-----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, PFgjaC7wjWXo3Cqh/oTy8YoPAsV7v5wOBZgBni4/XmwHCCq2awbttyY48irXce0X KzjcoJkDfLk2HpKDUULveQ== 0000892569-98-002239.txt : 19980813 0000892569-98-002239.hdr.sgml : 19980813 ACCESSION NUMBER: 0000892569-98-002239 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980812 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: S-3 SEC ACT: SEC FILE NUMBER: 333-61269 FILM NUMBER: 98683855 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 S-3 1 FORM S-3 AS FILED ON AUGUST 12, 1998 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1998 REGISTRATION NO. 333-__________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------- DIEDRICH COFFEE, INC. (Exact name of Registrant as specified in its charter) DELAWARE 33-0086628 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ------------------------- 2144 MICHELSON DRIVE IRVINE, CALIFORNIA 92612 (949) 260-1600 (Address, including zip code, and telephone number, including area code, of Registrant's Principal Executive Offices) ------------------------- ANN WRIDE, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER DIEDRICH COFFEE, INC. 2144 MICHELSON DRIVE IRVINE, CALIFORNIA 92612 (949) 260-1600 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------- COPY TO: JONATHAN B. EDDISON, ESQ. JOHN M. WILLIAMS, ESQ. GIBSON, DUNN & CRUTCHER LLP 4 PARK PLAZA IRVINE, CALIFORNIA 92614 (949) 451-3800 ------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
================================================================================================= PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH AMOUNT OFFERING AGGREGATE AMOUNT OF CLASS OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) FEE - ------------------------------------------------------------------------------------------------- COMMON STOCK, $0.01 PAR VALUE 1,499,183 $6.125 $9,182,496 $2,709 =================================================================================================
(1) Pursuant to Rule 416 under the Securities Act, such number of shares of Common Stock registered hereby shall include an indeterminate number of shares of Common Stock that may be issued in connection with a stock split, stock dividend, recapitalization or similar event. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act based upon the average of the high and low prices for the Common Stock on August 10, 1998, on the Nasdaq National Market. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ 2 SUBJECT TO COMPLETION, DATED AUGUST 11, 1998 PROSPECTUS 1,499,183 SHARES [LOGO] DIEDRICH COFFEE, INC. COMMON STOCK This Prospectus relates to an offering (the "Offering") of up to 1,499,183 shares of Common Stock (the "Common Stock") of Diedrich Coffee, Inc. (the "Company"). The Offering consists of the periodic sale by certain selling security holders (the "Selling Security Holders") of up to 200,000 shares of Common Stock (the "Resale Shares") which were previously issued in a private placement transaction not involving a public offering, up to 1,095,000 shares of Common Stock (the "Warrant Shares") issuable upon exercise of outstanding warrants which were previously issued in private placement transactions not involving a public offering, and up to 204,183 shares of Common Stock (the "Option Shares") issuable upon exercise of outstanding options which were previously issued in transactions not involving a public offering. The Company's Common Stock trades on the Nasdaq National Market under the symbol "DDRX". On August 10, 1998 the last reported sale price of the Common Stock was $5.875. The Company will not receive any portion of the proceeds from the sale of the Common Stock offered by this Prospectus. The Selling Security Holders will receive all the net proceeds from the sale of the Common Stock and pay all selling commissions, if any, applicable to any sale. The Company is responsible for payment of all other expenses incident to the offer and sale of the Common Stock. The Selling Security Holders may sell Common Stock from time to time directly to purchasers or through agents, underwriters or dealers. Such sales may occur in one or more transactions on the Nasdaq National Market, in negotiated transactions, in private transactions, or otherwise, or in a combination of such methods of sale. Such sales may occur at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. See "Plan of Distribution." The Common Stock is quoted on the Nasdaq National Market under the symbol "DDRX." THE SECURITIES BEING SOLD BY THIS PROSPECTUS ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. THE COMPANY HAS EXPERIENCED LOSSES FOR THE PAST TWO YEARS. SEE "RISK FACTORS" COMMENCING ON PAGE 3 OF THIS PROSPECTUS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is August 11, 1998 3 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, New York, New York 10048. Copies of such material can be obtained at prescribed rates upon request from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a web site that contains reports, proxy and information statements and other information filed electronically with the Commission at http://www.sec.gov. The Company has filed with the Commission a Registration Statement on Form S-3 (including all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain portions of which are omitted as permitted by the rules and regulations of the Commission. Such additional information may be obtained from the Commission's principal office in Washington, D.C. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein or therein are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement or such other document. A copy of the Registration Statement and the exhibits and schedules thereto may be examined without charge at the Commission's principal offices at 450 Fifth Street N.W., Room 1024, Washington, D.C. 20549, and copies of such materials can be obtained from the Public Reference Room of the Commission at prescribed rates. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed by the Company under the Exchange Act with the Commission are hereby incorporated herein by reference: (i) Annual Report on Form 10-K for the fiscal year ended January 28, 1998; (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 1998, filed on June 11, 1998; and (iii) the description of Common Stock contained in the Company's registration statement filed pursuant to the Exchange Act, and any amendment or report filed for the purpose of updating such description. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Common Stock shall be deemed to be incorporated in this Prospectus by reference and to be a part hereof from the date of filing of such documents. Any statement contained herein, in a Prospectus Supplement or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, in a Prospectus Supplement or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this Prospectus by reference other than exhibits to such documents, unless such exhibits are also specifically incorporated by reference herein. Requests for such copies should be directed to Diedrich Coffee, Inc., 2144 Michelson Drive, Irvine, California 92612. Attention: Chief Financial Officer, telephone number (949) 260-1600. 2 4 FORWARD-LOOKING STATEMENTS This Prospectus contains or incorporates by reference forward-looking statements, within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. These statements appear in a number of places in this Prospectus and include statements regarding the intentions, plans, strategies, beliefs or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the financial prospects of the Company; (ii) the Company's financing plans; (iii) trends affecting the Company's financial condition or operating results; (iv) the Company's strategies for growth, operations, and product development and franchise area development; and (v) conditions or trends in or factors affecting the coffee industry. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. The information contained in this Prospectus or incorporated herein by reference, including without limitation, the information set forth under the heading "Risk Factors" herein, and under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's filings under the Exchange Act, identifies important factors that could cause such differences, including without limitation, the Company's strategic commitment to growth through franchise area development, the need for continued improvements in operations and management and the highly competitive nature of the premium coffee industry. RISK FACTORS Prospective investors should consider carefully the factors set forth below together with the other information contained in this Prospectus before making a decision to purchase the Common Stock. LIMITED OPERATING HISTORY; HISTORY OF OPERATIONS. As of April 29, 1998, Diedrich Coffee, Inc. ("Diedrich Coffee" or the "Company") operated thirty-six coffeehouses, only eight of which had been open more than three years. The Company had a net loss of $745,625 in the first quarter of fiscal 1999; a net loss of $9,113,000 in fiscal 1998; a net loss of $986,000 in fiscal 1997; net income of $186,000 and $324,000 in fiscal 1996 and 1995, respectively, and a net loss of $89,000 in fiscal 1994. The Company went through a restructuring in fiscal 1998 and significant changes in executive, middle and coffeehouse management. The past successes of the new executive team members will not necessarily lead to similar results at the Company. Although the Company believes it is positioned for growth in fiscal 1999 there can be no assurances that the Company will meet that objective. PRIOR GROWTH STRATEGY; RAPID EXPANSION AND LOSSES. From the end of fiscal 1992 through fiscal 1997, the Company expanded the number of its coffeehouses from three to forty-seven (now thirty-six) while incurring accumulated losses. The Company pursued an aggressive growth strategy in fiscal years 1997 and 1998 that was not successful for a number of reasons. Some locations acquired were not suitable for Diedrich Coffee coffeehouses. Company management and infrastructure did not keep pace with the growth, leading to inefficiencies and losses. Commencing in March 1997, the Company's interim management developed a strategy based upon focus on core markets, and building other channels of distribution, including but not limited to, new wholesale categories such as chain restaurants and office coffee service. The Company did not succeed in its objective of returning to positive cash flow by the first period of fiscal 1999 due in part to the one-time costs associated with the addition of a new permanent management team and related changes to its strategy. Even if the Company is successful in returning to profitability, there can be no assurances as to how long this will take or of the future profits that can be achieved. SITE SELECTION. The most important variable in the success of a new coffeehouse is its location. A poor location will prevent a coffeehouse from achieving the sales and earnings the Company expects from every coffeehouse. New management intends to make site selection systematic and comparatively objective, but there can be no assurances that this project will be successful or yield consistent results. A new site selection model developed by the Company for its use will also be made available to franchise area developers. 3 5 FRANCHISING. Franchise area development involves a number of risks, including the diversion of management's attention and resources. The Company has no prior experience in franchising, although several executives and managers have substantial franchisor experience in other companies. NEED FOR CONTINUED IMPROVEMENTS IN OPERATIONS AND MANAGEMENT. The Company's new strategy presents numerous operational and competitive challenges to the Company's senior management and employees as a prototype store design is selected, operations are improved, potential sites are evaluated, developed and operated for Company-owned locations and in selecting the right franchise area developers. The Company's results of operations will be adversely affected if revenues do not increase sufficiently to compensate for the increase in operating expenses attributable to new management and new programs. There can be no assurances that any growth will be profitable or that it will not adversely affect the Company's results of operations. In addition, the success of the Company's new plan depends in part upon the Company's ability to: (1) continue to improve and expand its management and financial control systems, (2) attract, retain and motivate key employees and (3) raise additional capital. There can be no assurances that the Company will be successful in these regards. Successful execution of the Company's new plan depends in part upon its ability to: (1) compete successfully in new markets; (2) obtain (or have its franchise area developers obtain) suitable sites at acceptable costs in highly competitive real estate markets; (3) hire, train and retain qualified personnel; (4) integrate franchised locations into new as well as existing product distribution, improve inventory control, marketing and information systems; (5) expand roasting capacity and upgrade packaging capabilities to enable freshly roasted coffee deliveries wherever needed; and (6) impose and maintain strict quality control from "green" or unroasted coffee acquisition to the fresh cup of perfectly brewed coffee in a customer's hand. There can be no assurances that the Company will achieve its planned expansion goals, manage its growth effectively or operate its existing and new coffeehouses profitably. The failure of the Company to manage its growth effectively or operate existing or any new coffeehouses profitably would have a material adverse effect on the Company's financial condition and results of operations. NEED FOR ADDITIONAL FINANCING. In order to achieve and maintain the Company's anticipated growth and the expansion of its wholesale business in fiscal 1999, including new coffeehouse construction and franchising, the Company will need to incur debt or issue additional equity securities in public or private financing. There can be no assurances that any such additional financing will be available on terms satisfactory to the Company. FLUCTUATIONS IN AVAILABILITY AND COST OF UNROASTED COFFEE. The Company depends upon both its outside brokers and its direct contacts with exporters and growers in countries of origin for the supply of its green coffee. Coffee supply and price are subject to significant volatility beyond the control or influence of the Company. During fiscal 1998 worldwide coffee commodity prices were at high levels. Although prices have since come down, worldwide demand for high quality coffee remains strong. In fiscal 1998, the Company mitigated the effect of green coffee price increases through moderate price increases in the wholesale and retail sales prices of its roasted coffee beans, as well as for its brewed coffee and espresso drinks and related products. Demand for the Company's coffee was not adversely affected by these price increases. Although most coffee trades in the commodity market, coffee of the quality sought by the Company tends to trade on a negotiated basis at a substantial premium above commodity coffee pricing, depending upon the origin, supply and demand at the time of purchase. Supply and price can be affected by multiple factors in the producing countries, including weather and political and economic conditions. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations, such as the International Coffee Organization or the Association of Coffee Producing Countries, that have historically attempted to establish commodity price controls of green coffee through agreements establishing export quotas or restricting coffee supplies worldwide. No assurance can be given that these organizations (or others) will not succeed in raising green coffee prices or that, in such events, the Company will be able or choose to maintain its gross margins by raising prices without affecting demand. Increases in the price of green coffee, or the unavailability of adequate supplies of green coffee of the quality sought by the Company whether due to the failure of its suppliers to perform, conditions in the coffee-producing countries, or otherwise - could have a material adverse effect on the Company's results of operations. 4 6 To mitigate the risks associated with increases in coffee prices and to provide greater predictability in the prices the Company pays for its coffee, the Company has from time to time, depending upon market volatility, entered into fixed-price purchase commitments for a portion of its green coffee requirements. At April 29, 1998 these commitments totaled $987,000. There can be no assurances that these activities will significantly protect the Company against the risks of increase in coffee prices or that they will not result in the Company having to pay substantially more for its supply of coffee than would have been required absent such activities. COMPETITION. The market for prepared specialty coffee beverages is fragmented and highly competitive. Competition is expected to increase substantially. The Company's coffee beverages compete directly against all restaurant and beverage outlets that serve coffee as well as a growing number of espresso stands, carts and stores. The Company's whole bean coffees compete directly against specialty coffee sold at retail through supermarkets and a growing number of specialty coffee stores. The coffee industry is currently dominated by several large companies, such as Kraft Foods, Inc., Proctor & Gamble Co. and Nestle S.A., many of which have begun aggressively marketing gourmet coffee products. While the market for specialty gourmet coffee stores remains fragmented, the Company competes directly with Starbucks Corporation, the largest U.S. specialty coffee retailer and numerous other regional coffee bar and coffeehouse chains. Starbucks Corporation has substantially greater financial, marketing and other resources than the Company and has operations in the markets in which the Company currently operates or intends to expand. One of the main areas of competition in the specialty coffee retail store marketplace is in the procurement of prime retail store premises. The Company competes against other specialty retailers and restaurants for store sites, and there can be no assurance that management will be able to secure adequate, additional sites at acceptable costs. GEOGRAPHIC CONCENTRATION; FLUCTUATIONS IN REGIONAL ECONOMIC CONDITIONS. The Company's coffeehouses are currently located in Southern California, Colorado and Texas. As a result, the Company's success will also depend in large part upon factors affecting general economic conditions and discretionary consumer spending in these regions. Any economic downturn or reduction in consumer spending in those regions could have a material adverse effect on the Company. SEASONALITY. The Company's business is subject to seasonal fluctuations as well as general trends and fluctuations that affect retail restaurants and retailers in general. Hot weather tends to depress sales of hot coffee and espresso drinks, especially unseasonably warm weather in any season. The Company has developed and promoted new iced blended coffee and espresso drinks for warm weather to counterbalance this effect, but there can be no assurances that such products will be successful. LACK OF DIVERSIFICATION. The Company's business is primarily centered around one product: fresh custom roasted premium coffee. To date, the Company's operations have been limited to the purchase and roasting of green coffee beans and the sale of whole bean coffee and coffee beverages and espresso drinks, together with other food products, through its coffeehouses and its wholesale and mail order businesses. Any decrease in demand for coffee and related products would have a material adverse effect on the Company's business, operating results and financial condition. LEASES; UNCERTAINTY OF RENEWAL TERMS. The Company's thirty-six operating coffeehouses are all on leased premises. Upon the expiration of certain of these leases, there is no automatic renewal or option to renew. No assurances can be given that these leases can be renewed or, if renewed, that rents will not increase substantially, either of which could adversely affect the Company. Other leases are subject to renewal at fair market value, which could involve substantial rent increases, or are subject to renewal with scheduled rent increases, which could result in rents being above fair market value. EFFECTS OF COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company is subject to various federal, state and local laws, rules and regulations affecting its business and operations. Each Diedrich coffeehouse and roasting facility is and will be subject to licensing and reporting requirements by numerous governmental authorities which 5 7 may include the building, land use, environmental protection, health, safety and fire agencies of the state or municipality in which each is located. Difficulties in obtaining or failure to obtain the necessary licenses or approvals could delay or prevent the development or operation of a given coffeehouse, or limit the products available in a coffeehouse. Any problems that the Company may encounter in renewing such licenses in one jurisdiction, may adversely affect its licensing status on a federal, state or municipal level in other relevant jurisdictions. RELIANCE ON KEY EXISTING AND FUTURE PERSONNEL. The Company's success will depend to a large degree upon the efforts and abilities of its officers and key management employees, particularly John E. Martin, (Chairman of the Board), Martin Diedrich (Chief Coffee Officer), and Timothy J. Ryan (President and Chief Executive Officer). The loss of the services of one or more of its key employees could have a material adverse effect on the Company's business prospects and potential earnings capacity. The Company has entered into employment agreements with Messrs. Martin, Diedrich and Ryan, which include, among other things, provisions restricting them from competing with the Company during the terms of their respective agreements. As discussed elsewhere in this prospectus, Mr. Martin invested $1 million in the Company through a private placement in January 1998 and Mr. Ryan invested $50,000. Messrs. Martin and Ryan have significant stock options to purchase Company stock pursuant to stock option agreements. The Company maintains and is sole beneficiary of key person life insurance in the amount of $10,000,000 on the life of Mr. Diedrich. The Company will need to continue to recruit and retain additional key senior managers to manage anticipated growth, but there can be no assurance that the Company will be able to recruit or retain additional members of senior management on terms suitable to the Company. YEAR 2000. The Year 2000 problem is the result of computer programs using two digits to define the applicable year. Computer programs with date-sensitive software could recognize a year indicator of "00" as the year 1900 instead of the year 2000. This could result in miscalculations or program failures. The potential impact of such miscalculations or program failures cannot be quantified at this time. The Company is addressing the Year 2000 problem as part of a comprehensive enterprise architecture review and upgrade of its data processing hardware and software. Systems and programs purchased, replaced or developed under this program will, in addition to being Year 2000 compliant, provide significantly enhanced performance which will benefit the Company in future years. The Company does not expect the Year 2000 issue to materially affect the total cost of this project. THE COMPANY Diedrich Coffee is a specialty coffee roaster, wholesaler, retailer and franchisor that currently operates thirty-six retail coffeehouses and seven coffee carts and services approximately 300 wholesale accounts. The retail units are located in Southern California, Colorado and Texas. Wholesale accounts are primarily located in Southern California. Diedrich Coffee sells premium quality coffee beverages made from its own freshly roasted select coffee beans. In addition to brewed coffee, the Company offers a broad range of Italian-style beverages such as espresso, cappuccino, cafe latte, cafe mocha and espresso machiato. To complement beverage sales, the Company sells light food items, whole been coffee and accessories through its coffeehouses. The Company's objective is to be the leading national chain of neighborhood coffeehouses. The Company seeks to differentiate itself and build brand name recognition by selling and serving the finest coffee and espresso drinks, selling only fresh custom roasted coffee beans and by developing and operating attractive coffeehouses intended, in most cases, to serve as neighborhood gathering places. Diedrich Coffee stresses the quality of its products through experienced sourcing of the green beans and its proprietary roasting methods. The Company believes that this strategy, together with enthusiastic and friendly customer service, creates a loyal customer base. Diedrich coffeehouses are generally established in high-visibility locations, consistent with the Company's strategy of developing a substantial repeat customer base. The Company's coffeehouses average approximately 1,300 square feet, ranging in size from 725 to 2,654 square feet. On March 12, 1997, the Company announced that it was reviewing the performance of all of the Company's coffeehouses to determine which units were not meeting management's long-term operational expectations. At that time, five coffeehouses had been identified on a preliminary basis for possible closure 6 8 in the first quarter of fiscal 1998. Subsequently, as announced by the Company on April 29, 1997, seven additional coffeehouses were targeted for closure during fiscal 1998. In connection with the planned coffeehouse closures, the Company recorded an impairment provision and a restructuring charge totaling approximately $4.6 million in the first quarter of fiscal 1998. The coffeehouse closures, which were undertaken to streamline operations and improve profitability, began in late March 1997. Eleven of the original twelve coffeehouses identified for closure were closed in fiscal 1998, with leases terminated in most cases. In January, management reviewed the progress of all retail operations and decided that one of the twelve coffeehouses originally designated for closure would remain open. At year-end most of the lease terminations provided for in the restructuring had been completed at less cost than originally anticipated. As a result of these two factors, management determined that the remaining restructuring reserve of $885,000 could be reduced by $648,000 to $237,000. As of April 29, 1998, the Company had incurred charges under its impairment provision and restructuring reserve totaling $3,821,000 of which $1,101,000 were cash and $2,720,000 were non-cash. The current period working capital includes remaining restructuring liabilities of $159,000. 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 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. 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. The new executive team prepared a revised strategic plan for fiscal 1999 and beyond. That plan focuses on positioning Diedrich Coffee coffeehouses as the consumer's place of choice to get the best coffee and enjoy it in attractive coffeehouse surroundings. The Company plans to expand nationally through franchise area development agreements with large multi-unit franchise operators. The Company will concentrate on expansion in its core market area in Southern California and hopes to enter into some franchise area development agreements in the second half of fiscal 1999. In the first two quarters of fiscal 1999 management's emphasis was on: (1) improving operations and customer service through new training programs and new hires; (2) developing new coffee and espresso drinks; (3) executing a new marketing plan; (4) developing and optimizing a prototype coffeehouse design; (5) expanding its wholesale activities; and (6) optimizing its product sourcing. The Company was reincorporated in Delaware in September 1996. Its offices are located at 2144 Michelson Drive, Irvine, California 92612 and its telephone number is (949) 260-1600. USE OF PROCEEDS The Company will not receive any portion of the proceeds of the sale of the Common Stock by the Selling Security Holders. In the event that warrants or options to purchase Common Stock are exercised, the Company may receive proceeds from such exercise. The Company will not receive any proceeds from the exercise of warrants or options to the extent that such exercise is pursuant to the "cashless exercise" provisions of such options and/or warrants, as the case may be, although dilution to stockholders will be reduced to the extent the Company issues fewer shares pursuant to such "cashless exercise" provisions. The Company intends to use the proceeds received from the exercise of the warrants and options, if any, for general corporate purposes. 7 9 RESALES OF SHARES COVERED BY THIS PROSPECTUS This Prospectus covers the resale by the Selling Security Holders of an aggregate of 200,000 shares of Common Stock, 204,183 shares of Common Stock that may be acquired or have been acquired upon exercise of outstanding options (the "Options") and 1,095,000 shares of Common Stock that may be acquired or have been acquired upon exercise of outstanding warrants (the "Warrants") and does not cover the sale or other transfer of Options or Warrants or the issuance of shares to holders of Options or Warrants upon exercise. In the event a Selling Security Holder transfers such holder's Options or Warrants prior to exercise, the transferee of the Options or Warrants may not sell the shares issuable upon exercise of the Options or Warrants pursuant to this Registration Statement unless this Registration Statement is appropriately amended or supplemented by the Company. All of the Options and Warrants described below contain anti-dilution and adjustment provisions providing for adjustment of the underlying shares and/or the exercise price upon the occurrence of certain events, including recapitalizations, reclassifications, share dividends, share splits or combinations, mergers or acquisitions or similar transactions. In the event of liquidation, dissolution or winding up of the Company, holders of the Options or Warrants will not be entitled to receive any assets of the Company available for distribution to the holders of Common Stock. In the event of any reclassification, capital reorganization or other similar change of outstanding Common Stock, any consolidation or merger involving the Company (other than a consolidation or merger which does not result in any reclassification, capital reorganization or other similar change in the outstanding Common Stock) or a sale or conveyance to another corporation of all or substantially all of the property of the Company, each of the Options and Warrants described below will thereupon become exercisable for the kind and number of shares of stock or other securities, assets or cash to which a holder of the number of shares of Common Stock issuable (at the time of such reclassification, reorganization, consolidation, merger or sale) upon exercise of such Option or Warrant would have been entitled upon such reclassification, reorganization, consolidation, merger or sale. However, this Prospectus covers only Common Stock of the Company, and any other securities received upon exercise of the Options or Warrants are not offered hereby. For the life of the various Options and Warrants described below, the holders thereof have the opportunity to profit from a rise in the market price of the Common Stock without assuming the risk of ownership of the shares of Common Stock issuable upon the exercise of such Options and Warrants. The holders of the Options and Warrants may be expected to exercise at times when the exercise price is less than the market price for the Common Stock, with resulting dilution in the interests of the Company's stockholders. Further, the terms on which the Company could obtain additional capital during the life of the Options and Warrants may be adversely affected. Of the 1,499,183 shares of Common Stock registered hereby: (i) 79,183 shares of Common Stock are issuable upon exercise of options granted to Steven A. Lupinacci on June 25, 1995, (ii) 160,000 shares of Common Stock are issuable to The Boston Group and certain of its officers and affiliates upon exercise of warrants to purchase Common Stock, pursuant to the Representative's Warrant Agreement, dated as of September 17, 1996, by and between the Company and The Boston Group, (iii) 25,000 shares of Common Stock are issuable upon exercise of options granted to Gregg Rondinelli on January 14, 1998, (iv) 85,000 shares of Common Stock are issuable to Virginia R. Cirica Trust upon exercise of a Warrant issued by the Company, dated as of August 29, 1997, (v) 340,000 shares of Common Stock are issuable to Nuvrty, Inc. upon exercise of a Warrant issued by the Company, dated as of September 30, 1997, (vi) 255,000 shares of Common Stock are issuable to Grandview Trust upon exercise of a Warrant issued by the Company, dated as of October 16, 1997, (vii) 255,000 shares of Common Stock are issuable to Ocean Trust upon exercise of a Warrant issued by the Company, dated as of October 16, 1997, (viii) 200,000 shares of Common Stock were issued pursuant to the Common Stock and Option Purchase Agreement (the "FMAC Agreement"), dated as of April 3, 1998, by and between the Company and Franchise Mortgage Acceptance Company, and (ix) 100,000 shares are issuable upon exercise of options to purchase Common Stock pursuant to the FMAC Agreement. Each of the forgoing issuances was exempt from the registration requirements of the Securities Act and is described in detail below. 8 10 LUPINACCI OPTIONS In June 1995, Steven A. Lupinacci, the Company's then President, Chief Executive Officer and Chief Financial Officer, entered into a three-year employment agreement with the Company. The agreement provided for an annual base salary of $125,000 per year, subject to periodic adjustment by the Board of Directors. The Board of Directors could also grant Mr. Lupinacci performance bonuses based upon the Company's performance and Mr. Lupinacci's contributions thereto. Mr. Lupinacci was also entitled to receive employee benefits consistent with the Company's policies for other senior executives. Mr. Lupinacci resigned from the Company effective March 12, 1997. Pursuant to an agreement between the Company and Mr. Lupinacci dated May 13, 1997, which terminated his employment agreement, the Company paid Mr. Lupinacci $75,000 and agreed to pay him an additional amount of approximately $88,000 in the fiscal year ending January 27, 1999 in full satisfaction of the Company's obligations under Mr. Lupinacci's employment agreement. Also in June 1995, the Company entered into a stock option plan and agreement with Mr. Lupinacci. The expiration date of the agreement was June 29, 2005. The agreement provided for a maximum grant of options to purchase 131,350 shares of the Company's Common Stock at an exercise price of $1.45 per share upon the occurrence of certain events. As a result of the Company's initial public offering in September 1996, options to purchase 79,183 shares began to vest in twelve equal installments at the end of each month after the closing of the initial public offering. These options to purchase the 79,183 shares shall terminate on March 12, 1999. The remainder of the options granted under this agreement terminated on the effective date of Mr. Lupinacci's resignation from the Company. BOSTON GROUP WARRANT On September 17, 1996, the Company issued a warrant to purchase 160,000 shares of Common Stock at an exercise price of $13.80 per share and expiring on September 10, 1999 to the Boston Group, L.P. ("The Boston Group") pursuant to the Representative's Warrant Agreement dated as of September 17, 1996, by and between the Company and The Boston Group. The warrant was issued in connection with the initial public offering of the Company's Common Stock, in which The Boston Group was one of the representatives of the several underwriters. On December 10, 1997, the warrant's exercise price was changed to $5.25 and on March 20, 1998 its expiration date was changed to December 23, 1998. On May 21, 1998, pursuant to The Boston Group's request, the warrant was divided among The Boston Group and certain of its officers and affiliates as follows: Robert A. DiMinico - 92,181 shares; Anthony K. Soich - 25,000 shares; The Boston Group, L.P. - 1,025 shares; Kye Hellmers - 12,080 shares; Richard Rosenblum - 8,000 shares; Scott Mathis - 6,384 shares; Joseph Donohue - 6,140 shares; Michael Allocca - 1,025 shares; Clifford Mastricola - 1,025 shares; Kevin Scannell - 1,025 shares; Boston Partners Inc. - 995 shares and John Brady - 5,120 shares. RONDINELLI OPTIONS On January 14, 1998, the Company granted to Gregg Rondinelli, then acting as Manager of Strategic Planning of the Company, options to purchase 25,000 shares of Common Stock at an exercise price of $6.125 per share. Mr. Rondinelli's options were issued pursuant to the Company's 1996 Stock Incentive Plan. VIRGINIA R. CIRICA TRUST WARRANT 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, who was Chairman and Interim Chief Executive Officer of the Company at the time. 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 9 11 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. NUVRTY WARRANT 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. OCEAN TRUST AND GRANDVIEW TRUST WARRANTS 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. 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 Company's outstanding indebtedness to the Palm Trust. FRANCHISE MORTGAGE ACCEPTANCE COMPANY STOCK AND OPTIONS 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: (i) 50,000 shares at $10.00 per share; and (ii) 50,000 shares at $12.50 per share. John Martin, Chairman of the Board of the Company, serves as a member of the Board of Directors of FMAC. 10 12 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. If and when closed in the third quarter, management believes that this facility will provide sufficient working capital, along with other anticipated internal sources, for the balance of the fiscal year. PLAN OF DISTRIBUTION The Company has no specific information concerning whether or when any offers or sales of shares covered by this Prospectus will be made, or if made, what the price, terms or conditions of any such offers or sales will be. Based on information available to the Company, it is the Company's understanding that the Selling Security Holders may offer and sell the shares covered hereby in one or more transactions either: (i) by one or more broker-dealers (the "Brokers") as agents for the Selling Security Holders at a price or prices related to the then current market price of the Company's Common Stock on the Nasdaq National Market, with such commission to be paid by the Selling Security Holders to the Brokers as shall be agreed upon by them; or (ii) by the Selling Security Holders to the Brokers (for resale by the Brokers as principals) at a price or prices related to the then current market price of the Company's Common Stock, less such discount, if any, as shall be agreed upon by the Selling Security Holders and the Brokers; or (iii) directly, at prices and on terms to be determined at the time of sale; or (iv) by a combination of the methods described above. In effecting sales, broker-dealers engaged by the Selling Security Holders may arrange for other broker-dealers to participate in resales. Shares may also be offered or sold as described above by pledges, donees, transferees, or other successors in interest to the Selling Security Holders, subject to any appropriate amendment or supplement to this Prospectus by the Company. The Company will bear the expense of preparation and filing of the Registration Statement (of which this Prospectus is a part) and certain other expenses. Steven A. Lupinacci, a former officer, will pay a pro-rata share of the expenses. The aggregate of such expenses is estimated to be approximately $86,000. Commissions and discounts, if any, attributable to the sale of the shares will be borne by the Selling Security Holders. In connection with distributions of the shares or otherwise, the Selling Security Holders may enter into hedging transactions with broker-dealers. In connection with such transactions, broker-dealers may engage in short sales of the shares registered hereunder in the course of hedging the positions they assume with Selling Security Holders. The Selling Security Holders may also sell shares short and redeliver the shares to close out such short positions. The Selling Security Holders may also enter into option or other transactions with broker-dealers which require the delivery to the broker-dealer of the shares registered hereunder, which the broker-dealer may resell or otherwise transfer pursuant to this Prospectus. The Selling Security Holder may also loan or pledge the shares registered hereunder to a broker-dealer and the broker-dealer may sell the shares so loaned or upon a default the broker-dealer may effect sales of the pledged shares pursuant to this Prospectus. The Company has agreed to indemnify each Selling Security Holder and each of the Selling Security Holder's officers, directors and partners and any person who controls the Selling Security Holder against liabilities under the Securities Act, and to contribute to payments the Selling Security Holder and such persons may be required to make in respect thereof. The Selling Security Holders may agree to indemnify any broker-dealer or agent that participates in transactions involving sales of the shares against certain liabilities under the Securities Act. Broker-dealers or agents may receive compensation in the form of commissions, discounts, or concessions from Selling Security Holders in amounts to be negotiated in connection with the sale. Such broker-dealers and any other participating broker-dealers may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales and any such commission, discount or concession may be deemed to be underwriting discounts or commissions under the Securities Act. In addition, any securities covered by this Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus. The Selling Security Holders also may be considered "underwriters" within the meaning of the Securities Act. See "Selling Security Holders" for information concerning the beneficial ownership of Company securities by such Selling Security Holders. 11 13 SELLING SECURITY HOLDERS The following table sets forth as of June 30, 1998 certain information regarding the beneficial ownership of the Company's Common Stock by the Selling Security Holders. Except as indicated in "Resales of Shares Covered by This Prospectus" and in the footnotes to this table, the Selling Security Holders have not held any position or office or had a material relationship with the Company or any of its affiliates within the past three years. As of June 30, 1998 there were 5,941,650 shares of Common Stock outstanding. The number of shares beneficially owned is deemed to include shares of the Company's Common Stock as to which the beneficial owner has or shares either investment or voting power. Unless otherwise stated, and except for voting and investment powers held jointly with a person's spouse, the persons and entities named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. All information with respect to beneficial ownership is based on filings made by the respective beneficial owners with the U.S. Securities and Exchange Commission or information provided to the Company by such beneficial owners.
SHARES OF COMMON SHARES OF COMMON STOCK SHARES OF STOCK BENEFICIALLY BENEFICIALLY OWNED COMMON STOCK OWNED AFTER SELLING SECURITY HOLDER PRIOR TO OFFERING REGISTERED HEREBY OFFERING (1) - ----------------------- ---------------------- ----------------- ---------------------- NUMBER PERCENT NUMBER PERCENT Nuvrty, Inc. (5) 340,000 5.7% 340,000 (2) -- -- Steven A. Lupinacci (6) 309,061 5.2% 79,183 (4) 229,878 3.9% Franchise Mortgage 300,000 4.5% 300,000 (3) -- -- Acceptance Company(7) Grandview Trust 255,000 4.3% 255,000 (2) -- -- Ocean Trust 255,000 4.3% 255,000 (2) -- -- Gregg Rondinelli (8) 100,000 1.7% 25,000 (4) 75,000 1.3% Virginia R. Cirica Trust(9) 85,000 1.4% 85,000 (2) -- -- Robert A. DiMinico (10) 92,181 1.5% 81,181 (2) -- -- Anthony Soich (10) 25,000 * 25,000 (2) -- -- The Boston Group, L.P. (11) 1,025 * 17,145 (2) -- -- Kye Hellmers (10) 12,080 * 12,080 (2) -- -- Richard Rosenblum (10) 8,000 * 8,000 (2) -- -- Scott Mathis (10) 6,384 * 6,384 (2) -- -- Joseph Donahue (10) 6,140 * 6,140 (2) -- -- Michael Allocca (10) 1,025 * 1,025 (2) -- -- Clifford Mastricola (10) 1,025 * 1,025 (2) -- -- Kevin Scannell (10) 1,025 * 1,025 (2) -- -- Boston Partners Inc. (10) 995 * 995 (2) -- -- John Brady (10) 5,120 * 5,120 (2) -- -- - -----------------------------------------------------------------------------------------------------
* Less than one percent. (1) Assumes all of the shares of Common Stock held by the Selling Security Holders and registered hereby are sold. (2) Entire amount represents warrants to purchase Common Stock. (3) Includes options to purchase 100,000 shares of Common Stock. (4) Entire amount represents options to purchase Common Stock. (5) Amre A. Youness, a former director of the Company, is the sole shareholder of Nuvrty, Inc. Pursuant to Schedule 13D as filed with the SEC and dated as of October 15, 1997, Nuvrty, Inc. and Amre A. Youness have shared voting and dispositive power of the 340,000 shares that are subject to warrants exercisable within 60 days. (6) Steven A. Lupinacci is the former President, Chief Executive Officer and Chief Financial Officer of the Company. (7) John Martin, Chairman of the Board of the Company, serves as a member of the Board of Directors of FMAC. 12 14 (8) Gregg Rondinelli is the former Manager of Strategic Planning of the Company. (9) The Virginia R. Cirica Trust is controlled by Ms. Cirica, who is the spouse of Lawrence Goelman, a director of the Company. Mr. Goelman disclaims any beneficial interest in the Virginia R. Cirica Trust except to the extent to which Mr. Goelman is a contingent beneficiary under the terms of that Trust. (10) Each of Robert A. DiMinico, Anthony Soich, Kye Hellmers, Richard Rosenblum, Scott Mathis, Joseph Donahue, Michael Alocca, Clifford Mastricola, Kevin Scannell, John Brady and Boston Partners Inc. is an employee or affiliate of The Boston Group, L.P. (11) The Boston Group, L.P. was one of the representatives of the several underwriters in the initial public offering of the Company's common stock. LEGAL MATTERS Certain legal matters with respect to the legality of the Common Stock being offered hereby will be passed upon for the Company by Gibson, Dunn & Crutcher LLP. Jonathan B. Eddison, Esq., of counsel to Gibson, Dunn & Crutcher LLP, was General Counsel of the Company from June 1997 until February 1998. EXPERTS The financial statements of the Company as of and for the years ended January 28, 1998 and January 29, 1997, have been incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of the Company for the year ended January 31, 1996, have been incorporated by reference herein and in the registration statement in reliance upon the reports of BDO Seidman, LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. ------------------------ 13 15 ============================================== NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SECURITYHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE AS OF WHICH SUCH INFORMATION IS GIVEN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY BY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------ TABLE OF CONTENTS PAGE ---- Available Information..................... 2 Incorporation of Certain Documents by Reference................................. 2 Forward-Looking Statements................ 3 Risk Factors.............................. 3 The Company............................... 6 Use of Proceeds........................... 7 Resales of Shares Covered by this Prospectus ............................. 7 Plan of Distribution .................... 10 Selling Security Holders................. 12 Legal Matters............................ 13 Experts.................................. 13 ============================================== ============================================== 1,499,183 SHARES [LOGO] COMMON STOCK ----------------- PROSPECTUS ----------------- August 11, 1998 ============================================== 16 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with this offering to be borne by the Company are: SEC registration fee.............................. $ 2,709 Nasdaq fee........................................ 30,000 Printing expenses................................. 5,000 Legal fees and expenses........................... 40,000 Accounting fees and expenses...................... 6,000 Transfer agent fees............................... 1,000 Miscellaneous..................................... 1,000 -------- Total...................................... $ 85,709 ======== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 (a) of the General Corporation Law of the State of Delaware (the "DGCL") provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Section 145(b) of the DGCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he or she acted under similar standards to those set forth above, except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper. Section 145 of the DGCL further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsection (a) or (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against such officer or director and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liabilities under Section 145. As permitted by Section 102(b)(7) of the DGCL, the Company's Certificate of Incorporation provides that a director shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. However, such provision does not eliminate or limit the liability of a director for acts or omissions not II-1 17 in good faith or for breaching his or her duty of loyalty, engaging in intentional misconduct or knowingly violating the law, paying a dividend or approving a stock repurchase which was illegal, or obtaining an improper personal benefit. A provision of this type has no effect on the availability of equitable remedies, such as injunction or rescission, for breach of fiduciary duty. The Company's Bylaws require that directors and officers be indemnified to the maximum extent permitted by Delaware law. The Company may, from time to time, enter into indemnity agreements with each of its directors and officers requiring that the Company pay on behalf of each director and officer party thereto any amount that he or she is or becomes legally obligated to pay because of any claim or claims made against him or her because of any act or omission or neglect or breach of duty including any actual or alleged error or misstatement or misleading statement, which he or she commits or suffers while acting in his or her capacity as a director and/or officer of the Company and solely because of his or her being a director and/or officer. Under the DGCL, absent such an indemnity agreement, indemnification of a director or officer is discretionary rather than mandatory (except in the case of a proceeding in which a director or officer is successful on the merits). Consistent with the Company's Bylaw provision on the subject, the indemnity agreements require the Company to make prompt payment of defense and investigation costs and expenses at the request of the director or officer in advance of indemnification, provided that the recipient undertakes to repay the amounts if it is ultimately determined that he or she is not entitled to indemnification for such expense and provided further that such advances shall not be made if it is determined that the director or officer acted in bad faith or deliberately breached his or her duty to the Company or its stockholders and, as a result, it is more likely than not that it will ultimately be determined that he or she is not entitled to indemnification under the terms of the indemnity agreement. The indemnity agreements make the advance of litigation expenses mandatory absent a special determination to the contrary, whereas under the DGCL absent such an indemnity agreement, such advance would be discretionary. Under the indemnity agreement, the Company would not be required to pay or reimburse the director or officer for his or her expenses in seeking indemnification recovery against the Company. By the terms of the indemnity agreement, its benefits are not available if the director or officer has other indemnification or insurance coverage for the subject claim or, with respect to the matters giving rise to the claim: (i) received a personal benefit; (ii) violated Section 16(b) of the Exchange Act or analogous provisions of law; or (iii) committed certain acts of dishonesty. Absent the indemnity agreement, indemnification that might be made available to directors and officers could be changed by amendments to the Company's Certificate of Incorporation or Bylaws. The Company has a policy of directors' liability insurance which insures the directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. The Selling Security Holders and the Company each have agreed to indemnify the other and their respective officers, directors and other controlling persons against certain liabilities in connection with this registration, including liabilities under the Securities Act, and to contribute to payments such persons may be required to make in respect thereof. The obligation of the Selling Security Holders is limited to an amount equal to the proceeds such Selling Security Holder receives from the sale of shares of Common Stock pursuant to this registration. ITEM 16. EXHIBITS. 2.1 Form of Agreement and Plan of Merger (1) 4.1 Purchase Agreement for Series A Preferred Stock dated as of December 11, 1992 by and among Diedrich Coffee, Martin R. Diedrich, Donald M. Holly, SNV Enterprises and D.C.H., L.P. (1) 4.2 Purchase Agreement for Series B Preferred Stock dated as of June 29, 1995 by and among Diedrich Coffee, Martin R. Diedrich, Steven A. Lupinacci, Redwood Enterprises VII, L.P. and Diedrich Partners I, L.P. (1) 4.3 Representative's Warrant Agreement (1) II-2 18 EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.4 Specimen Stock Certificate (1) 4.5 Form of Conversions Agreement in connection with the conversion of Series A and Series B Preferred Stock into Common Stock (1) 4.6 Amendment No. 1 to Representative's Warrant Agreement 5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of the Common Stock 10.3 Stock Option Plan and Agreement of Steven A. Lupinacci, dated June 29, 1995 (1) 10.12 Separation Agreement, dated May 13, 1997, between Steven A. Lupinacci and the Company (5) 10.17 Form of Term Loan Agreement made to the Virginia R. Cirica Trust (3) 10.19 Form of Warrant Agreement made to the Virginia R. Cirica Trust (3) 10.28 Form of Term Loan Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview Trust (4) 10.30 Form of Warrant Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview Trust (4) 10.37 Common Stock and Option Purchase Agreement, dated as of April 3, 1998, by and between the Company and Franchise Mortgage Acceptance Company (2) 10.42 Letter Agreement, dated January 14, 1998, between the Company and Gregg Rondinelli 23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1) 23.2 Consent of BDO Seidman, LLP 23.3 Consent of KPMG Peat Marwick LLP 24.1 Power of Attorney (see signature page) - ------------------------- (1) Incorporated by reference 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. (2) Incorporated by reference to the Company's annual report on Form 10-K for the fiscal year ended January 28, 1998. (3) Incorporated by reference to Company's Quarterly Report on Form 10-Q, for the period ended July 30, 1997, filed with the Securities and Exchange Commission on September 12, 1997. (4) Incorporated by reference to Company's Quarterly Report on Form 10-Q, for the period ended October 29, 1997, filed with the Securities and Exchange Commission on December 11, 1997. (5) Incorporated by reference to the Company's quarterly report on Form 10-Q for the quarter ended April 30, 1997. ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); II-3 19 (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (d) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 20 (e) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California, on August 11, 1998. DIEDRICH COFFEE, INC. By: /s/ TIMOTHY J. RYAN ------------------------------------- Timothy J. Ryan President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Timothy J. Ryan, Ann Wride and John B. Bayley, his or her true and lawful attorneys-in-fact and agents, each acting alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all Amendments (including Post-Effective Amendments) to this Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. II-5 21 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME AND SIGNATURE TITLE DATE ------------------ ----- ---- /s/ JOHN E. MARTIN Chairman of the Board of August 6, 1998 - ------------------------------------ Directors John E. Martin /s/ TIMOTHY J. RYAN Director and President and Chief August 5, 1998 - ------------------------------------ Executive Officer (Principal Executive Timothy J. Ryan Officer) /s/ ANN WRIDE Vice President, Chief Financial Officer August 5, 1998 - ------------------------------------ (Principal Financial and Accounting Ann Wride Officer) /s/ MARTIN R. DIEDRICH Chief Coffee Officer, Vice Chairman of August 5, 1998 - ------------------------------------ the Board of Directors and Secretary Martin R. Diedrich Director August _, 1998 - ------------------------------------ Lawrence Goelman /s/ PAUL C. HEESCHEN Director August 6, 1998 - ------------------------------------ Paul C. Heeschen Director August _, 1998 - ------------------------------------ Peter Churm
II-6 22 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- EXHIBITS TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------- DIEDRICH COFFEE, INC. ------------------------- EXHIBITS 4.6, 5.1, 10.42, 23.2, 23.3 ================================================================================ 23 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE ------- ----------- ------------- 2.1 Form of Agreement and Plan of Merger (1) 4.1 Purchase Agreement for Series A Preferred Stock dated as of December 11, 1992 by and among Diedrich Coffee, Martin R. Diedrich, Donald M. Holly, SNV Enterprises and D.C.H., L.P. (1) 4.2 Purchase Agreement for Series B Preferred Stock dated as of June 29, 1995 by and among Diedrich Coffee, Martin R. Diedrich, Steven A. Lupinacci, Redwood Enterprises VII, L.P. and Diedrich Partners I, L.P. (1) 4.3 Representative's Warrant Agreement (1) 4.4 Specimen Stock Certificate (1) 4.5 Form of Conversions Agreement in connection with the conversion of Series A and Series B Preferred Stock into Common Stock (1) 4.6 Amendment No. 1 to Representative's Warrant Agreement 5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of the Common Stock 10.3 Stock Option Plan and Agreement of Steven A. Lupinacci, dated June 29, 1995 (1) 10.12 Separation Agreement, dated May 13, 1997, between Steven A. Lupinacci and the Company (5) 10.17 Form of Term Loan Agreement made to the Virginia R. Cirica Trust (3) 10.19 Form of Warrant Agreement made to the Virginia R. Cirica Trust (3) 10.28 Form of Term Loan Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview Trust (4) 10.30 Form of Warrant Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview Trust (4) 10.37 Common Stock and Option Purchase Agreement, dated as of April 3, 1998, by and between the Company and Franchise Mortgage Acceptance Company (2) 10.42 Letter Agreement, dated January 14, 1998, between the Company and Gregg Rondinelli 23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1) 23.2 Consent of BDO Seidman, LLP 23.3 Consent of KPMG Peat Marwick LLP 24.1 Power of Attorney (see signature page)
- ------------------------- (1) Incorporated by reference 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. (2) Incorporated by reference to the Company's annual report on Form 10-K for the fiscal year ended January 28, 1998. (3) Incorporated by reference to Company's Quarterly Report on Form 10-Q, for the period ended July 30, 1997, filed with the Securities and Exchange Commission on September 12, 1997. (4) Incorporated by reference to Company's Quarterly Report on Form 10-Q, for the period ended October 29, 1997, filed with the Securities and Exchange Commission on December 11, 1997. (5) Incorporated by reference to the Company's quarterly report on Form 10-Q for the quarter ended April 30, 1997. EX-4.6 2 AMENDMENT 1 TO REPRESENTATIVE'S WARRANT AGREEMENT 1 EXHIBIT 4.6 AMENDMENT NO. 1 TO REPRESENTATIVE'S WARRANT AGREEMENT This Amendment No. 1 to Representative's Warrant Agreement (this "AMENDMENT") is made effective as of March 20, 1998 by and between Diedrich Coffee, Inc., a California Company ("DIEDRICH"), and The Boston Group L.P. ("REPRESENTATIVE"), to amend that certain Representative's Warrant Agreement dated as of September 17, 1996 by and among Diedrich and Representative (the "AGREEMENT"). (a) The Agreement provides Representative with a Warrant to purchase up to 160,000 shares of Diedrich's common stock at an exercise price of $13.80 per share payable in cash or as otherwise provided in the Agreement, with such warrants to expire on September 10, 1999. (b) The parties now desire to amend the exercise price, limit the method of payment of the exercise price, and to shorten the term of exercise. THEREFORE, in consideration of the foregoing premises and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: (1) Section 3(a) of the Agreement is amended by replacing the Termination Date of September 10, 1999 found in the first sentence with the date December 23, 1998 as follows: Subject to the terms of this Agreement, the Warrantholder shall have the right, at any time during the period commencing at 6:30 a.m., Pacific Time, on September, 11, 1997 (the "COMMENCEMENT DATE") and ending at 5:00 p.m., Pacific Time, on December 23, 1998 (the "TERMINATION DATE"), to purchase from the Company up to the number of fully paid and non-assessable shares of Warrant Stock to which the Warrantholder may at the time be entitled to purchase pursuant to this Agreement, upon surrender to the Company, at its principal office, of the certificate evidencing the Warrants to be exercised, together with the purchase form on the reverse thereof duly completed and executed, and upon payment to the Company of the Warrant Price (as defined in and determined in accordance with the provisions of this Section 3 and Sections 7 and 8 hereof) for the number of shares of Warrant Stock in respect of which such Warrants are then exercised, but in no event for less than 100 shares of Warrant Stock (unless less than an aggregate of 100 shares of Warrant Stock are then purchasable under all outstanding Warrants held by such Warrantholder). (2) Section 3(c) of the Agreement is deleted so that payment of the Warrant Price shall be made only in cash pursuant to Section 3(b). (3) Section 7 of the Agreement is amended by replacing $13.80 in the first sentence with $5.25 as follows: 2 The price per share at which shares of Warrant Stock shall be purchasable upon the exercise of the Warrants shall be $5.25, subject to adjustment pursuant to Section 8 hereof (as so adjusted from time to time, the "WARRANT PRICE"). IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the date first-above written. DIEDRICH COFFEE, INC.: By: /s/ TIMOTHY J. RYAN -------------------------------------- Timothy J. Ryan, President and Chief Executive Officer THE BOSTON GROUP, L.P. By: /s/ ROBERT DiMINICO -------------------------------------- Robert DiMinico, Managing Director 2 EX-5.1 3 OPINION OF GIBSON, DUNN & CRUTCHER LLP 1 EXHIBIT 5.1 August 11, 1998 (949) 451-3800 C 22453-00008 Diedrich Coffee, Inc. 2144 Michelson Drive Irvine, California 92612 Re: Registration Statement on Form S-3 re 1,499,183 Shares of Common Stock (Registration No. 333- ) Ladies and Gentlemen: We have acted as counsel to Diedrich Coffee, Inc., a Delaware corporation (the "Company"), in connection with the filing of a Registration Statement to which this opinion is an Exhibit (the "Registration Statement") with respect to the offer and sale of 1,499,183 shares of the Company's Common Stock, par value $0.01 per share (the "Shares"), of which 200,000 Shares (the "Resale Shares") were issued by the Company pursuant to a Common Stock and Option Purchase Agreement dated as of April 3, 1998 by and between the Company and Franchise Mortgage Acceptance Company (the "Purchase Agreement"), 204,183 Shares are issuable upon exercise of certain outstanding options (the "Options") and 1,095,000 Shares are issuable upon exercise of certain outstanding warrants (the "Warrants"), all as described in the Registration Statement, by the holders thereof (the "Selling Holders"). We are familiar with the corporate actions taken and proposed to be taken by the Company in connection with the authorization, issuance and sale of the Resale Shares, Options and Warrants and have made such other legal and factual inquiries as we deem necessary for purposes of rendering this opinion. 2 Diedrich Coffee, Inc. August 11, 1998 Page 2 We have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, the authenticity of the originals of such copied documents, and, except with respect to the Company, that all individuals executing and delivering such documents were duly authorized to do so. Based on the foregoing and in reliance thereon, and subject to the qualifications and limitations set forth below, we are of the opinion that: 1. The Resale Shares have been duly authorized and validly issued and are fully paid and non-assessable. 2. The Shares to be issued upon exercise of each Option have been duly authorized and reserved and, when issued upon exercise of the applicable Option in accordance with its terms, including payment of the applicable exercise price, will be validly issued, fully paid and non-assessable. 3. The Shares to be issued upon exercise of each Warrant have been duly authorized and reserved and, when issued upon exercise of the applicable Warrant in accordance with its terms, including payment of the applicable exercise price, will be validly issued, fully paid and non-assessable. Our opinions set forth above are subject to the following additional qualifications and limitations: The Company is a Delaware corporation. We are not admitted to practice in Delaware. However, we are generally familiar with the Delaware General Corporation Law and have made such review thereof as we consider necessary for the purpose of this opinion. Subject to the foregoing, this opinion is limited to Delaware, California and federal law. You have informed us that the Selling Holders may sell the Shares from time to time on a delayed or continuous basis. This opinion is limited to the laws referred to above as in effect on the date hereof and to all facts as they presently exist. 3 Diedrich Coffee, Inc. August 11, 1998 Page 3 We hereby consent to the use of our name under the caption "Legal Matters" in the Prospectus forming a part of the Registration Statement and to the filing of this opinion as Exhibit 5.1 to the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the General Rules and Regulations of the Securities and Exchange Commission. Very truly yours, /s/ GIBSON, DUNN & CRUTCHER LLP -------------------------------- GIBSON, DUNN & CRUTCHER LLP JBE/REA EX-10.42 4 LETTER AGREEMENT BETWEEN CO. & GREGG RONDINELLI 1 EXHIBIT 10.42 January 14, 1998 Mr. Gregg Rondinelli 790 Summit Drive Laguna Beach, CA 92651 Dear Gregg: This letter shall set forth the understanding between you and Diedrich Coffee, Inc., a Delaware corporation (the "Company") regarding the extension of your employment by the Company as Manager of Strategic Planning to assist the Company in (a) developing a strategic plan and (b) in raising needed working capital (the "Agreement"). Subject to the terms and conditions set forth herein, we agree as follows: 1. Your paid employment as Manager of Strategic Planning is extended until March 31, 1998 and no further. You shall receive your assignments from and report directly to the Chief Executive Officer. You may continue to work without salary compensation after March 31, 1998 in order to complete the private placement described below. 2. As compensation for being employed in the capacity set forth above, you shall be entitled to the following: (a) $5,000 per month through March 31, 1998 (less all amounts required by law to be withheld or deducted) payable on the first day of each month (or any pro rata portion thereof for any month of partial service) for so long as you are employed by the Company. (b) The Company shall grant options to you pursuant to the Company's 1996 Stock Incentive Plan in accordance with the following terms and conditions: you shall receive options to purchase 25,000 shares of the Company's common stock which shall become vested and exercisable immediately after the Company shall have received the proceeds (less customary expenses and fees) of a private placement of approximately $ 5 million. The exercise price for all of the options set forth above 2 shall be $6.125, which represents the closing price for the stock on the date hereof. All of the options shall terminate March 31, 2003. 3. This Agreement is "at will" and it may be terminated, with or without cause, at any time, by either you or the Company. Thank you for your assistance to the Company at this important time. If the provisions of this letter are consistent with your understanding of our agreement, please sign and return the enclosed counterpart copy of this letter to me at your earliest convenience. Sincerely, Timothy J. Ryan President and Chief Executive Officer Accepted and agreed to: - -------------------------------------- Gregg Rondinelli TJR:cs EX-23.2 5 CONSENT OF BDO SEIDMAN, LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Diedrich Coffee, Inc. Irvine, California We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated March 11, 1996, relating to the financial statements of Diedrich Coffee, Inc. appearing in the Company's Annual Report on Form 10-K for the year ended January 31, 1996. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO SEIDMAN, LLP ---------------------------------------- BDO Seidman, LLP Costa Mesa, California August 11, 1998 EX-23.3 6 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.3 ACCOUNTANTS' CONSENT The Board of Directors Diedrich Coffee, Inc.: We consent to the incorporation by reference in the registration statements (Form S-8 with John E. Martin, Form S-8 with Timothy J. Ryan, Form S-8 Stock Option Plan, Form S-3) of Diedrich Coffee, Inc. of our report dated March 28, 1998, relating to the balance sheets of Diedrich Coffee as of January 28, 1998 and January 27, 1997 and cash flows for each of the years in the two-year period ended January 28, 1998 and all related schedules, which report appears in the January 28, 1998 annual report on Form 10-K of Diedrich Coffee, Inc. We consent to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP Orange County, California August 11, 1998 -----END PRIVACY-ENHANCED MESSAGE-----