ASSET PURCHASE AGREEMENT

 

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this “Agreement” ), dated as of December 31, 2008 and effective as of November 30, 2008, is by and between JDCO, Inc., a California corporation ( “Seller” ) and Java NorCal, LLC, a California limited liability company ( “Buyer” ).

WITNESSETH:

WHEREAS, Seller is engaged in the business of selling gourmet coffees, whole leaf teas and other beverages through a Seller-owned retail store in Marysville, California (the “ Marysville Business ”) located at 515 3 ^rd Street, Marysville, California, 95901 (the “ Marysville Business Facility ”) and a Seller-owned retail store in Yuba City, California (the “ Yuba City Business ”) located at 554 Colusa Avenue, Yuba City, California 95991 (the “ Yuba City Business Facility ” and together with the Marysville Business Facility, the “ Business Facilities ”), collectively ( the “YM Business ”);

WHEREAS, Seller desires to sell all of the Assets (as defined in Section 1.1 herein) to Buyer, and Buyer desires to purchase such Assets from Seller; and

NOW THEREFORE, in consideration of the foregoing and of the mutual covenants set forth below, the parties hereby agree as follows:

Article 1.

Asset Sale and Purchase Transaction

                1.1         Sale and Purchase of Assets.

Subject to the terms and conditions of this Agreement, Seller shall grant, convey, sell, assign, transfer, and deliver to Buyer on the Closing Date (as defined in Section 2.1 herein), and Buyer shall purchase on the Closing Date, free and clear of all covenants, restrictions, liens, security interests, claims, pledges, assignments, subleases, options, rights of refusal, charges, leases, licenses, encumbrances and any other restriction of any kind or nature (collectively, “ Liens ”), all properties, assets, privileges, rights, interests and claims, real and personal, tangible and intangible, of every type and description, wherever located, including the YM Business as a going concern and goodwill, that are owned, used, or held for use by Seller and related to the YM Business, except for those assets which are expressly excluded pursuant to Section 1.2 hereof (collectively, the “Assets” ) Without limiting the generality of the foregoing, the Assets shall include, without limitation, items in the following categories that conform to the definition of the term “Assets”:

(a)            Inventories.   All inventories (including raw materials, work-in-progress, and finished good) and supplies of Seller (collectively, the “ Inventory ”) held at the Business Facilities including all inventories held at YM Business storage units;

(b)            Prepaid Items.   All prepaid items and expenses;

(c)            Machinery, Equipment, and Other Personal Property.   All physical assets, machinery, equipment, furniture, fixtures, office materials and supplies, computer hardware and software, spare parts, and other tangible personal property of every kind and description owned, leased, or licensed by Seller and used or held for use in connection with the YM Business as set forth on Schedule 1.1 ;

(d)            Real Property.   Seller’s interest in all of the leaseholds, including but not limited to Seller’s rights to any and all deposits or refunds at termination and to any improvements made to leasehold by Seller, and other estates in real property and appurtenances thereto, leased or owned by Seller and used or held for use in connection with the YM Business (collectively, the “ Business Real Properties ”);

(e)            Contracts.   Seller’s rights under all contracts, leases, licenses, indenture, agreements, whether oral or written, express or implied, including rights to any deposits or refunds at termination as set forth on Schedule 1.1(e) (collectively, the “ Assumed Contracts ”);

(f)             Files and Records.   All files, records, books of account, general, financial, and accounting records, invoices, computer programs, tapes, electronic data processing software, customer and supplier lists, correspondence, and other records of Seller;

(g)            Permits, Licenses and Authorizations.   All governmental permits, licenses and authorizations held by Seller listed on Schedule 1.1(g) to the extent the same may be transferred to Buyer;

(h)            Guaranties.   All guaranties, warranties, indemnities, and similar rights in favor of Seller with respect to the YM Business or any of the Assets;

(i)             Asset List.   Those items listed on the asset list attached as Schedule 1.1(i) hereto; and

(j)             Goodwill.   Seller’s goodwill in, and the going concern value of, the YM Business.

                1.2          Excluded Assets.

Notwithstanding the foregoing, Seller shall retain, and the Assets shall not include, any assets of Seller not specifically identified in Section 1.1 above.  The Assets shall not include, and nothing in this Agreement shall be construed as an attempt to assign, any contract or agreement that is by its terms nonassignable without the consent of the other party or parties thereto, unless such consent shall have been given (“ Excluded Assets ”).

1.3          Liabilities.

All debts, liabilities, taxes, claims, costs and expenses of or against Seller, including but not limited to all accounts payable balances and any accrued payroll incurred or arising prior to the Closing Date shall be the responsibility of Seller.  Buyer does not hereby and shall not assume or in any way undertake to pay, perform, satisfy or discharge any obligation or liability of any nature or kind whatsoever of Seller, whether arising before, on or after the Closing Date the ( “Retained Liabilities” ) except that Buyer shall assume and agree to pay, perform and discharge when due those liabilities and obligations of Seller that accrue from and after and relate solely to the period after the Closing Date under the Assumed Contracts and such liabilities shall not constitute Retained Liabilities.  Seller shall pay and satisfy when due all Retained Liabilities.

1.4        Purchase Price; Payment of Purchase Price.

(a)           Purchase Price.   Buyer shall purchase the Assets for an aggregate purchase price of One-million, Four-Hundred and Fifty-Five Thousand Dollars ($1,455,000), in accordance with the terms and subject to the conditions set forth in this Agreement including, without limitation, the post-Closing adjustment as provided in Section 1.6 below (the “ Purchase Price ”).

This Purchase Price will include five (5) Franchise Fees of $28,500 for a total of $142,500 which will be applied against the franchise fees for the YM Business ($57,000) and as a credit of $28,500 to Buyer upon signing its third Franchise Agreement for store number three, as a credit of $28,500 to Buyer upon signing its fourth Franchise Agreement for store number four and as a credit of $28,500 to Buyer upon signing its fifth Franchise Agreement for store number five.  If Buyer does not open any franchises other than the franchises for the YM Business before six months from the date hereof, all unused credits for franchise fees will expire.  Additionally the Purchase Price will include two-years of pre-paid royalty’s of $2,000 per month per store for a total of $96,000.

(b)           Payment of Purchase Price.   An amount equal to the Purchase Price, as calculated using Schedule 4.4 , shall be paid at Closing by wire transfer in immediately available funds to Seller pursuant to written instructions provided by Seller.  The entire remaining Purchase Price shall be paid by Buyer to Seller by a Promissory Note attached hereto as Exhibit E.

1.5        Allocation of Consideration.

The Purchase Price shall be allocated among the Assets in accordance with the allocations set forth in Schedule 1.5 .  To the extent consistent with law, Buyer and Seller shall report the federal, state and local income and other tax consequences of the purchase and sale contemplated hereby in a manner consistent with such allocation and none of them shall take any position inconsistent therewith upon examination of any tax return, in any refund claim, in any litigation, or otherwise.

1.6        Purchase Price Adjustment.

At the time of closing and out of the purchase price, the Seller will pay $30,000 to the Buyer to use as working capital and to pay for deferred maintenance for the buildings, equipment and signage of the Business Facilities.  The Buyer will, at Buyer’s expense, (a) order within 60 days of the Closing Date a new monument sign and directional signs for the Yuba City and Marysville stores and (b) within 150 days of the Closing Date, slurry seal both store parking lots and repair pavement where needed; provided that , Buyer shall only be required to spend up to $15,000 on items (a) and (b). The final new sign design must be approved by Seller prior to installation.

1.7           Royalty Payments.

The Buyer shall pay the Seller 4% of Monthly Net Sales from the Yuba City Business and Marysville Business by the fifteenth of each month except for the first two years which will be paid by a fixed amount of $2,000 (two thousand dollars) per month per store. Both parties agree that the Purchase Price includes pre-paid royalty payments for the first two years (24 months) of $2,000 per month per store for a total of $96,000 (ninety six thousand dollars). The first royalty payment of 4% for each store will therefore be due Jan 15, 2011 which would cover net sales from December, 2010 for each store.

Article 2.

Closing; Conditions Precedent to Closing; Proceedings

                2.1          Closing.

The closing of the sale and transfer of the Assets (the “Closing” ) and the consummation of the other transactions contemplated by this Agreement shall take place on or before November 30, 2008 (the “Closing Date” ), or at such other place and time as the parties may agree upon in writing.

2.2          Conditions Precedent to Closing.

(a)             Conditions Precedent to Obligation of Buyer.   The obligation of Buyer to proceed with the Closing is expressly subject to the fulfillment prior to or at Closing of the conditions precedent set forth in this Section 2.2(a).  Any one or more of these conditions precedent may be waived, in whole or in part, in writing by Buyer at Buyer’s sole option.

(i)            Representations and Warranties .  The representations and warranties of Seller contained in Article 4 shall be, individually and collectively, true and correct (in the case of any representation or warranty containing any materiality qualification) or true and correct in all material respects (in the case of any representation or warranty without any materiality qualification) (i) at and as of the date of this Agreement and (ii) on and as of the Closing Date as if made on the Closing Date.  

(ii)           Agreement .  Seller shall have performed in all material respects all of the agreements and complied with all of the provisions required by this Agreement and the Seller Transaction Documents to be performed or complied with by such party at or before the Closing Date.

(iii)          Legal Proceedings .  No order of any governmental body shall be in effect that restrains or prohibits the transactions contemplated hereby, and to Seller’s knowledge, there shall not have been threatened, nor shall there be pending, any action or proceeding by or before any governmental body challenging the lawfulness of or seeking to prevent or delay any aspect of this transaction or seeking monetary or other relief by reason of the consummation of any of such transactions.

(iv)          Financing .  Buyer shall have secured financing, the terms of which are acceptable to Buyer in its sole discretion, to finance the transactions contemplated by this Agreement.  If Buyer is unable to secure financing, this Asset Purchase Agreement is terminated.

(v)           Unencumbered Title .  Buyer shall have received copies of such releases and documents, and reviewed other such evidence as Buyer deems necessary to assure Buyer that the Assets are being delivered free and clear of all liens and encumbrances.

(vi)          Landlord Consent .

(a)            Landlord Consent .  The Landlord (as defined below) under the Marysville Lease (as defined below) shall have consented in writing to assignment of such lease to Buyer as contemplated by this Agreement and acknowledged and agreed in writing that Seller has the authority to assign the Marysville Lease in its entirety with Steven Binninger and Michael Binninger having previously assigned their interests in such lease to Seller.

(b)            Landlord Consent .  The Landlord (as defined below) under the Yuba City Lease (as defined below) shall have consented in writing to assignment of such lease to Buyer as contemplated by this Agreement and acknowledged and agreed in writing that Seller has the authority to assign the Yuba City Lease in its entirety with Seller having previously assigned their interests in such lease to Buyer.

(vii)          Attorney Review .  Buyer’s attorney shall have had an opportunity to review and consent to Buyer’s consummation of the transactions contemplated under this Agreement, such consent not to be unreasonably withheld.

(viii)         Required Authorizations .  Seller and Buyer shall have received all required authorizations under any applicable law necessary to consummate the transactions contemplated by this Agreement.

(ix)            Closing Documents .  Buyer shall have received the other agreements and documents referred to in Section 2.3(a).

(b)                        Conditions Precedent to Obligation of Seller.   The obligation of each Seller to proceed with the Closing is expressly subject to the fulfillment prior to or at Closing of the conditions precedent set forth in this Section 2.2(b).  Any one or more of these conditions may be waived, in whole or in part, in writing by any Seller at the sole option of such Seller

(i)            Representations and Warranties .  The representations and warranties of Buyer contained in Article 5 shall be, individually and collectively, true and correct (in the case of any representation or warranty containing any materiality qualification) or true and correct in all material respects (in the case of any representation or warranty without any materiality qualification) (i) at and as of the date of this Agreement, and (ii) on and as of the Closing Date as if made on the Closing Date.

(ii)           Agreements .  Buyer shall have performed in all material respects all of the agreements and complied with all of the provisions required by this Agreement to be performed or complied with by it at or before the Closing Date.

(iii)           Legal Proceedings .  No order of any governmental body shall be in effect that restrains or prohibits the transactions contemplated hereby, and there shall not have been threatened, nor shall there be pending, any action or proceeding challenging any of the transactions contemplated by this Agreement seeking monetary relief by reason of the consummation of such transactions.

(iv)           Closing Documents .  Seller shall have received the documents and other items referred to in Section 2.3(b).

(v) Tax Clearance Certificates .   Seller shall obtain tax clearance certificates from the California Employment Development Department and the Board of Equalization evidencing that all payroll and sales taxes are paid.

           2.3                      Proceedings.

            (a)                         Deliveries by Seller.   At Closing, Seller shall deliver to Buyer:

(i)            The Assets.

(ii)           A certification that all third party debt and obligations of Seller related to, or that is secured by, the Assets has been paid in full.

(iii)          A certification that any and all obligations of Seller related to, or that is secured by, any equipment being acquired by Buyer pursuant to Section 1.1(c) has been paid in full.

(iv)          A certification that any and all liens on the Assets have been released and all financing statements terminated.

(v)           An executed Bill of Sale (the “ Bill of Sale ”) in substantially the form of Exhibit A attached hereto.

                              (vi-a)       An executed single-unit franchise agreement for the Marysville Business, (the “ Maryville Franchise Agreement ”) in substantially the form of Exhibit C attached hereto.

(vii-b)       An executed single-unit franchise agreement for the Yuba City Business (the “ Yuba City Franchise Agreement ” and together with the Maryville Franchise Agreement, the “ Franchise Agreements ”) in substantially the form of Exhibit D attached hereto.

(vii)           Seller shall have delivered a certificate executed by an officer of Seller, dated as of the Closing Date, certifying to the fulfillment of the conditions set forth in subsections (i), (ii) and (iii) of Section 2.2(a).

(viii)           Tax Clearance Certificates .  Seller shall furnish to Buyer appropriate clearances from the California Employment Development Department for employee tax clearances and the Board of Equalization for sales tax clearances.

(b)              Deliveries by Buyer. At Closing, Buyer shall deliver to Seller:

(i-a)           An executed single-unit franchise agreement for the Marysville Business, (the “ Maryville Franchise Agreement ”) in substantially the form of Exhibit C attached hereto.

(i-b)           An executed single-unit franchise agreement for the Yuba City Business (the “ Yuba City Franchise Agreement ” in substantially the form of Exhibit D attached hereto.

(ii)           Buyer shall have delivered a certificate executed by its manager, dated as of the Closing Date, certifying to the fulfillment of the conditions set forth in subsections (i), (ii) and (iii) of Section 2.2(b).

 

Article 3.

Certain Covenants

3.1           Conduct of YM Business’s Pending Closing.

From and after the date hereof and until the Closing Date, unless the Buyer shall otherwise consent in writing, Seller shall conduct the affairs of the YM Business in the ordinary course and consistent with past practice.  Seller shall take reasonable actions to maintain the YM Business’ property, equipment and other assets in substantially the same condition as such assets existed on the date of this Agreement and consistent with past practice and shall, subject to available resources, comply in a timely fashion with the provisions of all the Assumed Contracts and its other agreements and commitments.  Further, Seller shall not incur additional debt (including, without limitation, any capital lease obligations) through the Closing without the prior written consent of Buyer.

               3.2            Buyer’s Right of First Refusal to Purchase Auburn Store.

Seller and Buyer acknowledge and agree that in the event that Seller shall desire to sell its interest in its company-owned retail store currently 405 Grass Valley Highway, Auburn, California 95603 (the “ Auburn Store ,” Seller shall grant Buyer a right of first refusal to purchase such store; provided , that Buyer shall have sixty (60) days from receipt of notice from Seller in which to elect to exercise such right to purchase the Offered Store; provided , further that Buyer’s right shall either be exercised or canceled upon the expiration of such sixty (60) day period as it applies to each Offer unless the parties mutually agree otherwise in writing.

3.3           Buyer’s Right of First Refusal to Purchase Marysville Property.

Seller and Buyer acknowledge and agree that in the event that Seller or any affiliate or principal of Seller shall desire to acquire the premises located at 515 3 ^rd Street, Marysville, California, also known as Assessor’s Parcel Number 010-231-004 (the “ Marysville Property ”) currently being leased pursuant to that certain Ground Lease (the “ Marysville Lease ”) dated as of November 5, 2002 by and between William E. Hamon, Jr. and Carol B. Hamon (collectively, the “ Landlord ”), and Seller, Michael Binninger and Steven Binninger, Seller or any affiliate or principal of Seller, as applicable, shall grant Buyer a right of first refusal to purchase the Marysville Property from Landlord; provided , that Buyer shall have thirty (30) days from receipt of notice from Seller in which to elect to exercise such right to purchase the Marysville Property; provided , further that Buyer’s right shall either be exercised or canceled upon the expiration of such thirty (30)-day period unless the parties mutually agree otherwise in writing.

3.4         Seller’s Right of First Refusal to Purchase Yuba City & Marysville Store.

Seller and Buyer acknowledge and agree that in the event that Buyer shall desire to sell its interest in its stores (the “ Marysville Business ”) located at 515 3 ^rd Street, Marysville, California, 95901 (the “ Business Facility ”) and (the “ Yuba City Business ”) located at 554