-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BTj1NvoMQQl4oDqn55YO/NmEtqpDBVHWmzfb6x0yZnCST1E77kBkG7C6YUStlG09 sgz5alprEiATrvD2cLNjGw== 0000892569-98-001761.txt : 19980612 0000892569-98-001761.hdr.sgml : 19980612 ACCESSION NUMBER: 0000892569-98-001761 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980429 FILED AS OF DATE: 19980611 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIEDRICH COFFEE INC CENTRAL INDEX KEY: 0000947661 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FOOD STORES [5400] IRS NUMBER: 330086628 STATE OF INCORPORATION: CA FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21203 FILM NUMBER: 98646565 BUSINESS ADDRESS: STREET 1: 2144 MICHELSON DRIVE STREET 2: STE A CITY: IRVINE STATE: CA ZIP: 9262682612 BUSINESS PHONE: 7142601600 MAIL ADDRESS: STREET 1: 2144 MICHELSON DRIVE CITY: IRVINE STATE: CA ZIP: 92612 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 04/29/1998 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 29, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ COMMISSION FILE NUMBER 0-21203 DIEDRICH COFFEE, INC. (Exact name of registrant as specified in its charter) DELAWARE 33-0086628 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 2144 MICHELSON DRIVE IRVINE, CALIFORNIA 92612 (Address of Principal Executive Offices including Zip Code) (949) 260-1600 (Registrant's Telephone Number including Area Code) ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] As of June 10, 1998, there were 5,941,650 shares of common stock of the registrant outstanding. ================================================================================ 2 DIEDRICH COFFEE, INC. INDEX
PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets......................................... 3 Condensed Statements of Operations............................... 4 Condensed Statements of Cash Flows............................... 5 Notes to Condensed Financial Statements.......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 11 Item 3 Quantitative and Qualitative Disclosures About Market Risk....... 15 PART II- OTHER INFORMATION Item 1 Legal Proceedings................................................ 15 Item 6 Exhibits and Reports on Form 8-K................................. 15 Signatures....................................................... 17
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DIEDRICH COFFEE, INC. CONDENSED BALANCE SHEETS
ASSETS APRIL 29, 1998 JANUARY 28, 1998 -------------- ---------------- Current Assets: Cash $ 1,913,609 $ 1,408,161 Accounts receivable 197,658 181,628 Inventories (Note 2) 1,201,472 1,375,119 Prepaid expenses 184,403 157,393 Income taxes receivable 19,363 42,528 -------------- ------------- Total current assets 3,516,505 3,164,829 Property and equipment, net 9,594,202 10,104,843 Costs in excess of net assets acquired, net 349,545 389,651 Other assets 260,391 289,103 -------------- ------------- Total assets $ 13,720,643 $ 13,948,426 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current installments of obligations under capital $ 169,488 $ 168,139 lease Accounts payable 1,150,696 1,204,366 Accrued compensation 586,202 716,742 Accrued expenses 1,258,824 1,796,869 Restructuring charge 159,394 237,320 -------------- ------------- Total current liabilities 3,324,604 4,123,436 Obligation under capital lease - long term 349,457 317,292 Long term debt (Note 3) 2,500,000 2,500,000 Deferred rent 181,739 172,231 -------------- ------------- Total liabilities 6,355,800 7,112,959 -------------- ------------- Stockholders' Equity: (Note 4) Common stock 59,417 57,417 Additional paid-in capital 18,204,113 16,928,546 Accumulated deficit (10,898,687) (10,150,496) --------------- -------------- Total stockholders' equity 7,364,843 6,835,457 -------------- ------------- Commitments and contingencies Total liabilities and stockholders' equity $ 13,720,643 $ 13,948,426 ============== =============
See accompanying notes to financial statements. 3 4 DIEDRICH COFFEE, INC. CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
THIRTEEN WEEKS THIRTEEN WEEKS ENDED APRIL 29, ENDED APRIL 30, 1998 1997 --------------- --------------- Net Sales: Retail $ 5,285,060 $ 5,384,625 Wholesale and other 638,301 483,095 ------------ ------------ Total 5,923,361 5,867,720 ------------ ------------ Cost and Expenses: Cost of sales and related occupancy costs 2,682,665 3,041,815 Store operating expenses 2,283,903 2,380,227 Other operating expenses 148,785 64,325 Depreciation and amortization 482,222 447,439 Provision for store closings and restructuring costs -- 4,550,068 General and administrative expenses 974,848 774,325 ------------ ------------ Total 6,572,422 11,258,199 ------------ ------------ Operating loss (649,061) (5,390,479) Interest expense (97,273) -- Interest and other income 1,510 7,660 ------------ ------------ Loss before income taxes (744,825) (5,382,819) Income tax provision 800 -- ------------ ------------ Net Loss (745,625) $ (5,382,819) ============ ============ Basic net loss per share: $ (0.13) $ (1.00) ============ ============ Diluted net loss per share: $ (0.13) $ (1.00) ============ ============ Weighted average shares outstanding 5,800,991 5,391,650 ============ ============
See accompanying notes to financial statements. 4 5 DIEDRICH COFFEE, INC. CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
THIRTEEN WEEKS THIRTEEN WEEKS ENDED APRIL 29, ENDED APRIL 30, 1998 1997 --------------- --------------- Cash flows from operating activities: Net loss $ (745,625) $(5,382,819) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 482,222 447,439 Provision for asset impairment and restructuring costs -- 4,287,660 Changes in assets and liabilities: Accounts receivable (16,030) 11,274 Inventories 173,647 94,130 Prepaid expenses (27,010) (31,354) Income taxes receivable 23,165 82,653 Other assets 430 (7,531) Accounts payable (53,670) (715,545) Accrued compensation (189,616) (168,751) Accrued expenses (32,385) 78,374 Deferred rent 9,508 -- ----------- ----------- Net cash used in operating activities (375,364) (1,304,470) ----------- ----------- Cash flows from investing activities: Capital expenditures for property and equipment (373,575) (623,625) ----------- ----------- Net cash used in investing activities $ (373,575) $ (623,625) =========== =========== Cash flows from financing activities: Proceeds from issuance of common stock, net fees 1,275,000 -- paid Payment on capital lease obligation (20,613) -- ----------- ----------- Net cash provided by financing activities $ 1,254,387 $ -- ----------- ----------- Net increase (decrease) in cash 505,448 (1,928,095) ----------- ----------- Cash at beginning of period 1,408,161 2,071,904 ----------- ----------- Cash at end of period 1,913,609 $ 143,809 =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ 75,000 $ -- =========== =========== Income taxes 800 $ -- =========== =========== Non-cash Transactions Equipment Purchased under Capital Lease $ 54,127 $ -- =========== ===========
See accompanying notes to financial statements 5 6 DIEDRICH COFFEE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS APRIL 29, 1998 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed financial statements of Diedrich Coffee, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of normal, recurring adjustments and accruals) considered necessary for a fair presentation of the Company's financial position at April 29, 1998 and the results of operations and cash flows for the thirteen weeks ended April 29, 1998 and April 30, 1997 have been included. Results for the interim periods are not necessarily indicative of the results for an entire year. This information should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 28, 1998. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS No. 130 is effective for financial statements issued for periods beginning after December 15, 1997. The Company has determined that the impact of SFAS No. 130 on its consolidated financial statements is not material. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for financial statements issued for periods beginning after December 15, 1997. The Company has not determined the impact of SFAS No. 131 on its consolidated financial statements. SFAS No. 131 will be applied in the preparation of the Company's annual financial statements for the year ending January 27, 1999. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up Activities". This SOP requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. Initial application of the SOP should be as of the beginning of the fiscal year in which the SOP is first adopted and should be reported as a cumulative effect of a change in accounting principle. The Company has adopted SOP 98-5 which had an impact of $22,000 in the thirteen weeks ended April 29, 1998. Net Loss Per Common Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 specifies new 6 7 DIEDRICH COFFEE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) APRIL 29, 1998 (UNAUDITED) standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal difference being that the common stock equivalents are not considered in computing basic EPS, (b) eliminating the modified treasury stock method and the three percent materiality provision and (c) revising the contingent share provisions and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure requirements. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. Basic earnings per share are presented for the thirteen weeks ended April 29, 1998 and April 30, 1997; diluted earnings per share are not presented as losses were incurred in those years. 2. INVENTORIES Inventories consist of the following:
APRIL 29, 1998 JANUARY 28, 1998 -------------- ---------------- Green coffee $ 406,725 $ 535,885 Roasted coffee 91,348 67,965 Accessory and specialty items 194,843 230,502 Other food, beverage and supplies 508,556 540,767 --------------- -------------- $ 1,201,472 $ 1,375,119 =============== ==============
3. DEBT Long-term debt consists of the following:
APRIL 29, 1998 JANUARY 28, 1998 -------------- ---------------- NUVRTY, INC. Note payable bearing interest at prime rate plus 3 1/2%, interest payable monthly. Note is secured by the assets of the Company. $1,000,000 $1,000,000 Due September 30, 2002 GRANDVIEW TRUST Note payable bearing interest at prime rate plus 31/2%, interest payable monthly. Note 750,000 750,000 is secured by the assets of the Company. Due October 15, 2002 OCEAN TRUST Note payable bearing interest at prime rate plus 31/2%, interest payable monthly. Note 750,000 $750,000 is secured by the assets of the Company. Due October 16, 2002 ---------- ---------- $2,500,000 $2,500,000 ========== ==========
In March 1997, the Company received a commitment for a $1 million line of credit on arms-length terms from a significant stockholder of the Company. 7 8 DIEDRICH COFFEE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) APRIL 29, 1998 (UNAUDITED) On May 27, 1997, the Company made a promissory note (the "Note") for the benefit of The Palm Trust of which Paul Heeschen, a director, is a trustee. Mr. Heeschen has no beneficial interest in the Palm Trust. The Note provided for borrowings by the Company up to $1,500,000 with interest accruing at the prime rate plus 3 1/2%. All outstanding principal and accrued interest was due and payable on January 27, 1998 or promptly after the closing of any new debt or equity financing in an amount exceeding $1,500,000. This indebtedness was fully paid and discharged on October 20, 1997 with the proceeds of borrowing from the Ocean and Grandview Trusts described below. On August 19, 1997, the Company entered into a promissory note, term loan agreement, and security agreement with the Virginia R. Cirica Trust (the "Cirica Trust") (collectively the "Cirica Trust Loan Documents"). That trust is controlled by Ms. Cirica, who is the spouse of Lawrence Goelman, then Chairman and Interim Chief Executive Officer of the Company. Shortly before the Cirica Trust entered into the Cirica Trust Loan Documents, Mr. Goelman loaned Ms. Cirica approximately $250,000. Some of those funds were transferred by Ms. Cirica to the Cirica Trust and advanced to the Company pursuant to the Cirica Trust Loan Documents. The loan was secured by the assets of the Company and provided for borrowings up to $500,000 with interest accruing at the prime rate plus 3 1/2 %. As of October 29, 1997 the Company borrowed the entire $500,000 available. In connection with the Cirica Trust Loan Documents, the Company issued a warrant to the Cirica Trust to purchase up to 85,000 shares of the Company's common stock if the loan was repaid in full within 120 days of closing, or up to 170,000 shares of the Company's common stock if the loan was not repaid within 120 days, all at a price of $2.25 a share. The warrants are exercisable immediately and expire on the later of August 19, 2003 or one year following payment in full of the loan. Mr. Goelman disclaims any pecuniary interest in the loan to the Company and any beneficial interest in the Cirica Trust, except to the extent to which Mr. Goelman is a contingent beneficiary under the terms of the Cirica Trust. The loan was repaid in full and discharged on December 17, 1997. On September 30, 1997 the Company entered into a promissory note, term loan agreement and security agreement with Nuvrty, Inc., a Colorado corporation controlled by Amre Youness, a former director of the Company (the "Nuvrty Loan Documents"). All outstanding principal and accrued interest is due and payable on September 30, 2002. The loan is secured by the assets of the Company and provides for borrowings up to $1,000,000 with interest accruing and paid monthly at the prime rate plus 3 1/2%. The Company borrowed the full amount under the loan. In connection with the Nuvrty Loan Documents, the Company issued a warrant to Nuvrty to purchase up to 170,000 shares of the Company's common stock if the Loan was repaid in full within 120 days of closing and up to 340,000 shares of the Company's common stock if the loan was not repaid within 120 days, all at a price of $2.25 per share. The warrants are exercisable immediately and expire on the later of September 30, 2003 or one year following payment in full of the loan. On October 16, 1997 the Company entered into parallel promissory notes, term loan agreements and security agreements with the Ocean and Grandview Trusts on terms identical to those entered into with the Cirica Trust and Nuvrty, Inc. (the "Ocean Trust Loan Documents" and the "Grandview Trust Loan Documents", respectively). The Ocean Trust Loan Documents and the Grandview Trust Loan Documents provide for borrowing up to $750,000 from each Trust. Each loan is secured by the assets of the Company. Interest on advances is accrued and payable monthly at the prime rate plus 3 1/2%. The Company borrowed $750,000 under each facility. All outstanding principal and accrued interest is due and payable to each of the Ocean and Grandview Trusts on October 16, 2002. 8 9 DIEDRICH COFFEE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) APRIL 29, 1998 (UNAUDITED) In connection with the Ocean Trust Loan Documents and the Grandview Trust Loan Documents the Company issued warrants to each Trust respectively to purchase up to 127,500 shares each of the Company's common stock if the loans were repaid in full within 120 days of closing, or up to 255,000 shares respectively of the Company's common stock if the loans were not repaid in full within 120 days of closing, all at a price of $2.25 per share. The warrants are exercisable immediately and expire on the later of October 16, 2003 or one year following payment in full of the respective loans. The Company used the proceeds from the Ocean Trust and Grandview Trusts Loans to pay off and discharge the outstanding indebtedness to the Palm Trust. The warrants associated with all the above debt were accounted for in accordance with the provisions of APB 14, "Accounting for Convertible Debt and Debt Issued Stock Purchase Warrants." In accordance with APB 14, none of the proceeds from issuance of the debt was allocated to the warrants based on their relative fair value calculated using both a Cost of Replacement Model and the Monte Carlo simulation of possible warrant exercise and no expense was recognized. 4. STOCKHOLDERS' EQUITY On April 25, 1997, the Company's Board of Directors approved the 1997 Non-Employee Director's Stock Option Plan under which options for 10,000 shares each were granted to two non-employee directors. These options have an exercise price of $2.75, became vested on April 25, 1998 and expire on April 25, 2007. On November 18, 1997, Mr. John E. Martin joined the Company's Board of Directors as Chairman, replacing Lawrence Goelman. On November 17, 1997, Mr. Martin entered into a letter agreement with the Company appointing him Chairman of the Board of the Company. The Company and Mr. Martin also entered into an agreement under which Mr. Martin would be granted the option to purchase up to 850,000 shares of the common stock of the Company subject to stockholder approval. Mr. Martin and the Company also agreed to terms under which Mr. Martin would purchase 333,333 shares of the Company's common stock at $3.00 per share, following stockholder approval of the Martin Option Agreement. On November 18, 1997, Mr. Timothy J. Ryan joined the Company as Diedrich Coffee's President and Chief Executive Officer to replace Lawrence Goelman, Interim Chief Executive Officer. Subject to stockholder approval, the Company entered into a performance based Stock Option Plan and Agreement under which Mr. Ryan would be granted the option to purchase up to 600,000 shares of the common stock of the Company and Mr. Ryan would purchase 16,667 shares at $3.00 per share in the Company pursuant to a private sale of restricted stock. On January 22, 1998 the stockholders of the Company approved the stock option plans and agreements with John Martin and Timothy Ryan. On January 28, 1998 Messrs. Martin and Ryan completed their respective private purchases of Company stock of $1,000,000 and $50,000, respectively. On March 30, 1998 the Company agreed to a private placement of 200,000 shares of the Company's common stock to Franchise Mortgage Acceptance Company ("FMAC") at a price of $6.375 (the stock's closing sale price for that day on the Nasdaq National Stock Market). In addition, FMAC also received an option to purchase 100,000 additional shares of the Company's common stock; this option may be exercised in increments of 25,000 shares or more and expires on April 3, 2000. The exercise prices of this option are as follows: 50,000 shares are exercisable at $10.00 per share and $12.50 per share, respectively. 9 10 DIEDRICH COFFEE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) APRIL 29, 1998 (UNAUDITED) The fair value of this option is estimated to be $72,042. The estimated fair value of the option has been charged to equity and will be amortized ratably over the two year life of the option. Amortization for the period ended April 29, 1998 totaled $2,566. This transaction was completed on April 3, 1998. 10 11 PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS From time to time, in both written reports and oral statements, the Company makes "forward-looking statements" within the meaning of Federal and state securities laws. Disclosures that use words such as the Company "believes," "anticipates," "expects," "may" or "plans" and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect the Company's current expectations and are based upon data available at the time of the statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Any such forward-looking statements, whether made in this report or elsewhere, should be considered in context with the various disclosures made by the Company about its business, including the factors discussed below. These projections or forward looking statements fall under the safe harbors of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Foreseeable risks and uncertainties are described elsewhere in this report and in detail under "Risk Factors and Trends Affecting Diedrich Coffee and Its Business" in the Company's annual report on Form 10-K for the fiscal year ended January 28, 1998 and in reports filed by the Company with the Securities and Exchange Commission. GENERAL The Company commenced operations in 1972 as a private company and completed its initial public offering in September 1996. The Company, a custom roaster of specialty coffee, sells coffee and a broad range of espresso drinks through its own coffeehouses. The Company's objective is to be the leading national chain of neighborhood coffeehouses serving the best coffee possible-technically and by consumer choice. To complement beverage sales, the Company sells light food items and whole bean coffee through its coffeehouses. The Company also sells roasted coffee as well as coffee brewing and espresso equipment through a wholesale sales force. As of April 29, 1998, the Company operated thirty-six coffeehouses and seven coffee carts located in California, Colorado and Texas. First Quarter. In the first quarter of the current fiscal year the Company experienced losses of approximately $740,000 principally related to an increase in interest expense and general and administrative expense. The level of general and administrative expense is directly related to management's commitment to grow the Company through retail coffeehouse development, new wholesale channels, and franchise area development. Achieving this goal depends upon, among other things, obtaining and maintaining sufficient working capital, aggressive growth in the wholesale division, execution of new store management systems, successful negotiation of franchise area development agreements and improved store management and customer satisfaction. Developments in the First Quarter. Pursuant to the Company's strategic plan, the roasting facility in Denver, Colorado was closed in the first quarter and the roasting was consolidated in Southern California. The Company also closed an under-performing store in San Diego and one in Denver, Colorado. Four coffee cart locations at premium Irvine Office Company locations were opened in the first quarter. Additional coffee cart locations are under 11 12 consideration and in discussion with the Irvine Office Company and similar commercial property managers, but no assurances can be given as to when or how many more coffee carts may be installed. Area Development Objectives. Management's franchise area development goals are to enter into fifteen to seventeen franchise area development agreements covering most major U. S. markets by the end of fiscal year 2000. Although the Company is engaged in preliminary discussions with potential area developers, there can be no assurances given as to when or at what rate area development agreements are entered into. Successful area development depends significantly upon the expertise, staff and capital of the area developer as well as all of the contingencies and uncertainties to which the Company and its business are subject. Management plans to continue to develop, over the next five years, Company-owned coffee houses, kiosks and mobile carts in Orange County, California and in two to four other major U. S. markets. Outside of Orange County, Company-owned store development will depend upon franchise area development revenues and continued growth and improvements in Company operations and coffee house-level execution. Franchise Area Development Financing. On April 14, 1998 the Company announced a strategic relationship with the Franchise Mortgage Acceptance Company ("FMAC") located in Los Angeles. FMAC stated its willingness to finance, through secured lending, franchise area developers selected by the Company. FMAC is a leading company in multi-unit restaurant franchise financing. The Company believes that this relationship will facilitate the Company's planned program of franchise area development, but no assurances can be given as to actual financing commitments or the effects of any such commitment. The Company does not anticipate entering into any franchise area development agreement before the latter half of the fiscal year. Area development agreements commit the area developer to build and open coffeehouses in the agreed-upon territory according to an agreed-upon schedule covering several years. No assurances can be given as to the rate of new coffeehouse construction, much less related franchise revenues. Private Placement. On April 3, 1998 the Company closed a private placement with Franchise Mortgage Acceptance Company ("FMAC"). FMAC purchased 200,000 shares of restricted stock at a price of $6.675 per share and received 50,000 options exercisable at $10 per share and 50,000 options exercisable at $12.50 per share. FMAC is the leading mortgage lender to the multi-unit restaurant industry. Secured Debt. On April 14, 1998 the Company announced FMAC's commitment, subject to approval of final documentation by the Boards of Directors of both companies, to make a secured revolving loan of up to $5 million to the Company. When closed in the second quarter, management believes that this facility will provide sufficient working capital, along with other anticipated internal sources, for the balance of the fiscal year. Master License Agreement with Home Savings. Home Savings notified the Company in the first quarter that, in light of changes related to Home Savings merger with Washington Mutual, the Master License Agreement dated January 29, 1997 between the Company and Home Savings was terminated. The termination does not affect the existing Santa Monica coffeehouse. Although it is possible that the successor in interest to Home Savings and the Company may enter into future real estate and coffee house transactions, there can be no assurance as to when or whether there will be any future agreements between the parties. 12 13 Green Coffee Prices. Worldwide coffee commodity prices moderated from the record levels reached in the second and third quarters of fiscal 1998. In the first quarter of fiscal year 1999, however, the Company's cost of green coffee exceed prior year levels by approximately 7%. The Company usually pays a premium over the commodity price for the select grade coffee beans that it purchases. As worldwide demand for coffee of all types remains strong, the Company expects the prices that it pays to remain comparatively high into the foreseeable future. Green Coffee Availability. The Company believes that it has adequate sources of supply of high quality, green arabica coffee to meet its projected needs for the foreseeable future. While the Company seeks to carefully anticipate its green coffee needs, there can be no assurance that supplies and prices will not be affected by political and social events, the weather in the coffee growing regions of the world, unexpected demand or other market forces. Green coffee is an international agricultural commodity product subject to considerable price fluctuations. Seasonality and Quarterly Results. The Company's business is subject to seasonal fluctuations as well as economic trends that affect retailers in general. Historically, the Company's net sales have not been realized proportionately in each quarter, with net sales being the highest during the last fiscal quarter which includes the December holiday season. Hot weather tends to reduce sales. Quarterly results are affected by the timing of the opening of new stores, which may not occur as anticipated due to events outside the Company's control. As a result of these factors, and of the other contingencies and risk factors described elsewhere in this report, the financial results for any individual quarter may not be indicative of the results that may be achieved in a full fiscal year. Due to all of the foregoing and variables, the Company's future earnings and the market price of the Company's securities are subject to change. There can be no assurance of when the Company will return to profitability nor of future growth rate. RESULTS OF OPERATIONS Thirteen Weeks Ended April 29; 1998 Compared with the Thirteen Weeks Ended April 30, 1997 Net sales. Net sales for the thirteen weeks ended April 29, 1998 increased 1.0% to $5,923,000 from $5,868,000 for the thirteen weeks ended April 30, 1997. During this most recent quarter, the Company derived 89.2% of net sales from its retail coffeehouse operations. The Company's wholesale and mail order sales accounted for the remainder of net sales. Net retail sales for the thirteen weeks ended April 29, 1998 decreased 1.9% to $5,285,000 from $5,385,000 in the thirteen weeks ended April 30, 1997. As of April 29, 1998, the Company operated 36 coffeehouses and seven carts; as of April 30, 1997, the Company operated 44 coffeehouses and one cart. The percentage increase in first quarter of fiscal 1999 comparable store sales was 2.2%. Wholesale and other sales increased 32.1% to $638,000 in the thirteen weeks ended April 29, 1998 from $483,000 in the thirteen weeks ended April 30, 1997. The increase reflects increasing demand for the Company's wholesale coffee products and increased sales efforts. Although the Company anticipates continued improvement in wholesale sales, this depends upon successful acquisition, installation and operation of new packaging equipment scheduled for the second quarter. There can be no assurances that the anticipated wholesale sales gains will happen. Cost of Sales and Related Occupancy Costs. Cost of roasted coffee, dairy, food, paper and bar supplies, accessories and clothing (cost of sales) and rent (related occupancy costs) for the thirteen weeks ended April 29, 1998 decreased to $2,683,000 from $3,042,000 for the thirteen weeks ended April 30, 1997. As a percentage of net sales, cost of sales and related 13 14 occupancy costs decreased to 45.3% in the first quarter of fiscal 1999 from 51.8% for the first quarter of fiscal 1998. This decreased percentage was the result of average unit volume efficiencies resulting from the closure of low volume locations as well as purchasing efficiencies. These more than offset the impact of higher green coffee prices, increased occupancy costs, and an increase in the percentage of total revenues contributed by wholesale sales. Store operating expenses. Store operating expenses decreased to $2,284,000 for the thirteen weeks ended April 29, 1998 from $2,380,000 for the thirteen weeks ended April 30, 1997. As a percentage of retail net sales, store operating expenses decreased to 43.2% in the first quarter of fiscal 1999 from 44.2% in the prior fiscal year's first quarter. Other Operating Expenses. Other operating expenses (those associated with wholesale and other sales) increased to $149,000 for the first quarter of fiscal 1999 from $64,000 in the first quarter of fiscal 1998. These expenses, as a percentage of the net sales from the wholesale division, increased to 23.4% from 13.3%. This increase reflects the cost of additional management and sales staff recruited to further develop the sales of the wholesale division. As a percentage of net sales these costs should decrease as wholesale sales increase. Depreciation and Amortization. Depreciation and amortization increased to $482,000 for the thirteen weeks ended April 29, 1998 from $447,000 for the thirteen weeks ended April 30, 1997. As a percentage of net sales, depreciation and amortization increased to 8.1% from 7.6% for the same period in the prior year, principally due to higher average store volumes. General and Administrative Expenses. General and administrative expenses increased to $975,000 for the first quarter of fiscal 1999 from $774,000 for the first quarter of fiscal 1998. As a percentage of net sales, general and administrative expenses increased to 16.4% from 13.2% due to the adding of selected resources and personnel in order to implement the Company's business plan. The Company believes that it will see a reduction in general and administrative expenses relative to sales over the next several quarters as revenue flows increase - assuming successful execution of the new business plan. Provision for Store Closings and Restructuring Costs. The restructuring charge recorded in fiscal 1998 included primarily lease termination and other costs associated with store closures as well as a provision for the impairment of long-lived assets in accordance with SFAS No. 121. Interest Expense. Interest expense increased to $97,000 for the thirteen weeks ended April 29, 1998 from $0 for the thirteen weeks ended April 30, 1997 reflecting the addition of the $2.5 million in long-term debt and $500,000 in assets under capital leases. Loss Before Taxes. Loss before taxes for the thirteen weeks ended April 29, 1998 was $739,000 compared to loss before taxes of $5,383,000 for the thirteen weeks ended April 30, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $192,000 as of April 29, 1998 compared to working capital deficit of $(959,000) as of January 28, 1998. The current period working capital includes remaining restructuring liabilities of $159,000. Cash used by operating activities for the thirteen weeks ended April 29, 1998 totaled $(375,364). 14 15 On April 3, 1998, the Company closed a private placement with Franchise Mortgage Acceptance Company of Los Angeles, California ("FMAC") of 200,000 shares of Company restricted common stock at a price of $6.675 a share, or approximately a $1,275,000 equity investment in the Company. In addition to the private purchase, FMAC also acquired options to purchase restricted shares of the Company's common stock, 50,000 shares at $10.00 and 50,000 shares at $12.50. John Martin, Chairman of the Board of the Company, serves as a member of the Board of Directors of FMAC. On April 14, 1998 the Company announced FMAC's commitment, subject to approval of final documentation by the Boards of Directors of both companies, to make a secured revolving loan of up to $5 million to the Company. When closed in the second quarter, management believes that this facility will provide sufficient working capital, along with other anticipated internal sources, for the balance of the fiscal year. The Company believes that cash from operations and the aforementioned financing activities will be sufficient to satisfy the Company's working capital needs for the remainder of the fiscal year. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Derivative Instruments. The Company did not invest in market risk sensitive instruments in fiscal 1998, nor in the first quarter of 1999. From time to time, the Company enters into agreements to purchase green coffee in the future at prices to be determined within two to twelve months of the time of actual purchase. At April 29, 1998 these commitments totaled $987,000. These agreements are tied to specific market prices (defined by both the origin of the coffee and the month of delivery) but the Company has significant flexibility in selecting the date of the market price to be used in each contract. The Company does not use commodity based financial instruments to hedge coffee or any other commodity as the Company believes there will continue to be a high probability of maintaining a strong correlation between increases in green coffee prices and the final selling prices of the Company's products. Market Risk. The Company's market risk exposure with regard to financial instruments is to changes in the "prime rate" in the United States. The Company borrowed $2,500,000 at the prime rate plus 3 1/2%. At April 29, 1998, a hypothetical 100 basis point increase in the prime rate would result in additional interest expense of $25,278 on an annualized basis. At April 29, 1998 the prime rate was 8 1/2%. The Company does not and has not used derivative financial instruments for any purpose, including hedging or mitigating interest rate risk. PART II- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the ordinary course of its business, the Company may become involved in legal proceedings from time to time. As of June 8, 1998, the Company was not a party to any material pending legal proceedings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. None. 15 16 (A) EXHIBITS Set forth below is a list of the exhibits included as part of this Quarterly Report. EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 Certificate of Incorporation of the Company (1) 3.2 Bylaws of the Company (1) 10.40 Employment Agreement - Ann Wride 10.41 Indemnification Agreement - Ann Wride 27 Financial data schedule - ------------------------ (1) Incorporated by reference to the exhibit of the same number to the Company's Registration Statement on Form S-1 ( No. 333-08633), as amended, as declared effective by the Securities and Exchange Commission on September 11, 1996. (B) REPORTS ON FORM 8-K None. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: June 11, 1998 DIEDRICH COFFEE, INC. /s/ Timothy J. Ryan ------------------------------------------- Timothy J. Ryan, President and Chief Executive Officer (Principal Executive Officer) /s/ Ann Wride ------------------------------------------- Ann Wride Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 18 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 Certificate of Incorporation of the Company (1) 3.2 Bylaws of the Company (1) 10.40 Employment Agreement - Ann Wride 10.41 Indemnification Agreement - Ann Wride 27 Financial data schedule - --------------------- (1) Incorporated by reference to the exhibit of the same number to the Company's Registration Statement on Form S-1 ( No. 333-08633), as amended, as declared effective by the Securities and Exchange Commission on September 11, 1996. EX-10.40 2 EMPLOYMENT AGREEMENT - ANN WRIDE 1 EXHIBIT 10.40 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of April 8, 1998, by and between DIEDRICH COFFEE, INC., a Delaware corporation (the "Company") and ANN WRIDE ("the Employee"). R E C I T A L S: The Company and the Employee desire to enter into this Agreement to establish the terms and conditions of the Employee's employment by the Company during the term hereof. A G R E E M E N T: NOW, THEREFORE, in consideration of the foregoing recital, and subject to the conditions and covenants set forth herein, the parties agree as follows: 1. Employment and Term. (a) The Company hereby employs the Employee as its Chief Financial Officer and the Employee hereby accepts such employment upon the terms and subject to the conditions set forth in this Agreement. Unless earlier terminated as provided in this Agreement, the term of the Employee's employment under this Agreement shall commence on the date hereof and shall continue for a period of two (2) years from the date hereof (the "Term"). (b) The Employee shall perform such duties and functions consistent with her role as Chief Financial Officer as may from time to time be assigned to her by the President and Chief Executive Officer (CEO). The Employee agrees that during the course of the Company's business hours throughout the Term, she will devote the whole of her time, attention and efforts to the performance of her duties and obligations hereunder. The Employee shall not, during the Term, without the written approval of the Board, and obtained in each instance, directly or indirectly (i) accept employment or receive any compensation for the performance of services from any business enterprise other than the Company or (ii) enter into or be concerned or interested in any trade or business or public or private work (whether for profit or otherwise and whether as partner, principal, shareholder or otherwise), which may, in the absolute discretion of the CEO, hinder or otherwise interfere with the performance by the Employee of her duties and obligations hereunder, except as a holder of not more than five percent (5%) of any class of stock or other securities in any company which is listed and/or traded on any securities market. 2. Compensation. 2.1 Salary. For all services to be rendered by the Employee under this Agreement, the Company agrees to pay the Employee a salary (the "Base Salary") equal to One Hundred Fifty Five Thousand Dollars ($155,000) per year, payable in bi-weekly installments, 2 less all amounts required by law to be withheld or deducted. During the Term of this Agreement, the CEO shall review the Employee's Base Salary with the Compensation Committee on or about each anniversary date of the date of this Agreement. The Compensation Committee, in its sole and absolute discretion from time to time, may increase (but not decrease without the Employee's written consent) the Employee's Base Salary. 2.2 Stock Options. Contemporaneously with the execution of this Agreement, the Company and Employee shall enter into a Stock Option Agreement, under the Company's 1996 Stock Incentive Plan, pursuant to which the Company will grant Employee, upon the terms and other conditions set forth therein, options to purchase 50,000 shares of the Company's Common Stock. 3. Employee Benefits. During the Term of the Employee's employment hereunder: (a) The Employee shall be entitled to three weeks annual vacation leave consistent with the Company's policies for other senior executives of the Company. (b) The Company shall pay or reimburse the Employee for all reasonable and necessary travel and other business expenses incurred or paid by the Employee in connection with the performance of her services under this Agreement consistent with the Company's policies for other senior executives of the Company. (c) Commencing three weeks after the date of this Agreement the Company shall provide and pay for the annual cost of premiums for health, dental and medical insurance coverage for the Employee and the Employee's dependents consistent with the coverage generally made available by the Company to senior executives of the Company and providing benefits at least as favorable to the Employee as the coverage that is in effect at the date of this Agreement. (d) In addition to the benefits set forth above, the Employee shall be entitled to participate in any other policies, programs and benefits which the Company may, in its sole and absolute discretion, make generally available to its other senior executives from time to time including, but not limited to, life insurance, disability insurance, pension and retirement plans, stock plans and other similar programs. 4. Termination of Employment. (a) Notwithstanding any other provision of this Agreement, the Employee's employment under this Agreement may be terminated as follows: (i) Upon the death of the Employee, this Agreement and the Employee's employment hereunder shall terminate immediately and without notice by the Company; or (ii) In the event of the inability of the Employee to perform her duties or responsibilities hereunder, as a result of mental or physical ailment or incapacity, for an aggregate of ninety (90) calendar days during any calendar year (whether or not consecutive) (a "Disability") during which period of Disability the Employee shall be 2 3 entitled to her compensation pursuant to this Agreement, this Agreement and the Employee's employment hereunder shall terminate upon delivery of written notice to the Employee; or (iii) By the Company for Cause (as defined below) in accordance with the provisions of Section 4(b) hereof (b) The parties agree that for purposes of this Agreement, the term "Cause" shall mean the following: (i) The Employee's willful and repeated failure to satisfactorily perform her job duties under this Agreement; (ii) Failure by the Employee to comply with all material applicable laws in performing her job duties or in directing the conduct of the Company's business, or (iii) Commission by the Employee of any felony or intentionally fraudulent act against the Company, or its employees, agents or customers. (c) With respect to events described in subparagraph 4(b)(i) and (ii) above, the Company shall give written notice to the Employee of any such event and the Employee shall have thirty (30) days beginning on the date of delivery of such written notice to cure same, or if such event cannot be cured within said thirty (30) day period, the Employee shall commence her efforts to cure the event within the thirty (30) day period and diligently work to cure such event within a reasonable time period. If the Employee within said thirty (30) day period or within a reasonable time period, as applicable, does not cure the event for which notice has been provided under subparagraphs 4(b)(i) or (ii) above, then the Employee's employment under this Agreement may be terminated by the Company by delivery to the Employee of written notice of termination and such termination will be effective as of the date of delivery of such written notice. With respect to events described in subparagraph 4(b)(iii) above, the Employee's employment under this Agreement may be terminated by the Company by delivery to the Employee of written notice of termination and such termination will be effective as of the date of delivery of such written notice. Upon the effectiveness of termination pursuant to subparagraph 4(a), the Employee shall not be entitled to receive any further compensation or benefits pursuant to this Agreement except for payment within ten days after her termination date of all accrued but unpaid Base Salary. (d) In addition to its rights to terminate the Employee's employment under this Agreement pursuant to subparagraph 4(a), the Company may also terminate the Employee's employment under this Agreement for any other reason, provided that, in such event, the Employee shall be entitled to receive an amount equal to fifty percent of the Employee's Base Salary on the termination date and the Employee shall not be entitled to receive any other compensation or benefits hereunder, except with respect to accrued vacation. The Employee acknowledges and agrees that the provisions of this paragraph 4 state her entire and exclusive rights, entitlements, and remedies against the Company, its successors, assigns, affiliates, 3 4 officers, directors, employees and representatives for termination without any cause shown by the Company. (e) The Employee may terminate her employment for good cause or without any cause. In the event the Employee terminates her employment for "good cause" (as defined below), she shall be entitled to receive the severance benefits described in subparagraph 4(d) above. If she terminates her employment for any other reason, she shall not be entitled to receive any compensation except for payment within ten days after her termination date of all accrued but unpaid Base Salary. For purposes of this Agreement, "good cause" for termination of employment by the Employee shall mean failure to maintain the Employee in the position of an officer of the Company or a material breach of the provisions of this Agreement by the Company. The Employee acknowledges and agrees that the provisions of this subparagraph 4(e) state her entire and exclusive rights and remedies under this Agreement against the Company, its successors, assigns, affiliates, officers, directors, employees and representatives if she terminates this Agreement. 5. Assignment of Rights and Duties. Neither the Employee nor the Company may assign their rights or duties under this Agreement without prior written consent of both parties, which consent may be withheld for any reason. Any attempted assignment, transfer, conveyance, or other disposition of any interest of either party in this Agreement shall be void. Notwithstanding the foregoing, the Company may make such assignment to any affiliated company, but its assignment of this Agreement to an affiliate does not relieve it of its obligations under this Agreement if that affiliate fails to perform the Company's obligations under this Agreement. In the event of the sale of all or substantially all of the assets of the Company or other transaction in which the Company will not continue as a surviving corporate entity engaged in a substantially similar business as it is engaged in prior to such transaction, the Company will use commercially reasonable efforts to obtain from the acquiring person or entity, before the succession takes place, an agreement to assume and perform all of the terms and conditions of this Agreement. 6. Confidential Information and Nonsolicitation. (a) The Employee acknowledges and agrees that the Company has developed and uses certain proprietary and confidential information, data, processes, business methods, computer software, data bases, customer lists and know-how ("Confidential Information"). The Employee agrees that the Confidential Information is a trade secret of the Company which shall remain the sole property of the Company notwithstanding that the Employee, as an employee of the Company, may participate in the development of the Confidential Information. During the term of this Agreement and at all times thereafter the Employee shall not disclose any Confidential Information to any person or entity for any reason or purpose whatsoever, nor shall the Employee make use of any Confidential Information for the Employee's own benefit or for the benefit of any other person or entity. Upon termination of this Agreement for any reason, the Employee will promptly surrender to the Company all Confidential Information in the Employee's possession or under the Employee's control, whether prepared by the Employee or by others. 4 5 7. Miscellaneous. 7.1 Modification and Waiver of Breach. No waiver or modification of this Agreement or any term hereof shall be binding unless it is in writing signed by the parties hereto. No failure to insist upon compliance with any term, provision or condition to this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement. 7.2 Notices. All notices, requests, demands and other communications under this Agreement must be in writing and shall be deemed given upon personal delivery, facsimile transmission (with confirmation of receipt), delivery by a reputable overnight courier service or five (5) days following deposit in the United States mail (if sent by certified or registered mail, postage prepaid, return receipt requested), in each case duly addressed to the party to whom such notice or communication is to be given as follows: To the Company: Diedrich Coffee, Inc. 2144 Michelson Drive Irvine, California 92612 Attention: Chairman of the Board Telecopy Number: (714) 260-1610 To the Employee: Ann Wride 516 13th St Huntington Beach CA 92648 Any party may change its address for the purpose of this subparagraph 7.2 by giving the other party written notice of the new address in the manner set forth above. 7.3. Enforceability. If any of the covenants contained in this Agreement, for any reason and to any extent, are construed to be invalid or unenforceable, the remainder of this Agreement, and the application of the remaining covenants to other persons or circumstances shall not be affected hereby, but rather shall be enforced to the greatest extent permitted by law. 7.4. Entire Agreement. This Agreement contains the entire agreement between the Company and the Employee with respect to the subject matters hereof and supersedes all prior or contemporaneous agreements, arrangements or understandings, written or oral, with respect to the subject matters hereof. 7.5. Legal Fees; Arbitration. The parties hereto expressly agree that in the event of any dispute, controversy or claim by any party regarding this Agreement, the prevailing party shall be entitled to reimbursement by the other party to the proceeding of reasonable attorney's fees, expenses and costs incurred by the prevailing party. Any controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement or otherwise arising out of the execution hereof, including any claim based on contract, tort or statute, shall be resolved, at the request of any party, by submission to 5 6 binding arbitration at the Orange County, California offices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"), and any judgment or award rendered by JAMS shall be final, binding and unappealable, and judgment may be entered by any state or federal court having jurisdiction thereof. Any party can initiate arbitration by sending written notice of intention to arbitrate (the "Demand") by registered or certified mail to all parties and to JAMS. The Demand shall contain a description of the dispute, the amount involved, and the remedy sought. The arbitrator shall be a retired or former judge agreed to between the parties from the JAMS' panel. If the parties are unable to agree, JAMS shall provide a list of three available judges and each party may strike one. The remaining judge shall serve as the arbitrator. Each party hereto intends that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable. In her award, the arbitrator shall allocate, in her discretion, among the parties to the arbitration all costs of the arbitration, including the fees of the arbitrator and reasonable attorneys' fees, costs and expert witness expenses of the parties. The parties hereto agree to comply with any award made in any such arbitration proceedings that has become final and agree to the entry of a judgment in any jurisdiction upon any award rendered in such proceeding becoming final. 7.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 7.7. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "THE COMPANY" DIEDRICH COFFEE, INC., a California corporation By:________________________________________ Tim J. Ryan President & CEO "THE EMPLOYEE" ________________________________________ ANN WRIDE 6 EX-10.41 3 INDEMNIFICATION AGREEMENT - ANN WRIDE 1 EXHIBIT 10.41 INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of this 8th day of April 1998 by and between Diedrich Coffee, Inc., a Delaware corporation (the "Company") and Ann Wride ("Indemnitee"), with reference to the following: RECITALS A. The Indemnitee is currently serving as an Officer of the Company and the Company wishes the Indemnitee to continue in such capacity. The Indemnitee is willing, under certain circumstances, to continue in such capacity. B. The Indemnitee has indicated her concern that the indemnities available under the Company's bylaws and available insurance, if any, may not be adequate to protect her against the risks associated with her service to the Company. The Indemnitee may not be willing to continue in office in the absence of the benefits accorded to Indemnitee under this Agreement. AGREEMENT In order to induce the Indemnitee to join the company and to serve as an Officer for the Company and in consideration for her continued service, the Company hereby agrees to indemnify the Indemnitee as follows: 1. The Company shall indemnify, and advance expenses to, Indemnitee as provided in this Agreement and to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. The indemnification and advancement of expenses contemplated by this Agreement are intended to be provided in accordance with the terms and conditions of this Agreement regardless of whether any of the events underlying the indemnified claims or actions or advanced expenses occurred before or after the date of this Agreement. The rights of Indemnitee under this Agreement shall survive termination of her status as a director, officer, employee or agent of the Company. 2. Indemnitee shall be entitled to the rights of indemnification provided in this Section 2 if, by reason of the fact that she is or was a director, officer, employee or agent of the Company, she is, or is threatened to be made, a party to any threatened, pending, or completed action, suit or proceeding, other than an action by or in the right of the Company. Pursuant to this Section 2, Indemnitee shall be indemnified against expenses (including attorneys' fees), judgments, damages, penalties, fines and amounts paid in settlement actually and reasonably incurred by her or on her behalf in connection with such proceeding or any claim, issue or matter therein, if she acted in good faith and in a manner she reasonably believed to be in or not opposed to the best 2 interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe her conduct was unlawful. 3. Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of the fact that she is or was a director, officer, employee or agent of the Company, she is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by her or on her behalf in connection with the defense or settlement of such action, suit or proceeding if she acted in good faith and in a manner she reasonably believed to be in or not opposed to the best interests of the Company. Notwithstanding the foregoing, no indemnification against such expenses shall be made in respect of any claim, issue or matter in such proceeding as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of his duty to the Company if applicable law prohibits such indemnification; provided, however, that, if applicable law so permits, indemnification against expenses shall nevertheless be made by the Company in such event if and only to the extent that the court in which such proceeding shall have been brought or is pending, shall determine. 4. Any indemnification under Sections 2 and 3 of this Agreement, unless ordered by a court, shall be made by the corporation only as authorized by the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 2 and 3 of this Agreement. Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel, in a written opinion, or (3) by the stockholders. 5. If the Company does not respond to a written claim for payment under this Agreement within sixty (60) days of having received a claim under this Agreement, it shall be deemed to have waived any right to refuse to pay such claim under this Agreement. If a claim under this Agreement is not paid by the Company, or on its behalf, within ninety (90) days after a written claim has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. 6. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. Page 2 of 5 3 7. Notwithstanding anything to the contrary herein, the Company shall not be liable under this Agreement to make any payment in connection with any claim made against the Indemnitee: (a) for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; (b) for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement; (c) based upon or attributable to the Indemnitee or any member of his immediate family gaining in fact any personal profit or advantage to which he was not legally entitled; (d) for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law; or (e) brought about or contributed to by the dishonesty of the Indemnitee seeking payment hereunder; however, notwithstanding the foregoing, the Indemnitee shall be protected under this Agreement as to any claims upon which suit may be brought against her by reason of any alleged dishonesty on his part, unless a judgment or other final adjudication thereof adverse to the Indemnitee shall establish that he committed (i) acts of active and deliberate dishonesty or (ii) acts with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated. 8. No costs, charges or expenses for which indemnity shall be sought hereunder shall be incurred without the Company's consent, which consent shall not be unreasonably withheld. 9. The Indemnitee, as a condition precedent to his right to be indemnified under this Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against her for which indemnity will or could be sought under this Agreement. Notice to the Company shall be directed to Diedrich Coffee, Inc., 2144 Michelson Drive, Irvine, CA 92612, Attention: Corporate Secretary (or such other addresses as the Company shall designate in writing to the Indemnitee); notice shall be deemed received if sent by prepaid mail properly addressed, the date of such notice being the date postmarked. In addition, the Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within the Indemnitee's power. 10. Costs and expenses (including attorneys' fees) incurred by the Indemnitee in defending or investigating any action, suit, proceeding or investigation Page 3 of 5 4 shall be paid by the Company in advance of the final disposition of such matter, if the Indemnitee shall undertake in writing to repay any such advances in the event that it is ultimately determined that the Indemnitee is not entitled to indemnification under the terms of this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, no advance shall be made by the Company if a determination is reasonably promptly made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion that, based upon the facts known to the board or counsel at the time such determination is made, (a) the Indemnitee acted in bad faith or deliberately breached her duty to the Company or its stockholders, and (b) as a result of such actions by the Indemnitee, it is more likely than not that it will ultimately be determined that the Indemnitee is not entitled to indemnification under the terms of this Agreement. 11. Nothing herein shall be deemed to diminish or otherwise restrict the Indemnitee's right to indemnification under any provision of the certificate of incorporation or bylaws of the Company or under Delaware law. 12. This Agreement shall be governed by and construed in accordance with Delaware law, but without reference to the conflicts of law's principles of that jurisdiction. 13. This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any successor by merger or operation or law) and shall inure to the benefit of the heirs, personal representatives and estates of Indemnitee. 14. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent of the parties that the Company provide protection to Indemnitee to the fullest enforceable extent. Page 4 of 5 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first above written. DIEDRICH COFFEE, INC. 2144 Michelson Drive Irvine, CA 92612 ----------------------------------------- Timothy J. Ryan - Chief Executive Officer AGREED TO AND ACCEPTED: INDEMNITEE Signed:_____________________________ Name:_______________________________ ____________________________________ ____________________________________ (address) Page 5 of 5 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIEDRICH COFFEE, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED AND AS OF APRIL 29, 1998 CONTAINED IN THE COMPANY'S 1ST QUARTER 1999 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JAN-27-1999 JAN-29-1998 APR-29-1998 1,913,609 0 197,658 0 1,201,472 3,516,505 13,676,407 4,082,205 13,720,643 3,324,604 0 0 0 59,417 0 13,720,643 5,923,361 5,923,361 2,682,665 2,682,665 3,889,757 0 97,273 (744,825) 800 (745,825) 0 0 0 (745,825) (0.13) (0.13)
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