate its Business in Japan in the same or substantially same manner as the way Buyer is currently operating the Business as of the Closing or (B) to change the manner in which Buyer operates its Business in Japan, (ii) use knowledge of the past and current operation of Tully’s Stores and other know-how obtained from Seller in connection with Buyer’s Business in Japan in any manner that Buyer wishes, (iii) produce and sell ready-to-drink, pre-packaged beverages in Japan, and (iv) operate websites using the Trademarks and Business Names to promote the Business in Japan. To the extent that a Right or any Transferred Asset is not transferred or transferable pursuant to this Agreement (a “ Nontransferable Right ”), then Seller hereby grants to Buyer an exclusive, perpetual, fully-paid and royalty-free, irrevocable, assignable, and transferable right and license (with right to sublicense) to the Nontransferable Right for any and all purposes in Japan (the “ Nontransferable Rights License ”). Furthermore,

 

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Buyer shall have the right to modify the Transferred Assets and Nontransferable Rights in any manner that it wishes, and Seller waives and agrees not to enforce any personality, publicity, integrity, or moral rights (including any right to identification of authorship or limitation on subsequent modification) covering the Transferred Assets.

 

(b) Covenants Re Use After Closing . Notwithstanding the foregoing, Buyer agrees not to use the Transferred Assets or Nontransferable Rights in any illegal or immoral manner that may be reasonably injurious to the business of Seller as currently conducted. Notwithstanding the foregoing, Seller agrees to refrain from any business or advertising practice that is illegal or immoral that may be reasonably injurious to the Buyer’s Business as currently conducted. In addition, notwithstanding the foregoing and for the avoidance of doubt, Seller shall not engage in any conduct or do any act (including the filing of any Japanese trademark application) which might prevent Buyer from fully using, enjoying and exercising its aforementioned rights to the Transferred Assets in Japan in the manner discussed above.

 

2.3 Termination of Supply Agreement . The Supply Agreement shall terminate effective upon the Closing and no additional royalties or other payments shall be due from Buyer to Seller except for the coffee roasting fees for periods ending on or prior to July 31, 2005, which shall be paid to Seller as provided in Section 2.4. For the avoidance of doubt, the Parties agree and acknowledge that Buyer is free to (i) have coffee beans roasted by any Person and to any specification that Buyer wishes, and (ii) have products used in Tully’s Stores in Japan be supplied by any Person and to any specification that Buyer wishes.

 

2.4 Release . Effective upon the Closing and except as otherwise provided in Section 3.7, each Party hereby expressly, fully and forever releases and discharges the other Party from any and all claims, debts, actions, causes of action, liability, demands, damages, and losses of whatever kind or nature, in law or in equity, known or unknown, suspected or unsuspected, that such Party ever had, or now has, against the other Party relating to the License Agreement or the Supply Agreement, including any claims for indemnification by Buyer from Seller with respect to withholding taxes previously paid by Buyer on behalf of Seller or otherwise related to payments made under the License Agreement or the Supply Agreement. The Parties acknowledge that they are aware that, after executing this Agreement, they or their attorneys or agents may discover claims or facts in addition to or different from those which they now know or believe to exist with respect to the License Agreement or the Supply Agreement. In furtherance of this intention, the releases given in this Agreement shall be and remain in effect as full and complete releases, notwithstanding the discovery or existence of any such additional or different claims or facts. This release and the termination of the License Agreement and Supply Agreement pursuant to Sections 2.2 and 2.3 shall not affect the obligation of Buyer to pay any royalties and fees owed to Seller under the License Agreement or Supply Agreement for periods ending on or prior to July 31, 2005, and Buyer shall pay such amounts to Seller in full, without deduction or offset, on or before August 31, 2005.

 

2.5 No Rights Outside of Japan .

 

(a) Nothing in this Agreement shall give Buyer any right to assert that Seller’s activities outside Japan infringe in any manner on Buyer’s ownership and use of the Rights, the Business Names, the Trademarks, the Domain Names, the goodwill or any other element of the

 

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Transferred Assets inside Japan, and Buyer hereby waives all right to oppose, object to or otherwise challenge Seller’s ongoing use and ownership of the same outside of Japan. Notwithstanding the preceding sentence, this Section 2.5 shall not affect Buyer’s right to enforce the covenants contained in Section 2.2(b). In addition, nothing in this Agreement shall give or is intended to give Buyer the right to use, license, assign, sublicense or franchise any of the Transferred Assets outside of Japan, or otherwise affect any of Seller’s rights or other property outside of Japan; provided, however, that this shall not limit Buyer’s ability to operate or franchise businesses outside of Japan that do not use the Business Names, the Trademarks or the Domain Names or any of the Tully’s Store proprietary designs or proprietary signs as currently used by either Buyer or Seller in the operation of their respective Tully’s Stores.

 

(b) Nothing in this Agreement shall give Seller any right to assert that Buyer’s activities inside Japan infringe in any manner on Seller’s ownership and use of the same or similar Rights, Business Names, Trademarks, Domain Names, the goodwill or any other element of the Transferred Assets outside Japan, and Seller hereby waives all right to oppose, object to or otherwise challenge Buyer’s ongoing use and ownership of the same inside of Japan. Notwithstanding the preceding sentence, this Section 2.5 shall not affect Seller’s right to enforce the covenants contained in Section 2.2(b). In addition, nothing in this Agreement shall give or is intended to give Seller the right to use, license, assign, sublicense or franchise any of the Transferred Assets inside of Japan, or otherwise affect any of Buyer’s rights or other property inside of Japan; provided, however, that this shall not limit Seller’s ability to operate or franchise businesses inside of Japan that do not use the Business Names, the Trademarks or the Domain Names or any of the Tully’s Store proprietary designs or proprietary signs as currently used by either Buyer or Seller in the operation of their respective Tully’s Stores.

 

2.6 Web Sites of Seller and Buyer . The parties recognize that Internet access is not limited by national borders so that persons located in Japan will generally be able to access web sites owned by or operated for Seller, and that persons located outside Japan will generally be able to access web sites owned by or operated for Buyer. Buyer and Seller shall take such actions as may reasonably be required to identify their respective web sites and to avoid confusion with respect to the owner and operator of each such site. For purposes of this Agreement, Seller’s operation and ownership of its web site domain www.tullys.com (or its successors) shall not be considered to be occurring within Japan, and Buyer’s operation and ownership of its web site domain of www.tullys.co.jp (or its successors) shall not be considered to be occurring outside of Japan. Seller consents to Buyer’s use of the name “Tullys” as part of second level domain names in which the generic level domain is “.co.jp” and web sites associated with such domain names targeting customers and potential customers in Japan and use “tullyscoffeejapan.com” or “tullysjapan.com.”

 

3.

CLOSING

 

3.1 Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall be held as soon as practicable after the Parties’ execution and delivery of this Agreement provided that in no event shall the Closing be any later than 5:00 p.m., Pacific Daylight Time on August 31, 2005. The Closing shall be held at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 701 Fifth Avenue, Suite 5100, Seattle, Washington 98104, at 10:00 a.m., or at such other place and time as the Parties may mutually

 

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determine. The date on which the Closing actually occurs is referred to in this Agreement as the “ Closing Date .”

 

3.2 Seller Conditions to Closing . The obligations of Seller to sell the Transferred Assets shall be subject to the satisfaction on or prior to Closing of all of the following conditions:

 

(a) The representations and warranties made by Buyer in Section 5 shall be true and correct when made and shall be true and correct as of the Closing;

 

(b) All covenants, agreements and conditions contained in the Agreement to be performed by Buyer on or prior to the Closing Date shall have been performed or complied with as of the Closing Date; and

 

(c) Seller shall have obtained all necessary approvals or consents from Kent Central, LLC (“ KCL ”) and certain guarantors (the “ Guarantors ”) of the promissory note issued to KCL with respect to the consummation of the transactions contemplated by the Agreement.

 

3.3 Buyer Conditions to Closing . The obligations of Buyer to purchase the Transferred Assets shall be subject to the satisfaction on or prior to Closing of all of the following conditions:

 

(a) The representations and warranties made by Seller in Section 4 shall be true and correct when made and shall be true and correct as of the Closing;

 

(b) All covenants, agreements and conditions contained in the Agreement to be performed by Seller on or prior to the Closing Date shall have been performed or complied with as of the Closing Date;

 

(c) Seller shall have obtained all necessary approvals or consents from KCL and the Guarantors with respect to the consummation of the transactions contemplated by the Agreement;

 

(d) Buyer shall have obtained a consent from Mizuho Bank, Ltd. with respect to the consummation of the transactions contemplated by the Agreement;

 

(e) Seller shall have delivered fully executed instruments, assignments or transfer documents in form and substance as the Buyer may reasonably request to vest in the Company all right, title and interest in the Transferred Assets; and

 

(f) Seller shall have delivered copies of executed UCC termination statements relating to the security interests held by KCL and the Guarantors.

 

3.4 Seller Deliveries . At or prior to the Closing, Seller shall:

 

(a) deliver (A) fully executed documents in a form reasonably satisfactory to Buyer to confirm and perfect the conveyance and assignment to the Buyer of the Transferred Assets (including written transfers of trademarks, copyrights, and other intellectual property rights), (B) one or more fully executed bills of sale, also in a form reasonably satisfactory to

 

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Buyer, (C) confirmation of the release of security interests of KCL and the Guarantors in the Transferred Assets in a form reasonably satisfactory to Buyer, and (D) other transfer documents reasonably requested by, and in a form reasonably satisfactory to, Buyer;

 

(b) deliver a certificate executed by the President of the Seller certifying the satisfaction of the conditions to Closing in Sections 3.3(a) and 3.3(b);

 

(c) deliver fully executed instruments, assignments or transfer documents in form and substance as the Buyer may reasonably request to vest in the Company all right, title and interest in the Transferred Assets; and

 

(d) deliver copies of executed UCC termination statements relating to the security interests held by KCL and the Guarantors.

 

3.5 Buyer Deliveries . At or prior to the Closing, Buyer shall:

 

(a) deliver the purchase price to Seller pursuant to Section 3.6; and

 

(b) deliver a certificate executed by the Chief Executive Officer of Buyer certifying the satisfaction of the conditions to Closing in Sections 3.2(a) and 3.2(b).

 

3.6 Payment of Purchase Price . The “ Purchase Price ” is Eighteen Million Four Hundred Five Thousand Seven Hundred Seventy Five United States Dollars and Forty Six Cents ($18,405,775.46). $905,775.46 of the Purchase Price shall be deemed paid by Buyer to Seller upon the Closing for the “ Release ” in Section 2.4 in settlement, among other things, of certain unresolved claims for indemnification by Buyer for Seller with respect to withholding taxes previously paid by Buyer on behalf of Seller in the amount of ¥100,088,188 Japanese Yen. Upon the Closing, Buyer shall pay to Seller an aggregate total of $17,500,000 (the “ Net Purchase Price ”) in United States dollars by wire transfer on the Closing Date. The Parties acknowledge that Seller has instructed Buyer to wire transfer a portion of the Net Purchase Price (the “ KCL Payoff Amount ”) directly to KCL (the R