STOCK PURCHASE AGREEMENT

EXHIBIT 10.1

 

STOCK PURCHASE AGREEMENT

by and between

Diedrich Coffee, Inc.

and

Praise International North America, Inc.

Dated as of March 27, 2009

 

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “ Agreement ”) is entered into as of March 27, 2009, by and between Praise International North America, Inc., a Delaware corporation (“ Buyer ”), and Diedrich Coffee, Inc., a Delaware corporation (“ Seller ”). Buyer and Seller are referred to collectively herein as the “ Parties ,” and each as a “ Party .”

RECITALS

A. Seller owns all of the issued and outstanding shares (the “ Shares ”) of common stock, par value $0.01 per share (“ Common Stock ”), of Coffee People Worldwide, Inc., a Delaware corporation (the “ Company ”).

B. The Company and its Subsidiaries are in the business of operating a chain of franchised Gloria Jean’s retail specialty coffee stores in the United States and Puerto Rico.

C. This Agreement contemplates a transaction in which Buyer will purchase from Seller, and Seller will sell to Buyer, all of the Shares (as defined below), on the terms and subject to the conditions of this Agreement.

AGREEMENT

Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.

ARTICLE I

DEFINITIONS

“ Affiliate ” means any Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person referred to. In this definition, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the actions, activities, management and/or policies of a Person, whether through ownership of securities, by agreement or contract or otherwise.

“ Agreement ” has the meaning set forth in the preface above.

“ Amended and Restated Brand Management Agreement ” has the meaning set forth in Section 7.8 below.

“ Amended and Restated Trademark License Agreement ” has the meaning set forth in Section 7.6 below.

“ Assignments ” has the meaning set forth in Section 7.7 below.

“ Basket Amount ” has the meaning set forth in Section 9.5(b) below.

“ Business ” means the Gloria Jean’s retail specialty coffee store business, including both franchised and Company-owned stores, in the United States and Puerto Rico as presently conducted by the Company and its Subsidiaries, including its retail specialty coffee store franchise rights.

“ Business Day ” means a day other than Saturday, Sunday or any day on which banks located in Orange County, California are closed.

“ Buyer ” has the meaning set forth in the preface above.

“ Buyer Indemnified Parties ” has the meaning set forth in Section 9.1 below.

“ Claim ” means and includes (i) all Liabilities, (ii) all losses, damages, judgments, awards, penalties and settlements, (iii) all demands, claims, suits, actions, causes of action, proceedings and assessments, whether or not ultimately determined to be valid and (iv) all costs and expenses (including prejudgment interest in any litigated or arbitrated matter and other interest), court costs and reasonable fees and expenses of attorneys, consultants and expert witnesses) of investigating, defending or asserting any of the foregoing or of enforcing this Agreement. Notwithstanding the foregoing, “Claim” excludes incidental, consequential, punitive and special damages for any Claim other than a Third Party Claim.

“ Closing ” has the meaning set forth in Section 2.3 below.

“ Closing Cash Payment ” has the meaning set forth in Section 2.2(a) below.

“ Closing Date ” has the meaning set forth in Section 2.3 below.

“ Code ” means the United States Internal Revenue Code of 1986, as amended, modified, or supplemented from time to time (or any corresponding provisions of succeeding law).

“ Common Stock ” has the meaning set forth in the Recitals.

“ Company ” has the meaning set forth in the Recitals.

“ Confidential Information ” means all information regarding a Party’s business or affairs, including, without limitation, business concepts, processes, methods, Trade Secrets, systems, know-how, devices, formulas, product specifications, marketing methods, prices, customer lists, supplier lists, methods of operation, or other information, whether in oral, written, or electronic form, that is either: (a) designated as confidential; (b) is of a nature such that a reasonable person would know that it is confidential; or (c) is disclosed under circumstances such that a reasonable person would know it is confidential. The terms and conditions of this Agreement are confidential, but its existence is not. The following information will not be considered Confidential Information: (i) information that is or becomes publicly available through no fault of the Party obligated to keep it confidential; (ii) information with regard to the other Party that was rightfully known by a Party prior to commencement of discussions regarding the subject matter of this Agreement; (iii) information that was independently developed by a Party without use of the Confidential Information; and (iv) information rightfully disclosed to a Party by a third party without continuing restrictions on its use or disclosure. Notwithstanding the foregoing, any information that constitutes Confidential Information immediately prior to Closing shall remain Confidential Information notwithstanding the Closing.

 

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“ D&O Indemnified Liabilities ” has the meaning set forth in Section 6.8 below.

“ D&O Indemnified Parties ” has the meaning set forth in Section 6.8 below.

“ Disclosing Party ” has the meaning set forth in Section 6.3 below.

“ Disclosure Schedule ” has the meaning set forth in Article IV below.

“ Employee Benefit Plan ” means any “employee benefit plan” (as such term is defined in ERISA Section 3(3)) and any other material employee benefit plan, program or arrangement.

“ Employee Plan ” has the meaning set forth in Section 4.15(b) below.

“ Employees ” has the meaning set forth in Section 4.15(a) below.

“ Environmental, Health, and Safety Requirements ” means all applicable federal, state, local, and foreign statutes, regulations, and ordinances concerning public health and safety, worker health and safety, pollution, or protection of the environment, including all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances, or wastes.

“ ERISA ” means the United States Employee Retirement Income Security Act of 1974, as amended.

“ Franchise Agreement ” has the meaning set forth in Section 4.17(a) below.

“ Franchisee ” means a franchisee of the Company and its Subsidiaries.

“ Franchise Laws ” has the meaning set forth in Section 4.17(a) below.

“ FTC Rule ” means the Trade Regulation Rule on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures adopted by the Federal Trade Commission, 16 CFR Parts 436 and 427, March 2007.

“ GJ 2008 Circular ” has the meaning set forth in Section 4.17(a) .

“ GJ Circular ” has the meaning set forth in Section 4.17(g) .

“ Governmental Entity ” or “ Governmental Entities ” means any court, arbitrator, department, commission, board, bureau, agency, authority, instrumentality or other body, whether federal, state, municipal, county, local, foreign or other.

“ Income Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to any federal, state, local, or foreign income tax measured by or imposed on net income, including any interest, penalty, or addition thereto, whether disputed or not, including any schedule or attachment thereto.

 

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“ Indemnified Party ” has the meaning set forth in Section 9.3(a) below.

“ Indemnifying Party ” has the meaning set forth in Section 9.3(a) below.

“ Indemnity Cap ” has the meaning set forth in Section 9.5(c) below.

“ Intellectual Property ” means all intellectual property rights used exclusively in connection with the ownership, conduct or operation of the Business by the Company and its Subsidiaries arising from or associated with the following, whether protected, created or arising under the laws of the United States or any other jurisdiction: (a) trade names, trademarks and service marks (registered and unregistered), domain names, and other Internet addresses or identifiers, and trade dress and applications (including intent to use applications) to register any of the foregoing and registrations therefor (collectively, “ Marks ”), including all goodwill associated with each of the foregoing, (b) copyrights, works of authorship and registrations and applications therefor, and (c) Trade Secrets. “Intellectual Property” specifically excludes any and all intellectual property rights used in the conduct or operation of the business of any and all Franchisees, which rights are not owned by the Company and its Subsidiaries.

“ IRS ” means the United States Internal Revenue Service.

“ Knowledge of Seller ” means, and shall be limited to, the actual knowledge of J. Russell Phillips (Chief Executive Officer of Diedrich) and Sean McCarthy (Chief Financial Officer and Secretary of Diedrich), without the duty of inquiry.

“ Laws ” means, collectively, any federal, state, municipal, county, local, foreign or other statute, law, ordinance, rule or regulation arising or enacted prior to the Closing.

“ Lease Documents ” shall mean all leases, subleases, guarantees of leases and subleases, assignments of leases and subleases and amendments to any or all of the foregoing relating, directly or indirectly, to a Leased Location.

“ Leased Location ” has the meaning set forth in Section 4.10(b) .

“ Liability ” or “ Liabilities ” means any direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, asserted or unasserted, liquidated or unliquidated, secured or unsecured.

“ Lien ” means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) liens for Taxes not yet due and payable or which may thereafter be paid without penalty or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (b) purchase money liens and liens securing rental payments under capital lease arrangements, (c) mechanics’, carriers’, workmen’s, repairmen’s, or other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money, and (d) other imperfections of title, restrictions or encumbrances, if any, which imperfections of title,

 

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restrictions, or encumbrances do not, individually or in the aggregate, materially impair the continued use and operations of the assets to which they relate in the operation of the Business as currently conducted.

“ Litigation ” means any complaint, action, suit, proceeding, arbitration or other alternative dispute resolution procedure, demand, claim, investigation or inquiry, whether civil, criminal or administrative.

“ Marks ” has the meaning set forth in definition of “Intellectual Property.”

“ Material Adverse Effect ” means, with respect to a Person, any effect or change that is materially adverse to (i) the financial condition, results of operations, assets, Liabilities, properties or business of such Person ( provided that, for purposes of this definition, the Company and its Subsidiaries shall be taken as a whole) or (ii) the ability of such Person (in the case where the “Person” is Buyer or Seller) to perform its obligations under this Agreement or the Transaction Documents to which such Person will be a party or to consummate the Transactions; provided , however , that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (a) any adverse change, event, development, or effect arising from or relating to (1) general business or economic conditions, including such conditions related to the Business or the industry in which such Person operates or occurring in any region in which such Person operates, (2) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (3) United States financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (4) changes in United States generally accepted accounting principles as in effect from time to time, consistently applied, (5) changes in laws, rules, regulations, orders, or other binding directives issued by any Governmental Entity, (6) the taking of any action contemplated by this Agreement and the other Transaction Documents, (7) changes, effects, conditions, or circumstances arising from riots, acts of God, insurrections, strikes, floods, fires, explosions, or other catastrophes beyond the control and without the fault of such Person (and which are not primarily limited in their effect to such Person’s operations, assets, Liabilities, properties or business), (b) any adverse change in or effect on the business of such Person that is cured by such Person before the earlier of (I) the Closing Date and (II) the date on which this Agreement is terminated pursuant to Article X hereof, and (c) any change, effect, condition, event or circumstance arising out of or attributable to the actions of Buyer (if the “Person” is either Seller or the Company) or Seller or the Company (if the “Person” is Buyer), or its respective subsidiaries or Affiliates or any of their respective representatives, who claims that a Material Adverse Effect has occurred with respect to such Person which directly leads to or precipitates any such change, effect, condition, event, or circumstance, that would constitute a Material Adverse Effect except for this clause (c), without regard to the time such actions, changes, effects, conditions, events, or circumstances occur or transpire, and (d) any change, effect, condition, event, or circumstance arising out of, relating to, or attributable to any decrease or decline in the number of Franchisees and/or Gloria Jean’s retail specialty coffee stores, kiosks, or carts.

 

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“ Material Contracts ” has the meaning set forth in Section 4.12 below.

“ Non-Business Assets ” means all assets owned by the Company or its Subsidiaries, whether currently or in the past, which do not relate to the Business, including all assets (tangible and intangible) relating to roasting and the roasting operation (including all assets located at the Castroville, California roasting facility as well as all roasting, blending, flavoring, and packaging recipes, techniques, methodologies, and know how), all of which assets are or will become the assets of Seller or its designee prior to the Closing.

“ Note ” has the meaning set forth in Section 2.2(b) below.

“ Orders ” means, collectively, any order, writ, injunction, judgment, plan or decree arising or issued prior to the Closing of any Governmental Entity.

“ Ordinary Course of Business ” means the ordinary course of business consistent with past custom and practice of the Business (including with respect to quantity and frequency).

“ Organizational Documents ” means (a) the articles or certificate of incorporation and the bylaws of a corporation, (b) the partnership agreement and any statement of partnership of a general partnership, (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership, (d) the limited liability company agreement (or the operating agreement) and the certificate of limited liability company of a limited liability company, (e) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person, and (f) any amendment to any of the foregoing.

“ Owned Intellectual Property ” has the meaning set forth in Section 4.11(a) below.

“ Parties ” and “ Party ” have the meaning set forth in the preface above.

“ Permits ” means all licenses, permits, approvals, certifications, consents and listings for the Business.

“ Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity or a Governmental Entity.

“ Pre-Closing Tax Period ” has the meaning set forth in Section 6.2(a) below.

“ Pro Forma Statement ” has the meaning set forth in Section 4.6 below.

“ Purchase Price ” has the meaning set forth in Section 2.2 below.

“ Recipe License Agreement ” has the meaning set forth in Section 7.7 below.

“ Recipient ” has the meaning set forth in Section 6.3 below.

“ Roasting Agreement ” has the meaning set forth in Section 7.5 below.

“ Seller Indemnified Parties ” has the meaning set forth in Section 9.2 below.

 

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“ Shares ” has the meaning set forth in the Recitals.

“ Straddle Period ” has the meaning set forth in Section 6.2(b) below.

“ Subsidiary ” means, with respect to any Person, any other Person of which at least 50% of the outstanding voting securities or other voting equity interests are owned, directly or indirectly, by such first Person. For the avoidance of doubt, the term “Subsidiary” shall include all Subsidiaries of such Subsidiary.

“ Tax ” or “ Taxes ” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, documentary stamp, employees’ income withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

“ Tax Return ” means any return, declaration, report, claim for refund, or information return or statement filed or required to be filed relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“ Third-Party Claim ” has the meaning set forth in Section 9.3 below.

“ Trade Secrets ” shall have the meaning ascribed to such term in California Civil Code Section 3426.1(d), as amended.

“ Transaction Documents ” means this Agreement, the Amended and Restated Brand Management Agreement, the Amended and Restated Trademark License Agreement, the Roasting Agreement, the Assignments, the documents delivered pursuant to Articles VII and VIII , and all instruments executed, filed, or otherwise prepared, exchanged, or delivered in accordance with this Agreement.

ARTICLE II

PURCHASE AND SALE OF SHARES

2.1. Purchase and Sale of the Shares. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, convey, assign, transfer, and deliver to Buyer, and Buyer shall purchase and acquire from Seller, the Shares.

2.2. Purchase Price. In consideration of the sale, transfer and delivery of the Shares, Buyer agrees to pay to Seller the sum of USD $3,100,000 (the “ Purchase Price ”) as follows:

(a) US $1,500,000 in cash, payable on the Closing Date, by wire transfer of immediately available funds (the “ Closing Cash Payment ”); and

(b) a promissory note, substantially in the form of Exhibit A hereto (the “ Note ”), issued by Buyer to Seller in the aggregate principal amount of USD $1,600,000 and accruing interest at 7% per annum (as more specifically set forth in the Note), of which

 

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(i) USD $800,000, together with all interest accrued on the aggregate principal amount, shall be due and payable on the date that is six (6) months after the Closing Date and (ii) the remainder of the principal amount, together with interest accrued thereon, shall be due and payable on the date that is twelve (12) months after the Closing Date.

2.3. Closing. The closing of the transactions contemplated hereby (the “ Closing ”) shall take place at the offices of Gibson, Dunn & Crutcher LLP, in Irvine, California commencing at 10:00 a.m. local time on the second (2nd) Business Day following the satisfaction or waiver of all conditions set forth in Articles VII and VIII or such other date as Buyer and Seller may mutually determine (the “ Closing Date ”), and the Closing shall become effective at 11:59 p.m. Pacific Time on the calendar day immediately preceding the Closing Date. The Parties shall act in good faith so that the Closing will occur as soon as reasonably practicable following the date hereof.

2.4. Deliveries at Closing. At the Closing, the following deliveries shall be made:

(a) Seller Deliverables . Seller will deliver to Buyer:

(i) the certificates representing the Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank in proper form for transfer;

(ii) the stock books, stock ledgers, minute books, and corporate seals of the Company and its Subsidiaries;

(iii) (A) a certificate of the Secretary of State of the State of Delaware as to the legal existence and good standing of Seller in the State of Delaware and (B) certificates from the relevant Secretary of State as to the legal existence and good standing of each of the Company and its Subsidiaries in their respective state of incorporation, each of which shall be dated no more than five (5) Business Days prior to the Closing Date;

(iv) one or more incumbency certificates relating to each Person executing any document executed and delivered to Buyer pursuant to the terms hereof, executed by an officer of Seller (other than such Person executing such document); and

(v) all originals of the contracts and agreements relating to the Business and copies of all related electronic data bases in transferable and working order, in each case to the extent they are in the possession of Seller or its Affiliates.

(b) Buyer Deliverables . Buyer will deliver to Seller:

(i) the Closing Cash Payment, by wire transfer of immediately available funds;

(ii) the Note;

(iii) a certificate of the Secretary of State of the State of Delaware as to the legal existence and good standing of Buyer in the State of Delaware, which shall be dated no more than five (5) Business Days prior to the Closing Date; and

 

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(iv) one or more incumbency certificates relating to each Person executing any document executed and delivered to Seller pursuant to the terms hereof, in form and substance reasonably satisfactory to Seller, executed by an officer of Buyer (other than such Person executing such document).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller that the statements contained in this Article III are correct and complete as of the date of this Agreement, except as set forth in Annex I attached hereto.

3.1. Organization. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation.

3.2. Authorization of Transaction. Buyer has full power and authority (including full corporate or other entity power and authority) to execute and deliver this Agreement and the other Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder. This Agreement and the other Transaction Documents to which it is a party constitute the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions, except as such enforcement may be limited by the application of bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally and as such enforcement may be limited by the availability of specific performance and the application of equitable principles, regardless of whether enforcement is sought in a proceeding at law or in equity. The execution, delivery, and performance of this Agreement and all of the other Transaction Documents to which it is a party have been duly authorized by Buyer.

3.3. Non-contravention. Neither the execution and delivery of this Agreement or any other Transaction Document, nor the consummation of the transactions contemplated hereby and thereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Entity to which Buyer is subject or any provision of its Organizational Documents or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets is subject, in each case (i) other than any such violations, conflicts, breaches, defaults, acceleration, rights or notices that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Buyer and (ii) other than such consents, authorizations or approvals that may be required solely by reason of Seller’s participation in the transactions contemplated hereby or the failure of which to obtain would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Buyer. Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Entity in order to consummate the transactions contemplated by this Agreement or any other Transaction Document.

 

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3.4. Brokers’ Fees. Buyer has no Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement or any other Transaction Document.

3.5. Availability of Funds. Buyer has sufficient funds available to enable Buyer to consummate on a timely basis the transactions contemplated hereby at the Closing and to permit Buyer to timely perform all of its obligations at the Closing under this Agreement.

3.6. Actions and Proceedings. There are no (a) outstanding Orders against Buyer or any of its Affiliates, which have or could reasonably be expected to have a Material Adverse Effect on Buyer or (b) Litigation pending or, to the knowledge of Buyer, threatened against Buyer, which have or could reasonably be expected to have a Material Adverse Effect on Buyer.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer that the statements contained in this Article IV are correct and complete as of the date of this Agreement, except as set forth in the disclosure schedule delivered by Seller to Buyer on the date hereof (the “ Disclosure Schedule ”).

4.1. Organization, Qualification, and Corporate Power.

(a) Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation.

(b) Each of the Company and its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of their incorporation. Each of the Company and its Subsidiaries is duly qualified to conduct business as a foreign corporation and is in good standing under the laws of each jurisdiction where such qualification is required. Each of the Company and its Subsidiaries has full corporate power and authority to carry on the business in which it is engaged and to own and use the properties owned and used by it. Section 4.1(b) of the Disclosure Schedule lists the directors and officers of each of the Company and its Subsidiaries. Seller has caused to be delivered or made (or offered to make) available to Buyer copies of the Organizational Documents of each of the Company and its Subsidiaries, as currently in effect.

4.2. Authorization of Transaction. Seller has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and the other Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder. This Agreement and the other Transaction Documents to which it is a party constitute the valid and legally binding obligation of Seller, enforceable in accordance with its terms and conditions, except as such enforcement may be limited by the application of bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally and as such enforcement may be limited by the availability of specific performance and the application of equitable principles, regardless of whether enforcement is sought in a proceeding at law or in equity. The execution, delivery, and performance of this Agreement and all of the other Transaction Documents to which it is a party have been duly authorized by Seller.

 

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4.3. Non-contravention. Neither the execution and delivery of this Agreement or any other Transaction Document, nor the consummation of the transactions contemplated hereby or thereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Entity to which Seller, the Company or any of the Company’s Subsidiaries is subject or any provision of the Organizational Documents of Seller, the Company or any of the Company’s Subsidiaries or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any material agreement, contract, lease, license, instrument, or other arrangement to which Seller, the Company or any of the Company’s Subsidiaries is a party or by which Seller, the Company or any of the Company’s Subsidiaries is bound or to which any of the assets of Seller, the Company or any of the Company’s Subsidiaries is subject, in each case (i) other than any such violations, conflicts, breaches, defaults, acceleration, rights or notices that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Seller or the Company and (ii) other than such consents, authorizations or approvals that may be required solely by reason of Buyer’s participation in the transactions contemplated hereby or the failure of which to obtain would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Seller or the Company. None of Seller, the Company nor any of the Company’s Subsidiaries is required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Entity in order to consummate the transactions contemplated by this Agreement or any other Transaction Document.

4.4. Brokers’ Fees. None of Seller, the Company nor any of the Company’s Subsidiaries has any Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement or any other Transaction Document.

4.5. Shares; Capitalization.

(a) Seller is the record and beneficial owner of the Shares, free and clear of any Liens. Seller has the right, authority and power to sell, assign and transfer the Shares to Buyer. Upon delivery to Buyer of certificates for the Shares at the Closing, Buyer’s payment of the Purchase Price and registration of the Shares in the name of Buyer in the stock records of the Company, Buyer, assuming it shall have purchased the Shares for value in good faith and without notice of any adverse claim, shall acquire good, valid and marketable title to the Shares, free and clear of any Liens other than Liens created by Buyer.

(b) The authorized capital stock of the Company consists of 1,000 shares of Common Stock, of which 1,000 shares of Common Stock, constituting the Shares, are issued and outstanding. Section 4.5(b) of the Disclosure Schedule sets forth, for each Subsidiary of the Company, the amount of its authorized capital stock, the amount of its outstanding capital stock and the record and beneficial owners of its outstanding capital stock. Except for the Shares and as set forth in Section 4.5(b) of the Disclosure Schedule , neither the Company nor any of its Subsidiaries has issued or agreed to issue any: (i) share of capital stock or other equity or ownership interest; (ii) option, warrant or interest convertible into or exchangeable or exercisable for the purchase of shares of capital stock or other equity or ownership interests; (iii) stock appreciation right, phantom stock, interest in the ownership or earnings of the Company or any of its Subsidiaries or other equity equivalent or equity-based award or right; or (iv) bond,

 

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debenture or other indebtedness having the right to vote or convertible or exchangeable for securities having the right to vote. Each outstanding share of capital stock or other equity or ownership interest of the Company and each of its Subsidiaries is duly authorized, validly issued, fully paid and non-assessable, and in the case of the Company’s Subsidiaries, each such share or other equity or ownership interest is owned by the Company or another Subsidiary of the Company, free and clear of any Liens. Except for rights granted to Buyer under this Agreement, there are no outstanding obligations of the Company or any of its Subsidiaries to issue, sell or transfer or repurchase, redeem or otherwise acquire, or that relate to the holding, voting or disposition of or that restrict the transfer of, the issued or unissued capital stock or other equity or ownership interests of the Company or any of its Subsidiaries.

4.6. Pro Forma Statement of Assets and Liabilities. Section 4.6 of the Disclosure Schedule contains a pro forma statement of assets and liabilities of the Company and its Subsidiaries as of December 10, 2008 (the “ Pro Forma Statement ”). The Pro Forma Statement has been prepared from Seller’s balance sheet, is true and correct in all material respects and presents fairly in all material respects the combined assets and liabilities of the Company and its Subsidiaries as of such date; provided , however , that the Pro Forma Statement (a) lacks notes and other presentation items and (b) is subject to year-end adjustments. In its conduct of the Business, the Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations and (ii) transactions are recorded as necessary to maintain asset accountability.

4.7. Absence of Certain Changes. Since the date of the Pro Forma Statement, there has not been:

(a) No Adverse Effect . Any Material Adverse Effect on the Company and its Subsidiaries.

(b) No Disposition of Property . Any sale, lease, grant or other transfer or disposition of any material properties or assets of the Company and its Subsidiaries, taken as a whole, except for the sale of inventory items in the Ordinary Course of Business.

(c) No Liens . Any Lien made on any material properties or assets of the Company and its Subsidiaries, taken as a whole.

(d) Credit . Any grant of credit by the Company or any of its Subsidiaries to any customer (including any Franchisee) of the Business, which grants of credit directly relate to the Business, on terms or in amounts more favorable than those that have been extended to such customer or similar customers in the past directly relating to the Business, any other materially adverse change made by the Company or any of its Subsidiaries in the terms of any credit heretofore extended directly in connection with the Business or any other material change of the policies or practices of the Company or any of its Subsidiaries with respect to the granting of credit directly in connection with the Business.

 

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(e) Discharge of Obligations . Any discharge, satisfaction or agreement to satisfy or discharge any material Liability directly relating to or affecting the Business, other than the discharge or satisfaction in the Ordinary Course of Business of current Liabilities.

(f) Accounting Principles . Any material change in the financial or Tax accounting principles or methods of the Company or any of its Subsidiaries, except to the extent required by United States generally accepted accounting principles as in effect from time to time, consistently applied, directly relating to or affecting the Business.

Notwithstanding anything to the contrary herein (including this Section 4.7 and Sections 4.12 and 5.3 below) or in the other Transaction Documents, at the election of Seller, (i) some or all of the Non-Business Assets have been or will be, prior to the Closing, transferred, conveyed and assigned to Seller or its designee and (ii) certain assets and rights relating to the Business have been or will be, prior to the Closing, transferred, conveyed and assigned by Seller to the Company or its Subsidiaries, and such transfer, conveyance and assignment (in case of both clause (i) and clause (ii)) shall not constitute a breach of any representation, warranty, covenant or agreement on the part of Seller. In the case of any transfer, conveyance and assignment described in clause (ii)above between the date hereof and the Closing Date, Seller shall notify Buyer by updating Section 4.7 of the Disclosure Schedule with a description of such transfer, conveyance and assignment.

4.8. Legal Compliance.

(a) Except for past violations for which neither the Company nor any of its Subsidiaries is subject to any current material Liability and cannot become subject to any future material Liability, in respect of the operations, practices, properties and assets of the Business, each of the Company and its Subsidiaries is and has been in material compliance with all applicable Laws and Orders. Neither the Company nor its Subsidiaries has received notice of any violation or alleged violation of any Laws or Orders with respect to the Business. All reports, filings and returns associated with or related to the Business required to be filed by or on behalf of any of the Company or its Subsidiaries with any Governmental Entity have been filed and, when filed, were true, correct and complete in all material respects.

(b) Each of the Company and its Subsidiaries has all Permits of all Governmental Entities and of all certification organizations required, and all exemptions from requirements to obtain or apply for any of the foregoing, for the conduct of the Business (as the Business is currently conducted) and the operation of the Leased Locations. All such Permits of all Governmental Entities are in full force and effect in accordance with the terms hereof. Except for past violations for which neither the Company nor any of its Subsidiaries is subject to any current Liability and cannot become subject to any future material Liability and, each of the Company and its Subsidiaries (including its operations, practices, properties and assets) is and has been in material compliance with all such Permits.

4.9. Tax Matters. Each of the Company and its Subsidiaries has timely filed all Income Tax Returns and all other material Tax Returns that they were required to file, and all such Tax Returns are accurate and complete in all material respects. All Taxes shown thereon as owing have been paid or shall be paid by the Company and its Subsidiaries or, if not yet payable,

 

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such Taxes have been adequately accrued and shown on the books and records of the Company and its Subsidiaries. No deficiency or proposed adjustment which has not been paid or resolved for any material amount of Tax has been asserted or assessed by any taxing authority against the Company or any of its Subsidiaries. There are no Tax audits in progress, pending, or, to the Knowledge of Seller, threatened against the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

4.10. Real Property.

(a) Neither the Company nor any of its Subsidiaries owns any real property.

(b) Section 4.10(b) of the Disclosure Schedule includes a list of all leased and subleased locations for the locations leased or subleased by any of the Company or its Subsidiaries from which all franchised and Company-owned Gloria Jean’s retail outlets are operated, including any such leased locations for a currently closed Gloria Jean’s retail outlet or a to-be-opened retail outlet (collectively, the “ Leased Locations ”). For clarification, the term “Leased Locations” is not intended to include those leases directly leased from the respective landlord by a Franchisee and to which neither the Company nor any of its Subsidiaries is a party. There are no Leased Locations other than as set forth in Section 4.10(b) of the Disclosure Schedule .

(c) The leases for all Leased Locations are valid, legally binding, and enforceable against the Company or its Subsidiary that is a party to such leases, enforceable against the other parties to such leases to the Knowledge of Seller, and in full force and effect, subject to proper authorization and execution of such leases by the other party thereto and except as such enforcement may be limited by the application of bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally and as such enforcement may be limited by the availability of specific performance and the application of equitable principles, regardless of whether enforcement is sought in a proceeding at law or in equity.

(d) Seller has made available to Buyer complete and accurate copies of each of the leases listed on Section 4.10(b) of the Disclosure Schedule , and (i) each of the leases listed on Section 4.10(b) of the Disclosure Schedule constitutes the entire agreement to which any of the Company or its Subsidiaries is a party with respect to such leased premises; (ii) since January 1, 2008, neither the Company nor any of its Subsidiaries has received any written, or to the Knowledge of Seller, verbal notice of breach default, or non-compliance or any written, or to the Knowledge of Seller, verbal notice of cancellation or termination by any other party under any of such leases or other Lease Documents; (iii) neither the Company nor any of its Subsidiaries is in default under the material terms of such leases; and (iv) all rents and other sums due by any of the Company or its Subsidiaries under such leases, as of the date of this Agreement, have been paid in full.

(e) The interest of the Company or its Subsidiary, as the case may be, in the lease for each Leased Location is free and clear of all Liens.

 

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(f) Through the date hereof, to the Knowledge of Seller, there are no lease relationships with respect to the Business to which any of the Company or its Subsidiaries is a party, either existing, expired or terminated, that have given rise to any currently unresolved claims or disputes.

(g) There is not now in existence any claim for any of the Company or its Subsidiaries to offset, deduct or decrease any payments due under any lease for a Leased Location.

(h) To the Knowledge of Seller, all Franchisees are, in all material respects, in compliance with all Lease Documents.

(i) To the Knowledge of Seller, each Franchisee, which is a party to a lease or sublease with respect to any leased or subleased location (other than a Leased Location) from which a franchised Gloria Jean’s retail outlet is operated, including any such leased location for a currently closed Gloria Jean’s retail outlet or a to-be-opened retail outlet, is, in all material respects, in compliance with such lease or sublease.

4.11. Intellectual Property.

(a) The Intellectual Property listed on Section 4.11(a) of the Disclosure Schedule (the “ Owned Intellectual Property ”) represents all of the Intellectual Property owned by the Company and its Subsidiaries that is used in, and necessary for the conduct of, the Business as currently conducted. This Section 4.11 does not relate to, and this Section 4.11 and the term “Owned Intellectual Property” expressly exclude, any Intellectual Property, or interests or rights with respect thereto, related to the Non-Business Assets.

(b) The Intellectual Property listed on Section 4.11(b) of the Disclosure Schedule (the “ Licensed Intellectual Property ”) represents all of the Intellectual Property owned by Seller that is used in the Business as currently conducted and will be licensed to Buyer or its Affiliates pursuant to the Amended and Restated Trademark License Agreement.

(c) Except for licenses for commercial off-the-shelf software, Section 4.11(c) of the Disclosure Schedule lists the Intellectual Property licensed-in by any of the Company or its Subsidiaries that is necessary for the Business as currently conducted. Neither the Company nor any of its Subsidiaries pays, or is obligated to pay, any royalties or other consideration for the right to use the Intellectual Property of others; provided , however , that the preceding clause expressly excludes any Intellectual Property related to Non-Business Assets. The Owned Intellectual Property and the Licensed Intellectual Property are only licensed out by the Company and its Subsidiaries pursuant to (i) the Franchise Agreements entered into between one or more Subsidiaries of the Company, on the one hand, and a Franchisee thereof, on the other hand, (ii) the Trademark License Agreement dated February 10, 2005 by and between certain Subsidiaries of the Company and certain Affiliates of Buyer, and (iii) the License Agreement dated as of November 21, 2002 between the Subsidiaries of the Company.

(d) All of the Marks listed on Section 4.11(a) and (b) of the Disclosure Schedule have been properly registered in all material respects or are the subject of pending applications; all pending registrations and applications have been properly made and filed in all material respects; and all annuity, maintenance, renewal and other fees relating to registrations or applications are current.

 

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(e) All Owned Intellectual Property and Licensed Intellectual Property is valid, enforceable, and subsisting and, to the Knowledge of Seller, does not infringe any other Intellectual Property rights owned by third parties. As of the date hereof, there is not pending nor, to the Knowledge of Seller, threatened any claim (i) challenging the ownership of the Owned Intellectual Property or Licensed Intellectual Property or asserting that any other Person has any claim of legal or beneficial ownership with respect thereto or (ii) challenging or questioning the validity or enforceability of any of the Owned Intellectual Property or Licensed Intellectual Property or indicating an intention on the part of any Person to bring a claim that any of the Owned Intellectual Property or Licensed Intellectual Property is invalid or unenforceable or has been misused. To the Knowledge of Seller, no third party is misappropriating, infringing, diluting, or violating in any material respect any of the Owned Intellectual Property or Licensed Intellectual Property.

(f) Neither the Company nor any of its Subsidiaries is a party to any agreement with its employees and consultants in which it waives the right to claim ownership and title to the Intellectual Property rights and Confidential Information generated by those persons in the course of, or in connection with, the Business.

(g) The Owned Intellectual Property and the Licensed Intellectual Property are not subject to any pending or, to the Knowledge of Seller, threatened litigation that would restrict the use thereof by any of the Company or its Subsidiaries or any outstanding order, judgment, decree or stipulation restricting the use thereof by such Persons.

4.12. Contracts. Section 4.12 of the Disclosure Schedule sets forth a list as of the date of this Agreement of each of the following types of written contracts to which the Company or any of its Subsidiaries is a party:

(a) Any employment agreement or employment contract with any officer or employee of the Company or its Subsidiaries, which officer or employee performs services primarily for the benefit of the Business, that has compensation in excess of USD $75,000 per annum and is not terminable by notice of not more than sixty (60) calendar days for a cost of less than USD $75,000; provided , however , the Parties acknowledge and agree that this provision is not intended to apply to officers of Seller nor any officer or employee of any non-Business operations regardless of whether or not the services rendered by such officer or employee benefits the Business;

(b) Any employee collective bargaining agreement;

(c) Any covenant not to compete granted by the Company or any of its Subsidiaries in favor of a third party (other than Buyer or any of its Affiliates) that materially impairs the Business;

(d) Any lease or similar agreement with respect to the Business under which (i) the Company or any of its Subsidiaries is lessee of, or holds or uses, any machinery, equipment, vehicle, or other tangible personal property owned by a third party or (ii) the

 

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Company or any of its Subsidiaries is a lessor or sublessor of, or makes available for use by any third party, any tangible personal property owned or leased by the Company or any of its Subsidiaries; in any case which has payments to be made or received in excess of USD $50,000 per annum and is not terminable by notice of not more than sixty (60) calendar days for a cost of less than USD $50,000;

(e) Any agreement or contract with respect to the Business under whi