Form 10-Q

-----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, S5c6x7LcXZ2YjC785h8AOv3TDRXa9o99KdNV0Fs81Ik9FpMaHcBAc/M22DvK8tRm FMBmUzlqtlxw5cGmNB+onQ== 0001193125-10-012146.txt : 20100125 0001193125-10-012146.hdr.sgml : 20100125 20100125170246 ACCESSION NUMBER: 0001193125-10-012146 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20091209 FILED AS OF DATE: 20100125 DATE AS OF CHANGE: 20100125 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: 0627 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21203 FILM NUMBER: 10545314 BUSINESS ADDRESS: STREET 1: 28 EXECUTIVE PARK STREET 2: SUITE 200 CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 9492601600 MAIL ADDRESS: STREET 1: 28 EXECUTIVE PARK STREET 2: SUITE 200 CITY: IRVINE STATE: CA ZIP: 92614 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 9, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-21203

DIEDRICH COFFEE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

33-0086628

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

28 Executive Park

Irvine, California 92614

(Address of Principal Executive Offices, Zip Code)

(949) 260-1600

(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	¨	Accelerated Filer ¨

Non-Accelerated Filer	¨	Smaller Reporting Company	x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of January 15, 2009, there were 5,726,813 shares of common stock of the registrant outstanding.

TABLE OF CONTENTS


		Page Number
PART I—FINANCIAL INFORMATION		1

Item 1. Financial Statements		1

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)		1

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)		2

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)		3

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative And Qualitative Disclosures About Market Risk		24

Item 4. Controls and Procedures		24

PART II—OTHER INFORMATION		24

Item 1. Legal Proceedings		24

Item 1A. Risk Factors		25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26

Item 3. Defaults upon Senior Securities		26

Item 4. Submission of Matters to a Vote of Security Holders		26

Item 5. Other Information		26

Item 6. Exhibits		27

SIGNATURES		29

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

DIEDRICH COFFEE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	December 9, 2009			June 24, 2009
Assets
Current assets:
Cash	$	3,946,000		$	3,572,000
Restricted cash and short term investments		623,000			623,000
Accounts receivable, less allowance for doubtful accounts of $69,000 at December 9, 2009 and $266,000 at June 24, 2009		10,954,000			6,335,000
Inventories		3,926,000			5,510,000
Income tax refund receivable		19,000			40,000
Current portion of notes receivable, less allowance of $99,000 at December 9, 2009 and $75,000 at June 24, 2009		2,661,000			3,604,000
Prepaid expenses		888,000			293,000

Total current assets		23,017,000			19,977,000
Property and equipment, net		5,036,000			5,416,000
Notes receivable, less allowance of $0 at December 9, 2009 and June 24, 2009		913,000			812,000
Other assets		769,000			723,000

Total assets	$	29,735,000		$	26,928,000


Liabilities and Stockholders’ Equity
Current liabilities:
Note payable, net of discount	$	2,000,000		$	2,687,000
Accounts payable		8,466,000			5,228,000
Accrued compensation		1,510,000			1,816,000
Accrued expenses		1,129,000			1,418,000

Total current liabilities		13,105,000			11,149,000
Long term note payable, net of discount		1,436,000			1,594,000
Income tax liability		33,000			33,000
Deferred rent		118,000			133,000
Other liabilities		245,000			245,000

Total liabilities		14,937,000			13,154,000

Commitments and contingencies (Notes 9 and 10)
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 3,000,000 shares; issued and outstanding 0 shares at December 9, 2009 and June 24, 2009		—			—
Common stock, $0.01 par value; authorized 17,500,000 shares; issued and outstanding 5,727,000 shares at December 9, 2009 and June 24, 2009		57,000			57,000
Additional paid-in capital		63,774,000			63,289,000
Accumulated deficit		(49,033,000	)		(49,572,000	)

Total stockholders’ equity		14,798,000			13,774,000

Total liabilities and stockholders’ equity	$	29,735,000		$	26,928,000

See accompanying notes to unaudited condensed consolidated financial statements.

DIEDRICH COFFEE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Twelve Weeks Ended December 9, 2009			Twelve Weeks Ended December 10, 2008			Twenty-Four Weeks Ended December 9, 2009			Twenty-Four Weeks Ended December 10, 2008
Net revenue:
Wholesale	$	24,455,000		$	13,686,000		$	40,097,000		$	24,033,000
Retail and other		195,000			184,000			326,000			245,000

Total revenue		24,650,000			13,870,000			40,423,000			24,278,000

Costs and expenses:
Cost of sales (exclusive of depreciation shown separately below)		18,117,000			11,579,000			29,829,000			19,853,000
Operating expenses		1,434,000			1,045,000			2,621,000			2,258,000
Depreciation and amortization		359,000			402,000			714,000			734,000
General and administrative expenses		2,013,000			1,577,000			3,810,000			3,391,000
Gain on asset disposals		(3,000	)		(1,000	)		(3,000	)		(7,000	)

Total costs and expenses		21,920,000			14,602,000			36,971,000			26,229,000

Operating income (loss) from continuing operations		2,730,000			(732,000	)		3,452,000			(1,951,000	)
Interest expense		131,000			256,000			307,000			566,000
Interest and other income, net		(71,000	)		(80,000	)		(158,000	)		(142,000	)
Merger related costs		2,501,000			—			2,501,000			—

Income (loss) from continuing operations before income tax provision		169,000			(908,000	)		802,000			(2,375,000	)
Income tax provision		201,000			4,000			263,000			4,000

Income (loss) from continuing operations		(32,000	)		(912,000	)		539,000			(2,379,000	)
Discontinued operations:
Loss from discontinued operations, net of tax expense of $0		—			(83,000	)		—			(399,000	)

Net income (loss)	$	(32,000	)	$	(995,000	)	$	539,000		$	(2,778,000	)

Basic net income (loss) per share:
Income (loss) from continuing operations	$	(0.01	)	$	(0.17	)	$	0.09		$	(0.44	)
Loss from discontinued operations, net		—			(0.01	)		—			(0.07	)

Net income (loss)	$	(0.01	)	$	(0.18	)	$	0.09		$	(0.51	)

Diluted net income (loss) per share:
Income (loss) from continuing operations	$	(0.01	)	$	(0.17	)	$	0.07		$	(0.44	)
Loss from discontinued operations, net		—			(0.01	)		—			(0.07	)

Net income (loss)	$	(0.01	)	$	(0.18	)	$	0.07		$	(0.51	)

Weighted average and equivalent shares outstanding:
Basic		5,727,000			5,468,000			5,727,000			5,468,000

Dilutive		5,727,000			5,468,000			8,076,000			5,468,000

See accompanying notes to unaudited condensed consolidated financial statements.

DIEDRICH COFFEE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Twenty-Four Weeks Ended December 9, 2009			Twenty-Four Weeks Ended December 10, 2008
Cash flows from operating activities:
Net Income (loss)	$	539,000		$	(2,778,000	)
Loss on discontinued operations, net		—			399,000

Income (loss) from continuing operations:		539,000			(2,379,000	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		714,000			734,000
Amortization and write off of loan fees		5,000			3,000
Amortization of note payable discount		155,000			369,000
Provision for (recovery of) bad debt		(67,000	)		207,000
Income tax provision		—			4,000
Provision for (recovery of) inventory obsolescence		(1,000	)		25,000
Stock compensation expense		485,000			158,000
Gain on disposal of assets		(3,000	)		(7,000	)
Notes receivable issued		—			(93,000	)
Changes in operating assets and liabilities:
Accounts receivable		(4,552,000	)		355,000
Inventories		1,585,000			(861,000	)
Prepaid expenses		(574,000	)		(131,000	)
Notes receivable		(158,000	)		(177,000	)
Other assets		(51,000	)		(542,000	)
Accounts payable		3,238,000			1,213,000
Accrued compensation		(306,000	)		(214,000	)
Accrued expenses		(289,000	)		(195,000	)
Deferred rent		(15,000	)		(5,000	)

Net cash provided by (used in) continuing operations		705,000			(1,536,000	)
Net cash used in discontinued operations		—			(727,000	)

Net cash provided by (used in) operating activities		705,000			(2,263,000	)

Cash flows from investing activities:
Capital expenditures for property and equipment		(339,000	)		(451,000	)
Proceeds from disposal of property and equipment		8,000			7,000
Payments received on notes receivable		1,000,000			644,000

Net cash provided by investing activities of continuing operations		669,000			200,000
Net cash provided by investing activities of discontinuing operations		—			3,000

Net cash provided by investing activities		669,000			203,000
Cash flows from financing activities:
Borrowings under credit agreement		—			3,000,000
Payments made on long term debt		(1,000,000	)		—

Net cash (used in) provided by financing activities		(1,000,000	)		3,000,000

Net increase in cash		374,000			940,000
Cash at beginning of year		3,572,000			670,000

Cash at end of period	$	3,946,000		$	1,610,000

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	164,000		$	190,000

Income taxes	$	76,000		$	11,000

Non-cash transactions:
Issuance of notes receivable	$	29,000		$	93,000

See accompanying notes to unaudited condensed consolidated financial statements.

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 9, 2009

(UNAUDITED)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Diedrich Coffee, Inc. (the “Company” or “Diedrich”) is a specialty coffee roaster and wholesaler whose brands include Diedrich Coffee, Gloria Jean’s, and Coffee People. The Company has wholesale accounts with businesses and restaurant chains. In addition, the Company operates a coffee roasting facility and a distribution facility in central California that supplies roasted coffee in a variety of packaging formats to its wholesale customers.

Basis of Presentation

The unaudited condensed consolidated financial statements of Diedrich and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America, as well as the instructions to Form 10-Q and Article 8 of Regulation S-X. These statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended June 24, 2009.

The Company evaluated all subsequent events that occurred after the balance sheet date through the date the condensed consolidated financial statements were issued on January 25, 2010. In the opinion of management, all adjustments (consisting of normal, recurring adjustments and accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results expected for a full year.

Discontinued Operations

During the year ended June 24, 2009, the Company sold the Gloria Jean’s U.S. franchise and retail operations (the “Transaction”) to Praise International North America, Inc. (“Praise”).

Praise is an affiliate of Gloria Jean’s Coffees International Pty. Ltd., which was a party to the purchase of the Company’s international franchise operations in February 2005.

Also during the fiscal year ended June 24, 2009, the Company closed the one remaining Diedrich retail location due to expiration of the lease relating to that retail location.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) topic 360, Property, Plant & Equipment (“ASC 360”) the financial results of the Gloria Jean’s franchise operations, retail operations and the one Diedrich retail location are reported as discontinued operations for all periods presented. Wholesale sales to former franchisees are included in continuing operations for all periods since the Company will continue to provide coffee roasting services to Praise.

The following accounts are reflected in Loss from discontinued operations in the consolidated statements of operations:

•

Franchise revenues for Gloria Jean’s Gourmet Coffees Franchising Corp.

•

Retail revenues for Gloria Jean’s Gourmet Coffees Corp. and Diedrich

•

Cost of sales and related occupancy costs

•

Operating expenses

•

Depreciation and amortization

•

General and administrative expenses

•

Provision for taxes

•

Impairment of assets

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

Recently Adopted Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FAS No. 162, as codified in FASB ASC topic 105, Generally Accepted Accounting Principles (“ASC 105”). ASC 105 establishes that the FASB Accounting Standards Codification (“Codification”) will become the authoritative source of U.S. GAAP and that rules and interpretive releases of the SEC will also be sources of authoritative GAAP for SEC registrants. Following ASC 105, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. The Company adopted ASC 105 effective for our first quarter of fiscal year 2010.

In June 2008, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus regarding EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5), as codified in FASB ASC topic 815, Derivatives & Hedging (“ASC 815”). ASC 815 outlines a two-step approach to evaluate the instrument’s contingent exercise provisions, if any, and to evaluate the instrument’s settlement provisions when determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. ASC 815 is effective for fiscal years beginning after December 15, 2008 and must be applied to outstanding instruments as of the beginning of the fiscal year of adoption as a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is not permitted. The cumulative effect of applying ASC 815 will be reported as an adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASC 815 on June 25, 2009 and there was no impact on the Company’s unaudited condensed consolidated financial statements.

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies during the twelve weeks ended December 9, 2009. See Footnote 1 of the Company’s consolidated financial statements included in the Company’s 2009 Annual Report on Form 10-K for a comprehensive description of the Company’s significant accounting policies.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Stock-Based Compensation

The Company applies the provisions of SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), as codified in FASB ASC topic 718—Compensation — Stock Compensation (“ASC 718”), which sets accounting requirements for “share-based” compensation to employees and non-employee directors, including employee stock purchase plans, and requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatility is based on the historical volatility of the price of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination rates within the valuation model. The expected term of options is derived from the output of the option valuation model and represents the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The fair values of the options were estimated using the Black-Scholes option-pricing model based on the following weighted average assumptions:


	TWELVE WEEKS ENDED				TWENTY-FOUR WEEKS ENDED
	December 9, 2009		December 10, 2008		December 9, 2009		December 10, 2008
Risk free interest rate	1.39	%	1.91	%	1.39	%	1.91% – 3.11	%
Expected life	3 years		3 years		3 years		3 years
Expected volatility	161	%	64	%	161	%	56% – 64	%
Expected dividend yield	0	%	0	%	0	%	0	%
Forfeiture rate	6.90	%	6.82	%	6.90	%	5.58% – 6.82	%

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

A summary of option activity under our stock option plans for the twenty-four weeks ended December 9, 2009 is as follows:


	Number of options		Weighted average exercise price ($)		Weighted average remaining contractual term (years)	Aggregate intrinsic Value ($)
Options outstanding at June 24, 2009	750,300		$	3.36
Plus options granted	42,500			25.96
Less:
Options canceled or expired	(1,550	)		26.84

Options outstanding at December 9, 2009	791,250		$	4.53	7.96	$	23,898,000

Options exercisable at December 9, 2009	343,748		$	3.79	6.92	$	10,636,000

Stock-based compensation expense included in the statements of operations was $410,000 for the twelve weeks ended December 9, 2009 and $485,000 for the twenty-four weeks ended December 9, 2009. Stock-based compensation expense included in the statement of operations was $82,000 for the twelve weeks ended December 10, 2008 and $157,000 for the twenty-four weeks ended December 10, 2008. As of December 9, 2009, there was approximately $3,564,000 of total unrecognized stock-based compensation cost related to options granted under the Company’s plans that will be recognized over a weighted average period of 1.5 years. No options vested during the twelve weeks ended December 9, 2009. Aggregate intrinsic value at December 9, 2009 was based on a closing price of $34.73 per share.

Concentrations

The Company generated 92.6% and 83.9% of total revenues from the sale of K-Cups^® for the twenty-four weeks ended December 9, 2009 and December 10, 2008, respectively. The manufacturing and distribution of K-Cups^® is licensed from a single licensor, Keurig, Incorporated, on a non-exclusive basis. During the twenty-four weeks ended December 9, 2009 and December 10, 2008, the Company had sales to the licensor that represented approximately $20,265,000 or 50.5% and $7,456,000 or 31.0% of wholesale sales, respectively.

The current agreement with the licensor expires in July 2013. The agreement provides for automatic five-year renewals if certain volume thresholds are met, which thresholds the Company is currently exceeding. In its fiscal year 2008 Form 10-K, Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR), which owns Keurig, Incorporated, states that the two principal patents associated with the current generation K-Cup portion packs, will expire in 2012 pending patent applications associated with this technology which, if ultimately issued as patents, would have expiration dates in 2023. Any major disruptions in this relationship could cause a material adverse effect on the Company’s business and operations.

Reclassifications

Certain reclassifications have been made to the December 10, 2008 unaudited condensed consolidated financial statements to conform to the December 9, 2009 presentation.

2.	LIQUIDITY AND MANAGEMENT PLANS

For the twenty-four weeks ended December 9, 2009, the Company reported net income of $539,000 which was net of income tax of $263,000. The Company had a cash balance of $3,946,000 and no access to additional borrowings under the current credit facility as of December 9, 2009.

The Contingent Convertible Note Purchase Agreement with Sequoia Enterprises, L.P. (“Sequoia”), a limited partnership whose sole general partner is a significant shareholder of the Company and also serves as the Chairman of the Company’s board of directors (the “Note Purchase Agreement”), expires on March 31, 2010 and the $2,000,000 balance on the outstanding note is due in full on that date. In addition, the Company obtained a $3,000,000 Term Loan (as defined below) from Sequoia on August 26, 2008. See Note 10. The Company is required to make regular monthly payments of interest on the Term Loan. In addition, as per the terms of the Term Loan Agreement (as defined below), the Company paid $1,000,000 due to Sequoia on July 29, 2009. All outstanding principal

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

and interest will be due on the maturity date of August 26, 2011, unless due earlier pursuant to the terms of the Term Loan Agreement upon a change of control of the Company or an event of default. As of December 9, 2009, the Company had $2,000,000 outstanding under the Term Loan Agreement.

The Company believes that cash flow from operations and payments from notes receivable due from Praise and Gloria Jean’s Coffees International Pty. Ltd issued in connection with the sale of the Gloria Jean’s U.S. and international franchise operations will be sufficient to satisfy working capital needs at the anticipated operating levels and debt service requirements for at least the next twelve months.

The Company’s future capital requirements will depend on many factors, including the extent and timing of the rate at which the business grows, if at all, with corresponding demands for working capital. The Company may be required to seek additional funding through debt financing, equity financing or a combination of funding methods to meet capital requirements and sustain operations. However, additional funds may not be available on terms acceptable or at all.

3.	ACCOUNTS RECEIVABLE

During the twenty-four weeks ended December 9, 2009, the Company recorded a net of $67,000 in recoveries of previously reserved accounts receivable balances.

The following table details the components of net accounts receivable:


	December 9, 2009			June 24, 2009
Wholesale receivables	$	10,923,000		$	6,496,000
Allowance for wholesale receivables		(17,000	)		(180,000	)

		10,906,000			6,316,000

Franchise and other receivables		100,000			105,000
Allowance for franchise and other receivables		(52,000	)		(86,000	)

		48,000			19,000

Total accounts receivable, net	$	10,954,000		$	6,335,000

4.	INVENTORIES

Inventories consist of the following:


	December 9, 2009		June 24, 2009
Unroasted coffee	$	914,000	$	422,000
Roasted coffee		836,000		2,404,000
Accessory and specialty items		64,000		49,000
Other food, beverage and supplies		2,112,000		2,635,000

Total inventory	$	3,926,000	$	5,510,000

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

5.	NOTES RECEIVABLE

Notes receivable consist of the following:


	December 9, 2009			June 24, 2009
Notes receivable due on March 1, 2010. Notes are secured by the assets sold under the asset purchase and sale agreements or general security agreement. Amounts are net of a $99,000 allowance as of December 9, 2009 and $75,000 as of June 24, 2009, respectively	$	4,000		$	—
Notes receivable from a corporation discounted at an annual rate of 8.0%, payable annually in installments, due January 31, 2011		1,913,000			2,816,000
Notes receivable from a corporation, interest due at an annual rate of 7.0%, payable in two equal installments on December 12, 2009 and June 12, 2010		1,657,000			1,600,000

		3,574,000			4,416,000
Less: current portion of notes receivable		(2,661,000	)		(3,604,000	)

Long-term portion of notes receivable	$	913,000		$	812,000

6.	NOTE PAYABLE


	December 9, 2009			June 24, 2009
Note payable amount bearing interest at a rate of three-month LIBOR plus 6.30% (6.59% as of December 9, 2009) is due and payable on March 31, 2010. Note is unsecured	$	2,000,000		$	2,000,000
Note payable amount bearing interest at a rate of one-month LIBOR plus 6.30% (6.54% as of December 9, 2009). Note is unsecured		2,000,000			3,000,000
Discount on note payable		(564,000	)		(719,000	)

		3,436,000			4,281,000
Less: current portion of notes payable, net of discount		(2,000,000	)		(2,687,000	)

Long-term portion of notes payable, net of discount	$	1,436,000		$	1,594,000

The entire balance of $4,000,000 is immediately due and payable upon consummation of the pending merger (see Notes 10 and 15).

7.	EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net income (loss) per share from continuing operations:


	Twelve Weeks Ended December 9, 2009			Twelve Weeks Ended December 10, 2008			Twenty-Four Weeks Ended December 9, 2009		Twenty-Four Weeks Ended December 10, 2008
Numerator:
Net income (loss) from continuing operations	$	(32,000	)	$	(912,000	)	$	539,000	$	(2,379,000	)

Denominator:
Basic weighted average shares outstanding		5,727,000			5,468,000			5,727,000		5,468,000
Effect of dilutive securities		—			—			2,349,000		—

Diluted adjusted weighted average shares		5,727,000			5,468,000			8,076,000		5,468,000

Basic net income (loss) per share from continuing operations	$	(0.01	)	$	(0.17	)	$	0.09	$	(0.44	)

Diluted net income (loss) per share from continuing operations	$	(0.01	)	$	(0.17	)	$	0.07	$	(0.44	)

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

For the quarter ended December 9, 2009, employee stock options of approximately 791,000 and warrants of 1,987,000 were excluded from the computation of dilutive earnings per share as their impact would have been anti-dilutive. In addition, for the twenty-four weeks ended December 9, 2009, employee stock options of 43,750 were excluded from the computation of dilutive earnings per share as their impact would have been anti-dilutive. For the prior quarter and twenty-four weeks ended December 10, 2008, employee stock options of approximately 608,000 shares and 2,167,000 of stock purchase warrants were excluded from the computation of diluted earnings per share as their impact would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share:


	Twelve Weeks Ended December 9, 2009			Twelve Weeks Ended December 10, 2008			Twenty-Four Weeks Ended December 9, 2009			Twenty-Four Weeks Ended December 10, 2008
Numerator:
Net income (loss)	$	(32,000	)	$	(995,000	)	$	539,000	)	$	(2,778,000	)

Denominator:
Basic weighted average shares outstanding		5,727,000			5,468,000			5,727,000			5,468,000
Effect of dilutive securities		—			—			2,349,000			—

Diluted weighted average shares outstanding		5,727,000			5,468,000			8,076,000			5,468,000

Basic net income (loss) per share	$	(0.01	)	$	(0.18	)	$	0.09		$	(0.51	)

Diluted net income (loss) per share	$	(0.01	)	$	(0.18	)	$	0.07		$	(0.51	)

8.	SEGMENT AND RELATED INFORMATION

Subsequent to the sale of Gloria Jean’s U.S. franchise and retail operations (see Note 1), the Company has two reportable segments, wholesale operations and retail and other. Retail and other includes ecommerce retail operations and franchise operations. Ecommerce revenues are derived from sales of products through the Company’s three websites, www.diedrich.com, www.coffeepeople.com and www.coffeeteastore.com. The Company evaluates performance of its operating segments based on income before provision for asset impairment and restructuring costs, income taxes, interest expense, depreciation and amortization, and general and administrative expenses.

Summarized financial information of continuing operations of the Company’s reportable segments is shown in the following table. The other total assets consist of corporate cash, corporate notes receivable, corporate prepaid expenses, and corporate property, plant and equipment. The other component of segment income (loss) before tax includes corporate general and administrative expenses, depreciation and amortization expense, and interest expense.

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)


	TWELVE WEEKS ENDED						TWENTY-FOUR WEEKS ENDED
	December 9, 2009			December 10, 2008			December 9, 2009			December 10, 2008
Net revenue:
Wholesale	$	24,455,000		$	13,686,000		$	40,097,000		$	24,033,000
Retail and other		195,000			184,000			326,000			245,000

Total net revenue	$	24,650,000		$	13,870,000		$	40,423,000		$	24,278,000

Interest expense:
Wholesale	$	—		$	—		$	—		$	—
Corporate		131,000			256,000			307,000			566,000

Total interest expense	$	131,000		$	256,000		$	307,000		$	566,000

Depreciation and amortization:
Wholesale	$	292,000		$	333,000		$	579,000		$	594,000
Retail and other		13,000			4,000			26,000			9,000
Corporate		54,000			65,000			109,000			131,000

Total depreciation and amortization	$	359,000		$	402,000		$	714,000		$	734,000

Segment income (loss) from continuing operations before income tax benefit:
Wholesale	$	4,800,000		$	900,000		$	7,366,000		$	1,627,000
Retail and other		(6,000	)		8,000			2,000			(63,000	)
Corporate		(4,625,000	)		(1,816,000	)		(6,566,000	)		(3,939,000	)

Total segment income (loss) from continuing operations before income tax provision	$	169,000		$	(908,000	)	$	802,000		$	(2,375,000	)


	December 9, 2009		June 24, 2009
Identifiable assets:
Wholesale	$	19,201,000	$	15,995,000
Retail and other		321,000		226,000
Corporate		10,213,000		10,707,000

Total assets	$	29,735,000	$	26,928,000

9.	COMMITMENTS AND CONTINGENCIES

There have been no material changes to the Company’s significant commitments and contingencies during the twenty-four weeks ended December 9, 2009. See Footnote 9 of the Company’s consolidated financial statements included in the Company’s 2009 Annual Report on Form 10-K for a comprehensive description of the Company’s significant commitments and contingencies.

10.	OUTSTANDING DEBT, FINANCING ARRANGEMENTS AND RESTRICTED CASH

Note Purchase Agreement:

On May 10, 2004 the Company entered into a $5,000,000 Note Purchase Agreement with Sequoia, a limited partnership whose sole general partner is a significant shareholder of the Company and also serves as the Chairman of the board of directors of the Company (the “Note Purchase Agreement”), which provided, at the Company’s election, the ability to issue notes with up to an aggregate principal amount of $5,000,000. The Company has amended the Note Purchase Agreement from time to

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

time and has agreed to refrain from further borrowings under the Note Purchase Agreement in connection with the entry into the Loan Agreement (as defined below) entered into on August 26, 2008. As amended, the notes issued under the Note Purchase Agreement are due in full on March 31, 2010, the Company is only required to make monthly payments of interest and the monthly commitment fee, but not principal, until such date. Interest is payable at three-month LIBOR plus 9.30% for any period during which the ratio of Indebtedness (as defined in the Note Purchase Agreement) on a consolidated basis to Effective Tangible Net Worth (as defined in the Note Purchase Agreement) is greater than 1.75:1.00 or the three-month LIBOR plus 6.30% for any other period, in each case reset on a periodic basis as provided in the Note Purchase Agreement. The Note Purchase Agreement contains covenants, among others, that limit the amount of indebtedness that the Company may have outstanding in relation to its tangible net worth. As of December 9, 2009, the Company had $2,000,000 of issued notes outstanding under the Note Purchase Agreement. As of December 9, 2009, the Company was in compliance with all covenants contained in the Note Purchase Agreement.

Loan Agreement:

On August 26, 2008, the Company entered into a loan agreement with Sequoia (the “Term Loan Agreement”). The Term Loan Agreement provides for a $3,000,000 term loan (the “Term Loan”). As amended, interest is payable at one-month LIBOR plus 9.30% for any period during which the ratio of Indebtedness (as defined in the Term Loan Agreement) on a consolidated basis to Effective Tangible Net Worth (as defined in the Term Loan Agreement) is greater than 1.75:1.00 or the one-month LIBOR plus 6.30% for any other period, in each case reset on a periodic basis as provided in the Term Loan Agreement. The Company is required to make regular monthly payments of interest on the Term Loan with Sequoia. In addition, as per the terms of the Term Loan Agreement, the Company paid $1,000,000 due to Sequoia on July 29, 2009. All outstanding principal and interest will be due on the maturity date of August 26, 2011, unless due earlier pursuant to the terms of the Term Loan Agreement upon a change of control of the Company or an event of default. As of December 9, 2009, the Company had $2,000,000 outstanding under the Term Loan Agreement.

The Term Loan Agreement requires the Company to refrain from further borrowings under the Note Purchase Agreement and contains restrictions on incurring indebtedness on par with, or senior to, the Term Loan Agreement. The Term Loan Agreement also contains a covenant that limits the amount of indebtedness that the Company may have outstanding in relation to tangible net worth, in addition to other standard covenants and events of default. As of December 9, 2009, the Company was in compliance with all covenants contained in the Term Loan Agreement.

The Term Loan is senior to all other indebtedness of the Company, except indebtedness pursuant to notes under the Note Purchase Agreement and certain permitted indebtedness identified in the Term Loan Agreement. Upon repayment of the notes under the Note Purchase Agreement, the Term Loan will be senior to all other indebtedness of the Company, except such permitted indebtedness.

Letter of Credit:

In addition, the Company entered into a Credit Agreement with Bank of the West on November 4, 2005. The current agreement provides for a $500,000 letter of credit facility that expires on October 31, 2010. The letter of credit facility is secured by a deposit account at Bank of the West. As of December 9, 2009, this deposit account had a balance of $623,000, which is shown as restricted cash on the consolidated balance sheets. As of December 9, 2009, $472,000 of letters of credit was outstanding under the letter of credit facility. The agreement contains covenants that, among other matters, require the Company to submit financial statements to the bank within specified time periods. As of December 9, 2009, the Company was in compliance with all Bank of the West agreement covenants.

11.

WARRANTS

2001 Sequoia Warrant:

On May 8, 2001, in connection with the sale of 2,000,000 shares of Company common stock, the Company issued warrants to Sequoia to purchase 250,000 shares of the Company’s common stock at a price of $4.80 per share (“2001 Sequoia Warrant”). Other investors also received warrants to purchase an additional 250,000 shares at a price of $4.80 per share. The warrants were exercisable immediately upon issuance.

During the fiscal year ending June 24, 2009, the other investors exercised their warrants at an exercise price of $4.80 per share. The Company received cash proceeds of $1.2 million in connection with the warrant exercises.

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

On November 10, 2008, the Company entered into a waiver agreement whereby the exercise price of the 2001 Sequoia Warrant was decreased to $1.65 per share. The fair value of these amended warrants was approximately $53,000 which was recorded as a debt discount. At December 9, 2009, all 2001 Sequoia Warrants were outstanding with an expiration date of June 30, 2014.

2008 Sequoia Warrant:

In connection with the Term Loan Agreement and an amendment to the Note Purchase Agreement, on August 26, 2008, the Company issued to Sequoia a warrant (the “2008 Sequoia Warrant”) to purchase 1,667,000 shares of common stock of the Company. On November 10, 2008, the Company entered into a waiver agreement whereby the exercise price was decreased to $1.65 per share. The fair value of these amended warrants was approximately $300,000 which was recorded as a debt discount. At December 9, 2009, all 2008 Sequoia Warrants were outstanding with an expiration date of August 26, 2013. The 2008 Warrant is not eligible for cashless exercise, but the Company is obligated to cause the common stock issued upon exercise of the 2008 Warrant to be registered with the SEC and applicable state governmental authorities and to be listed on the stock exchange on which the Company’s stock is traded at the time of exercise, in each case at the Company’s expense.

2009 Sequoia Warrant:

In connection with the extension of the Note Purchase Agreement, after the close of the Nasdaq Stock Market on April 29, 2009, the Company issued to Sequoia a warrant to purchase 70,000 shares of common stock of the Company at an exercise price of $7.40 per share (the “2009 Sequoia Warrant”), which was the closing price of the Company’s common stock on such date. The fair value of these warrants was approximately $440,000 which was immediately recorded as interest expense. The 2009 Sequoia Warrant is exercisable by Sequoia, in whole or in part, at any time or from time to time, prior to April 29, 2014. The 2009 Sequoia Warrant is not eligible for cashless exercise, but the Company is obligated to cause the common stock issued upon exercise of the 2009 Sequoia Warrant to be registered with the SEC and applicable state governmental authorities and to be listed on the stock exchange on which the Company’s stock is traded at the time of exercise, in each case at the Company’s expense.

The following table summarizes information about warrant transactions from June 24, 2009 through December 9, 2009:


	Number of Shares	Weighted Average Exercise Price
Warrants outstanding, June 24, 2009	1,987,000	$	1.85
Granted	—		—
Exercised	—		—
Forfeited/cancelled	—		—

Warrants outstanding, December 9, 2009	1,987,000	$	1.85

12.	LEGAL SETTLEMENT ACCRUAL

On February 2, 2007, a purported class action complaint entitled Deborah Willems, et al. v. Diedrich Coffee., et al. was filed in Orange County, California Superior Court on behalf of another former employee who worked in the position of general manager. This case involves the issue of whether employees and former employees who worked in California stores during specified time periods were deprived of overtime pay, missed meal and rest breaks. In addition to unpaid overtime, this case seeks to recover waiting time penalties, interest, attorneys’ fees and other types of relief on behalf of the current and former employees in the purported class. In October 2009, the Company paid approximately $384,000 to fully settle this lawsuit.

A lawsuit entitled Leader Bank v. Ajay Misra, et al v. Diedrich Coffee et al, is currently pending in the Middlesex Superior Court, Middlesex, Massachusetts. In that case the Plaintiff, Leader Bank, filed a complaint to collect on a defaulted promissory note it had with the franchisee, Defendant Amtek Group, LLC, on February 23, 2009. Ajay and Priya Misra were named defendants as well. On June 16, 2009, Defendants filed a third-party complaint against Diedrich Coffee alleging breach of contract, aiding and abetting Leader Bank in its takeover of the store and breach of privacy. In their complaint, third-party plaintiffs claim that they are entitled to $2,477,500. The Company is contesting the third-party complaint vigorously. The Company filed a motion to dismiss the complaint, and all of Amtek’s claims, along with Misras’ claims of breach of contract and privacy were dismissed. Misra has amended the complaint to bring additional claims of misrepresentation, promissory estoppel and breach of good faith. The Company believes that liability is not probable and the potential settlement is not estimable under this lawsuit and has therefore not accrued any amounts related to the damages claimed under this lawsuit in the accompanying unaudited condensed consolidated financial statements.

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

On November 10, 2009, an action entitled George Mendenhall, individually and on behalf of all others similarly situated v. J. Russell Phillips, et al., (the “Complaint”) was filed in the Superior Court of the State of California for the County of Orange (the “Court”). In this action, the plaintiff named as defendants Diedrich, the members of the Board, Peet’s and Peet’s wholly owned subsidiary, Marty Acquisition Sub, Inc. Among other things, the Complaint alleged that the members of the Board breached their fiduciary duties to Diedrich’s stockholders in connection with the transactions previously contemplated by the terminated Peet’s Agreement, allegedly resulting in an unfair process and unfair price to such stockholders. The Complaint sought class certification and certain forms of equitable relief, including enjoining the completion of the transactions previously contemplated by the terminated Peet’s Agreement.

On December 23, 2009, an amendment to the Complaint (the “Amended Complaint”) was filed in the Court. The Amended Complaint names as defendants Diedrich, the members of the Board, Green Mountain Coffee Roasters, Inc., a Delaware corporation (“GMCR”) and Pebbles Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of GMCR (“Acquisition Sub”). Among other things, the Amended Complaint alleges that the members of the Board breached their fiduciary duties to Diedrich stockholders by failing to provide adequate disclosures of material information concerning the transaction and also seeks an equitable assessment of attorneys’ fees and expenses for the benefit allegedly conferred by Plaintiff’s counsel on Diedrich stockholders through Plaintiff’s alleged involvement in the transaction. The Amended Complaint seeks class certification, certain forms of equitable relief, including enjoining the completion of the transaction contemplated by the Merger Agreement with GMCR until additional disclosures are provided, and an award of attorneys’ fees and expenses. On December 30, 2009, plaintiff filed an application with the Court for a temporary restraining order, a schedule for a motion for preliminary injunction and expedited discovery (the “Application”). On December 31, 2009, the Court denied the Application in its entirety. Diedrich, GMCR and Acquisition Sub believe that the allegations of the Amended Complaint are without merit and intend to vigorously contest the action.

13.	DISCONTINUED OPERATIONS

During the fiscal year ended June 24, 2009, the Company sold the Gloria Jean’s U.S. franchise and retail operations to Praise.

In addition, the Company entered into several ancillary agreements, including a roasting agreement whereby the Company agreed to provide coffee roasting services to Praise for a period of five years and a trademark license agreement whereby the Company granted to Praise a license to use the Company’s Gloria Jean’s Gourmet Coffees Corp. U.S. trademarks in the United States of America (including the Commonwealth of Puerto Rico) until these trademarks are transferred to Gloria Jean’s Coffees International Pty. Ltd.

Praise is an affiliate of Gloria Jean’s Coffees International Pty. Ltd., which was a party to the purchase of the Company’s international franchise operations in February 2005.

Also during the fiscal year ended June 24, 2009, the Company closed the one remaining Diedrich retail location due to expiration of the lease relating to that retail location.

In accordance with ASC 360, the financial results of the Gloria Jean’s franchise operations, retail operations and the one Diedrich retail location are reported as discontinued operations for all periods presented. Wholesale sales to former franchisees are included in continuing operations for all periods since the Company will continue to provide coffee roasting services to Praise.

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

The financial results included in discontinued operations were as follows:


	Twelve Weeks Ended December 10, 2008			Twenty-Four Weeks Ended December 10, 2008
Net retail revenue	$	1,207,000		$	2,084,000
Net franchise revenue		546,000			1,028,000

Net revenue from discontinued operations		1,753,000			3,112,000

Loss from discontinued operations, net of $0 tax	$	(83,000	)	$	(399,000	)

14.	INCOME TAXES

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical losses and limited earnings history, management cannot conclude that it is more likely than not that the Company will realize the benefits of these deductible differences, and thus has recorded a valuation allowance against the entire deferred tax asset balance.

The income tax provision of $201,000 and $263,000 for the twelve and twenty-four weeks ended December 9, 2009 primarily represents California state income taxes since the utilization of net operating loss carryforwards has been suspended by the state for the Company’s 2010 fiscal year end. The Company is in the process of completing a tax study to determine whether merger related costs incurred during the twenty-four weeks ended December 9, 2009 are deductible for tax purposes. Until that study is completed, the merger related expenses are being treated as a non-deductible expenditure for income tax purposes. Subsequent to the merger (see Note 15 below), net operating loss carryforwards of the Company could be subject to possible annual limitation pertaining to change in ownership rules under the Internal Revenue Code. The Company’s accrual for uncertain tax positions of $245,000 as of December 9, 2009 and June 24, 2009 is included in other liabilities in the accompanying consolidated balance sheets

15.	PROPOSED MERGER WITH GREEN MOUNTAIN COFFEE ROASTERS, INC.

On December 7, 2009, Diedrich, GMCR, and Acquisition Sub, entered into an Agreement and Plan of Merger (the “Merger Agreement”), whereby GMCR agreed to acquire all issued and outstanding shares of Diedrich’s common stock, par value $0.01 per share (the “Shares”), in exchange for, with respect to each share, the right to receive $35.00 in cash, without interest (the “Offer Consideration”). Under the terms of the Merger Agreement, after the satisfaction or waiver of the conditions to the Merger (as defined below), Acquisition Sub will merge with and into Diedrich, with Diedrich surviving as a wholly owned subsidiary of GMCR (the “Merger”). In the Merger, each outstanding Share that is not tendered and accepted pursuant to the Offer (as defined below) (other than Shares held by Diedrich or any of its wholly owned subsidiaries or held in its treasury, or owned by GMCR or Acquisition Sub or any other wholly owned subsidiary of GMCR, and other than Shares as to which appraisal rights have been perfected in accordance with applicable law) will be converted into the right to receive the Offer Consideration.

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

January 11, 2010). However, on January 8, 2010, GMCR announced that in accordance with the terms of the Merger Agreement, Acquisition Sub has extended the Offer until 12:00 midnight Eastern Time on Friday, February 5, 2010 (one minute after 11:59 p.m., Eastern Time, on February 5, 2010), unless further extended.

Consummation of the Offer is subject to customary conditions, including, but not limited to, (i) a number of Shares validly tendered and not withdrawn pursuant to the Offer that, together with any Shares owned by GMCR, Acquisition Sub or any other subsidiary of GMCR immediately prior to the acceptance pursuant to the Offer, represents more than 50% of the Adjusted Outstanding Share Number (as defined in the Merger Agreement), (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (iii) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement. The Offer is not subject to a financing condition.

The Merger Agreement and the Offer may be terminated under certain customary circumstances by GMCR or Diedrich, including if the Acceptance Time does not occur by February 15, 2010, provided, however, that such date will automatically be extended until June 15, 2010 if, on February 15, 2010, all of the conditions to the Offer have been satisfied or fulfilled or capable of being satisfied or fulfilled, except certain conditions regarding regulatory approvals. The Merger Agreement provides for a termination fee of $8,517,000 payable by Diedrich to GMCR if the Merger Agreement is terminated under certain circumstances. If Diedrich fails to pay when due any amounts payable under such termination fee provisions, then Diedrich shall (i) reimburse GMCR for all reasonable costs and expenses (including fees and disbursements of legal counsel) actually incurred in connection with the collection of such overdue amount and the enforcement by GMCR of its rights under the Merger Agreement, and (ii) pay to GMCR interest on any amount that is overdue. In addition, the Merger Agreement includes a graduated reverse termination fee such that, if the Merger Agreement were terminated by GMCR under certain circumstances involving regulatory approvals, a reverse termination fee would be payable by GMCR to Diedrich based on the following: (a) if the Merger Agreement is terminated before February 15, 2010 under such circumstances, GMCR would be obligated to pay $8,517,000; (b) if the Merger Agreement were terminated on or after February 15, 2010 but before April 15, 2010, GMCR would be obligated to pay $9,517,000; (c) if the Merger Agreement were terminated on or after April 15, 2010 but before June 15, 2010, GMCR would be obligated to pay $10,517,000; and (d) if the Merger Agreement were terminated on or after June 15, 2010, GMCR would be obligated to pay $11,517,000.

In connection with the transactions contemplated by the Merger Agreement, on December 7, 2009, certain directors and executive officers of Diedrich entered into stockholder agreements with GMCR (the “Stockholder Agreements”) whereby such directors and executive officers agreed to tender Shares in the Offer, subject to certain terms and conditions. Pursuant to his Stockholder Agreement, Paul C. Heeschen, chairman of Diedrich’s board of directors (the “Board”), has agreed to tender 1,832,580 Shares in the Offer.

Termination of a Material Definitive Agreement. Prior to entering into the Merger Agreement with GMCR, Diedrich: (a) terminated the Agreement and Plan of Merger, dated as of November 2, 2009 (as amended by an Amendment No. 1 dated November 17, 2009, the “Peet’s Merger Agreement”), by and among Peet’s Coffee & Tea, Inc., a Washington corporation (“Peet’s”), Marty Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Peet’s, and Diedrich, in accordance with its terms; and (b) paid to Peet’s a termination fee of $8,517,000 pursuant to the Peet’s Merger Agreement, which fee was paid to Peet’s on behalf of Diedrich by GMCR. Concurrently with the termination of the Peet’s Merger Agreement, the Stockholder Agreements, dated November 2, 2009, between Peet’s and each of Paul C. Heeschen and certain other directors and executive officers of Diedrich, were automatically terminated.

Litigation. On November 10, 2009, an action entitled George Mendenhall, individually and on behalf of all others similarly situated v. J. Russell Phillips, et al., (the “Complaint”) was filed in the Superior Court of the State of California for the County of Orange (the “Court”). In this action, the plaintiff named as defendants Diedrich, the members of the Board, Peet’s and Peet’s wholly owned subsidiary, Marty Acquisition Sub, Inc. Among other things, the Complaint alleges that the members of the Board breached their fiduciary duties to Diedrich’s stockholders in connection with the transactions previously contemplated by the terminated Peet’s Agreement, allegedly resulting in an unfair process and unfair price to such stockholders. The Complaint seeks class certification and certain forms of equitable relief, including enjoining the completion of the transactions previously contemplated by the terminated Peet’s Agreement. Diedrich believes that the allegations of the complaint are without merit and intends to vigorously contest the action.

DIEDRICH COFFEE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DECEMBER 9, 2009

(UNAUDITED)

On December 23, 2009, an amendment to the Complaint (the “Amended Complaint”) was filed in the Court. The Amended Complaint names as defendants Diedrich, the members of the Board, GMCR and Acquisition Sub. Among other things, the Amended Complaint alleges that the members of the Board breached their fiduciary duties to Diedrich stockholders by failing to provide adequate disclosures of material information concerning the transaction and also seeks an equitable assessment of attorneys’ fees and expenses for the benefit allegedly conferred by Plaintiff’s counsel on Diedrich stockholders through Plaintiff’s alleged involvement in the transaction. The Amended Complaint seeks class certification, certain forms of equitable relief, including enjoining the completion of the transaction contemplated by the Merger Agreement with GMCR until additional disclosures are provided, and an award of attorneys’ fees and expenses. On December 30, 2009, plaintiff filed an application with the Court for a temporary restraining order, a schedule for a motion for preliminary injunction and expedited discovery (the “Application”). On December 31, 2009, the Court denied the Application in its entirety. Diedrich, GMCR and Acquisition Sub believe that the allegations of the Amended Complaint are without merit and intend to vigorously contest the action.

Change in Control and Termination Provisions Applicable to Mr. Sean McCarthy. Mr. Sean McCarthy, Vice President and Chief Financial Officer is entitled to a severance payment equal to nine months of annual base salary if he is terminated by Diedrich without cause, provided that he executes a customary release of Diedrich. As discussed in more detail below, Mr. McCarthy was appointed President and Chief Financial Officer of Diedrich, effective as of February 1, 2010, and entered into a Letter Agreement dated January 22, 2010 (the “Letter Agreement”) related to such appointment. Under the Letter Agreement, Mr. McCarthy will receive a lump sum severance payment equal to his annual base salary if he is terminated for any reason other than a “Just Cause Dismissal” (as defined in Article IX of Diedrich’s 2000 Equity Incentive Plan) instead of the nine months of annual base salary severance payment described above, provided that Mr. McCarthy executes a complete release of Diedrich in connection with or related to his employment with Diedrich. Mr. McCarthy is also entitled to a stock appreciation payment upon the consummation of a change in control transaction, provided that he executes a general release of Diedrich. For this purpose, a change in control transaction is defined as a transaction that results in a non-affiliate of Diedrich acquiring 90% of the outstanding shares of common stock. The stock appreciation payment payable to Mr. McCarthy upon the consummation of a change in control transaction is equal to the product of (i) the difference determined by subtracting $5.00 from the per share price at which at least 90% of the outstanding shares of common stock is acquired, multiplied by (ii) 100,000.

In connection with the Offer and the Merger, Mr. McCarthy will receive an aggregate payment of $3,626,200, which is comprised of (i) a payment of $3,000,000 (constituting the stock appreciation payment) and (ii) a payment of $626,200 in connection with Diedrich options owned by him. Under the prior employment letter agreement, if Mr. McCarthy were to be terminated without cause following the Merger, Mr. McCarthy would also receive a lump sum payment of $168,750, provided that he executes a customary release of Diedrich. However, pursuant to the Letter Agreement entered into in connection with his appointment as President and Chief Financial Officer, effective as of February 1, 2010, if Mr. McCarthy is terminated for any reason other than a “Just Cause Dismissal” (as defined in Article IX of Diedrich’s 2000 Equity Incentive Plan) following the Merger, Mr. McCarthy will receive a lump sum payment of $275,000 (instead of the lump sum payment of $168,750 described above), provided that Mr. McCarthy executes a complete release of Diedrich in connection with or related to his employment with Diedrich.

16.	SUBSEQUENT EVENTS

Appointment of Executive Chairman. On January 20, 2010, Diedrich’s Board of Directors appointed Diedrich’s current non-Executive Chairman of the Board, Paul C. Heeschen, to the newly created position of Executive Chairman, effective as of February 1, 2010, whereby Mr. Heeschen will assume a more active role at Diedrich working collaboratively with Mr. McCarthy.

Appointment of President. On January 22, 2010, Mr. McCarthy was appointed to the positions of President and Chief Financial Officer of Diedrich, effective as of February 1, 2010. In connection with this appointment, Diedrich and Mr. McCarthy entered into the Letter Agreement, which provides for an increase in Mr. McCarthy’s (i) annual base salary to $275,000, and (ii) participation in Diedrich’s bonus/incentive plan to sixty percent of his annual base salary, which will be paid based upon the achievement of specific criteria identified by Diedrich’s Board of Directors. In the event that Mr. McCarthy is terminated by Diedrich for any reason other than a “Just Cause Dismissal” (as defined in Article IX of Diedrich’s 2000 Equity Incentive Plan), Mr. McCarthy will be eligible to receive a lump sum severance payment that has been increased to an amount equal to his annual base salary, provided that Mr. McCarthy executes a complete release of Diedrich in connection with or related to his employment with Diedrich. The terms of Mr. McCarthy’s employment letter agreements dated December 30, 2005 and May 1, 2008 that are not inconsistent with the terms of the Letter Agreement will continue to remain in effect, and the terms of the Letter Agreement control in the event that there is any conflict between the Letter Agreement and such prior employment letter agreements.

CEO Separation Agreement. On January 22, 2010, Diedrich and Mr. J. Russell Phillips entered into a Separation Agreement and General Release (the “Separation Agreement”) whereby Mr. Phillips and the Company agreed that Mr. Phillips’ employment as President and Chief Executive Officer of Diedrich will terminate on January 31, 2010 (the “Separation Date”). Pursuant to the terms of the Separation Agreement, Mr. Phillips has a period of 180 days from the Separation Date to exercise any vested Options, (as defined in the Separation Agreement), and upon expiration of such period, all vested but unexercised Options will terminate and become unexercisable. Further, all unvested Options shall terminate and become unexercisable as of the date of the Separation Agreement. Pursuant to the Separation Agreement, the vesting of 45,834 Options was accelerated so that the total number of vested Options is 137,500. Additionally, on the eighth day following the Separation Date, Diedrich shall make a lump sum payment of $250,000 to Mr. Phillips provided that Mr. Phillips has executed a release and waiver and complied with the other terms and conditions of the Separation Agreement. As a result of the Separation Agreement, in the third quarter of fiscal year 2010, the Company will record compensation expense of $250,000 related to the lump sum payment and compensation expense of approximately $1.2 million for the accelerated vesting of the 45,834 Options.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

A WARNING ABOUT FORWARD LOOKING STATEMENTS.

We make forward-looking statements in this quarterly report on Form 10-Q that are subject to risks and uncertainties. These forward-looking statements include information about the proposed transaction with GMCR, possible or assumed future results of our financial condition, operations, plans, objectives and performance. The “safe harbor” set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, does not apply to forward-looking statements made in connection with a tender offer. When we use the words “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we are making forward-looking statements. Many possible events or factors could affect our future financial results and performance. This could cause our results or performance to differ materially from those expressed in our forward-looking statements. You should consider these risks when you review this quarterly report on Form 10-Q, along with the following possible events or factors:

•

the risk that the Offer and the Merger will not close;

•

the risk that Diedrich’s business will be adversely impacted during the pendency of the Offer and the Merger;

•

the financial and operating performance of our wholesale operations;

•

our ability to achieve and/or maintain profitability over time;

•

the successful execution of our growth strategies;

•

the impact of competition; and

•

the availability of working capital.

Additional risks and uncertainties are described elsewhere in this report and in detail under the caption “Risk Factors Relating to Diedrich Coffee and Its Business” in our annual report on Form 10-K for the fiscal year ended June 24, 2009 and in other reports that we file with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this quarterly report on Form 10-Q. There can be no assurance that the proposed transaction will in fact be consummated. Except where required by law, we do not undertake an obligation to revise or update any forward-looking statements, whether as a result of new information, future events or changed circumstances. Unless otherwise indicated, “we,” “us,” and “our,” and similar terms refer to Diedrich Coffee, Inc., a Delaware corporation, and its predecessors and subsidiaries.

INTRODUCTION

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying unaudited condensed consolidated financial statements and footnotes to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. Our discussion is organized as follows:

•

Overview. This section provides a general description of our business, as well as recent significant transactions or events that we believe are important in understanding the results of operations, as well as to anticipate future trends in those operations.

•

Results of operations. This section provides an analysis of our results of operations presented in the accompanying unaudited condensed consolidated statements of operations by comparing the results for the twelve and twenty-four weeks ended December 9, 2009 to the results for the twelve and twenty-four weeks ended December 10, 2008, respectively.

•

Financial condition, liquidity and capital resources. This section provides an analysis of our cash flows and a discussion of our outstanding debt and commitments, both firm and contingent, that existed as of December 9, 2009. Included in the discussion of outstanding debt is a discussion of our financial capacity to fund our future commitments and a discussion of other financing arrangements.

•

Critical accounting estimates. All of our significant accounting policies are summarized in Note 1 to the accompanying unaudited condensed consolidated financial statements.

OVERVIEW

Business

We are a specialty coffee roaster and wholesaler. Our brands include Diedrich Coffee, Coffee People and Gloria Jean’s. The majority of our revenue is generated from wholesale customers located across the United States. Our wholesale operation sells a wide variety of whole bean and ground coffee as well as single serve coffee products through a network of office coffee distributors (“OCS”), chain and independent restaurants, coffeehouses, other hospitality operators and specialty retailers. We operate a roasting facility and a distribution facility in central California that supplies our coffee products to all of our customers.

The Company’s costs of operations include cost of sales consisting of raw materials including green coffee beans, flavorings and packaging materials; royalty payments due to the licensor; equipment lease expense related to some of our packaging lines; a portion of our facility lease expense; the salaries and related expenses of production and distribution personnel; depreciation on production equipment; and freight and delivery expenses. Operating expenses include the salaries and related expenses for those employees directly supporting our wholesale distribution channels. In addition to salaries and associated costs, these expenses include marketing expenses; free product supplied for inclusion in brewer sample packs and in-store demonstrations; and a portion of our facility lease expense. General and administrative expenses consist of expenses incurred for corporate support and administration, including a portion of our facility lease expense and the salaries and related expenses for personnel not elsewhere categorized.

Recent Developments

Proposed Merger with Green Mountain Coffee Roasters, Inc. On December 7, 2009, Diedrich Coffee, Inc. (“Diedrich”), Green Mountain Coffee Roasters, Inc., a Delaware corporation (“GMCR”), and Pebbles Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of GMCR (“Acquisition Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), whereby GMCR agreed to acquire all issued and outstanding shares of Diedrich’s common stock, par value $0.01 per share (the “Shares”), in exchange for, with respect to each share, the right to receive $35.00 in cash, without interest (the “Offer Consideration”). Under the terms of the Merger Agreement, after the satisfaction or waiver of the conditions to the Merger (as defined below), Acquisition Sub will merge with and into Diedrich, with Diedrich surviving as a wholly owned subsidiary of GMCR (the “Merger”). In the Merger, each outstanding Share that is not tendered and accepted pursuant to the Offer (as defined below) (other than Shares held by Diedrich or any of its wholly owned subsidiaries or held in its treasury, or owned by GMCR or Acquisition Sub or any other wholly owned subsidiary of GMCR, and other than Shares as to which appraisal rights have been perfected in accordance with applicable law) will be converted into the right to receive the Offer Consideration.

As required under the Merger Agreement, on December 11, 2009, GMCR, through Acquisition Sub, commenced a tender offer (the “Offer”) whereby Acquisition Sub is offering to acquire the Shares in exchange for, with respect to each share, the right to receive the Offer Consideration, subject to the conditions set forth in GMCR’s Offer to Purchase and related Letter of Transmittal, dated December 11, 2009. The Offer was initially scheduled to expire at 12:00 p.m. Eastern Time on January 11, 2010 (one minute after 11:59 p.m., Eastern Time, on January 11, 2010). However, on January 8, 2010, GMCR announced that in accordance with the terms of the Merger Agreement, Acquisition Sub has extended the Offer until 12:00 midnight Eastern Time on Friday, February 5, 2010 (one minute after 11:59 p.m., Eastern Time, on February 5, 2010), unless further extended.

Litigation. On November 10, 2009, an action entitled George Mendenhall, individually and on behalf of all others similarly situated v. J. Russell Phillips, et al., (the “Complaint”) was filed in the Superior Court of the State of California for the County of Orange (the “Court”). In this action, the plaintiff named as defendants Diedrich, the members of the Board, Peet’s and Peet’s wholly owned subsidiary, Marty Acquisition Sub, Inc. Among other things, the Complaint alleged that the members of the Board breached their fiduciary duties to Diedrich’s stockholders in connection with the transactions previously contemplated by the terminated Peet’s Agreement, allegedly resulting in an unfair process and unfair price to such stockholders. The Complaint sought class certification and certain forms of equitable relief, including enjoining the completion of the transactions previously contemplated by the terminated Peet’s Agreement.

On December 23, 2009, an amendment to the Complaint (the “Amended Complaint”) was filed in the Court. The Amended Complaint names as defendants Diedrich, the members of the Board, GMCR and Acquisition Sub. Among other things, the Amended Complaint alleges that the members of the Board breached their fiduciary duties to Diedrich stockholders by failing to provide adequate disclosures of material information concerning the transaction and also seeks an equitable assessment of attorneys’ fees and expenses for the benefit allegedly conferred by Plaintiff’s counsel on Diedrich stockholders through Plaintiff’s alleged involvement in the transaction. The Amended Complaint seeks class certification, certain forms of equitable relief, including enjoining the completion of the transaction contemplated by the Merger Agreement with GMCR until additional disclosures are provided, and an award of attorneys’ fees and expenses. On December 30, 2009, plaintiff filed an application with the Court for a temporary restraining order, a schedule for a motion for preliminary injunction and expedited discovery (the “Application”). On December 31, 2009, the Court denied the Application in its entirety. Diedrich, GMCR and Acquisition Sub believe that the allegations of the Amended Complaint are without merit and intend to vigorously contest the action.

Mr. McCarthy, 48, became Diedrich’s Chief Financial Officer and Secretary in January 2006, after serving as Vice President, Controller of Diedrich Coffee since April 2004. From February 2003 to April 2004, Mr. McCarthy was Vice President of ASM Hospitality Group, a privately owned consulting company. From June 1998 to February 2003, Mr. McCarthy served in various financial capacities for FRD Acquisition Company, Inc. (d/b/a Coco’s & Carrows Restaurants), a subsidiary of Advantica Restaurants Group, Inc., a publicly traded food service company, first as Manager, Field Finance, then Manager, Financial Planning & Analysis, and finally as Director, Finance. From May 1997 to June 1998, Mr. McCarthy was a Business Analyst for Taco Bell, Inc. From August 1986 through May 1997, Mr. McCarthy served in various accounting and financial capacities for El Torito Restaurants, a subsidiary of Family Restaurants, Inc. Mr. McCarthy earned a B.S. degree in business management from Pepperdine University and a master’s degree in business administration from the University of Southern California.

CEO Separation Agreement. On January 22, 2010, Diedrich and Mr. Phillips entered into a Separation Agreement and General Release (the “Separation Agreement”) whereby Mr. Phillips and the Company agreed that Mr. Phillips’ employment as President and Chief Executive Officer of Diedrich will terminate on January 31, 2010 (the “Separation Date”). Pursuant to the terms of the Separation Agreement, Mr. Phillips has a period of 180 days from the Separation Date to exercise any vested Options (as defined in the Separation Agreement), and upon expiration of such period, all vested but unexercised Options will terminate and become unexercisable. Further, all unvested Options shall terminate and become unexercisable as of the date of the Separation Agreement. Pursuant to the Separation Agreement, the vesting of 45,834 Options was accelerated so that the total number of vested Options is 137,500. Additionally, on the eighth day following the Separation Date, Diedrich shall make a lump sum payment of $250,000 to Mr. Phillips provided that Mr. Phillips has executed a release and waiver and complied with the other terms and conditions of the Separation Agreement.

Retail Outlets

Our strategy is to capitalize on the growth of the wholesale specialty coffee market and our strength as a premier roaster and distributor of the world’s finest coffees. In the Transaction with Praise, we sold the Gloria Jean’s U.S. franchise and retail operations which included the transfer of 12 company-operated and 90 franchised Gloria Jean’s retail coffeehouses. During the twelve weeks ended September 16, 2009, the two remaining Diedrich franchise locations were closed. As of December 9, 2009, we have four Coffee People, Inc. franchise locations. The Company currently has no plans to open any additional company-operated or franchised Diedrich or Coffee People coffeehouses.

Seasonality and Quarterly Results

Our business experiences some variations in sales from quarter to quarter due to the holiday season and other factors including, but not limited to, general economic trends, competition, marketing programs and the weather. Because of the seasonality of our business, results from any quarter may not be indicative of the results that may be achieved in any other quarter or the full fiscal year, especially for our first fiscal quarter which tends to be the weakest.

RESULTS OF OPERATIONS

Twelve weeks ended December 9, 2009 compared with the twelve weeks ended December 10, 2008

Total Revenue. Our revenue from continuing operations for the twelve weeks ended December 9, 2009 increased by $10,780,000 or 77.7%, to $24,650,000 from $13,870,000 for the twelve weeks ended December 10, 2008. Each component of total revenue is discussed below.

Wholesale Revenue. Our wholesale sales for the twelve weeks ended December 9, 2009 increased by $10,769,000, or 78.7%, to $24,455,000 from $13,686,000 for the twelve weeks ended December 10, 2008. Wholesale sales to OCS and other third party wholesale customers increased $10,762,000, or 86.9% to $23,144,000 from $12,382,000 led by strong growth in the Keurig “K-Cup” sales which increased by 97.2% or $11,281,000 from the prior year quarter. We generated 92.9% and 83.7% of our total revenues from the sale of K-Cups^® for the twelve weeks ended December 9, 2009 and December 10, 2008, respectively. We are one of the few roasters under a non-exclusive license to produce K-Cups^® . Sales to our licensor, Keurig, Incorporated, represented approximately $13,029,000, or 53.3% of wholesale sales and $4,521,000, or 33.0% of wholesale sales for the twelve weeks ended December 9, 2009 and December 10, 2008, respectively. Roasted coffee sales to former franchisee locations that are now owned by Praise increased $7,000 for the twelve weeks ended December 9, 2009. Wholesale sales to the former franchisees are included in continuing operations for all periods as we will continue to provide coffee roasting services to Praise.

Retail and other. Retail and other for the twelve weeks ended December 9, 2009 increased by $11,000, or 6.0%, to $195,000 from $184,000 for the twelve weeks ended December 10, 2008. Retail sales are related to our ecommerce business through our three web stores. Retail sales for the twelve weeks ended December 9, 2009 increased by a net $16,000, or 9.6%, to $182,000 from $166,000 for the twelve weeks ended December 10, 2008. Other revenue consists primarily of royalties received on sales at the four remaining Coffee People franchised locations. Our franchise revenue decreased by $5,000, or 27.8%, to $13,000 for the twelve weeks ended December 9, 2009 from $18,000 for the twelve weeks ended December 10, 2008.

Cost of Sales. As a percentage of total revenue, cost of sales decreased from 83.5% for the twelve weeks ended December 10, 2008 to 73.5% for the twelve weeks ended December 9, 2009, resulting primarily from higher machine utilization, optimal resource management and inventory controls along with our ability to continue leveraging our fixed manufacturing costs over higher production volumes.

Operating Expenses. Total operating expenses for the twelve weeks ended December 9, 2009 increased $389,000 to $1,434,000 from $1,045,000 for the twelve weeks ended December 10, 2008. This increase resulted primarily from increases in marketing costs of $397,000 along with increases in compensation of $101,000, travel and other of $145,000 and was partially offset by a decrease in allowance for doubtful accounts of $208,000 and equipment costs of $46,000.

Depreciation and Amortization. Depreciation and amortization decreased $43,000, or 10.7% to $359,000 for the twelve weeks ended December 9, 2009 from $402,000 for the twelve weeks ended December 10, 2008.

General and Administrative Expenses. Our general and administrative expenses increased by $436,000, or 27.6%, to $2,013,000 for the twelve weeks ended December 9, 2009 compared to $1,577,000 for the twelve weeks ended December 10, 2008. The increase in general and administrative expenses was primarily due to increases in cash compensation costs of $469,000 and stock compensation of costs of $328,000 and was partially offset by reductions in legal, consulting and other costs of $361,000. As a percentage of total revenue, general and administrative expenses decreased from 11.4% for the twelve weeks ended December 10, 2008 to 8.2% for the twelve weeks ended December 9, 2009.

Interest Expense. Interest expense decreased by $125,000 from $256,000 for the twelve weeks ended December 10, 2008 to $131,000 for the twelve weeks ended December 9, 2009. The decrease in interest expense was primarily the result of higher interest expense associated with the extension of the Note Purchase Agreement during the prior year quarter.

Merger Related Costs. For the twelve weeks ended December 9, 2009, we expensed $2,501,000 of non-operating costs associated with the pending merger with GMCR. Merger transaction costs primarily include legal, financial advisory and consulting fees.

Income Taxes. We had income from continuing operations of $169,000 for the twelve weeks ended December 9, 2009 and losses from continuing operations of $908,000 for the twelve weeks ended December 10, 2008, respectively. In accordance with ASC 740, “Income Taxes”, the income tax provision generated by the income from continuing operations was $201,000 and $4,000 for the twelve weeks ended December 9, 2009 and December 10, 2008, respectively. The tax provision for the twelve weeks ended December 9, 2009 primarily represents California state income taxes since the utilization of net operating loss carryforwards has been suspended by the state for our 2010 fiscal year end. We are in the process of completing a tax study to determine whether merger related costs incurred during the quarter are deductible for tax purposes. Until that study is completed, the merger related expenses are being treated as a non-deductible expenditure for income tax purposes.

Results of Discontinued Operations—Retail. The Transaction with Praise, which closed on June 12, 2009, included the transfer of 12 company-operated and 90 franchised Gloria Jean’s locations to Praise. The financial results of the retail operations that were sold or closed and Gloria Jean’s franchised operations are reported as discontinued operations for all periods presented in accordance with ASC 360. For the twelve weeks ended December 10, 2008, loss from discontinued operations was $83,000 net of $0 in taxes. The tax expense associated with the discontinued retail operations differed from the statutory federal effective tax rate primarily due to changes in the valuation allowance associated with the discontinued operations.

Twenty-four weeks ended December 9, 2009 compared with the twenty-four weeks ended December 10, 2008

Total Revenue. Our revenue from continuing operations for the twenty-four weeks ended December 9, 2009 increased by $16,145,000 or 66.5%, to $40,423,000 from $24,278,000 for the twenty-four weeks ended December 10, 2008. Each component of total revenue is discussed below.

Wholesale Revenue. Our wholesale sales for the twenty-four weeks ended December 9, 2009 increased by $16,064,000, or 66.8%, to $40,097,000 from $24,033,000 for the twenty-four weeks ended December 10, 2008. Wholesale sales to OCS and other third party wholesale customers increased $16,087,000, or 73.3% to $38,023,000 from $21,937,000 led by strong growth in the Keurig “K-Cup” sales which increased by 83.9% or $17,088,000 from the prior year period. We generated 92.6% and 83.9% of our total revenues from the sale of K-Cups^® for the twenty-four weeks ended December 9, 2009 and December 10, 2008, respectively. We are one of the few roasters under a non-exclusive license to produce K-Cups^®. Sales to our licensor, Keurig, Incorporated, represented approximately $20,265,000, or 50.5% of wholesale sales and $7,458,000, or 31.0% of wholesale sales for the twenty-four weeks ended December 9, 2009 and December 10, 2008, respectively. Roasted coffee sales to former franchisee locations that are now owned by Praise decreased $23,000 for the twenty-four weeks ended December 9, 2009. Wholesale sales to the former franchisees are included in continuing operations for all periods as we will continue to provide coffee roasting services to Praise.

Retail and other. Retail and other for the twenty-four weeks ended December 9, 2009 increased by $81,000, or 33.1%, to $326,000 from $245,000 for the twenty-four weeks ended December 10, 2008. Retail sales are related to our ecommerce business through our three web stores. Retail sales for the twenty-four weeks ended December 9, 2009 increased by a net $96,000, or 47.1%, to $300,000 from $204,000 for the twenty-four weeks ended December 10, 2008. Other revenue consists primarily of royalties received on sales at the four remaining Coffee People franchised locations. Our franchise revenue decreased by $15,000, or 36.6%, to $26,000 for the twenty-four weeks ended December 9, 2009 from $41,000 for the twenty-four weeks ended December 10, 2008.

Cost of Sales. As a percentage of total revenue, cost of sales decreased from 81.8% for the twenty-four weeks ended December 10, 2008 to 73.8% for the twenty-four weeks ended December 9, 2009, resulting primarily from higher machine utilization, optimal resource management and inventory controls along with our ability to continue leveraging our fixed manufacturing costs over higher production volumes.

Operating Expenses. Total operating expenses for the twenty-four weeks ended December 9, 2009 increased $363,000 to $2,621,000 from $2,258,000 for the twenty-four weeks ended December 10, 2008. This increase resulted primarily from increases in marketing costs of $469,000 along with increases in compensation of $85,000, travel and other of $168,000 and was partially offset by a decrease in allowance for doubtful accounts of $275,000 and equipment costs of $84,000.

Depreciation and Amortization. Depreciation and amortization decreased $20,000, or 2.7% to $714,000 for the twenty-four weeks ended December 9, 2009 from $734,000 for the twenty-four weeks ended December 10, 2008.

General and Administrative Expenses. Our general and administrative expenses increased by $419,000, or 12.4%, to $3,810,000 for the twenty-four weeks ended December 9, 2009 compared to $3,391,000 for the twenty-four weeks ended December 10, 2008. The increase in general and administrative expenses was primarily due to increases in cash compensation costs of $547,000, stock compensation of $328,000 and other costs of $39,000 and was partially offset by reductions in legal, consulting and outside services of $495,000. As a percentage of total revenue, general and administrative expenses decreased from 14.0% for the twenty-four weeks ended December 10, 2008 to 9.4% for the twenty-four weeks ended December 9, 2009.

Interest Expense. Interest expense decreased by $259,000 from $566,000 for the twenty-four weeks ended December 10, 2008 to $307,000 for the twenty-four weeks ended December 9, 2009. The decrease in interest expense was primarily the result of higher interest expense associated with the extension of the Note Purchase Agreement during the prior year.

Merger Related Costs. For the twenty-four weeks ended December 9, 2009, we incurred $2,501,000 of non-operating costs associated with the pending merger with GMCR. Merger transaction costs primarily include legal, financial advisory and consulting fees.

Income Taxes. We had income from continuing operations of $802,000 for the twenty-four weeks ended December 9, 2009 and losses from continuing operations of $2,375,000 for the twenty-four weeks ended December 10, 2008, respectively. In accordance

with ASC 740, “Income Taxes”, the income tax provision generated by the income from continuing operations was $263,000 for the twenty-four weeks ended December 9, 2009 and $4,000 for the twenty-four weeks ended December 10, 2008. The tax provision for the twenty-four weeks ended December 9, 2009 primarily represents California state income taxes since the utilization of net operating loss carryforwards has been suspended by the state for our 2010 fiscal year end. We are in the process of completing a tax study to determine whether merger related costs are deductible for tax purposes. Until that study is completed, the merger related expenses are being treated as a non-deductible expenditure for income tax purposes. As of December 9, 2009, net operating loss carryforwards of $5,582,000 and $9,356,000 for federal and state income tax purposes, respectively are available to be utilized against future taxable income for years through fiscal year 2028, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code. Based upon the level of historical losses and limited earnings history, we cannot conclude that it is more likely than not that we will realize the benefits of these deductible differences, and thus have recorded a valuation allowance against the entire deferred tax asset balance.

Results of Discontinued Operations—Retail. The Transaction with Praise, which closed on June 12, 2009, included the transfer of 12 company-operated and 90 franchised Gloria Jean’s locations to Praise. The financial results of the retail operations that were sold or closed and Gloria Jean’s franchised operations are reported as discontinued operations for all periods presented in accordance with ASC 360. For the twenty-four weeks ended December 10, 2008, loss from discontinued operations was $399,000 net of $0 in taxes. The tax expense associated with the discontinued retail operations differed from the statutory federal effective tax rate primarily due to changes in the valuation allowance associated with the discontinued operations.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition. At December 9, 2009, we had working capital of $9,912,000, long term debt, deferred rent, income tax and other liabilities of $1,832,000 and $14,798,000 of stockholders’ equity, compared to working capital of $8,828,000, long term debt, deferred rent, income tax and other liabilities of $2,005,000 and $13,774,000 of stockholders’ equity at June 24, 2009.

Accounts receivable as of December 9, 2009 was $10,954,000, an increase of $4,619,000 from the balance of $6,335,000 at June 24, 2009. This increase resulted primarily from a more than 34% average increase in wholesale sales compared to the fourth quarter of fiscal 2009. The accounts payable balance of $8,466,000 as of December 9, 2009 is an increase of $3,238,000 from the June 24, 2009 balance of $5,228,000. This increase resulted primarily from an increase in wholesale sales compared to the fourth quarter of fiscal 2009 and the merger related costs.

Cash Flows. The Company had income from continuing operations of $539,000, for the twenty-four weeks ended December 9, 2009 and losses from continuing operations of $2,379,000 for the twenty-four weeks ended December 10, 2008, respectively. Net cash provided by operating activities of continuing operations was $705,000 for the twenty-four weeks ended December 9, 2009 compared to net cash used in operating activities of continuing operations of $1,536,000 for the twenty-four weeks ended December 10, 2008. With an increase in wholesale sales of 66.8% for the twenty-four weeks ended December 9, 2009 along with a reduction in cost of goods sold, we improved gross margins and income from continuing operations for the twenty-four weeks ended December 9, 2009 compared to the twenty-four weeks ended December 10, 2008. Cash used in continuing operations for the twenty-four weeks ended December 10, 2008, of $1,536,000 was primarily the result of operating losses and an increase in inventories and other assets, partially offset by an increase in accounts payable, as our wholesale business grew over 42% for the twenty-four weeks ended December 10, 2008 over the prior fiscal 2008 quarter.

Cash flows provided by investing activities of continuing operations for the twenty-four weeks ended December 9, 2009 totaled $669,000. During the twenty-four weeks ended December 9, 2009, capital expenditures totaled $339,000 and was used to invest in property and equipment primarily related to our Castroville roasting facility. These expenditures were offset by $1,000,000 of payments received on notes receivable. Cash flows provided by investing activities of continuing operations for the twenty-four weeks ended December 10, 2008 totaled $200,000. During the twenty-four weeks ended December 10, 2008, a total of $451,000 was used to invest in property and equipment primarily related to our Castroville roasting facility of $293,000, ecommerce retail of $154,000, wholesale and home office of $4,000, respectively. These expenditures were offset by $644,000 of payments received on notes receivable.

Net cash used by financing activities of continuing operations for the twenty-four weeks ended December 9, 2009 of $1,000,000 was the result of a payment on our credit facility. Net cash provided by financing activities of continuing operations for the twenty-four weeks ended December 10, 2008 of $3,000,000 was the result of borrowings under our credit facility.

Note Purchase Agreement:

On May 10, 2004, we entered into a $5,000,000 Contingent Convertible Note Purchase Agreement with Sequoia Enterprises, L.P. (“Sequoia”), a limited partnership whose sole general partner is a significant shareholder of the Company and also serves as the

Chairman of the board of directors of the Company (the “Note Purchase Agreement”), which provided, at our election, the ability to issue notes with up to an aggregate principal amount of $5,000,000. We have amended the Note Purchase Agreement from time to time and have agreed to refrain from further borrowings under the Note Purchase Agreement in connection with the entry into the Loan Agreement (as defined below) entered into on August 26, 2008. As amended, the notes issued under the Note Purchase Agreement are due in full on March 31, 2010, and we are only required to make monthly payments of interest and the monthly commitment fee, but not principal, until such date. On the maturity date, all outstanding principal, interest and other amounts payable under the Note Purchase Agreement will be due unless due earlier pursuant to the terms of the Note Purchase Agreement upon a change in control of the Company or an event of default. Interest is payable at three-month LIBOR plus 9.30% for any period during which the ratio of Indebtedness (as defined in the Note Purchase Agreement) on a consolidated basis to Effective Tangible Net Worth (as defined in the Note Purchase Agreement) is greater than 1.75:1.00 or the three-month LIBOR plus 6.30% for any other period, in each case reset on a periodic basis as provided in the Note Purchase Agreement. The Note Purchase Agreement contains covenants, among others, that limit the amount of indebtedness that we may have outstanding in relation to our tangible net worth. As of December 9, 2009, we had $2,000,000 of issued notes outstanding under the Note Purchase Agreement. As of December 9, 2009, we were in compliance with all covenants contained in the Note Purchase Agreement.

Loan Agreement:

On August 26, 2008, we entered into a loan agreement with Sequoia (the “Term Loan Agreement”). The Term Loan Agreement provides for a $3,000,000 term loan (the “Term Loan”). As amended, interest is payable at one-month LIBOR plus 9.30% for any period during which the ratio of Indebtedness (as defined in the Term Loan Agreement) on a consolidated basis to Effective Tangible Net Worth (as defined in the Term Loan Agreement) is greater than 1.75:1.00 or one-month LIBOR plus 6.30% for any other period, resetting on the first calendar day of each month. We are required to make regular monthly payments of interest on the term loan with Sequoia. In addition, as per the terms of the Term Loan Agreement, we paid $1,000,000 due to Sequoia on July 29, 2009 and had a remaining balance of $2,000,000 as of December 9, 2009. All outstanding principal and interest will be due on the maturity date of August 26, 2011, unless due earlier pursuant to the terms of the Term Loan Agreement upon a change of control of the Company or an event of default. As of December 9, 2009, $2,000,000 was outstanding under the Term Loan Agreement.

The Term Loan Agreement requires the Company to refrain from further borrowings under the Note Purchase Agreement and contains restrictions on incurring indebtedness on par with, or senior to, the Term Loan Agreement. The Term Loan Agreement also contains a covenant that limits the amount of indebtedness that the Company may have outstanding in relation to tangible net worth, in addition to other standard covenants and events of default. As of December 9, 2009, we were in compliance with all covenants contained in the Term Loan Agreement.

Letter of Credit:

We entered into a Credit Agreement with Bank of the West on November 4, 2005. The current agreement provides for a $500,000 letter of credit facility that expires on October 31, 2010. The letter of credit facility is secured by a deposit account at Bank of the West. As of December 9, 2009, this deposit account had a balance of $623,000, which is shown as restricted cash on the consolidated balance sheets. As of December 9, 2009, $472,000 of letters of credit was outstanding under the letter of credit facility. The agreement contains covenants that, among other matters, require us to submit financial statements to the bank within specified time periods. As of December 9, 2009, we were in compliance with all Bank of the West agreement covenants.

Liquidity and Management Plans:

For the twenty-four weeks ended December 9, 2009, we reported net income of $539,000, which was net of income tax of $263,000. We had a cash balance of $3,946,000 and no access to additional borrowings under our current credit facility as of December 9, 2009.

The Note Purchase Agreement with Sequoia expires on March 31, 2010 and the $2,000,000 balance on the outstanding note is due in full on that date.

We are required to make regular monthly payments of interest on the Term Loan with Sequoia. In addition, as per the terms of the Term Loan Agreement, the Company paid $1,000,000 due to Sequoia on July 29, 2009. All outstanding principal and interest will be due on the maturity date of August 26, 2011, unless due earlier pursuant to the terms of the Term Loan Agreement upon a change of control of the Company or an event of default. As of December 9, 2009, we had $2,000,000 outstanding under the Term Loan Agreement.

We believe that cash flow from operations and payments from notes receivable due from Praise and Gloria Jean’s Coffees International Pty. Ltd. issued in connection with the sale of the Gloria Jean’s U.S. and international franchise operations will be sufficient to satisfy working capital needs at the anticipated operating levels and debt service requirements for at least the next twelve months.

Our future capital requirements will depend on many factors, including the extent and timing of the rate at which the business grows, if at all, with corresponding demands for working capital. We may be required to seek additional funding through debt financing, equity financing or a combination of funding methods to meet capital requirements and sustain operations. However, additional funds may not be available on terms acceptable to us, or at all.

Other Commitments. The following represents a comprehensive list of our contractual obligations and commitments as of December 9, 2009:


	Payments Due By Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In thousands)
Operating leases	$	8,100	$	3,114	$	3,329	$	1,191	$	466
Green coffee commitments		8,084		8,084		—		—		—
Note payable		4,000		2,000		2,000		—		—

	$	20,184	$	13,198	$	5,329	$	1,191	$	466

We previously entered into an employment letter agreement with our Chief Financial Officer that provides for a severance payment of nine months salary in the event that he is terminated without cause. Under that prior employment letter agreement, our maximum liability for severance is $169,000. However, effective as of February 1, 2010, in connection with his promotion to President and Chief Financial Officer and the related Letter Agreement, this executive will be entitled to receive a lump sum severance payment equal to his annual base salary if he is terminated for any reason other than a “Just Cause Dismissal” (as defined in Article IX of Diedrich’s 2000 Equity Incentive Plan) instead of the nine months of annual base salary severance payment described above, provided that he executes a complete release of Diedrich in connection with or related to his employment with Diedrich. Under the Letter Agreement, our maximum liability for severance would be $275,000. In accordance with the employment agreement with our Chief Financial Officer, upon consummation of the Merger, he will receive a stock appreciation payment of $3,000,000. Because such amounts are contingent, they have not been included in the above table. In addition, upon consummation of the Merger, the entire note payable balance of $4,000,000 to Sequoia will be immediately due and payable.

We have obligations under non-cancelable operating leases for our roasting facility and administrative offices. Lease terms are generally for up to 15 years with renewal options and generally require us to pay a proportionate share of real estate taxes, insurance, common area, and other operating costs.

On December 30, 2009, the Company executed a lease agreement with Castroville Industrial Partners, LLC for approximately 62,000 square feet of warehouse space which will be used primarily as a distribution facility.

CRITICAL ACCOUNTING ESTIMATES

The Annual Report on Form 10-K for the year ended June 24, 2009 includes a detailed discussion of our critical accounting estimates. Pursuant to Form 10-Q, we only disclose those critical accounting estimates that are new or that have been materially amended since the time that we filed our most recent Form 10-K. Accordingly, this section should be read in conjunction with the critical accounting estimates and information disclosed in our Annual Report on Form 10-K for the year ended June 24, 2009.

Item 3.

Quantitative And Qualitative Disclosures About Market Risk.

Not applicable.

Item 4.

Controls and Procedures.

(a) As of the end of the period covered by this quarterly report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 9, 2009.

(b) There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

In the ordinary course of our business, we may become involved in legal proceedings from time to time.

On November 10, 2009, an action entitled George Mendenhall, individually and on behalf of all others similarly situated v. J. Russell Phillips, et al., (the “Complaint”) was filed in the Superior Court of the State of California for the County of Orange (the “Court”). In this action, the plaintiff named as defendants Diedrich, the members of the Board, Peet’s and Peet’s wholly owned subsidiary, Marty Acquisition Sub, Inc. Among other things, the Complaint alleges that the members of the Board breached their fiduciary duties to Diedrich’s stockholders in connection with the transactions previously contemplated by the terminated Peet’s Agreement, allegedly resulting in an unfair process and unfair price to such stockholders. The Complaint seeks class certification and certain forms of equitable relief, including enjoining the completion of the transactions previously contemplated by the terminated Peet’s Agreement. Diedrich believes that the allegations of the complaint are without merit and intends to vigorously contest the action.

On December 23, 2009, an amendment to the Complaint (the “Amended Complaint”) was filed in the Court. The Amended Complaint names as defendants Diedrich, the members of the Board, GMCR and Acquisition Sub. Among other things, the Amended Complaint alleges that the members of the Board breached their fiduciary duties to Diedrich stockholders by failing to provide adequate disclosures of material information concerning the transaction and also seeks an equitable assessment of attorneys’ fees and expenses for the benefit allegedly conferred by Plaintiff’s counsel on Diedrich stockholders through Plaintiff’s alleged involvement in the transaction. The Amended Complaint seeks class certification, certain forms of equitable relief, including enjoining the completion of the transaction contemplated by the Merger Agreement with GMCR until additional disclosures are provided, and an award of attorneys’ fees and expenses. On December 30, 2009, plaintiff filed an application with the Court for a temporary restraining order, a schedule for a motion for preliminary injunction and expedited discovery (the “Application”). On December 31, 2009, the Court denied the Application in its entirety. Diedrich, GMCR and Acquisition Sub believe that the allegations of the Amended Complaint are without merit and intend to vigorously contest the action.

Item 1A.

Risk Factors.

The Annual Report on Form 10-K for the year ended June 24, 2009 includes a detailed discussion of our risk factors. Pursuant to Form 10-Q, we only provide those risk factors that are new or that have been materially amended since the time that we filed our most recent Form 10-K. Accordingly, this section should be read in conjunction with the risk factors and information disclosed in our Form 10-K for the year ended June 24, 2009.

The following risk factor supplements the risk factors disclosed in the Annual Report on Form 10-K for the year ended June 24, 2009.

RISKS RELATING TO THE PROPOSED MERGER

The pending Merger and/or the delay or failure to complete the Merger with GMCR could materially and adversely affect our results of operations and our stock price.

On December 7, 2009, we entered into the Merger Agreement with GMCR and Acquisition Sub. On December 11, 2009, Acquisition Sub commenced a tender offer (the “Offer”) to purchase all of the outstanding shares of the Company’s common stock. Consummation of the Offer is subject to customary conditions, including, but not limited to, (i) a number of Shares validly tendered and not withdrawn pursuant to the Offer that, together with any Shares owned by GMCR, Acquisition Sub or any other subsidiary of GMCR immediately prior to the acceptance pursuant to the Offer, represents more than 50% of the Adjusted Outstanding Share Number (as defined in the Merger Agreement), (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (iii) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement. Consummation of the Merger is subject to customary conditions, including, but not limited to, consummation of the Offer, and, if required under applicable law, approval of the Merger Agreement by our stockholders. We cannot assure you that these conditions will be met or waived, that the necessary approvals will be obtained, or that we will be able to successfully consummate the Merger as currently contemplated under the Merger Agreement or at all. As a result of the pending Merger:

•

the attention of our management and our employees may be diverted from day-to-day operations as they focus on consummating the Merger;

•

the Merger Agreement places a variety of restrictions and constraints on the conduct of our business outside of the ordinary course prior to the closing of the Merger or the termination of the Merger Agreement; and

•

our ability to attract new employees and retain our existing employees may be harmed by uncertainties associated with the Merger, and we may be required to incur substantial costs to recruit replacements for lost personnel.

A delay in the consummation of the Merger may exacerbate the occurrence of these events.

Furthermore, in the event that the Offer or Merger is not completed:

•

our stockholders will not receive the consideration that GMCR has agreed to pay pursuant to the Merger Agreement, and our stock price may experience a decline;

•

we will incur significant transaction costs, including legal, accounting, financial advisory and other costs relating to the Merger; and

•

under some circumstances, we may have to pay a termination fee to GMCR.

The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and our stock price.

Item 2.

Unregistered sales of Equity Securities and use of Proceeds.

None

Item 3.

Defaults upon Senior Securities.

None

Item 4.

Submission of Matters to a Vote of Security Holders.

None

Item 5.

Other Information.

None

Item 6.

Exhibits.

Set forth below is a list of the exhibits included as part of this quarterly report.


Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated March 16, 1999, among Diedrich Coffee, Inc., CP Acquisition Corp., a wholly owned subsidiary of Diedrich Coffee, Inc., and Coffee People, Inc. (1)

3.1		Restated Certificate of Incorporation of Diedrich Coffee, Inc., dated May 11, 2001 (2)

3.2		Certificate of Amendment of Restated Certificate of Incorporation of Diedrich Coffee, Inc., dated January 26, 2009 (7)

3.3		Amended and Restated Bylaws of Diedrich Coffee, Inc. (5)

4.1		Specimen Stock Certificate (3)

4.2		Common Stock and Warrant Purchase Agreement, dated March 14, 2001 (4)

4.3		Form of Warrant, dated May 8, 2001(2)

4.4		Registration Rights Agreement, dated May 8, 2001 (2)

4.5		Amendment No. 1 to 2001 Warrant, dated August 26, 2008 (6)

4.6		Warrant, dated as of August 26, 2008, issued by Diedrich Coffee, Inc. to Sequoia Enterprises, L.P. (6)

4.7		Waiver, Agreement, Amendment No. 1 to 2008 Warrant and Amendment No. 2 to 2001 Warrant with Sequoia Enterprises, L.P., dated November 10, 2008 (8)

4.8		Warrant, dated as of April 29, 2009, issued by Diedrich Coffee, Inc. to Sequoia Enterprises, L.P. (9)

10.1		Agreement and Plan of Merger by and among Diedrich Coffee, Inc., Green Mountain Coffee Roasters, Inc. and Pebbles Acquisition Sub., Inc., dated December 7, 2009 (10)

10.2		Stockholder Agreement by and between Green Mountain Coffee Roasters, Inc. and Paul C. Heeschen, dated as of December 7, 2009 (10)

10.3		Form of Stockholder Agreement by and between Green Mountain Coffee Roasters, Inc. and Certain Directors and Executive Officers of Diedrich Coffee, Inc., dated December 7, 2009 (10)

10.4		Lease Agreement by and between Castroville Industrial Partners, LLC and Diedrich Coffee, Inc., dated December 30, 2009

10.5		Separation Agreement and General Release by and between Diedrich Coffee, Inc. and J. Russell Phillips, dated as of January 22, 2010*

10.6		Letter Agreement with Sean M. McCarthy, dated as of January 22, 2010*

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Management contract or compensatory plan or arrangement

(1)	Previously filed as Appendix A to Diedrich Coffee’s Registration Statement on Form S-4, filed with the Securities and Exchange Commission on April 23, 1999.

(2)	Previously filed as an exhibit to Diedrich Coffee’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 16, 2001.

(3)	Previously filed as an exhibit to Diedrich Coffee’s Registration Statement on Form S-3 (Registration No. 333-66744), filed with the Securities and Exchange Commission on August 3, 2001.

(4)	Previously filed as Annex B to Diedrich Coffee’s Definitive proxy Statement, filed with the Securities and Exchange Commission on April 12, 2001.

(5)	Previously filed as an exhibit to Diedrich Coffee’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 3, 2008.

(6)	Previously filed as an exhibit to Diedrich Coffee’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 28, 2008.

(7)	Previously filed as an exhibit to Diedrich Coffee’s Quarterly Report on Form 10-Q for the period ended March 4, 2009, filed with the Securities and Exchange Commission on April 20, 2009.

(8)	Previously filed as an exhibit to Diedrich Coffee’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 17, 2008.

(9)	Previously filed as an exhibit to Diedrich Coffee’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 4, 2009.

(10)	Previously filed as an exhibit to Diedrich Coffee’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 8, 2009.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Dated: January 25, 2010		DIEDRICH COFFEE, INC.

		/s/ J. Russell Phillips
		J. Russell Phillips Chief Executive Officer (On behalf of the registrant)

		/s/ Sean M. McCarthy
		Sean M. McCarthy Vice President and Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX


Exhibit No.		Description
10.4		Lease Agreement by and between Castroville Industrial Partners, LLC and Diedrich Coffee, Inc., dated December 30, 2009

10.5		Separation Agreement and General Release by and between Diedrich Coffee, Inc. and J. Russell Phillips, dated as of January 22, 2010.

10.6		Letter Agreement with Sean M. McCarthy, dated as of January 22, 2010

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.4 2 dex104.htm LEASE AGREEMENT - CASTROVILLE INDUSTRIAL PARTNERS, LLC Lease Agreement - Castroville Industrial Partners, LLC

Exhibit 10.4

LEASE AGREEMENT

THIS LEASE, is made as of the December 30, 2009, by and between Castroville Industrial Partners, LLC (“Landlord”) and Diedrich Coffee, Inc. (“Tenant”).

1. Description of Premises. In consideration of the rents, covenants and agreements set forth herein, Landlord hereby leases to Tenant the premises (the “Leased Premises”) commonly known as Suites A and B consisting of approximately 62,184 sq. ft. located in an approximately 72,584 sq. ft. building (the “ Building”) located at:

10383 Ocean Mist Parkway

Castroville, CA 95012

The Leased Premises shall include access to and use of the loading areas, parking areas and driveways, and is more specifically described on the diagram attached hereto as Exhibit A. Landlord agrees, at its sole cost and expense, to remodel the Leased Premises to meet Tenant’s specifications as outlined in the Tenant/Landlord Work Letter attached hereto as Exhibit B (the “Tenant Improvements”).

2. Term. The term of this Lease (the “Term”) shall be for a period of six (6) years commencing on the date (the “Commencement Date”) on which the Leased Premises are Substantially Complete (as defined hereinafter); provided, however, if the Leased Premises have not been Substantially Completed on or before June 1, 2010, this Lease shall terminate and Landlord shall immediately return the Security Deposit (as defined hereinafter) to Tenant. The Leased Premises shall be deemed “Substantially Complete” on the earliest of the date on which: (a) the Tenant Improvements have been completed or (b) Tenant first occupies all or any portion of the Leased Premises.

3. Rent. Tenant agrees to pay rent as follows:

(a) Monthly Rental. Beginning on the Commencement Date, the “Monthly Rental” shall be: Forty-Five Thousand Three Hundred Ninety Four Dollars and 32 Cents ($45,394.32) per month payable on the first (1^st ) day of each month. In the event the Commencement Date is other than the first (1^st) day of a calendar month, the Monthly Rental for the partial first calendar month and last calendar month of the Term will be prorated on a daily basis based on the number of days in the month.

(b) Annual Consumer Price Index Increase during Initial Term. On the first anniversary of the Commencement Date and annually on each anniversary thereafter during the Term, the Monthly Rental for each year shall be increased (but not decreased) by 3% or the increase in the Consumer Price Index for all Urban Consumers for the San Francisco – Oakland – San Jose metropolitan area (1982-84=100), as published by the U.S. Department of Labor, Bureau of Labor Statistics, whichever is less.

If the index is discontinued or revised during the Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the index had not been discontinued or revised.

(c) Annual Consumer Price Index Increase during Extended Term. In the event that the Tenant exercises the option to extend the term of this Lease as provided in Paragraph 39, the Monthly Rental for each year during the Extended Term (as hereinafter defined) shall be increased (but not decreased) by 3% or the increase in the Consumer Price Index for all Urban Consumers for the San Francisco – Oakland – San Jose metropolitan area (1982-84=100), as published by the U.S. Department of Labor, Bureau of Labor Statistics, whichever is less.

If the index is discontinued or revised during the Extended Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the index had not been discontinued or revised.

(d) Late Charge. Tenant acknowledges that late payment by Tenant to Landlord of rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such cost being extremely difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord by the terms of any encumbrance and note secured by any encumbrance covering the Leased Premises. Therefore, if any installment of rent due from Tenant is not received by Landlord within 10 days after its due date, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue rent as a late charge. By initialing in the place provided below, the parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant’s Default (as hereinafter defined) with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord. Checks returned by the bank for insufficient funds are deemed as late rent and shall incur an additional charge of $25.00.

Landlord: Tenant:

(e) Security Deposit. On December 15, 2009, Tenant paid Landlord a deposit (the “Deposit”) in the amount of Forty Five Thousand Three Hundred Ninety Four Dollars and 32 Cents ($45,394.32) pursuant to that certain Expression of Interest-Proposal to Lease dated December 14, 2009. Upon execution of this Lease, Landlord shall hold the Deposit as security (the “Security Deposit”) for performance by Tenant of its obligations under this Lease. If Tenant is in Default, Landlord can use the Security Deposit, or any portion of it, to cure the Default or to compensate Landlord for all damage sustained by Landlord resulting from Tenant’s Default. Tenant shall immediately on demand pay to Landlord a sum equal to the portion of the Security Deposit expended or applied by Landlord as provided in this Paragraph so as to maintain the Security Deposit in the sum initially deposited with Landlord. If Tenant is not in Default at the expiration or termination of this Lease, Landlord shall promptly return the Security Deposit to Tenant. Landlord’s obligations with respect to the Security Deposit are those of a debtor and not a trustee. Landlord can maintain the Security Deposit separate and apart from Landlord’s general funds or can commingle the Security Deposit with Landlord’s general and other funds. Landlord shall not be required to pay Tenant interest on the Security Deposit.

4. Personal Property Taxes. As additional rent, Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges (“taxes”) that are levied and assessed against Tenant’s personal property installed or located in or on the Leased Premises, and that become payable during the Term and any renewals or extensions thereof. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments.

5. Real Property Taxes. Landlord shall be responsible for the payment of real property taxes and general and special assessments levied and assessed against the Building and land of which the Leased Premises are a part.

6. Utilities and Other Expenses. Tenant shall pay before delinquent all charges made for gas; electricity, telephone, garbage and any similar utility supplied to the Leased Premises at utility company rates. Landlord shall pay all sewer charges related to the Leased Premises.

7. Use. The Leased Premises are to be used for storage, roasting, grinding, flavoring, packaging and distribution of coffee and associated products and any other use allowed by law. Tenant agrees to restrict its use to such purposes, and not to use, or permit the use of, the Leased Premises for any other purpose without first obtaining the consent in writing of Landlord, or of Landlord’s authorized agent, which shall not be unreasonably withheld, delayed or conditioned.

8. Signs. Tenant agrees that it will not construct or place or permit to be constructed or placed, signs, awnings, marquees, or other structures projecting from the exterior of the Leased Premises without Landlord’s prior written consent thereto, which shall not be unreasonably withheld, delayed or conditioned. No such sign shall be painted directly on the Building but shall be attached in such a manner that it can be removed for the purpose of painting the Building’s exterior surface. Tenant further agrees to remove signs, displays, advertisements or decorations it has placed, or permitted to be placed, on the Leased Premises, which, in Landlord’s reasonable opinion, are offensive or otherwise objectionable. If Tenant fails to remove such signs, displays, advertisements or decorations within thirty (30) days after receiving written notice to remove the same from Landlord, Landlord reserves the right to enter the Leased Premises and remove them, at Tenant’s expense.

9. Representations by Landlord. Neither Landlord nor any agent or employee of Landlord has made any representations or promises with respect to the Leased Premises or the Building except as expressly set forth in this Lease and any attached Exhibits.

10. Maintenance and Repairs.

10.1 Maintenance by Landlord. Landlord shall, at its own cost and expense, maintain in good condition, repair and in compliance with all applicable laws (including without limitation, building codes), the structural elements of the Building and the building systems. It shall be Landlord’s responsibility to keep the building systems operational. For purposes of this section, “structural elements” shall mean the roof, exterior walls, (including painting of the entire Building and excepting window glass), bearing walls, structural supports, and foundation of the Building and the “building systems” shall mean the systems for electricity, plumbing, sewer, water drainage,

lighting, heating, air conditioning and ventilation. Notwithstanding anything in this section to the contrary, Tenant shall promptly reimburse Landlord for the cost of any repairs made pursuant to this section required due to the negligence of Tenant or its employees, agents, or subtenants, if any. Landlord and its agents shall have the right to enter the Leased Premises at all reasonable times (and at any time during an emergency) for the purpose of inspecting them or to make any repairs required to be made by Landlord under this Lease.

10.2 Maintenance by Tenant. Except as provided elsewhere in this Lease, Tenant shall, at its own cost and expense, perform or cause to be performed all ordinary repair and maintenance of the Leased Premises, so that the Leased Premises are in good order and repair and in as safe and clean condition as when received by Tenant from Landlord, reasonable wear and tear excepted. Tenant’s obligation to repair shall specifically include routine, ordinary repairs to the heating, ventilation, and air conditioning systems, interior walls, floor coverings, ceilings, paved driveways, parking areas and glass windows for the Leased Premises, except that Tenant’s obligation shall not include (i) major repairs to the structural elements of the Building or building systems as defined in section 10.1 above, (ii) major repairs to the paved driveways or the parking areas (including, without limitation, resurfacing and/or re-slurring the paved driveways or the parking areas), or (iii) capital improvements required by any government entity, law, ordinance or regulation. Tenant shall keep the parking lot, the garbage area and the general area around the Leased Premises, reasonably free of debris and garbage from Tenant’s business.

11. Waste, Alterations. Tenant shall not commit, or allow to be committed, any waste on the Leased Premises, or nuisance, nor shall it use or allow the Leased Premises to be used for an unlawful purpose. Tenant shall not make any alterations to the Leased Premises without Landlord’s consent, which shall not be unreasonably withheld, delayed or conditioned. Any alterations made shall remain on and be surrendered with the Leased Premises on expiration or termination of this Lease, except that Landlord can elect at any time beginning thirty (30) days before expiration of the Term (or any renewals or extensions thereof) to require Tenant to remove any alterations that Tenant has made to the Leased Premises. If Landlord so elects, Tenant shall, at its own cost and expense, remove such alteration before the last day of the Term (or any renewals or extensions thereof) or within thirty (30) days after notice of election is given, whichever is later.

If Tenant makes any alterations to the Leased Premises as provided in this Paragraph in excess of $500, the alterations shall not be commenced until five (5) days after Landlord has received notice from Tenant stating the date the installation of the alterations is to commence so that Landlord can post and record an appropriate Notice of Non-Responsibility.

12. Tenant’s Equipment. Tenant shall not install any other equipment of any kind or nature whatsoever which will or may necessitate any changes, replacements or additions to, or in the use of, the water system, heating system, plumbing system, or electrical system of the Leased Premises or the Building without first obtaining the prior written consent of Landlord, which shall not be unreasonably withheld, delayed or conditioned. In connection with Tenant’s roasting activities, it is understood and agreed that Tenant will need to pierce the roof to install ventilation devices and Landlord hereby approves Tenant’s installation of such devices.

13. Abandonment of Premises, Trade Fixtures. Tenant shall not abandon the Leased Premises at any time during the Term and any renewals or extensions thereof; and if Tenant shall abandon or surrender said premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Tenant and left on the Leased Premises shall be deemed to be abandoned, except such property as may have been mortgaged to Landlord.

14. Removal of Trade Fixtures of Tenant at End of Term. Tenant may remove all furniture, trade fixtures (described as floor coverings, window coverings and wall covering), and equipment installed on the Leased Premises by Tenant and the same shall be removed by Tenant at the expiration or termination of this Lease, provided that the same may be removed without damage to the Building, and if damage is caused by such removal, Tenant agrees to repair such damage at Tenant’s own cost forthwith.

15. Public Liability and Property Damage Insurance.

(a) Liability Insurance. Tenant shall, at its own cost and expense, procure and maintain during the Term and any renewals or extensions thereof a policy of comprehensive public liability insurance and property damage insurance issued by an insurance company reasonably acceptable to Landlord and insuring Landlord against loss or liability caused by or connected with Tenant’s occupation and use of the Leased Premises under this Lease an amount of not less than $1,000,000 for bodily injury liability and property damage liability in any one accident or occurrence. If Tenant shall fail to procure and maintain said insurance within ten (10) days after Tenant’s receipt of written notice, Landlord may, but shall not be required to, procure and maintain the same at the expense of Tenant.

The insurance required under this Paragraph shall be issued by a responsible insurance company or companies authorized to do business in California and shall be in a form reasonably satisfactory to Landlord. Tenant shall, upon Landlord’s request of the date of this Lease, deposit with Landlord a certificate showing that insurance to be in full force and effect.

(b) Insurance on Tenant’s Personal Property. Tenant shall, during the Term and any renewals or extensions thereof, maintain at Tenant’s own cost and expense an insurance policy issued by a reputable company authorized to conduct insurance business in California insuring for their full insurable value all fixtures and equipment and, to the extent possible, all merchandise that is, at any time during the Term and any renewals or extensions thereof, in or on the Leased Premises against damage or destruction by fire, theft, or the elements.

(c) Cancellation Requirements. Each of the insurance policies shall be in a form reasonably satisfactory to Landlord and shall carry an endorsement that, before changing or canceling any policy, the issuing insurance company shall give Landlord at least 30 days’ prior written notice. Certificates of all such insurance policies shall be delivered to Landlord.

16. Insurance. Landlord shall, at its sole cost and expense, obtain and maintain in force on the Building and other improvements of which the Leased Premises are a part a policy of standard fire and extended coverage risk insurance, with vandalism and malicious mischief endorsements, with Landlord as insured, in amounts and in form satisfactory to Landlord, which

may also include, at Landlord’s option, rental continuation, earthquake, flood, demolition, increased cost of construction due to changes in building codes, and other coverages Landlord deems prudent or as may be required under the terms of any mortgage or deed of trust at any time encumbering the Building. Any proceeds of insurance shall be payable to Landlord and used for repair and reconstruction of the Building and the other improvements of which the Leased Premises are a part, if Landlord is obligated under this Lease to repair or reconstruct, subject to any requirements as to the disposition of the proceeds that may be imposed by the beneficiary under any mortgage or deed of trust at any time encumbering the Building.

17. Intentionally Omitted.

18. Insurance Risk. Tenant agrees not to use the Leased Premises in any manner, even in its use for the purposes for which the Leased Premises are leased, that will increase risks covered by insurance on the Building so as to increase the rate of insurance on the Leased Premises, or to cause cancellation of any insurance policy covering the Building. Tenant further agrees not to keep on the Leased Premises, or permit to be kept, used or sold thereon, anything prohibited by the policy of fire insurance covering the Leased Premises. Tenant agrees to comply with all requirements of the insurers applicable to the Leased Premises necessary to keep in force the fire, extended coverage and public liability insurance covering the Leased Premises and the Building, at its own expense and at no cost to Landlord.

19. Compliance with Laws. Tenant further agrees that it will not conduct or operate any business upon said premises in violation of any of the laws of the United States of America, or the State of California, or any ordinances of the county or city in which the Leased Premises are located, or in violation of laws, regulations or orders of any federal, state, county or local agency or office, and any such violation on the part of the Tenant shall constitute a breach of the Lease at Landlord’s option.

20. Right of Re-Entry. It is understood and agreed that Landlord and its agents and employees shall have the right with reasonable advance notice to Tenant to enter upon said Leased Premises at all times reasonable to inspect the same to see that no damage has been or is done and to protect any and all rights of Landlord and to post such reasonable notices as Landlord may desire to protect the rights of Landlord.

21. No Assignment. Tenant agrees not to assign or sublease this Lease, in whole or in part, nor sublet any portion of the Leased Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. The giving of written consent to any assignment of this Lease shall not, however, release Tenant herein of its primary obligation under the terms of this Lease. In the event of an assignment or sublease, Tenant shall provide the assignment documents prepared by Tenant’s attorney to Landlord for review by Landlord’s attorney and shall pay all of Landlord’s reasonable attorney’s fees in connection with any such review, not to exceed Five Hundred Dollars ($500.00). Notwithstanding the above, Tenant may without Landlord’s consent sublease or assign this Lease to Tenant’s parent corporation or to any affiliate of Tenant or its parent.

22. Default.

(a) Tenant’s Default. The occurrence of any of the following shall constitute a “Default” by Tenant:

(1) failure to pay rent when due, if the failure continues for ten (10) days after written notice has been given to Tenant from Landlord;

(2) abandonment of the Leased Premises; or

(3) failure to perform any other provision of this Lease if the failure to perform is not cured within thirty (30) days after notice has been received by Tenant from Landlord. If the Default cannot reasonably be cured within thirty (30) days, Tenant shall not be in Default of this Lease if Tenant commences to cure the Default within the thirty (30) day period and diligently and in good faith continues to cure the Default.

Notices given under this paragraph shall specify the alleged Default and the applicable lease provisions, and shall demand that Tenant perform the provisions of this Lease or pay the rent that is in arrears, as the case may be, within the applicable period of time, or pursuant to applicable law, quit the Leased Premises. No such notice shall be deemed forfeiture or a termination of this Lease unless Landlord so elects in the notice.

(b) Landlord’s Remedies. Landlord shall have the following remedies if Tenant commits a Default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law.

(1) Tenant’s Right to Possession Not Terminated. Landlord can continue this Lease in full force and effect, and this Lease will continue in effect as long as Landlord does not terminate Tenant’s right to possession, and Landlord shall have the right to collect rent when due. During the period Tenant is in Default, Landlord can, pursuant to applicable law, enter the Leased Premises and shall make its best efforts to relet them, or any part of them, to third parties for Tenant’s account. Tenant shall be liable immediately to Landlord for reasonable costs Landlord incurs in reletting the Leased Premises, including brokers’ commissions, expenses of repairing the Leased Premises required by the reletting, and like costs. Reletting can be for a period shorter or longer than the remaining term of this Lease. Tenant shall pay to Landlord that rent due under this Lease on the dates the rent is due, less the rent Landlord receives from any reletting. No act by Landlord allowed by this paragraph shall terminate this Lease unless Landlord notifies Tenant that Landlord elects to terminate this Lease. After Tenant’s Default and for as long as Landlord does not terminate Tenant’s right to possession of the Leased Premises, if Tenant obtains Landlord’s consent, Tenant shall have the right to assign or sublet its interest in this Lease, but Tenant shall not be released from liability. Landlord’s consent to a proposed assignment or subletting shall not be unreasonably withheld, delayed or conditioned.

If Landlord elects to relet the Leased Premises as provided in this Paragraph, rent that Landlord receives from reletting shall be applied to the payment of:

First, any indebtedness from Tenant to Landlord other than rent due from Tenant;

Second, reasonable costs, including for maintenance, required under this Lease to be done by Tenant, which Landlord incurred in reletting.

Third, rent due and unpaid under this Lease. After deducting the payments referred to in this Paragraph, any sum remaining from the rent Landlord receives from reletting shall be held by Landlord and applied in payment of future rent as rent becomes due under this Lease. In no event shall Tenant be entitled to any excess rent received by Landlord. If, on the date rent is due under this Lease, the rent received from the reletting is less than the rent due on that date, Tenant shall pay to Landlord, in additional to the remaining rent due, all costs for maintenance required under this Lease to be done by Tenant, which Landlord incurred that remain after applying the rent received from the reletting as provided in this Paragraph.

(2) Termination of Tenant’s Right to Possession. Landlord can terminate Tenant’s right to possession of the Leased Premises at any time subject to applicable law. No act by Landlord other than giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Leased Premises or the appointment of a receiver on Landlord’s initiative to protect Landlord’s interest under this Lease shall not constitute a termination of Tenant’s right to possession. On termination of this Lease pursuant to this Paragraph, Landlord has the right to recover from Tenant:

(A) The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease;

(B) The worth, at the time of the award, of the amount by which the unpaid rent that would have been eared after the date of termination of this Lease until the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided;

(C) The worth, at the time of the award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and

(D) Any other amount and court costs, as reasonable compensation to Landlord as determined by the court for all detriment proximately caused by Tenant’s Default.

“The worth, at the time of the award,” as used in (A) and (B) of this paragraph, is to be computed by allowing interest at the maximum rate an individual is permitted by law to charge. “The worth, at the time of the award,” as referred to in (c) of this paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus 1%.

(3) Landlord’s Right to Cure Tenant’s Default. Landlord, at any time after Tenant commits a Default, can take reasonable actions to cure the Default at Tenant’s cost. If Landlord at any time, by reason of Tenant’s Default, pays any sum or does any act that requires the

payment of any reasonable sum, the reasonable sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the reasonable sum is paid, and if paid at a later date shall bear interest at the maximum rate an individual is permitted by law to charge from the date the reasonable sum is paid by Landlord until Landlord is reimbursed by Tenant. The reasonable sum, together with interest on it, shall be additional rent.

23. Posting. Landlord reserves the right to place “For Sale” signs on the Leased Premises at any time during this Lease, or “For lease” or “For Rent” signs on the Leased Premises at any time within sixty (60) days of expiration of this Lease. Tenant agrees to permit Landlord to do such posting, so long as such posting does not unreasonably interfere with Tenant’s business.

24. Condemnation. If any part of the Leased Premises shall be taken or condemned for a public or quasi-public use, and a part thereof remains which in Tenant’s judgment is still usable, this Lease, as to the part so taken, shall terminate as of the date title shall vest in the condemnor, and the rent payable hereunder shall be adjusted so that the Tenant shall be required to pay for the remainder of the term only such portion of such rent as the value of the part remaining after the condemnation bears to the value of the entire Leased Premises at the date of condemnation, said value to be determined by Tenant; but in such event Landlord or Tenant have the option to terminate this Lease as of the date when title to the part so condemned vests in the condemnor. If all the Lease Premises or such part thereof, is to be taken or condemned so that there does not remain a portion susceptible for use hereunder, this Lease shall thereupon terminate. If a part or all of the Leased Premises be taken or condemned, all compensation awarded upon such condemnation or taking shall go to Landlord and Tenant shall have no claim thereto, and Tenant hereby irrevocably assigns and transfers to Landlord any right to compensation or damages to which Tenant may become entitled during the Term and any renewals or extensions thereof by reason of the condemnation of all, or a part, of the Leased Premises; provided, however, Tenant shall have the right to make claims for any leasehold improvements, relocation or related expenses.

25. Damage to Premises. It is agreed that if the Leased Premises are partially or wholly damaged or destroyed by fire, earthquake or other casualty, or be so damaged thereby as to render the Leased Premises untenantable in Tenant’s determination, Tenant shall give immediate written notice thereof to said Landlord, and this Lease may, at the option of Landlord or Tenant be terminated by Landlord or Tenant, giving the other Party written notice of such termination within ten (10) days after Tenant’s notice of damage or destruction is delivered to Landlord. In the event Landlord or Tenant does not terminate this Lease pursuant to this Paragraph, Landlord shall, at its own cost and expense and with reasonable diligence, restore the Leased Premises and repair the damage thus caused by fire, earthquake, or other casualty, and during such reconstruction the Tenant agree to pay such rental as may be equitable, based on the extent to which the Leased Premises may be used by Tenant, and the total amount of rental provided to be paid under the terms of this Lease. Notwithstanding the above, if such restoration/repair is not completed within ninety (90) days after the date of damage, Tenant shall have the right to terminate this Lease.

26. Brokers. Each Party represents that it has not had dealings with any real estate broker, finder or other person, with respect to this Lease in any manner.

27. Holding Over to be Month-to-Month Tenancy at Renewed Rental. Holding over by Tenant with or without consent of Landlord after termination of this Lease shall be treated as a tenancy from month-to-month at a monthly rental, payable in advance, of an amount which constitutes a 25% increase over the Monthly Rental in effect at the termination of this Lease. This provision shall not be construed as giving Tenant any right to so hold over.

28. Waiver. The waiver by Landlord of a breach or any term, covenant or condition contained in this Lease shall not be treated as a waiver of such term, covenant or condition, or as a waiver of a future breach of the same of any other term, covenant or condition contained in this Lease. The acceptance of rent by Landlord shall not be treated as a waiver of a previous breach by Tenant of any term, covenant or condition of this Lease, other than a failure of Tenant to pay the particular rental so accepted, regardless of Landlord’s knowledge of a previous breach at the time of acceptance of rent.

29. Notices. Any notice to be given to either Party by the other shall be in writing and shall be served either personally or sent by prepaid, certified mail, return receipt requested addressed as follows:


		Tenant :		Diedrich Coffee, Inc. 11480 Commercial Parkway Castroville, CA 95012 831-632-8222

		Landlord:		Castroville Industrial Partners, LLC
				19065 Portola Drive Salinas, CA 93908

Or such Party’s other address as it may provide. Notice shall be deemed communicated upon receipt of a delivery or upon receipt of notice of refusal if mailed as provided in this paragraph.

30. Attorney Fees and Costs. It is mutually understood and agreed by and between the Parties that if a suit is brought by Landlord against the Tenant to recover any rent or for breach of any agreement or condition contained herein to be performed by Tenant or any summary action is brought by Landlord for the forfeiture of this Lease or to recover possession of the Leased Premises, or if either party should bring action to enforce any of the provisions of this Lease, reasonable attorney’s fees and costs as fixed by the court for commencing or prosecuting said action shall be allowed to be awarded to the prevailing Party.

31. Waiver of Subrogation. The Parties release each other, and their respective authorized representatives, from any claims for damage to any person or to the Leased Premises and the Building and other improvements of which the Leased Premises are a part that are caused by or result from risks insured against under any insurance policies required under this Lease to be carried by the Parties at the time of any such damage.

Each Party shall cause each insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against either Party in connection with

any damage covered by any policy. Neither Party shall be liable to the other for damage caused by fire or any of the risks insured against under any insurance policy required to be carried under this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the Party undertaking to obtain the insurance shall notify the other Party of this fact. The other Party shall have a period of 10 days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other Party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such a policy is obtainable at additional cost. If the insurance cannot be obtained or the Party who desires a waiver of subrogation refuses to pay the additional premium charged, the other Party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved.

32. Hazardous Materials / Indemnification. As used in this Lease, “Hazardous Substances or Waste” are those materials defined by Environmental Laws as such. “Environmental Laws” shall include, but not be limited to, each and every federal, state and local law, statute, code, ordinance, regulation, rule or other requirement of governmental authorities having jurisdiction over the Leased Premises (including, but not limited to, consent decrees and judicial or administrative orders), relating to the environment, including but not limited to, those applicable for the storage, treatment, disposal, handling and release of any Hazardous Substance or Waste, all as amended or modified from time to time.

Landlord represents and warrants to Tenant that: (i) no Hazardous Substances or Waste are present, or were installed, exposed, released or discharged in, on or under the Building or the Leased Premises and (ii) the Leased Premises have been used and operated in compliance with all Environmental Laws. Landlord further represents that it shall, to the extent it is within its reasonable control: (a) maintain and operate the Leased Premises in compliance with all Environmental Laws, and (b) comply (or cause the compliance) with all orders issued thereunder.

Landlord shall indemnify, protect and hold harmless Tenant and each of Tenant’s directors, officers, employees, agents, successors and assigns, from and against any and all claims, liabilities, penalties, fines, judgments, forfeitures, losses, costs or expenses (including reasonable attorney’s fees, consultants fees and experts fees) for the death of or injury to any person or damage to any property, or adverse effects on the environment, arising from or caused in whole or in part, directly or indirectly, by: (i) the presence in, on or under the Building or the Leased Premises; or the discharge or release, in or from the Building or the Leased Premises, of any Hazardous Substances or Waste unless such presence, discharge or release is caused by Tenant’s activities on or under the Building or in the Leased Premises; (ii) Landlord’s failure to comply with Environmental Laws; (iii) material breach by Landlord of its warranties, representations, agreements or covenants contained in this Lease; (iv) any grossly negligent or willful act or omission of Landlord relating (directly or indirectly) to this Lease, the tenancy created under this Lease or the Leased Premises; and (v) any violation of CERCLA or any other Environmental Laws now in effect or hereinafter enacted, by Landlord or Landlord’s subcontractor and their respective officers, directors, agents and employees. For the purposes of this indemnity the acts or omissions of Landlord or its permittees, whether or not they are negligent, intentional, willful or unlawful, shall be attributable to Landlord, and

Landlord’s obligations shall survive the expiration of the Term and any renewals or extensions thereof.

Tenant shall indemnify, protect and hold harmless Landlord and each of Landlord’s partners, directors, officers, employees, agents, successors and assigns from and against any and all claims, liabilities, penalties, fines, judgments, forfeitures, losses, costs or expenses (including reasonable attorney’s fees, consultants fees and experts fees) for the death of or injury to any person or damage to any property, or adverse effects on the environment, arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on or under the Building or the Leased Premises in violation of any applicable Environmental Laws; or the discharge or release, in or from the Building or the Leased Premises, of any Hazardous Substances or Waste provided such presence, discharge or release is caused by Tenant’s activities on or under the Building or in the Leased Premises in violation of any applicable Environmental Laws; (ii) material breach by Tenant of its warranties, representations, agreements or covenants contained in this Lease; (iii) any grossly negligent or willful act or omission of Tenant relating (directly or indirectly) to this Lease, the tenancy created under this Lease or the Leased Premises; and (iv) any violation of CERCLA or any other Environmental Laws now in effect or hereinafter enacted, by Tenant or Tenant’s subcontractor and their respective officers, directors, agents and employees. For the purposes of this indemnity the acts or omissions of Tenant or its permittees, whether or not they are negligent, intentional, willful or unlawful, shall be attributable to Tenant, and Tenant’s obligation shall survive the expiration of the Term and any renewals or extensions thereof.

It is understood and agreed that if Landlord or Tenant is involuntarily made a party defendant to any litigation concerning this Lease or the Leased Premises, or concerning any mechanic’s liens or materialman’s liens, then Landlord and Tenant shall protect, defend and hold harmless the other from all loss or damage by reason thereof, including reasonable attorney’s fees so incurred by the other in such litigation and all taxable court costs.

33. Amendment of Lease. This Lease may be amended by an agreement in writing of the Parties at any time during the Term and any renewals or extensions thereof.

34. Subordination. This Lease is and shall be subordinate to any encumbrance now of record or recorded after the date of this Lease affecting the Building, other improvements, and land of which the Leased Premises are a part. Such subordination is effective without any further act of Tenant. Tenant shall from time to time on request from Landlord execute and deliver any documents or instruments that may be reasonably required by a lender to effectuate any subordination.

35. Right to Estoppel Certificates. Each Party, within 30 days after notice from the other Party, shall execute and deliver to the other Party, in recordable form, a certificate stating that this Lease is unmodified and in full force and effect, or in full force and effect as modified, and stating the modifications. The certificate also shall state the amount of the Monthly Rental, the dates to which the rent has been paid in advance, and the amount of any security deposit or prepaid rent. Failure to deliver the certificate within 30 days shall be conclusive upon the Party failing to deliver the certificate for the benefit of the Party requesting the certificate and any successor to the

Party requesting the certificate, that this Lease is in full force and effect and has not been modified except as may be represented by the Party requesting the certificate.

36. ADA Compliance. Landlord represents and warrants that the Building, other improvements and land of which the Leased Premises are a part (as of the Commencement Date) shall be in conformance with the requirements of the Americans with Disabilities Act and all regulations issued by the U.S. Attorney General or other authorized agencies under the authority of the Americans with Disabilities Act (“ADA Laws”). Landlord shall reimburse and indemnify Tenant for any expenses incurred because of the failure of the Building, other improvements and land of which the Leased Premises are a part to conform with the ADA Laws, including the costs of making any alterations, renovations or accommodations required by the ADA laws, or any governmental enforcement agency, or any court, any and all fines, civil penalties, and damages awarded against Tenant resulting from a violation or violations of the ADA Laws, and all reasonable legal expenses incurred in defending claims made under the ADA Laws, including reasonable attorney’s fees, so long as it is not caused by Tenant’s specific use or Tenant’s required interior improvements.

37. General Provisions.

(a) Time of Essence. Time is of essence of each provision of this Lease.

(b) Benefit and Burden. The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the Parties and each of their respective representatives, successors and assigns. Landlord may freely and fully assign their interest hereunder.

(c) Rent Payable in U.S. Money. Rent and all other sums payable under this Lease must be paid in lawful money of the United States of America.

(d) California Law. This Lease shall be construed and interpreted in accordance with the laws of the State of California.

(e) Integrated Agreement; Modification. This Lease contains all the agreements of the Parties and cannot be amended or modified except by a written agreement.

(f) Singular and Plural. When required by the context of this Lease, the singular shall include the plural.

(g) Joint and Several Obligations. “Party” shall mean Landlord or Tenant and “Parties” shall mean Landlord and Tenant; and if more than one person or entity is Landlord or Tenant, the obligations imposed on that party shall be joint and several.

(h) Severability. The unenforceability, invalidity or illegality of any provision shall not render the other provisions unenforceable, invalid or illegal.

38. Quiet Enjoyment. Provided Tenant is not in Default, Landlord covenants and agrees that Tenant shall have the right to peaceable possession and quiet enjoyment of and access to

the Leased Premises, without any hindrance from Landlord, its agents, successors, guests, invitees, licensees or persons claiming be or through Landlord. Landlord agrees to take all reasonable and necessary steps in order to provide the Tenant with the peaceable possession and quiet enjoyment of the Leased Premises.

39. Renewal Option. Provided Tenant is not in Default hereunder, Tenant shall have the right to renew this Lease for three additional periods of five years (“Extended Term”) commencing at the expiration of the Term by giving written notice to Landlord at least 180 days prior to the expiration of the original term. The Monthly Rental for the each year of the extended term shall be increased annually as dictated by Paragraph 3(c) of this Lease.

40. Exhibits. The following Exhibits are attached to this Lease and the provisions of each Exhibit are incorporated herein by reference:

Exhibit A

Exhibit B

[Signature page follows.]

IN WITNESS WHEREOF, the Parties have caused this Lease to be executed as of the date first above written.


Landlord: Castroville Industrial Partners, LLC		Tenant: Diedrich Coffee, Inc.

/s/ Paul Johnson		/s/ Sean McCarthy
Name:	Paul Johnson	Name:	Sean McCarthy
Title:	Partner	Title:	CFO

[Signature Page to Lease Agreement]

EXHIBIT A

DIAGRAM OF LEASED PREMISES

(See attached.)

Exhibit A

EXHIBIT B

TENANT/LANDLORD WORK LETTER

(See attached.)

Exhibit B

EX-10.5 3 dex105.htm SEPARATION AGREEMENT BETWEEN DIEDRICH COFFEE, INC. AND J. RUSSELL PHILLIPS Separation Agreement between Diedrich Coffee, Inc. and J. Russell Phillips

Exhibit 10.5

SEPARATION AGREEMENT AND GENERAL RELEASE

THIS SEPARATION AGREEMENT AND GENERAL RELEASE (this “Agreement”) is made and entered into as of January 22, 2010 by and between Diedrich Coffee, Inc. (“Diedrich”) and J. Russell Phillips (“Executive”), with reference to (i) that certain Chief Executive Officer Employment Agreement dated as of February 7, 2008 by and between Diedrich and Executive (the “Employment Agreement”) and (ii) that certain Stock Option Agreement dated as of February 7, 2008 by and between Diedrich and Executive (the “Stock Option Agreement”). Capitalized terms used but not otherwise defined herein have the respective meanings ascribed to them in the Employment Agreement or the Stock Option Agreement, as the case may be.

WHEREAS, Executive currently serves as President and Chief Executive Officer of Diedrich pursuant to the Employment Agreement;

WHEREAS, Diedrich and Executive have entered into discussions in order to come to mutually satisfactory terms regarding the termination of their employment relationship (the “Separation”); and

WHEREAS, Diedrich and Executive have come to mutual agreement that Executive’s employment with Diedrich shall continue until January 31, 2010 (the “Separation Date”), at which time Executive’s employment with Diedrich shall terminate, all in accordance with the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, and for other good and valuable consideration, the adequacy and receipt of which the parties expressly acknowledge, Executive and Diedrich agree as follows:

1. Employment Period; Compensation. Executive’s employment with Diedrich shall terminate on the Separation Date, and Executive hereby resigns from all positions Executive holds with Diedrich and its affiliates effective as of the Separation Date other than his continuing role as a member of Diedrich’s Board of Directors.

(a) Until the Separation Date, (1) Diedrich shall continue to employ Executive at Executive’s current compensation as further described in Section 1(b) below, and (2) Executive shall continue to be subject to all of the employment policies and rules of Diedrich as then in effect.

(b) Until and through the Separation Date, Executive shall be entitled to Executive’s current base salary and all benefits to which Executive is currently entitled pursuant to the Employment Agreement; provided, however, that Executive shall not be entitled to any Bonus with respect to the current fiscal year.

(c) All payments, benefits and other consideration under this Agreement shall be made subject to applicable tax withholding and 401(k) contributions, if any, and Diedrich shall withhold from any payment, benefit or other consideration under this Agreement all foreign, federal, state, local and other taxes that Diedrich is required to withhold pursuant to any law or governmental rule or regulation. Executive shall bear all expense of, and be solely responsible for, all foreign, federal, state, local and other taxes due with respect to any consideration received under this Agreement.

(d) On the eighth day following the Separation Date, provided that Executive has delivered the executed Release and Waiver referenced in Section 1(e) below (which Release and Waiver has not been revoked) and has complied with the other terms and conditions of this Agreement, Diedrich shall make a lump sum payment to Executive in the net amount equal to Two Hundred Fifty Thousand Dollars ($250,000).

(e) In consideration for the payments, benefits and other consideration contemplated by this Agreement (including Diedrich’s acknowledgments and agreements set forth in Section 2 below), and as material inducement for Diedrich to agree to provide such payments, benefits and other consideration, Executive shall execute and deliver to Diedrich, on and as of the Separation Date, a general release and waiver in the form attached hereto as Exhibit A (the “Release and Waiver”).

2. Stock Options.

(a) The parties acknowledge and agree that the Separation shall be deemed to be the result of voluntary retirement of Executive. Accordingly, pursuant to Section 3(b) of the Stock Option Agreement, Executive shall have a period of 180 days from the Separation Date to exercise any vested Options, and upon expiration of such period, all vested but unexercised Options shall terminate and become unexercisable.

(b) ALL UNVESTED OPTIONS ISSUED UNDER THE STOCK OPTION AGREEMENT SHALL TERMINATE AND SHALL BECOME UNEXERCISABLE AS OF THE DATE OF THIS AGREEMENT.

(d) Diedrich acknowledges and agrees that, commencing on the Separation Date, subject to the terms and conditions of the Stock Option Agreement, Executive may exercise any vested Options by means of cashless exercise.

3. Executive Benefits. Executive shall be entitled to all vested accrued benefits under the “employee benefit plans” (as such term is defined in section 3 of the Executive Retirement Income Security Act of 1974, as amended (“ERISA”)) of Diedrich as of the Separation Date. This Agreement shall not be deemed, construed or interpreted as placing any restriction or impediment upon Diedrich with regard to its right or authority to amend or terminate any such plan or any of the terms of such plan, nor shall this Agreement be deemed, construed or interpreted as an amendment to any such plan or any of the terms of such plan. Without limiting the foregoing, as of the Separation Date, Executive will receive a lump sum payment for all accrued and unused vacation.

4. COBRA. After the Separation Date, Executive may continue, at Executive’s election, the medical coverage for Executive and/or Executive’s dependents on the same terms and conditions as any other employee entitled to elect COBRA continuation coverage under the relevant medical plans of Diedrich. Executive is entitled to elect and pay for COBRA continuation coverage whether or not Executive signs this Agreement. However, as additional consideration for Executive signing this Agreement, and conditioned upon Executive’s compliance with Section 1(d) above, Diedrich will continue to pay its portion of the major medical, executive medical and dental premiums, which Executive has in effect, for a period of six (6) months, provided Executive elects to continue health insurance through COBRA.

5. Release.

(a) In consideration for the agreements provided herein (including the consideration set forth in Sections 1 and 2), and as material inducement for Diedrich to enter into this Agreement, Executive hereby, for Executive and on behalf of Executive’s affiliates, heirs, executors, administrators and assigns (collectively, the “Releasing Parties”), fully and completely releases, waives, forever discharges and holds harmless Diedrich, Green Mountain Coffee Roasters, Inc. each of their subsidiaries and affiliates, and all of their respective shareholders, partners, members, beneficiaries, trustees, managers, officers, directors, employees, agents and representatives, and each of their respective successors, assigns, heirs, executors and administrators (each, a “Released Party” and collectively, the “Released Parties”), from and against any and all actions, claims, causes of action, suits at law or in equity, arbitrations, demands, damages, obligations, debts, liabilities, charges, complaints, controversies, disbursements, losses, injuries, interest, fees, costs, expenses (including reasonable attorneys’ fees and expenses) and other liabilities of any kind or nature whatsoever, known or unknown, suspected or not, fixed or contingent, whether heretofore or hereafter accruing, which have arisen, or may have arisen for or because of any matter or action or inaction or thing done or not done by any Released Party (each, a “Claim” and collectively, “Claims”), which Executive ever had, now has or hereafter may have, or which the Releasing Parties may have, by reason of any matter, cause or thing whatsoever, including any Claims directly or indirectly as a result of, in connection with, arising out of or relating in any way to, Executive’s employment relationship with Diedrich, the terms and conditions of that employment relationship, and the termination of that employment relationship (collectively, the “Releases”). The Releases are intended to and shall include any and all Claims that Executive can or could assert against one or more of the Released Parties for wrongful discharge, discrimination, harassment, breach of contract, retaliation, defamation or other torts arising under any federal, state, local or common law. The released Claims are further intended to and shall include any and all Claims that Executive can or could assert against one or more of the Released Parties under the Age Discrimination in Employment Act of 1967, as amended (the “ADEA”), Title VII of the Civil Rights Act of 1964, as amended, the Executive Retirement Income Security Act of 1974, as amended, the Rehabilitation Act of 1973, as amended, the Workers Adjustment Retraining and Notification Act, the Older Workers Benefit Protection Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Fair Labor Standards Act, and any state law comparable to the foregoing laws, and any other federal, state, local or common law now or hereafter recognized, including any and all laws regulating employment, wages, back or front pay, employee benefits, compensatory damages, punitive damages, liquidated damages, attorneys’ fees, expenses and costs, except to the extent Executive’s rights under such law may not lawfully be waived. This release and waiver also applies to any Claims brought by any person, agency or class action under which Executive might have any right or benefit. This Agreement shall be effective without regard to the legal nature of the claims raised and without regard to whether any such claims are based upon tort, equity, implied or express contract or discrimination of any sort. For the avoidance of doubt, the foregoing Releases shall not apply to any of Diedrich’ obligations under this Agreement.

(b) To the fullest extent permitted by law, Executive represents, warrants and agrees that, as of the date on which this Agreement is executed: (i) Executive has not filed or asserted, or caused to be filed or asserted on Executive’s behalf, any Claim against any Released Party and, to the best of Executive’s knowledge and belief, no outstanding Claim has been filed or asserted against any Released Party on Executive’s behalf; (ii) Executive has not reported any improper, unethical or illegal conduct or activities to any human resources representative, director, counsel, agent or other representative of Diedrich; and (iii) there has been no assignment or transfer (whether actual or purported) to any person or entity whatsoever of the Claims released hereunder by Executive and no liens have been filed against such Claims, and Executive agrees to indemnify, defend and hold harmless the Released Parties from and against any and all Claims, based on or arising out of any such assignment or transfer (whether actual or purported) of any Claims or any portion thereof or interest therein. Executive agrees to forever refrain and forebear from commencing, instituting or prosecuting, or causing to be commenced, instituted or prosecuted, any arbitration, lawsuit, action or other proceeding, in law, equity or otherwise, against any Released Party, in any way arising out of or relating to any of the Releases (or the Claims released thereby), including any action claiming that this Agreement, or any portion thereof, was fraudulently induced. Executive further agrees that, if any court assumes jurisdiction of any Claim against any Released Party on behalf of Executive, Executive shall request that the matter be dismissed with prejudice. Executive also agrees that, in the event that Executive breaches this subsection, Executive shall pay any and all costs, expenses and attorneys’ fees actually incurred by each Released Party in defending or otherwise responding to or participating in any such action or proceeding.

(c) Executive expressly waives and relinquishes all rights and benefits under section 1542 of the Civil Code of the State of California (“Section 1542”) and any similar statute of the United States or any state or territory of the United States relating to the subject matter of this Agreement, and does so with understanding and acknowledgement of the significance and consequences of such waiver. Section 1542 provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

Notwithstanding the provisions of Section 1542, and for the purpose of implementing full and complete Releases, Executive expressly acknowledges that this Agreement is intended to include in its effect, without limitation, all Claims which Executive does not know or suspect to exist in Executive’s favor at the time of execution hereof, and that this Agreement contemplates the extinguishment of any such Claims.

Executive’s Initials: /s/ JRP

6. Confidential Information and Trade Secrets. Executive acknowledges that during Executive’s employment with Diedrich, Executive has had access to confidential and proprietary information, including trade secrets and any other confidential or proprietary information of Diedrich (collectively, “Confidential Information”). Diedrich maintains a proprietary interest in all Confidential Information. Accordingly, Executive will not use or disclose to any entity or person, either directly or indirectly, any Confidential Information, and will remain bound by the confidentiality provisions of the Employment Agreement and the employment policies of Diedrich. Executive agrees to surrender to Diedrich all documents and materials in Executive’s possession or control which contain Confidential Information. Executive expressly agrees that Executive shall not make use of Confidential Information to engage in competition with Diedrich or its affiliates at any time before or after the Separation Date for any reason. Executive acknowledges and agrees that “Confidential Information” shall be deemed to include this Agreement and the terms contained herein, provided that Executive may disclose this Agreement to Executive’s legal counsel who has been advised of Executive’s confidentiality obligations hereunder.

7. Acknowledgements. Executive acknowledges and understands that the release of claims under the ADEA is subject to special waiver protection under 29 U.S.C. § 626(f). In accordance with that section, Executive specifically acknowledges and agrees that Executive is knowingly and voluntarily releasing and waiving any right or claims of discrimination under the ADEA. In particular, Executive acknowledges and understands the following:

(a) Executive is waiving rights or claims under the ADEA in exchange for the payments and benefits described herein, which are in addition to anything of value to which he otherwise is entitled.

(b) Executive has been given a full twenty-one (21) days to consider this Agreement before executing it (although Executive is not required to wait the full twenty-one (21) days).

(c) Executive has been advised to consider the terms of this Agreement and to consult with an attorney of Executive’s choice prior to executing this Agreement. Executive has carefully read and fully understands all of the provisions of this Agreement, and has freely and voluntarily entered into this Agreement without any threat, coercion or intimidation by any person.

(d) Executive will have a full seven (7) days following the execution of this Agreement to revoke this Agreement and understands that this Agreement shall not become effective or enforceable until the revocation period has expired. (Any such revocation shall be in writing and shall be delivered to the Chairman of the Board of Diedrich.)

(e) Executive’s rights or claims under the ADEA that may arise after the date on which this Agreement is executed are not waived, and Executive is not waiving the right to file a complaint or charge with the EEOC or participate in any investigation or proceeding conducted by the EEOC.

8. Notices. All notices and other communications required or permitted under this Agreement shall be deemed to have been duly given and made pursuant to Section 9.3 of the Employment Agreement.

9. Entire Agreement; Severability; Modifications; Counterparts. Except for the Employment Agreement and the Stock Option Agreement and otherwise expressly set forth herein, this Agreement (including the Exhibit(s) hereto) constitutes the entire agreement between the parties, and fully supersedes all prior written agreements, arrangements, communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings between the parties with respect to the subject matter hereof and thereof. Executive acknowledges and agrees that, except as otherwise expressly set forth herein, Diedrich has satisfied any and all obligations owed to Executive in connection with Executive’s employment with Diedrich, and except as expressly set forth above, no promises or representations have been made to Executive in connection with the Separation. If any provision, or portion of a provision, of this Agreement is held to be invalid, void or unenforceable for any reason, the remainder of this Agreement shall remain in full force and effect, as if such provision, or portion of a provision, had never been contained herein. The unenforceability or invalidity of a provision of this Agreement in one jurisdiction shall not invalidate or render that provision unenforceable in any other jurisdiction. This Agreement may be executed in counterparts, all of which taken together shall constitute one instrument.

10. Waiver of Breach. No failure or delay of either party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. Any agreement on the part of either party to any such waiver shall be valid only if set forth in a written instrument executed and delivered by, or on behalf of, such party.

11. Governing Law; Construction. This Agreement shall be governed by the laws of the State of California without regard to its conflicts of laws rules. This Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any party, irrespective of which party drafted this Agreement or any portions of it. Any uncertainty or ambiguity existing in this Agreement shall not be interpreted against any party as a result of the manner of the preparation of this Agreement.

[Signature page follows.]

IN WITNESS WHEREOF, each party hereto has executed this Agreement as of the date first written above.


DIEDRICH COFFEE, INC.		EXECUTIVE:

By:	/s/ Paul C. Heeschen	/s/ J. Russell Phillips
Name: Title:	Paul C. Heeschen Chairman of the Board	J. Russell Phillips

SIGNATURE PAGE TO

SEPARATION AGREEMENT BETWEEN

DIEDRICH COFFEE, INC. AND J. RUSSELL PHILLIPS

EXHIBIT A

General Release and Waiver

The undersigned, J. Russell Phillips (“Executive”), acknowledges and agrees that, on January 15, 2010, Diedrich Coffee, Inc. (“Diedrich”) and Executive entered into that certain Separation Agreement and General Release (the “Separation Agreement”), whereby Diedrich and Executive reached a final and binding agreement regarding Executive’s separation from Diedrich’ employment. This General Release and Waiver (this “General Release”) is being executed pursuant to the requirements of the Separation Agreement. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Separation Agreement.

1. Termination. Executive acknowledges and agrees that Executive’s employment relationship with Diedrich has terminated effective as of the date of this General Release.

2. Release.

(a) In consideration for the benefits and agreements provided in the Separation Agreement, Executive hereby, for Executive and on behalf of Executive’s affiliates, heirs, executors, administrators and assigns (collectively, the “Releasing Parties”), fully and completely releases, waives, forever discharges and holds harmless Diedrich, Green Mountain Coffee Roasters, Inc. and each of their subsidiaries and affiliates, and all of their respective shareholders, partners, members, beneficiaries, trustees, managers, officers, directors, employees, agents and representatives, and each of their respective successors, assigns, heirs, executors and administrators (each, a “Released Party” and collectively, the “Released Parties”), from and against any and all actions, claims, causes of action, suits at law or in equity, arbitrations, demands, damages, obligations, debts, liabilities, charges, complaints, controversies, disbursements, losses, injuries, interest, fees, costs, expenses (including reasonable attorneys’ fees and expenses) and other liabilities of any kind or nature whatsoever, known or unknown, suspected or not, fixed or contingent, whether heretofore or hereafter accruing, which have arisen, or may have arisen for or because of any matter or action or inaction or thing done or not done by any Released Party (each, a “Claim” and collectively, “Claims”), which Executive ever had, now has or hereafter may have, or which the Releasing Parties may have, by reason of any matter, cause or thing whatsoever, including any Claims directly or indirectly as a result of, in connection with, arising out of or relating in any way to, Executive’s employment relationship with Diedrich, the terms and conditions of that employment relationship, and the termination of that employment relationship (collectively, the “Releases”). The Releases are intended to and shall include any and all Claims that Executive can or could assert against one or more of the Released Parties for wrongful discharge, discrimination, harassment, breach of contract, retaliation, defamation or other torts arising under any federal, state, local or common law. The released Claims are further intended to and shall include any and all Claims that Executive can or could assert against one or more of the Released Parties under the Age Discrimination in Employment Act of 1967, as amended (the “ADEA”), Title VII of the Civil Rights Act of 1964, as amended, the Executive Retirement Income Security Act of 1974, as amended, the Rehabilitation Act of 1973, as amended, the

Workers Adjustment Retraining and Notification Act, the Older Workers Benefit Protection Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Fair Labor Standards Act, and any state law comparable to the foregoing laws, and any other federal, state, local or common law now or hereafter recognized, including any and all laws regulating employment, wages, back or front pay, employee benefits, compensatory damages, punitive damages, liquidated damages, attorneys’ fees, expenses and costs, except to the extent Executive’s rights under such law may not lawfully be waived. This release and waiver also applies to any Claims brought by any person, agency or class action under which Executive might have any right or benefit. This General Release shall be effective without regard to the legal nature of the claims raised and without regard to whether any such claims are based upon tort, equity, implied or express contract or discrimination of any sort.

(b) To the fullest extent permitted by law, Executive represents, warrants and agrees that, as of the date of this General Release: (i) Executive has not filed or asserted, or caused to be filed or asserted on Executive’s behalf, any Claim against any Released Party and, to the best of Executive’s knowledge and belief, no outstanding Claim has been filed or asserted against any Released Party on Executive’s behalf; (ii) Executive has not reported any improper, unethical or illegal conduct or activities to any human resources representative, director, counsel, agent or other representative of Diedrich; and (iii) there has been no assignment or transfer (whether actual or purported) to any person or entity whatsoever of the Claims released hereunder by Executive and no liens have been filed against such Claims, and Executive agrees to indemnify, defend and hold harmless the Released Parties from and against any and all Claims, based on or arising out of any such assignment or transfer (whether actual or purported) of any Claims or any portion thereof or interest therein. Executive agrees to forever refrain and forebear from commencing, instituting or prosecuting, or causing to be commenced, instituted or prosecuted, any arbitration, lawsuit, action or other proceeding, in law, equity or otherwise, against any Released Party, in any way arising out of or relating to any of the Releases (or the Claims released thereby), including any action claiming that this General Release, or any portion thereof, was fraudulently induced. Executive further agrees that, if any court assumes jurisdiction of any Claim against any Released Party on behalf of Executive, Executive shall request that the matter be dismissed with prejudice. Executive also agrees that, in the event that Executive breaches this subsection, Executive shall pay any and all costs, expenses and attorneys’ fees actually incurred by each Released Party in defending or otherwise responding to or participating in any such action or proceeding.

(c) Executive expressly waives and relinquishes all rights and benefits under section 1542 of the Civil Code of the State of California (“Section 1542”) and any similar statute of the United States or any state or territory of the United States relating to the subject matter of this General Release, and does so with understanding and acknowledgement of the significance and consequences of such waiver. Section 1542 provides as follows:

Notwithstanding the provisions of Section 1542, and for the purpose of implementing full and complete Releases, Executive expressly acknowledges that this General Release is intended to include in its effect, without limitation, all Claims which Executive does not know or suspect to exist in Executive’s favor at the time of execution hereof, and that this General Release contemplates the extinguishment of any such Claims. In connection with Executive’s above waiver and relinquishment of rights and benefits, Executive hereby acknowledge that Executive is aware that Executive, or Executive’s attorneys, may hereafter discover claims or facts or legal theories in addition to or different from those which Executive now knows or believes to exist with respect to the subject matter of this General Release, the Claims or the Released Parties, but that it is Executive’s intention hereby to fully, finally and forever settle and release all of the disputes and differences, known or unknown, suspected or unsuspected, which do now exist, may exist in the future or heretofore have existed, by reason of any acts, circumstances, facts, events or transactions (i) arising out of the termination of Executive’s employment pursuant to the Separation Agreement or (ii) occurring before the date of this General Release. Executive further acknowledges, understands and agrees that there is a risk and possibility that Executive may incur or suffer some further loss or damage which is in some way caused by or attributable to the occurrences or events released herein, but which are unknown at the time this General Release is executed. Executive expressly agrees, however, that this General Release and the Releases shall remain in effect notwithstanding the discovery or existence of any such additional or different claims, facts or damages.

Executive’s Initials:

(d) Nothing in this General Release shall affect Executive’s right to enforce the provisions of the Separation Agreement to obtain the economic and other benefits to which Executive is entitled thereunder.

3. Acknowledgements. Executive acknowledges and understands that the release of claims under the ADEA is subject to special waiver protection under 29 U.S.C. § 626(f). In accordance with that section, Executive specifically acknowledges and agrees that Executive is knowingly and voluntarily releasing and waiving any right or claims of discrimination under the ADEA. In particular, Executive acknowledges and understands the following:

(a) Executive is waiving rights or claims under the ADEA in exchange for the payments and benefits described herein, which are in addition to anything of value to which he otherwise is entitled.

(b) Executive has been given a full twenty-one (21) days to consider this General Release before executing it (although Executive is not required to wait the full twenty-one (21) days).

(c) Executive has been advised to consider the terms of this General Release and to consult with an attorney of Executive’s choice prior to executing this General Release. Executive has carefully read and fully understands all of the provisions of this General Release, and has freely and voluntarily entered into this General Release without any threat, coercion or intimidation by any person.

(d) Executive will have a full seven (7) days following the execution of this General Release to revoke this General Release and understands that this General Release shall not become effective or enforceable until the revocation period has expired. (Any such revocation shall be in writing and shall be delivered to the Chairman of the Board of Diedrich.)

(e) Executive’s rights or claims under the ADEA that may arise after the date on which this General Release is executed are not waived, and Executive is not waiving the right to file a complaint or charge with the EEOC or participate in any investigation or proceeding conducted by the EEOC.

4. Severability. If any provision, or portion of a provision, of this General Release is held to be invalid, void or unenforceable for any reason, the remainder of this General Release shall remain in full force and effect, as if such provision, or portion of a provision, had never been contained herein. The unenforceability or invalidity of a provision of this General Release in one jurisdiction shall not invalidate or render that provision unenforceable in any other jurisdiction. This General Release may be executed in counterparts, all of which taken together shall constitute one instrument.

5. Governing Law; Construction. This General Release shall be governed by the laws of the State of California without regard to its conflicts of laws rules. This General Release shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any party, irrespective of which party drafted this General Release or any portions of it. Any uncertainty or ambiguity existing in this General Release shall not be interpreted against any party as a result of the manner of the preparation of this General Release.

[Signature page follows.]

IN WITNESS WHEREOF, the undersigned, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, has executed this General Release as of the date written below.




J. Russell Phillips


		Date

EX-10.6 4 dex106.htm LETTER AGREEMENT WITH SEAN M. MCCARTHY Letter Agreement with Sean M. McCarthy

Exhibit 10.6

DIEDRICH COFFEE, INC.

28 Executive Park, Suite 200

Irvine, California 92614

January 22, 2010

Sean M. McCarthy

Diedrich Coffee, Inc.

28 Executive Park, Suite 200

Irvine, CA 92614

Dear Sean:

This letter will confirm the changes to your employment with Diedrich Coffee, Inc. (the “Company”) that we discussed today. The terms of your employment letters dated December 30, 2005 and May 1, 2008 that are not inconsistent with the terms set forth below will continue to remain in full force and effect. For the avoidance of doubt, in the event of any conflict between the terms of this letter and the terms of your prior employment letters, the terms of this letter will control.

The terms set forth below will be effective starting February 1, 2010 and will remain in effect until the Board of Directors changes such terms in their complete discretion. This letter should not be construed as an obligation by the Company to employ you for any term and you will remain an “at-will” employee. Your employment can be terminated by you or the Company at any time and for any reason subject to each party’s compliance with the terms of this letter and your prior employment letters (provided that such terms are not inconsistent with the terms of this letter).

Your “at-will” status includes, but is not limited to, termination, demotion, promotion, transfer, compensation, benefits, training, duties and location of work. As such, any term of your employment may be changed, modified or terminated by the Board of Directors at any time, with or without notice and with or without cause.

Effective February 1, 2010, you are being appointed to the position of President and Chief Financial Officer. This is an exempt position and your base salary will be increased to $275,000 annually. You will report directly to the Chairman of the Board of Directors and you will serve at the discretion of the Board of Directors. Your participation in the bonus/incentive plan will increase to sixty percent (60%) of your annual base salary and will be paid based upon the achievement of specific criteria identified by the Board of Directors.

If you are terminated by the Company for any reason other than a “Just Cause Dismissal” (as defined in Article IX of the Company’s 2000 Equity Incentive Plan), you will be eligible to receive a lump sum severance payment that has been increased to an amount equal to your annual base salary, provided that you execute an agreement providing a complete release of the Company in connection with or related to your employment by the Company.

Sean M. McCarthy

January 22, 2010

Page 2

Please confirm your acceptance of these terms by signing and returning a copy of this letter to me. On behalf of the Board of Directors, we look forward to working with you in your new position.


Sincerely,

/s/ Paul C. Heeschen
Paul C. Heeschen
Chairman of the Board

I acknowledge and agree to the terms and conditions of this letter and the “at-will” nature of my employment.



/s/ Sean M. McCarthy
Sean M. McCarthy

EX-31.1 5 dex311.htm SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Section 302 Certification of Chief Executive Officer

Exhibit 31.1

Section 302 Certification

I, J. Russell Phillips, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Diedrich Coffee, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: January 25, 2010		/s/ J. Russell Phillips
		J. Russell Phillips
		Chief Executive Officer

EX-31.2 6 dex312.htm SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER Section 302 Certification of Chief Financial Officer

Exhibit 31.2

Section 302 Certification

I, Sean M. McCarthy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Diedrich Coffee, Inc.;

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: January 25, 2010		/s/ Sean M. McCarthy
		Sean M. McCarthy
		Vice President and Chief Financial Officer

EX-32.1 7 dex321.htm SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Section 906 Certification of Chief Executive Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as an officer of Diedrich Coffee, Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

•

the Quarterly Report on Form 10-Q for the period ended December 9, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

•

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.


Dated: January 25, 2010		/s/ J. Russell Phillips
		J. Russell Phillips
		Chief Executive Officer

Note: A signed original of this written statement required by Section 906 has been provided to Diedrich Coffee, Inc. and will be retained by Diedrich Coffee, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 8 dex322.htm SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER Section 906 Certification of Chief Financial Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

•

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.


Dated: January 25, 2010		/s/ Sean M. McCarthy
		Sean M. McCarthy
		Vice President and Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents