As filed with the Securities and Exchange Commission on November 17, 2009
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Peets Coffee & Tea, Inc.
(Exact
name of Registrant as specified in its charter)
|
|
|
|
|
Washington
|
|
2095
|
|
91-0863396
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Primary standard industrial
classification code number)
|
|
(I.R.S. employer
identification no.)
|
Peets
Coffee & Tea, Inc.
1400 Park Avenue, Emeryville, CA 94608
(510) 594-2100
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Thomas P. Cawley
Chief Financial Officer
Peets Coffee & Tea, Inc.
1400 Park Avenue,
Emeryville, CA 94608
(510) 594-2100
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Kenneth L. Guernsey
David A. Lipkin
Gian-Michele a Marca
Cooley Godward Kronish LLP
101 California Street, 5
th
Floor, San
Francisco, CA 94111
(415) 693-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes
effective and the other conditions to the completion of the exchange offer described in the enclosed prospectus have been satisfied.
If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following
box.
¨
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the Securities Act), check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering.
¨
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
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. (Check
one):
|
|
|
|
|
|
|
Large accelerated filer
¨
|
|
Accelerated filer
þ
|
|
Non-accelerated filer
¨
|
|
Smaller reporting company
¨
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
CALCULATION OF
REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
Title of
Securities to be Registered(1)
|
|
Amount
to be
Registered(2)
|
|
Proposed
Maximum
Offering Price
Per Share
|
|
Proposed
Maximum
Aggregate
Offering
Price(3)
|
|
Maximum
Amount of
Registration Fee(4)
|
Common Stock, no par value
|
|
2,614,693
|
|
Not Applicable
|
|
$
|
74,804,227.84
|
|
$
|
4,174.08
|
|
(1)
|
This Registration Statement relates to common stock of Peets Coffee & Tea, Inc., no par value, issuable upon completion of the exchange offer for each
outstanding share of common stock, $0.01 par value per share, of Diedrich Coffee, Inc., a Delaware corporation, and subsequent merger of Marty Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Peets
Coffee & Tea, Inc., with and into Diedrich Coffee, Inc.
|
(2)
|
Represents the maximum number of shares of Peets Coffee & Tea, Inc. common stock estimated to be issuable upon completion of the exchange offer and
subsequent merger.
|
(3)
|
Estimated solely for purposes of calculating the registration fee in accordance with Rules 457(c) and (f) under the Securities Act of 1933, as amended (the
Securities Act), based on the product of (a) the excess of (i) the average of the high and low per share prices of Diedrich Coffee, Inc. common stock, $0.01 par value, as reported on the Nasdaq Capital Market on
November 16, 2009, over (ii) $17.33 in cash to be paid for each share of Diedrich Coffee, Inc. common stock to be acquired by Peets Coffee & Tea, Inc. in the exchange offer and subsequent merger, multiplied by (b) the
maximum number of shares of Diedrich Coffee, Inc. common stock to be acquired by Peets Coffee & Tea, Inc. upon completion of the exchange offer and subsequent merger.
|
(4)
|
Calculated by multiplying the proposed maximum aggregate offering price by 0.0000558, in accordance with Rule 457(o) under the Securities Act.
|
THE INFORMATION IN THIS PROSPECTUS/OFFER TO PURCHASE MAY BE CHANGED. PEETS COFFEE & TEA,
INC. MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS/OFFER TO PURCHASE IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS, DATED NOVEMBER 17, 2009
PROSPECTUS/OFFER TO PURCHASE
EACH OUTSTANDING SHARE OF COMMON STOCK
OF
DIEDRICH COFFEE, INC.
FOR A COMBINATION OF $17.33 IN CASH
AND
A FRACTION OF A SHARE OF COMMON STOCK
OF
PEETS COFFEE & TEA, INC.
HAVING A VALUE EQUAL TO $8.67 BASED ON A FORMULA AS PROVIDED HEREIN
(SUCH FRACTION NOT TO EXCEED 0.315 OF A SHARE)
MADE BY
MARTY ACQUISITION SUB, INC.,
A WHOLLY-OWNED SUBSIDIARY OF
PEETS COFFEE & TEA, INC.
THE OFFER COMMENCED ON TUESDAY, NOVEMBER 17, 2009. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT (ONE MINUTE
AFTER 11:59 P.M.), EASTERN TIME, ON TUESDAY, DECEMBER 15, 2009, UNLESS THE OFFER IS EXTENDED. SHARES TENDERED PURSUANT TO THIS OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFER, BUT NOT DURING ANY SUBSEQUENT OFFERING PERIOD.
Pursuant to an Agreement and Plan of Merger, dated as of November 2, 2009, as amended from time to time (the
merger agreement), by and among Peets Coffee & Tea, Inc., a Washington corporation (Peets), Marty Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Peets (the
Purchaser), and Diedrich Coffee, Inc., a Delaware corporation (Diedrich), the Purchaser is offering to purchase each outstanding share of common stock, par value $0.01 per share, of Diedrich, for consideration consisting of
$17.33 in cash, without interest, and a fraction of a share of common stock, no par value, of Peets having a value equal to $8.67 based on a formula as provided in the merger agreement and further described herein, provided that in no event
will such fraction exceed 0.315 of a share of Peets common stock, subject to adjustment for stock splits, stock dividends and similar events. The payment of any consideration in the offer shall be on the terms and subject to the conditions
described in this prospectus/offer to purchase and the related letter of transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the offer described herein). Following the purchase by
the Purchaser of shares of Diedrich common stock in the offer and the satisfaction or waiver of each of the conditions to such merger set forth in the merger agreement, the Purchaser will be merged with and into Diedrich (the merger),
with Diedrich surviving the merger as a wholly-owned subsidiary of Peets. As a result of the merger, each share of Diedrich common stock (other than shares owned by Peets, the Purchaser or Diedrich or any wholly-owned subsidiary of
Peets or Diedrich, or held in Diedrichs treasury, or owned by any stockholder of Diedrich who properly exercises appraisal rights under the Delaware General Corporation Law (Delaware law) will be converted into the right to
receive the same
combination of cash and a fraction of a share of Peets common stock paid for each Diedrich share accepted for exchange pursuant to the offer (subject to adjustment for stock splits, stock
dividends and similar events).
Notwithstanding anything to the contrary in this prospectus/offer to purchase, in the event
that pursuant to Nasdaq Listing Rule 5635(a) (or its successor), the issuance of shares of Peets common stock (or rights with respect thereto) pursuant to the offer and the merger would otherwise require the approval of the shareholders
of Peets, then the fraction of a share of Peets common stock issuable to Diedrich stockholders pursuant to the offer or the merger will be reduced to be the greatest fraction of a share of Peets common stock that would, if
distributable to Diedrich stockholders pursuant to the offer and the merger, not require the approval of the shareholders of Peets with respect to such issuance.
The board of directors of Diedrich has, by the unanimous vote of all of the Diedrich directors, (1) determined that the merger agreement and the transactions contemplated thereby, including the offer
and the merger, are fair to and in the best interests of the stockholders of Diedrich, (2) adopted and approved the merger agreement and approved the offer, the merger and the other transactions contemplated by the merger agreement, in
accordance with the requirements of Delaware law, (3) declared that the merger agreement is advisable, (4) resolved to recommend that the stockholders of Diedrich accept the offer and tender their shares of Diedrich common stock pursuant
to the offer and (to the extent necessary) adopt the merger agreement, and (5) adopted a resolution rendering the limitations on business combinations contained in Section 203 of the Delaware General Corporation Law inapplicable to the stockholder
agreements, the offer, the merger, the merger agreement and any of the other transactions contemplated by the merger agreement. Accordingly, the board of directors of Diedrich unanimously recommends that the stockholders of Diedrich accept the offer
and tender their shares of Diedrich common stock pursuant to the offer, and, to the extent necessary, vote to adopt the merger agreement. The factors considered by Diedrichs board of directors in making the determinations and the
recommendation described above are described in Diedrichs solicitation/recommendation statement on Schedule 14D-9, which has been filed with the SEC and is being mailed to you and other stockholders of Diedrich together with this
prospectus/offer to purchase. Diedrich stockholders are encouraged to review carefully the Schedule 14D-9, together with this prospectus/offer to purchase.
The offer is conditioned upon, among other things, there being validly tendered and not properly withdrawn prior to the expiration time of the offer (as it may be extended) shares of Diedrich common stock
that, together with any shares of Diedrich common stock then owned by Peets or the Purchaser, or by any other subsidiaries of Peets, represent more than 50% of the sum of the aggregate number of shares of Diedrich common stock
outstanding immediately prior to the acceptance of shares of Diedrich common stock for exchange pursuant to the offer, plus, at the election of Peets, an additional number of shares up to (but not exceeding) the aggregate number of shares of
Diedrich common stock issuable upon the exercise of all Diedrich stock options, Diedrich warrants and other rights to acquire Diedrich common stock that are outstanding immediately prior to the acceptance of shares of Diedrich common stock for
exchange pursuant to the offer and that are vested and exercisable or will be vested and exercisable prior to the completion of the merger (the foregoing condition is referred to as the minimum condition in this prospectus/offer to
purchase). The offer is also subject to other conditions described under the caption entitled The OfferConditions to the Offer beginning on page 46 of this prospectus/offer to purchase.
As an inducement to Peets and the Purchasers entering into the merger agreement, certain of Diedrichs officers and
directors (including Paul C. Heeschen, Diedrichs beneficial owner with the largest stockholdings) have entered into stockholder agreements with Peets (the stockholder agreements), pursuant to which they have agreed,
among other things, solely in their respective capacities as stockholders of Diedrich, to tender all of their beneficially owned shares of Diedrich common stock to the Purchaser in the offer (except that Mr. Heeschens obligation to tender
shares is limited to 1,832,580 of the shares beneficially owned by him, representing approximately 32% of the shares of Diedrich common stock outstanding as of November 16, 2009). The parties to the stockholder agreements have also agreed to
vote all of their shares of Diedrich common stock (to the extent necessary) in favor of adoption of the merger agreement and otherwise in favor of the merger (except that
ii
Mr. Heeschens obligation to vote shares is limited to 1,832,580 of the shares beneficially owned by him, to the extent not acquired in the offer). As of November 16, 2009, the
stockholders who executed the stockholder agreements beneficially owned in the aggregate 2,454,463 shares of Diedrich common stock (excluding shares issuable upon the exercise of options and warrants beneficially owned by such stockholders). Of such
shares, an aggregate of 1,843,000 shares are subject to the stockholder agreements. The shares subject to the stockholder agreements represent approximately 32.2% of the shares of Diedrich common stock outstanding as of November 16, 2009.
See Risk Factors beginning on page 15 of this prospectus/offer to purchase for a discussion of certain factors
that you should consider in connection with the offer to exchange your shares of Diedrich common stock for the consideration described herein.
Peets common stock is traded on the Nasdaq Global Select Market under the symbol PEET and Diedrich common stock is traded on the Nasdaq Capital Market under the symbol DDRX.
You are encouraged to obtain current market quotations for Peets common stock and Diedrich common stock in connection with your decision whether to tender your shares. Please carefully review the entire prospectus/offer to purchase, including
the merger agreement attached as Annex A-1 and the amendment thereto attached as Annex A-2 to this prospectus/offer to purchase.
Neither the Securities and Exchange Commission (the SEC) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus/offer to purchase. Any
representation to the contrary is a criminal offense.
IMPORTANT
The Purchaser is not asking you for a proxy and you are requested not to send the Purchaser a proxy. Any solicitation of proxies following
the acceptance for exchange of Diedrich common stock pursuant to the offer will be made pursuant to separate proxy solicitation materials complying with the requirements of Section 14(a) of the Securities Exchange Act of 1934, as amended.
Any stockholder of Diedrich who desires to tender all or any portion of such stockholders shares of Diedrich common
stock to the Purchaser in the offer should either (1) complete and sign the letter of transmittal (or a photocopy of it) for the offer, which is enclosed with this prospectus/offer to purchase, in accordance with the instructions contained in
the letter of transmittal (having such stockholders signature on the letter of transmittal guaranteed if required by Instruction 1 to the letter of transmittal), mail or deliver the letter of transmittal (or a photocopy of it) and any other
required documents to the depositary for the offer, Continental Stock Transfer & Trust Company (the Depositary), which will serve as the Exchange Agent (as defined in the merger agreement) for the offer, and either
deliver the certificates representing such shares to the Depositary along with the letter of transmittal (or a photocopy of it) or tender such shares by book-entry transfer by following the procedures described under the caption The
OfferProcedures for Tendering Shares of Diedrich Common Stock in the Offer beginning on page 36 of this prospectus/offer to purchase, in each case prior to the expiration time (as defined in this prospectus/offer to purchase) of the
offer or (2) request such stockholders broker, dealer, bank, trust company or other nominee to effect the transaction for such stockholder. Any stockholder of Diedrich with shares of Diedrich common stock registered in the name of a
broker, dealer, bank, trust company or other nominee must contact that institution in order to tender such shares to the Purchaser in the offer.
Any stockholder of Diedrich who desires to tender shares of Diedrich common stock to the Purchaser in the offer and whose certificates representing such shares are not immediately available, or who cannot
comply in a timely manner with the procedures for tendering shares by book-entry transfer, or who cannot deliver all required documents to the Depositary prior to the expiration time of the offer, may tender such shares to the Purchaser in the offer
by following the procedures for guaranteed delivery described under the caption The OfferProcedures for Tendering Shares of Diedrich Common Stock in the Offer of this prospectus/offer to purchase.
iii
The Purchasers obligation to purchase shares of Diedrich common stock in exchange for
cash and shares of Peets common stock is subject to the conditions described under the caption The OfferConditions to the Offer beginning on page 46 of this prospectus/offer to purchase.
ADDITIONAL INFORMATION
This document incorporates important business and financial information about Peets and Diedrich from documents that are filed with the SEC but are not included in or delivered with this document.
This information is available to you without charge upon your written or oral request. You may read and copy any reports, statements or information that the companies file at the SECs public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on the public reference room. Peets and Diedrichs SEC filings are also available to the public from commercial document retrieval services and at the
Internet web site maintained by the SEC at www.sec.gov.
You may also obtain copies of this information from Peets
website, www.peets.com, or by sending an email to investorrelations@peets.com, or from Diedrichs website, www.diedrich.com, or by sending an email to investorrelations@diedrich.com. Information contained on Peets or Diedrichs
respective websites does not constitute part of this prospectus/offer to purchase.
You may also request copies of these
documents from the Purchaser, without charge, excluding all exhibits, unless the Purchaser has specifically incorporated by reference an exhibit in this prospectus/offer to purchase. You may obtain documents incorporated by reference in this
prospectus/offer to purchase by requesting them in writing or by telephone from Laurel Hill Advisory Group, LLC (the Information Agent) at the address set forth below. You can also contact the Information Agent at its address and
telephone number listed below for answers to your questions regarding the transaction.
Laurel Hill Advisory Group, LLC
100 Wall Street, 22nd Floor
New York, NY 10005
Banks and Brokers Call Collect: (917) 338-3181
All Others Call Toll Free: (888) 742-1305
In order to receive timely delivery of any SEC filings or documents incorporated by reference, you must make your request no later than December 8, 2009.
You should rely only on the information contained in, or incorporated by reference into, this prospectus/offer to purchase together with the
Schedule 14D-9 of Diedrich that has been mailed to you together with this prospectus/offer to purchase in deciding whether to tender your shares of Diedrich common stock in the offer. No one has been authorized to provide you with information that
is different from that contained in, or incorporated by reference into, this prospectus/offer to purchase or the Schedule 14D-9. You should not assume that the information contained in, or incorporated by reference into, this prospectus/offer to
purchase is accurate as of any date other than November 17, 2009.
THE DATE OF THIS PROSPECTUS/OFFER TO PURCHASE IS
NOVEMBER 17, 2009
iv
TABLE OF CONTENTS
v
INTRODUCTION
Marty Acquisition Sub, Inc. (the Purchaser), a Delaware corporation and wholly-owned subsidiary of Peets
Coffee & Tea, Inc., a Washington corporation (Peets), hereby offers to purchase each outstanding share of common stock, $0.01 par value per share, of Diedrich Coffee, Inc., a Delaware corporation (Diedrich),
for consideration consisting of a combination of $17.33 in cash, without interest, and a fraction of a share of common stock, no par value, of Peets having a value equal to $8.67 based on a formula as described under the caption The
Offer, provided that in no event will such fraction exceed 0.315 of a share of Peets common stock, subject to adjustment for stock splits, stock dividends and similar events. The payment of any consideration in the offer shall be on the
terms and subject to the conditions described in this prospectus/offer to purchase and the related letter of transmittal.
The
offer is being made pursuant to an Agreement and Plan of Merger, dated as of November 2, 2009, as amended, by and among Peets, the Purchaser and Diedrich (the merger agreement). Following the purchase by the Purchaser of
shares of Diedrich common stock in the offer and the satisfaction or waiver of each of the applicable merger conditions set forth in the merger agreement, the Purchaser will be merged with and into Diedrich (the merger), with Diedrich
surviving the merger as a wholly-owned subsidiary of Peets. As a result of the merger, each then-outstanding share of Diedrich common stock (other than shares owned by Peets, the Purchaser or Diedrich or any wholly-owned subsidiary of
Peets or Diedrich, or held in Diedrichs treasury, or owned by any stockholder of Diedrich who properly exercises appraisal rights under the Delaware General Corporation Law (Delaware law) will be converted into the right to
receive a combination of $17.33 in cash, without interest, and the same fraction of a share of Peets common stock received by holders of shares of Diedrich common stock purchased in the offer, subject to adjustment for stock splits, stock
dividends and similar events. As used in this prospectus/offer to purchase, the term transaction refers collectively to the offer and the merger.
The offer is conditioned upon, among other things, there being validly tendered and not properly withdrawn prior to the expiration time of the offer (as it may be extended) shares of Diedrich common stock
that, together with any shares of Diedrich common stock then owned by Peets or the Purchaser, or by any other subsidiaries of Peets, immediately prior to the acceptance for exchange of shares pursuant to our offer, represent more than
50% of the sum of the aggregate number of shares of Diedrich common stock then outstanding, plus, at the election of Peets, an additional number of shares up to (but not exceeding) the aggregate number of shares of Diedrich common stock
issuable upon the exercise of all Diedrich stock options, Diedrich warrants and other rights to acquire Diedrich common stock that are outstanding immediately prior to the acceptance of shares of Diedrich common stock for exchange pursuant to the
offer and that are vested and exercisable or will be vested and exercisable prior to the completion of the merger (the foregoing condition is referred to as the minimum condition in this prospectus/offer to purchase). The offer is also
subject to other conditions described under the caption The OfferConditions to the Offer beginning on page 46 of this prospectus/offer to purchase.
If the minimum condition is satisfied and the Purchaser accepts for exchange the shares of Diedrich common stock tendered in the offer, Peets will be able to elect a majority of the members of the
board of directors of Diedrich and to complete the merger without the affirmative vote of any other stockholders of Diedrich. See The OfferPurpose of the Transaction; Plans for Diedrich; The Merger; Appraisal Rights beginning on
page 42 of this prospectus/offer to purchase.
Peets currently owns 221,559 shares of Diedrich common stock. Diedrich
has informed Peets and the Purchaser that as of November 16, 2009, there were issued and outstanding 5,726,813 shares of Diedrich common stock. Based on this number, and the number of shares of Diedrich common stock that are or will
become vested prior to completion of the merger, and assuming for illustration (a) that no additional shares of Diedrich common stock are issued and no Diedrich stock options, no Diedrich warrants and no other rights to acquire Diedrich common stock
vest after November 16, 2009 and (b) that Peets elects to include the maximum possible number of securities in the calculation of the minimum condition (other than the shares underlying
1
warrants beneficially owned by Paul C. Heeschen which he has agreed not to exercise prior to the completion of the merger), the minimum condition would be satisfied if at least 2,995,515 shares
of Diedrich common stock are validly tendered and not properly withdrawn prior to the expiration time of the offer. This figure includes the 1,843,000 shares held by stockholders who agreed to tender their shares pursuant to the stockholders
agreements, as more fully described below.
As an inducement to Peets and the Purchasers entering into the merger
agreement, certain of Diedrichs officers and directors (including Paul C. Heeschen, Diedrichs beneficial owner with the largest stockholdings) have entered into stockholder agreements with Peets (the stockholder
agreements), pursuant to which they have agreed, among other things, solely in their respective capacities as stockholders of Diedrich, to tender all of their beneficially owned shares of Diedrich common stock to the Purchaser in the offer
(except that Mr. Heeschens obligation to tender shares is limited to 1,832,580 of the shares beneficially owned by him, representing approximately 32% of the shares of Diedrich common stock outstanding as of November 16, 2009). The
parties to the stockholder agreements have also agreed to vote all of their shares of Diedrich common stock (to the extent necessary) in favor of adoption of the merger agreement and otherwise in favor of the merger (except that Mr. Heeschens
obligation to vote shares is limited to 1,832,580 of the shares beneficially owned by him, to the extent not acquired in the offer). As of November 16, 2009, the stockholders who executed the stockholder agreements beneficially owned in the
aggregate 2,454,463 shares of Diedrich common stock (excluding shares issuable upon the exercise of options and warrants beneficially owned by such stockholders). Of such shares, an aggregate of 1,843,000 shares are subject to the stockholder
agreements. The shares subject to the stockholder agreements represent approximately 32.2% of the shares of Diedrich common stock outstanding as of November 16, 2009.
The board of directors of Diedrich has, by the unanimous vote of all of the Diedrich directors, (1) determined that the merger agreement and the transactions contemplated thereby, including the
offer and the merger, are fair to and in the best interests of the stockholders of Diedrich, (2) adopted and approved the merger agreement and approved the offer, the merger and the other transactions contemplated by the merger agreement, in
accordance with the requirements of Delaware law, (3) declared that the merger agreement is advisable, (4) resolved to recommend that the stockholders of Diedrich accept the offer and tender their shares of Diedrich common stock pursuant
to the offer and (to the extent necessary) adopt the merger agreement. Accordingly, the board of directors of Diedrich unanimously recommends that the stockholders of Diedrich accept the offer and tender their shares of Diedrich common stock
pursuant to the offer, and, to the extent necessary, vote to adopt the merger agreement, and (5) adopted a resolution rendering the limitations on business combinations contained in section 203 of the Delaware General Corporation Law inapplicable to
the stockholder agreements, the offer, the merger, the merger agreement and any of the other actions and the transactions contemplated by the merger agreement. The factors considered by Diedrichs board of directors in making the determinations
and the recommendation described above are described in Diedrichs solicitation/recommendation statement on Schedule 14D-9, which has been filed with the Securities and Exchange Commission (the SEC) and is being mailed to you and
other stockholders of Diedrich together with this prospectus/offer to purchase.
As required by SEC rules, Diedrich has
filed a solicitation/recommendation statement on Schedule 14D-9 describing its recommendation in favor of the offer and the merger and the related matters.
We urge all Diedrich stockholders to carefully review the Schedule 14D-9 and this
prospectus/offer to purchase (as each may be amended form time to time)
.
If you are the record owner of your shares of
Diedrich common stock and you tender your shares of Diedrich common stock directly to the Depositary (defined below), you will not be obligated to pay any charges or expenses of the Depositary or any brokerage commissions. Laurel Hill Advisory
Group, LLC is acting as information agent (the Information Agent) and Continental Stock Transfer & Trust Company is acting as depositary (the Depositary). Contact information for the Information Agent and the
Depositary appears on the back cover of this prospectus/offer to purchase. See The OfferFees and Expenses.
2
Completion of the merger is subject to a number of conditions, including the acceptance for
exchange of shares of Diedrich common stock pursuant to the offer, and, if required by applicable legal requirements, the adoption of the merger agreement by the affirmative vote of the holders of a majority of the outstanding shares of Diedrich
common stock. See The Merger AgreementConditions to Completion of the Merger beginning on page 68 of this prospectus/offer to purchase. Please note, however, that if the Purchaser obtains ownership of at least 90% of the
outstanding shares of Diedrich common stock (including any shares acquired by the Purchaser pursuant to the offer and the top-up option), the Purchaser would be able to complete the merger without the vote of any of the stockholders of Diedrich.
This prospectus/offer to purchase, the related letter of transmittal and Diedrichs solicitation/recommendation
statement on Schedule 14D-9 contain important information and should be read in their entirety before any decision is made with respect to the offer.
3
QUESTIONS AND ANSWERS REGARDING THE TRANSACTION
For the purposes of this section Questions and Answers Regarding the Transaction, the terms we and
our refer to the Purchaser. The following are some of the questions you, as a stockholder of Diedrich, may have about our offer and the merger and our answers to those questions. The Questions and Answers Regarding the
Transaction provide important and material information about our offer and the merger that is described in more detail elsewhere in this prospectus/offer to purchase, but the Questions and Answers Regarding the Transaction may not
include all of the information about our offer and the merger that is important to you. We urge you to carefully read the remainder of this prospectus/offer to purchase and the letter of transmittal for our offer because the information in the
Questions and Answers Regarding the Transaction is not complete. We have included cross-references in the Questions and Answers Regarding the Transaction to other sections of this prospectus/offer to purchase to direct you to
the sections of this prospectus/offer to purchase in which a more complete description of the topics covered in the Questions and Answers Regarding the Transaction appear.
Who is offering to buy my Diedrich shares? (Page 73)
Our name is Marty
Acquisition Sub, Inc., and we are offering to buy your shares of Diedrich common stock. We were organized as a wholly-owned subsidiary of Peets for the sole purpose of making an offer for all of the outstanding shares of common stock of
Diedrich. Our principal executive offices are located at 1400 Park Avenue, Emeryville, CA 94608, and our telephone number is (510) 594-2100.
Peets is a specialty coffee roaster and marketer of fresh roasted whole bean coffee and tea. Peets sells its coffee under strict freshness standards through multiple channels of distribution
including grocery stores, home delivery, office and foodservice accounts and Peets owned and operated stores in six states. Peets operates its business through two reportable segments: retail and specialty sales. As of November 2,
2009, Peets operated 195 retail stores in six states through which it sells whole bean coffee, beverages and pastries, tea, and other related items. In addition to sales through its retail stores, Peets sells its products through a
network of grocery stores, including Safeway, Stop & Shop, Kroger, Publix and Whole Foods Market. Other sales channels include home delivery and Peets foodservice and office business. Peets principal executive offices are
located at 1400 Park Avenue, Emeryville, CA 94608, and its telephone number is (510) 594-2100. See Information Relating to Peets and the Purchaser beginning on page 73 of this prospectus/offer to purchase.
Who is Diedrich? (Page 72)
Diedrich specializes in sourcing, roasting and selling high quality coffees. In recent years, the primary driver of Diedrichs growth has been the sale of K-Cup
®
portion pack coffees and teas. Diedrich is one of only three independent roasters under non-exclusive license to
produce K-Cups for the top-selling single-cup brewing system manufactured and sold by Keurig Incorporated (Keurig). Keurig is a wholly-owned subsidiary of Green Mountain Coffee Roaster, Inc. Diedrich markets its three leading brands of
specialty coffeesDiedrich Coffee, Coffee People and Gloria Jeans Coffeesthrough office coffee distributors, restaurants and specialty retailers and via Diedrichs web stores. In addition, Diedrich operates a coffee roasting
facility and a distribution center in central California that supplies freshly roasted coffee beans to its wholesale customers. Diedrichs principal executive offices are located at 28 Executive Park, Suite 200, Irvine, CA 92614, and its
telephone number is (949) 260-1600. See Information Relating to Diedrich beginning on page 72 of this prospectus/offer to purchase.
How many shares of Diedrich common stock are you offering to purchase? (Page 33)
We are making an offer to
purchase all of the outstanding shares of Diedrich common stock.
4
How much are you offering to pay in exchange for my shares of Diedrich common stock, what is the form of
payment and will I have to pay any fees or commissions if my shares are accepted for exchange in your offer? (Page 33)
We
are offering consideration consisting of $17.33 in cash, without interest, and a fraction of a share of common stock of Peets having a value equal to $8.67 (based on a formula as described under the caption The Offer) for each of
your shares of Diedrich common stock, provided that in no event will such fraction exceed 0.315 of a share of Peets common stock, subject to adjustment for stock splits, stock dividends and similar events. Because the fraction of a share of
common stock of Peets is calculated based on the volume weighted average price for one share of Peets common stock as reported on the Nasdaq Global Select Market for the five trading day period ending immediately prior to (and excluding)
the date on which shares of Diedrich common stock are accepted for exchange in our offer, the actual value of this fraction of a share at the time shares of Diedrich common stock are accepted for exchange in our offer will likely be greater or less
than $8.67.
You will not receive any fractional shares of Peets common stock in our offer. Instead, if you would
otherwise be entitled to receive a fraction of a share of Peets common stock in our offer, you will receive additional cash in an amount equal to such fraction multiplied by the closing trading price of a share of Peets common stock as
reported on the Nasdaq Global Select Market on the trading day immediately before the date on which we accept shares of Diedrich common stock for exchange pursuant to our offer.
By way of illustration, if you validly tendered 1,000 shares of Diedrich common stock in our offer, and the relevant five trading day volume
weighted average price of a share of Peets common stock were $36.00, the fraction of a share of Peets common stock issuable for each Diedrich share accepted for exchange pursuant to our offer would be 0.240833, which, when valued using
such average price, would be $8.64 worth of Peets common stock for each share of Diedrich common stock held by you. This would result in you receiving 240 shares of Peets common stock. The value of the extra 0.833 of a share of
Peets common stock would be paid in cash, based on the closing trading price of a share of Peets common stock as reported on the Nasdaq Global Select Market on the trading day immediately before the date on which we accept shares of
Diedrich common stock for exchange pursuant to our offer. Assuming, for the purposes of this illustration only, that such closing trading price were equal to $36.00, you would receive approximately $30.00 in cash for the fractional share. In
addition, you would receive $17,330 in cash, which when added to the value of the 240 shares of Peets common stock, $8,640 (valued at $8.64 per share), and the $30.00 for the 0.833 fractional share, would equal $26.00 per share of Diedrich
common stock, or $26,000 in total. However, as an alternative illustration, if you validly tendered 1,000 shares of Diedrich common stock in our offer and the relevant five trading day volume weighted average price of a share of Peets common
stock were $24.00, the fraction of a share of Peets common stock issuable for each Diedrich share accepted for exchange pursuant to our offer would, in the absence of a cap, exceed 0.315, and would therefore in accordance with the merger
agreement, in the absence of a cap, exceed 0.315, and would therefore in accordance with the merger agreement be 0.315. You would thus receive 315 shares of Peets common stock for such shares of Diedrich common stock, which, when valued using
such average price, would be $7,560 ($7.56 worth of Peets common stock for each share of Diedrich common stock held by you). In addition, you would receive $17,330 in cash, which when added to the $7,560 value of the 315 shares of Peets
common stock, would equal $24.89 per share of Diedrich common stock, or $24,890 in total.
Notwithstanding anything to the
contrary in this prospectus/offer to purchase, in the event that pursuant to Nasdaq Listing Rule 5635(a) (or its successor), the issuance of shares of Peets common stock (or rights with respect thereto) pursuant to our offer and the
merger would otherwise require the approval of the shareholders of Peets, then the fraction of a share of Peets common stock issuable to Diedrich stockholders pursuant to our offer or the merger will be reduced to be the greatest
fraction of a share of Peets common stock that would, if distributable to Diedrich stockholders pursuant to our offer and the merger, not require the approval of the shareholders of Peets with respect to such issuance.
Between the date of the merger agreement and the date on which shares of Diedrich common stock are accepted for exchange pursuant to our
offer, (1) if the outstanding shares of Diedrich common stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock
5
dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then both the cash and the stock components of the offer consideration
will be adjusted to the extent necessary or appropriate to achieve the same economic outcome, and (2) if the outstanding shares of Peets common stock are changed into a different number or class of shares by reason of any stock split,
division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the stock component of the offer consideration will be adjusted to the extent
necessary or appropriate to achieve the same economic outcome.
If you are the record owner of your shares and you tender them
to us in our offer, you will not have to pay any brokerage fees or similar expenses. If you own your shares through a broker, dealer, bank, trust company or other nominee, and your broker, dealer, bank, trust company or other nominee tenders your
shares in our offer on your behalf, your broker, dealer, bank, trust company or other nominee may charge you a fee for doing so. You should consult your broker, dealer, bank, trust company or other nominee to determine whether it will charge you a
fee for tendering your shares in our offer.
Do you have the financial resources to pay for all of the shares of Diedrich common stock that
you are offering to purchase? (Page 70)
We intend to use the proceeds from senior secured credit facilities, together with
cash on hand, to finance the offer and the merger, the costs and expenses related to the offer and the merger and the ongoing working capital and other general corporate purposes of the combined organization after completion of the merger. With
respect to debt financing, Peets has received a commitment letter from Wells Fargo Bank, National Association (Wells Fargo) and Wells Fargo Securities, LLC (Wells Fargo Securities) to provide up to $140.0 million of
senior secured credit facilities, a portion of which would be available to finance a portion of the offer, including the payment of related transaction costs, charges, fees and expenses. Funding of the debt financing is subject to the satisfaction
of the conditions set forth in the commitment letter under which the financing will be provided. See Other Agreements Related to the TransactionFinancing Commitment beginning on page 70 of this prospectus/offer to purchase. We do
not expect to draw down the entire senior secured credit facilities in connection with the completion of the offer. We expect that the funds available pursuant to the arrangements described above will be sufficient to complete the offer. The offer
is not conditioned upon any financing arrangements.
Has the board of directors of Diedrich approved your offer and the merger? (Page 33)
Yes. The board of directors of Diedrich has, by unanimous vote:
|
|
|
determined that the merger agreement and the transactions contemplated thereby, including the offer and the merger, are fair to and in the best
interests of the stockholders of Diedrich;
|
|
|
|
adopted and approved the merger agreement and approved the offer, the merger and the other transactions contemplated by the merger agreement, in
accordance with the requirements of Delaware law,
|
|
|
|
declared that the merger agreement is advisable; and
|
|
|
|
resolved to recommend that the stockholders of Diedrich accept the offer and tender their shares of Diedrich common stock pursuant to the offer and (to
the extent necessary) adopt the merger agreement.
|
Accordingly, Diedrichs board of directors
unanimously recommends that you accept our offer and tender your shares of Diedrich common stock pursuant to our offer and, to the extent necessary (depending upon whether we acquire at least 90% of the outstanding shares of Diedrich common stock),
vote to adopt the merger agreement.
6
The factors considered by Diedrichs board of directors in making the determinations
and the recommendation described above are described in Diedrichs solicitation/recommendation statement on Schedule 14D-9, which has been filed with the SEC and is being mailed to you and other stockholders of Diedrich together with this
prospectus/offer to purchase. The Schedule 14D-9 is also available on the SECs website at www.sec.gov. We urge all Diedrich stockholders to review carefully the Schedule 14D-9 and this prospectus/offer to purchase.
What percentage of Peets common stock will Diedrich equityholders own after the merger?
If we obtain all of the outstanding shares of Diedrich common stock pursuant to the offer and the merger, assuming the maximum exchange
ratio, former equityholders of Diedrich will own approximately 17% of the outstanding shares of Peets common stock, based upon the capitalization of Peets and Diedrich on November 16, 2009.
Are Peets business, prospects and financial condition relevant to my decision to tender my shares in the offer?
Yes. Shares of Diedrich common stock accepted for exchange in the offer will be exchanged in part for Peets common stock; therefore,
you should consider our business and financial condition before you decide to tender your shares of Diedrich common stock in the offer. In considering our business and financial condition, you should review the documents incorporated by reference in
this prospectus because they contain detailed business, financial and other information about Peets.
How long do I have to tender my
shares of Diedrich common stock in your offer? (Page 35)
Unless we extend our offer, you will have until 12:00 midnight
(one minute after 11:59 p.m.), Eastern Time, on Tuesday, December 15, 2009, to tender your shares of Diedrich common stock in our offer. If you cannot deliver everything that is required to tender your shares by that time, you may be able to
use a guaranteed delivery procedure to tender your shares.
Under what circumstances can or must you extend your offer beyond its original
expiration time? (Page 35)
Subject to Peets (and Diedrichs) termination rights under the merger
agreement: (1) if, at any time as of which our offer is scheduled to expire, any condition to our offer has not been satisfied or waived, we are required to extend our offer on one or more occasions for additional successive periods of up to 20
business days per extension (but not beyond March 31, 2010); and (2) we are required to extend our offer at any time or from time to time for any period required by any rule, regulation, interpretation or position of the SEC or the staff
of the SEC applicable to our offer.
In addition, if less than 90% of the number of outstanding shares of Diedrich common
stock are accepted for exchange pursuant to our offer, we may, in our sole discretion (and without the consent of Diedrich or any other person), but are not required to, elect to provide for one or more subsequent offering periods (of up to 20
business days in the aggregate) in accordance with Rule 14d-11 under the Exchange Act. During any subsequent offering period, if there is one, you would be permitted to tender your shares to us for the same consideration payable in our offer.
How will I be notified if you extend your offer? (Page 35)
If we extend our offer, we will inform the Depositary and will publicly announce the extension not later than 9:00 a.m., Eastern Time,
on the business day after the day on which our offer was previously scheduled to expire.
7
What are the most significant conditions to your offer? (Page 46)
We are not obligated to purchase any shares of Diedrich common stock that are tendered in our offer unless, prior to the expiration time of
our offer, the number of shares validly tendered and not properly withdrawn, together with any shares of Diedrich common stock then owned by Peets or us, or by any other subsidiaries of Peets, immediately prior to the acceptance for
exchange of shares pursuant to our offer, represent more than 50% of the sum of the aggregate number of shares of Diedrich common stock then outstanding, plus, at the election of Peets, an additional number of shares up to (but not exceeding)
the aggregate number of shares of Diedrich common stock issuable upon the exercise of all Diedrich stock options, Diedrich warrants and other rights to acquire Diedrich common stock that are outstanding immediately prior to the acceptance of shares
of Diedrich common stock for exchange pursuant to our offer and that are vested and exercisable or will be vested and exercisable prior to the completion of the merger. The offer is also subject to other conditions described under the caption
The OfferConditions to the Offer beginning on page 46 of this prospectus/offer to purchase.
Our offer is
not subject to any financing condition (although as described under the caption Source and Amount of Funds, we are seeking financing for our offer and the merger), but it is subject to a number of other conditions, including conditions
with respect to the accuracy of Diedrichs representations and warranties in the merger agreement, Diedrichs compliance with its covenants set forth in the merger agreement, no material adverse effect with respect to Diedrich having
occurred and continuing, the expiration or termination of the waiting period applicable to our offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), the effectiveness of the registration
statement of which this prospectus/offer to purchase is a part, the absence of any order or injunction preventing the acquisition of or payment for Diedrich common stock pursuant to our offer or completion of the merger having been issued by any
court and remaining in effect, there being no legal requirement making the acquisition of or payment for Diedrich common stock pursuant to our offer or completion of the merger illegal, the absence of any legal proceeding by a governmental body
challenging or seeking to restrain or prohibit the acquisition of or payment for shares of Diedrich common stock pursuant to our offer or completion of the merger, and no triggering event having occurred (see The
OfferConditions to the Offer beginning on page 46 of this prospectus/offer to purchase).
Subject to applicable
law, we can waive any condition to our offer without Diedrichs consent, other than the minimum condition.
How do I tender my shares
of Diedrich common stock for exchange in your offer? (Page 36)
To tender all or any portion of your shares of Diedrich
common stock for exchange in our offer, you must either deliver the certificate or certificates representing your tendered shares, together with the letter of transmittal (or a photocopy of it) enclosed with this prospectus/offer to purchase,
properly completed and duly executed, together with any required signature guarantees, and any other required documents, to the Depositary, or tender your shares using the book-entry procedure described herein prior to the expiration time of our
offer.
If you hold your shares of Diedrich common stock in street name through a broker, dealer, bank, trust company or other
nominee and you wish to tender all or any portion of your shares of Diedrich common stock in our offer, the broker, dealer, bank, trust company or other nominee that holds your shares must tender them to us on your behalf through the Depositary.
If you cannot deliver an item that is required to be delivered to the Depositary by the expiration time of our offer, you may
obtain up to three additional trading days to do so by having a broker, bank or other fiduciary that is a member of the Securities Transfer Agents Medallion Program, the Stock Exchanges Medallion Program or other eligible institution guarantee
that the missing items will be received by the Depositary within three Nasdaq Global Select Market trading days. You may use the Notice of Guaranteed Delivery enclosed with this prospectus/offer to purchase for this purpose. To tender shares of
Diedrich common stock in this manner, however, the Depositary must receive the missing items within this three trading day period.
8
Can I withdraw shares that I previously tendered in your offer? Until what time may I withdraw previously
tendered shares? (Page 40)
Yes. You can withdraw any of the shares of Diedrich common stock that you previously tendered
in our offer at any time until the expiration time of our offer, as it may be extended. Further, if we have not accepted your shares for exchange by January 16, 2010, you can withdraw them at any time after that date. Once we accept your
tendered shares for exchange upon the expiration of our offer, however, you will no longer be able to withdraw them. In addition, you will have no right to withdraw any shares tendered in any subsequent offering period (which is not the same as an
extension of our offer), if one is provided.
How do I withdraw my previously tendered shares? (Page 40)
To withdraw any shares of Diedrich common stock that you previously tendered in our offer, you (or, if your shares are held in street name,
the broker, dealer, bank, trust company or other nominee that holds your shares) must deliver a written notice of withdrawal (or a photocopy of one), with the required information, to the Depositary while you still have the right to withdraw your
shares.
Have any stockholders of Diedrich already agreed to tender their shares in your offer? (Page 72)
Yes. Certain of Diedrichs officers and directors (including Paul C. Heeschen, Diedrichs beneficial owner with the largest
stockholdings) have entered into stockholder agreements with Peets, pursuant to which they have agreed, among other things, solely in their respective capacities as stockholders of Diedrich, to tender all of their beneficially owned shares of
Diedrich common stock to the Purchaser in the offer (except that Mr. Heeschens obligation of to tender shares is limited to 1,832,580 of the shares beneficially owned by him, representing approximately 32% of the shares of Diedrich common
stock outstanding as of November 16, 2009). As of November 16, 2009, the stockholders who executed the stockholder agreements beneficially owned in the aggregate 2,454,463 shares of Diedrich common stock (excluding shares issuable upon the
exercise of options and warrants beneficially owned by such stockholders). Of such shares, an aggregate of 1,843,000 shares are subject to the stockholder agreements. The shares subject to the stockholder agreements represent approximately 32.2% of
the shares of Diedrich common stock outstanding as of November 16, 2009. See Other Agreements Related to the TransactionStockholder Agreements beginning on page 72 of this prospectus/offer to purchase.
Do the officers and members of the board of directors of Diedrich have interests in your offer and the merger that are different from stockholders
generally? (Page 54)
You should be aware that some of the officers and directors of Diedrich may be deemed to have
interests in the merger that are different from, or in addition to, your interests as a Diedrich stockholder. These interests may be deemed to exist because of employment agreements that the officers have previously entered into with Diedrich that
provide for severance benefits and the acceleration of stock options in the event of a termination of employment in connection with a change in control, which would include our offer and/or the merger. See also Item 3Past Contacts,
Transactions, Negotiations and Agreements in Diedrichs solicitation/recommendation statement on Schedule 14D-9, which has been filed with the SEC and is being mailed to you and other stockholders of Diedrich together with this
prospectus/offer to purchase.
What are your plans if you successfully complete your offer but do not acquire all of the outstanding shares
of Diedrich common stock in your offer? (Page 42)
If we successfully complete our offer, we intend to merge with and into
Diedrich as soon as practicable following the successful completion of our offer. As a result of the merger, (1) all of the outstanding shares of Diedrich common stock that are not accepted for exchange in our offer, other than shares owned by
Peets, the Purchaser or Diedrich or any wholly-owned subsidiary of Peets or Diedrich, or held in Diedrichs treasury, or owned by any stockholder of Diedrich who properly exercises appraisal rights under Delaware law, will be
9
canceled and converted into the right to receive the same amount of cash and fraction of a share of Peets common stock that was paid in our offer (subject to adjustment for stock splits,
stock dividends and events), and (2) Diedrich will become a wholly-owned subsidiary of Peets.
Our obligation to
merge with Diedrich following the successful completion of our offer is conditioned on the adoption of the merger agreement by Diedrichs stockholders (if required by applicable legal requirements), no order or injunction preventing the
completion of the merger having been issued by any court and remaining in effect, there being no legal requirement making completion of the merger illegal and the registration statement of which this prospectus/offer to purchase is a part (and an
amendment thereto with respect to the merger) being effective. If we successfully complete our offer, we will hold a sufficient number of shares of Diedrich common stock to ensure the requisite adoption of the merger agreement by Diedrich
stockholders under Delaware law to complete the merger. In addition, if we own at least 90% of the outstanding shares of Diedrich common stock, we will not be required to obtain stockholder approval to complete the merger.
If you successfully complete your offer, what will happen to Diedrichs board of directors? (Page 42)
If we successfully complete our offer, under the merger agreement Peets is entitled to designate a majority of the members of the board
of directors of Diedrich. In that case Diedrich has agreed (to the extent requested by Peets) to take all action necessary and reasonably available to cause Peets designees to be elected or appointed to Diedrichs board of
directors. Therefore, if we successfully complete our offer, Peets will obtain control over Diedrich shortly thereafter. However, we have also agreed in the merger agreement that, at all times until the completion of the merger, at least two
of the members of Diedrichs board of directors are required to be individuals who were directors of Diedrich on November 2, 2009, the date of the merger agreement (or their successors). The approval of these individuals, who were
directors of Diedrich on November 2, 2009 (or their successors), will be required to authorize certain actions of Diedrich prior to the completion of the merger, to the extent the action in question could reasonably be expected to affect
adversely the holders of shares of Diedrich common stock (other than Peets or us).
If I decide not to tender my shares of Diedrich
common stock in your offer, how will the completion of the merger affect my shares? (Page 57)
If we successfully complete
our offer, but you do not tender your shares in our offer, and the merger is completed, your shares will be canceled and converted into the right to receive the same amount of cash and fraction of a share of Peets common stock that was paid in
our offer (subject to adjustment for stock splits, stock dividends and similar events), subject to your right to pursue appraisal rights under Delaware law. Therefore, if we complete the merger, unless you perfect your appraisal rights under
Delaware law, and except as described below, the only difference to you between having your shares accepted for exchange in our offer and not doing so is that you will receive consideration for your shares of Diedrich common stock earlier if you
have your shares accepted for exchange in our offer. However, because the merger will occur on a date subsequent to the date on which we accept shares of Diedrich common stock for exchange in our offer, the actual value of the fraction of a share of
Peets common stock payable to Diedrich stockholders in the merger will likely be greater or less than the value of such fraction of a share at the time we complete our offer and will likely be greater or less than $8.67. The number of shares
of Peets common stock you would receive in the merger, if you do not tender your shares, will be fixed based on a formula established at the time that shares of Diedrich common stock are accepted for exchange in our offer. Therefore, the value
of the stock component of the consideration you would receive in the merger could be worth more or less than its value of $8.67 per share of Diedrich common stock based on the formula set forth in the merger agreement.
Are appraisal rights available in either your offer or the merger? (Page 44)
Appraisal rights are not available in connection with our offer. If you choose not to tender your shares of Diedrich common stock in our
offer, however, and we purchase shares of Diedrich common stock in our offer,
10
appraisal rights will be available to you at the time we complete the merger. If you choose to exercise appraisal rights in connection with the merger, and you comply with the applicable
requirements under Delaware law (which include not voting in favor of the adoption of the merger agreement, in the event that a stockholder vote is necessary), you will be entitled to payment for your shares based on a judicially determined fair and
independent appraisal of the value of your shares as of the time immediately prior to public announcement of our offer and the merger. This value may be more or less than the value of the consideration that we are offering to exchange and pay for
each of your shares in our offer and the merger.
Why does the cover page state that this offer may be changed and that the shares of
Peets common stock may not be sold until the registration statement filed with the SEC is effective? Does this mean that your offer has not commenced?
No. Completion of this prospectus/offer to purchase and effectiveness of the registration statement are not necessary for our offer to commence. Our offer commenced on November 17, 2009. However, we
will not be entitled to accept for exchange and to deliver consideration for shares of Diedrich common stock tendered pursuant to the offer until the registration statement has been declared effective by the SEC, among other conditions to the
completion of the offer.
What are the United States federal income tax consequences of having my shares of Diedrich common stock accepted
for exchange in your offer or converted in the merger? (Page 53)
The offer and the merger will not qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986 (the Code). Accordingly, you will recognize all of your gain or loss on the disposition of your shares of Diedrich common stock in our offer or the merger.
Stockholders are urged to consult their own tax advisors to determine the particular tax consequences to them (including the application and
effect of any state, local or foreign income and other tax laws) of our offer and the merger.
What is the market value of my shares of
Diedrich common stock? (Page 87)
On November 2, 2009, the last trading day before Peets and Diedrich announced
that they had entered into the merger agreement, the last sales price of Diedrich common stock reported on the Nasdaq Capital Market was $20.36 per share; therefore, the offer consideration valued at $26.00 per share represents a premium of
approximately 27.7% over the last closing price of shares of Diedrich common stock prior to announcement of the merger agreement. On November 16, 2009, the last full trading day prior to the commencement of our offer, the last sales price of
Diedrich common stock reported on the Nasdaq Capital Market was $26.16 per share. We advise you to obtain recent quotations for shares of Diedrich common stock and shares of Peets common stock when deciding whether to tender your shares in our
offer. In addition, you should also consider Peets financial condition by reviewing the sections of this prospectus/offer to purchase entitled Summary Selected Consolidated Financial Data and Risk Factors and the
documents incorporated by reference into this prospectus/offer to purchase because they contain detailed business, financial and other information about Peets.
Are there any regulatory clearances or approvals required to complete your offer?
Yes. Our acceptance of the tendered shares of Diedrich common stock in our offer and completion of our offer and the merger is subject to the expiration or termination of the waiting period under the HSR Act. In addition, the SEC must
declare the registration statement of which this prospectus/offer to purchase is a part effective.
11
Whom can I contact if I have questions about your offer or the merger? (Page 100)
You should contact the Information Agent for our offer at the address and telephone numbers listed below if you have any questions about our
offer or the merger.
Laurel Hill Advisory Group, LLC
100 Wall Street, 22nd Floor
New York, NY 10005
Banks and Brokers Call Collect: (917) 338-3181
All Others Call Toll Free: (888) 742-1305
In addition, please see
Where You Can Find Additional Information beginning on page 100 of this prospectus/offer to purchase for instructions on how to obtain additional information about Peets, Diedrich, our offer and the merger.
12
SUMMARY SELECTED CONSOLIDATED
FINANCIAL DATA
The tables below present summary selected consolidated financial data of Peets prepared in
accordance with U.S. generally accepted accounting principles, or GAAP. The following selected financial data should be read in conjunction with Peets consolidated financial statements and related notes, Managements Discussion and
Analysis of Financial Condition and Results of Operations, and other financial information in Peets Annual Report on Form 10-K for the fiscal year ended December 28, 2008 as filed with the SEC on March 13, 2009, which is
incorporated by reference into this prospectus/offer to purchase. Please refer to the section entitled Where You Can Find Additional Information beginning on page 100 of this prospectus/offer to purchase.
The summary selected consolidated statements of income for the thirty-nine weeks ended September 27, 2009 and September 28, 2008
and the summary selected consolidated balance sheet data as of September 27, 2009 and September 28, 2008, are derived from the unaudited consolidated financial statements of Peets and the related notes thereto that are incorporated
by reference into this prospectus/offer to purchase. The summary selected consolidated statements of income for the fiscal years ended December 28, 2008, December 30, 2007 and December 31, 2006, and the summary selected
consolidated balance sheet data as of December 28, 2008, December 30, 2007 and December 31, 2006, are derived from the audited financial statements of Peets and the related notes thereto that are incorporated by reference
into this prospectus/offer to purchase. The summary selected consolidated statements of income for the fiscal years ended January 1, 2006 and January 2, 2005, and the summary selected consolidated balance sheet data as of January 1,
2006 and January 2, 2005 of Peets and the related notes thereto, are derived from audited financial statements not included in, or incorporated by reference into, this prospectus/offer to purchase.
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27,
2009
(39 weeks)
|
|
September 28,
2008
(39 weeks)
|
|
Year
|
|
|
|
December 28,
2008
(52 weeks)
|
|
December 30,
2007
(52 weeks)
|
|
December 31,
2006
(52 weeks)
|
|
January 1,
2006
(52 weeks)
|
|
January 2,
2005
(53 weeks)
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
219,575
|
|
$
|
205,676
|
|
$
|
284,822
|
|
$
|
249,389
|
|
$
|
210,493
|
|
$
|
175,198
|
|
$
|
145,683
|
Cost of sales and related occupancy expenses
|
|
|
99,812
|
|
|
96,478
|
|
|
133,537
|
|
|
118,389
|
|
|
98,928
|
|
|
80,837
|
|
|
67,806
|
Operating expenses
|
|
|
76,804
|
|
|
72,934
|
|
|
98,844
|
|
|
85,800
|
|
|
72,272
|
|
|
57,879
|
|
|
47,645
|
General and administrative expenses
|
|
|
17,782
|
|
|
16,233
|
|
|
22,519
|
|
|
22,682
|
|
|
20,634
|
|
|
13,341
|
|
|
11,439
|
Depreciation and amortization expenses
|
|
|
11,200
|
|
|
9,395
|
|
|
12,921
|
|
|
10,912
|
|
|
8,609
|
|
|
7,293
|
|
|
5,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
13,977
|
|
|
10,636
|
|
|
17,001
|
|
|
11,606
|
|
|
10,050
|
|
|
15,848
|
|
|
13,006
|
Interest income, net
|
|
|
111
|
|
|
636
|
|
|
726
|
|
|
1,446
|
|
|
2,456
|
|
|
1,769
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,088
|
|
|
11,272
|
|
|
17,727
|
|
|
13,052
|
|
|
12,506
|
|
|
17,617
|
|
|
13,928
|
Income tax provision
|
|
|
5,158
|
|
|
4,127
|
|
|
6,562
|
|
|
4,675
|
|
|
4,690
|
|
|
6,842
|
|
|
5,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,930
|
|
$
|
7,145
|
|
$
|
11,165
|
|
$
|
8,377
|
|
$
|
7,816
|
|
$
|
10,775
|
|
$
|
8,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.69
|
|
$
|
0.52
|
|
$
|
0.81
|
|
$
|
0.61
|
|
$
|
0.57
|
|
$
|
0.78
|
|
$
|
0.65
|
Diluted
|
|
$
|
0.67
|
|
$
|
0.51
|
|
$
|
0.80
|
|
$
|
0.59
|
|
$
|
0.55
|
|
$
|
0.74
|
|
$
|
0.62
|
Shares used in calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,977
|
|
|
13,825
|
|
|
13,723
|
|
|
13,724
|
|
|
13,733
|
|
|
13,801
|
|
|
13,308
|
Diluted
|
|
|
13,267
|
|
|
14,111
|
|
|
13,997
|
|
|
14,120
|
|
|
14,202
|
|
|
14,469
|
|
|
13,949
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,966
|
|
$
|
3,889
|
|
$
|
4,719
|
|
$
|
15,312
|
|
$
|
7,692
|
|
$
|
20,623
|
|
$
|
11,356
|
Working capital
|
|
|
50,242
|
|
|
41,984
|
|
|
36,422
|
|
|
38,380
|
|
|
37,254
|
|
|
62,584
|
|
|
16,726
|
Total assets
|
|
|
186,190
|
|
|
181,322
|
|
|
176,352
|
|
|
177,547
|
|
|
153,005
|
|
|
148,752
|
|
|
128,944
|
Total shareholders equity
|
|
|
154,838
|
|
|
149,411
|
|
|
143,907
|
|
|
147,253
|
|
|
127,439
|
|
|
126,878
|
|
|
109,905
|
Book value per outstanding share
|
|
|
11.93
|
|
|
10.94
|
|
|
10.92
|
|
|
10.57
|
|
|
9.43
|
|
|
9.13
|
|
|
8.14
|
13
SUMMARY SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following table presents summary unaudited pro forma condensed combined financial data which gives effect to the proposed offer and acquisition by Peets of Diedrich. The summary unaudited pro
forma condensed combined financial data is derived from and should be read in conjunction with the unaudited pro forma condensed combined financial information and related notes thereto included in this prospectus/offer to purchase. The historical
consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the offer and the merger, (2) factually
supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results of Peets and Diedrich. See Unaudited Pro Forma Condensed Combined Financial Information beginning
on page 75 of this prospectus/offer to purchase including the subsection thereof entitled Notes to Unaudited Pro Forma Condensed Combined Financial Information beginning on page 79 of this prospectus/offer to purchase.
(in thousands, except per share data)
Unaudited Pro Forma Condensed Combined Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 28,
2009
|
|
Year
Ended
December 28,
2008
|
|
Net revenue
|
|
$
|
273,380
|
|
$
|
331,854
|
|
Operating income (loss) from continuing operations
|
|
|
11,658
|
|
|
(2,802
|
)
|
Income (loss) from continuing operations
|
|
|
5,725
|
|
|
(9,821
|
)
|
|
|
|
Net income (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
$
|
(0.64
|
)
|
Diluted
|
|
$
|
0.38
|
|
$
|
(0.64
|
)
|
Shares used in calculation of net income (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
Basic
|
|
|
14,687
|
|
|
15,433
|
|
Diluted
|
|
|
14,985
|
|
|
15,433
|
|
|
|
|
|
|
|
As of
September 28,
2009
|
Unaudited Pro Forma Condensed Combined Balance Sheet Data:
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,556
|
Working capital
|
|
|
34,448
|
Total assets
|
|
|
454,312
|
Long-term liabilities
|
|
|
193,613
|
Total stockholders equity
|
|
|
218,624
|
Book value per outstanding share
|
|
|
14.88
|
14
RISK FACTORS
In considering whether to tender your shares of Diedrich common stock pursuant to the offer, you should carefully consider the information
in this prospectus, including the risk factors set forth below and those incorporated by reference. All of the risks set forth below, including those under the heading Risks Relating to Diedrich and Risks Relating to
Peets are also risks of the combined company after the offer and merger are completed.
Risks Relating to the Transaction and
the Combined Company
Peets may fail to realize the potential benefits of the acquisition of Diedrich.
Peets is pursuing the acquisition of Diedrich in an effort to realize certain potential benefits, including expansion of
the combined businesses, broader market opportunities and operational and cost efficiencies. However, Peets ability to realize these potential benefits depends on Peets successfully combining the businesses of Peets and Diedrich.
The combined company may fail to realize the potential benefits of the transaction for a variety of reasons, including the following:
|
|
|
inability or failure to effectively leverage Peets brands, infrastructure and direct store delivery selling and merchandising system to expand
Diedrichs business, including its K-Cup single serve business;
|
|
|
|
inability or failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the combined company;
|
|
|
|
inability or failure to successfully integrate and harmonize financial reporting and information technology systems of Peets and Diedrich;
|
|
|
|
inability or failure to achieve the expected operational and cost efficiencies; and
|
The actual integration of Diedrich and expansion of the combined companies businesses may result in additional and unforeseen expenses or delays. The combined companies could experience such
expenses or delays for a variety of reasons, including the loss of existing key customers, a slowdown in the growth of sales of Keurig brewers or existing K-Cups due to new competitive entries or other factors, or even attempts to interfere with the
combined companies ability to successfully expand the K-Cup product line as provided for in Diedrichs license agreement with Keurig. If Peets is not able to successfully integrate and expand Diedrichs business and operations,
or if there are unanticipated expenses or delays in combining the businesses or expanding Diedrichs business, the anticipated benefits of the transaction may not be realized fully or at all or may take longer to realize than expected.
If Peets is unable to obtain sufficient financing, the acquisition of Diedrich by Peets will not be
completed.
Peets intends to use the proceeds from senior secured credit facilities, together with cash on hand,
to finance the offer and the merger, the costs and expenses related to the offer and the merger and the ongoing working capital and other general corporate purposes of the combined organization after completion of the merger. To this end,
Peets has received a commitment letter from Wells Fargo and Wells Fargo Securities to provide an aggregate of up to $140.0 million in financing for the transaction, comprised of a revolving credit facility of $40.0 million and a term loan of
$100.0 million. The commitment letter includes customary conditions to funding, including, without limitation, no material adverse effect having occurred with respect to Diedrich, the absence of debt other than certain permitted debt, the accuracy
of specified representations and warranties, compliance with a minimum EBITDAR (as defined in the commitment letter) requirement and a maximum total leverage ratio after giving effect to the offer and the related transactions to the extent
consummated as of the date of funding, and other customary conditions. Peets may not be able to satisfy these conditions. In the event that the financing described in the financing commitment letter is not available, other financing may not be
available
15
on acceptable terms, in a timely manner or at all. If other financing becomes necessary and Peets is unable to secure such other financing, the pending acquisition will not be completed. In
the event of a termination of the merger agreement due to Peets inability to obtain the necessary financing for the transaction, Diedrich could seek monetary damages or specific performance.
Peets expects to take on substantial debt to finance the acquisition, which will decrease its business flexibility and increase
its interest expense.
In connection with the acquisition of Diedrich, Peets expects to incur up to $140.0
million of debt. This substantial amount of debt, together with the financial and negative covenants imposed on Peets in connection with this debt, will have the effect, among other things, of reducing Peets flexibility to respond to
changing business and economic conditions and increasing its interest expense. In addition, the actual terms and conditions of such debt may not be favorable to Peets, and as such, could further increase the cost of the acquisition of
Diedrich. Unfavorable debt financing terms may also adversely affect Peets financial results.
The announcement
and pendency of the acquisition of Diedrich could cause disruptions in the businesses of Peets and Diedrich, which could have an adverse effect on their respective business and financial results, and consequently on the combined company.
Peets and Diedrich have operated and, until the completion of the merger, will continue to operate,
independently. Uncertainty about the effect of the acquisition on employees, customers, distributors, licensors and suppliers may have an adverse effect on Peets and Diedrich and consequently on the combined company. These uncertainties may
impair Peets and Diedrichs ability to retain and motivate key personnel and could cause customers, distributors, suppliers, licensors and others with whom each company deals to seek to change existing business relationships, which may
materially and adversely affect their respective businesses. In addition, the attention of Peets management and Peets employees may be diverted from day-to-day operations as they focus on completing the acquisition of Diedrich. Due to
the limited termination rights agreed to by the parties in the merger agreement, Peets may be obligated to complete the offer and the merger in spite of the adverse effects resulting from the disruption of Peets or Diedrichs
ongoing businesses. Furthermore, this disruption could adversely affect the combined companys ability to maintain relationships with customers, distributors, licensors, suppliers and employees after the acquisition or to achieve the
anticipated benefits of the acquisition. On November 10, 2009, an action, George Mendenhall v. J. Russell Phillips, et al., was filed in the Superior Court of the State of California for the County of Orange. In this action, the plaintiff named as
defendants the members of the board of directors of Diedrich, Diedrich, Peets and the Purchaser. The complaint asserts claims on behalf of Diedrichs stockholders who are similarly situated with the plaintiff. Among other things, the
complaint alleges that the members of the Diedrich board of directors have breached their fiduciary duties to Diedrichs stockholders in connection with the transaction, allegedly resulting in an unfair process and unfair price to
Diedrichs stockholders. The complaint seeks class certification and certain forms of equitable relief, including enjoining the completion of the transaction. Diedrich believes that the allegations of the complaint are without merit and intends
to vigorously contest the action. However, there can be no assurances that the defendants will be successful in such defense. Peets and Diedrich could also be subject to further litigation related to the transaction. Each of these events could
adversely affect Peets and Diedrich in the near term and the combined company if the acquisition is completed.
The integration of Diedrich into Peets may result in significant expenses and accounting charges that adversely affect Peets operating results and financial condition.
In accordance with generally accepted accounting principles, Peets will account for the acquisition of Diedrich using the acquisition
method of accounting. Peets financial results may be adversely affected by the resulting accounting charges incurred in connection with the offer and the merger. Peets also expects to incur additional costs associated with combining the
operations of Peets and Diedrich, which may be substantial. Additional costs may include: costs of employee redeployment; relocation and retention bonuses; accelerated
16
amortization of deferred equity compensation and severance payments; reorganization or closure of facilities; taxes; advisor and professional fees; and termination of contracts that provide
redundant or conflicting services. Some of these costs will be accounted for as expenses that would decrease Peets net income and earnings per share for the periods in which those adjustments are made. The price of Peets common stock
could decline to the extent Peets financial results are materially affected by the foregoing charges and costs, or if the foregoing charges and costs are larger than anticipated. The completion of the offer and the merger may result in
dilution of future earnings per share to Peets shareholders. It may also result in greater net losses or a weaker financial condition compared to that which would have been achieved by Peets on a stand-alone basis.
Integrating Peets and Diedrich may divert managements attention away from the combined companys operations.
Successful integration of Peets and Diedrichs operations, products and personnel may place a significant burden on
the combined companys management and internal resources. Peets may also experience difficulty in effectively integrating the different cultures and practices of the two companies. Further, the difficulties of integrating the two
companies could disrupt the combined companys ongoing business, distract its management focus from other opportunities and challenges, and increase the combined companys expenses and working capital requirements. The diversion of
management attention and any difficulties encountered in the transition and integration process could harm the combined companys business, financial condition and operating results.
The pending transaction and/or the delay or failure to complete the transaction with Peets could materially and adversely affect
Diedrichs results of operations and Diedrichs stock price.
The obligation of the Purchaser to accept for
exchange and to deliver consideration for shares of Diedrich common stock tendered pursuant to the offer is subject to the satisfaction or waiver by Peets of a number of conditions, all as described in The OfferConditions to the
Offer beginning on page 46 of this prospectus/offer to purchase. Completion of the merger is subject to customary conditions, including the prior completion of the offer, and, if required under applicable legal requirements, adoption of the
merger agreement by Diedrichs stockholders. It cannot be assured that these conditions will be met or waived, that the necessary approvals will be obtained, or that Peets will be able to successfully complete the offer and the merger as
currently contemplated under the merger agreement or at all. In addition:
|
|
|
as a result of the pending transaction, the attention of Diedrichs management and employees may be diverted from day-to-day operations as they
focus on completing the offer and the merger;
|
|
|
|
the merger agreement places a variety of restrictions and constraints on the conduct of Diedrichs business prior to the completion of the merger
or the termination of the merger agreement; and
|
|
|
|
Diedrichs ability to attract new employees and retain its existing employees may be harmed by uncertainties associated with the offer and the
merger, and Diedrich may be required to incur substantial costs to recruit replacements for lost personnel.
|
A delay in the
completion of the offer and/or the merger may exacerbate the occurrence of these events.
Furthermore, in the event that the
offer or merger is not completed:
|
|
|
Diedrichs stockholders will not receive the consideration that Peets has agreed to deliver pursuant to the merger agreement, and
Diedrichs stock price may experience a decline;
|
|
|
|
Diedrich will have incurred significant transaction costs, including legal, accounting, financial advisory and other costs relating to the offer and
the merger, that will not be reimbursed by Peets; and
|
|
|
|
under some circumstances, Diedrich may have to pay a termination fee to Peets (see The Merger AgreementTermination Fees,
beginning on page 69).
|
17
The occurrence of any of these events individually or in combination could have a material
adverse effect on Diedrichs business, financial condition, results of operations and cash flows, and its stock price.
Risks Relating
to Peets
Peets may not be successful in the implementation of its business strategy or its business
strategy may not be successful, either of which will impede its growth and operating results.
Peets business
strategy emphasizes expansion through multiple channels of distribution. Peets ability to implement this business strategy is dependent on its ability to:
|
|
|
market its products on a national scale and over the internet;
|
|
|
|
enter into distribution and other strategic arrangements with third party retailers and other potential distributors of Peets coffee;
|
|
|
|
increase Peets brand recognition on a national scale;
|
|
|
|
identify and lease strategic locations suitable for new stores; and
|
|
|
|
manage growth in administrative overhead and distribution costs likely to result from the planned expansion of its retail and non-retail distribution
channels.
|
Peets does not know whether it will be able to successfully implement its business strategy
or whether its business strategy will be successful. Peets revenue may be adversely affected if it fails to implement its business strategy or if it diverts resources to a business strategy that ultimately proves unsuccessful.
Because Peets business is highly dependent on a single product, specialty coffee, if the demand for specialty coffee decreases,
its business could suffer.
Sales of specialty coffee constituted approximately 83% of Peets 2008, 2007 and 2006
net revenue. Demand for specialty coffee is affected by many factors, including:
|
|
|
consumer tastes and preferences;
|
|
|
|
national, regional and local economic conditions;
|
|
|
|
demographic trends; and
|
|
|
|
perceived or actual health benefits or risks.
|
Because Peets is highly dependent on consumer demand for specialty coffee, a shift in consumer preferences away from specialty coffee would harm its business more than if it had more diversified
product offerings. If customer demand for specialty coffee decreases, Peets sales would decrease accordingly.
If
Peets fails to continue to develop and maintain its brand, its business could suffer.
Peets believes that
maintaining and developing its brand is critical to its success and that the importance of brand recognition may increase as a result of competitors offering products similar to Peets products. Because the majority of Peets retail stores
are located on the West Coast, primarily in California, Peets brand recognition remains largely regional. Peets brand building initiative involves increasing the availability of Peets products and opening new stores to increase
awareness of its brand and create and maintain brand loyalty. If Peets brand building initiative is unsuccessful, it may never recover the expenses incurred in connection with these efforts and it may be unable to increase its future revenue
or implement its business strategy.
Peets success in promoting and enhancing the Peets brand will also depend on
its ability to provide customers with high quality products and customer service. The measures that Peets takes to ensure that it sells
18
only fresh roasted whole bean coffee and that its retail employees properly prepare its coffee beverages may not be effective as Peets has no control over its whole bean coffee products
once purchased by customers. Accordingly, customers may prepare coffee from Peets whole bean coffee inconsistent with Peets standards, store Peets whole bean coffee for long periods of time or resell Peets whole bean coffee
without its consent, which in each case, potentially affects the quality of the coffee prepared from Peets products. If customers do not perceive Peets products and service to be of high quality, then the value of Peets brand may
be diminished and, consequently, Peets ability to implement its business strategy may be adversely affected.
Increases in the cost and decreases in availability of high quality Arabica coffee beans could impact Peets profitability and growth of its business.
Green coffee is Peets largest single cost of sales. Peets does not purchase coffee on the commodity markets, but price movements
in the trading of coffee do impact the price Peets pays. Coffee is a trade commodity and, in general, its price can fluctuate depending on:
|
|
|
weather patterns in coffee-producing countries;
|
|
|
|
economic and political conditions affecting coffee-producing countries;
|
|
|
|
foreign currency fluctuations;
|
|
|
|
the ability of coffee-producing countries to agree to export quotas; and
|
|
|
|
general economic conditions that make commodities more or less attractive investment options.
|
Coffee commodity costs began to decline in July 2008 after over four years of increases above the prior three to four year range.
Peets expects the commodity market to continue to be volatile as worldwide demand, the strength of the dollar, and weather will continue to cause uncertainty in the market. If coffee costs increase and Peets is unable to pass along
increased coffee costs, its margin will decrease and its profitability will suffer accordingly. If Peets is not able to purchase sufficient quantities of high quality Arabica beans due to any of the above factors, it many not be able to
fulfill the demand for its coffee, its revenue may decrease and its ability to expand its business may also suffer.
The
recent recession or a worsening of the United States and global economy could materially adversely affect Peets business.
Peets revenues and performance depends significantly on consumer confidence and spending, which have recently deteriorated due to the recent recession and may remain depressed for the foreseeable future. Some of the factors that could
influence the levels of consumer confidence and spending include, without limitation, continuing conditions in the residential real estate and mortgage markets, access to credit, labor and healthcare costs, increases in fuel and other energy costs,
consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for Peets products and on its financial condition and operating results.
Because Peets business is based primarily in California, a worsening of economic conditions, a decrease in
consumer spending or a change in the competitive conditions in this market may substantially decrease Peets revenue and may adversely impact its ability to implement its business strategy.
Peets California retail stores generated approximately 60% of Peets 2008, 2007 and 2006 net revenue and a substantial portion of
the revenue from its other distribution channels is generated in California. Peets expects that its California operations will continue to generate a substantial portion of its revenue. In addition, Peets California retail stores provide
Peets with means for increasing brand awareness, building customer loyalty and creating a premium specialty coffee brand. As a result, if the current economic downturn and decrease in
19
consumer spending in California continues or worsens, it may not only lead to a substantial decrease in revenue, but may also adversely impact Peets ability to market its brand, build
customer loyalty, or otherwise implement its business strategy.
Complaints or claims by current, former or prospective
employees or governmental agencies could adversely affect Peets.
Peets is subject to a variety of laws and
regulations which govern such matters as minimum wages, overtime and other working conditions, various family leave mandates and a variety of other laws enacted, or rules and regulations promulgated, by federal, state and local governmental
authorities that govern these and other employment matters. Peets has been, and in the future may be, the subject of complaints or litigation from current, former or prospective employees or governmental agencies. In addition, successful
complaints against Peets competitors may spur similar lawsuits against Peets. For instance, in 2003, two lawsuits (which have since been settled) were filed against Peets alleging misclassification of employment position and
sought damages, restitution, reclassification and attorneys fees and costs. In addition, on July 14, 2008, a complaint was filed alleging that store managers based in California were not paid overtime wages, were not provided meal or
rest periods, were not provided accurate wage statements and were not reimbursed for business expenses. These types of claims could divert Peets managements time and attention from its business operations and might potentially result in
substantial costs of defense, settlement or other disposition, which could have a material adverse effect on Peets business, financial condition, results of operations and cash flows and its stock price.
Potential claims and litigation could have a material adverse effect on Peets.
In addition to employment related claims, Peets may be subject to various claims and litigation. For example, in 2007 Peets was
involved as defendants in lawsuits relating to Peets stock option granting practices. Although these actions have been dismissed, Peets could in the future become subject to other claims and litigation, which could involve, for example,
securities law claims, commercial disputes, and disputes relating to intellectual property. On November 10, 2009, an action, George Mendenhall v. J. Russell Phillips, et al., was filed in the Superior Court of the State of California for the County
of Orange. In this action, the plaintiff named as defendants the members of the board of directors of Diedrich, Diedrich, Peets and the Purchaser. The complaint asserts claims on behalf of Diedrichs stockholders who are similarly
situated with the plaintiff. Among other things, the complaint alleges that the members of the Diedrich board of directors have breached their fiduciary duties to Diedrichs stockholders in connection with the transaction, allegedly resulting
in an unfair process and unfair price to Diedrichs stockholders. The complaint seeks class certification and certain forms of equitable relief, including enjoining the completion of the transaction. Diedrich believes that the allegations of
the complaint are without merit and intends to vigorously contest the action. However, there can be no assurances that the defendants will be successful in such defense. This lawsuit and other potential lawsuits could divert managements time
and attention from day-to-day operations, result in significant legal expenses, and result in an outcome that could have a material adverse effect on Peets business, financial condition, results of operations and cash flows and its stock
price.
Labor conditions in the grocery business could negatively impact Peets grocery business.
There have been grocery strikes in the past that have negatively impacted Peets grocery business and it is
possible that future grocery strikes in places where Peets has large distribution may adversely impact its grocery business.
Government mandatory healthcare requirements could adversely affect Peets profits.
Peets offers healthcare benefits to all employees who work at least 21 hours a week and meet service eligibility requirements. In the past, some states, including California,
have unsuccessfully proposed legislation mandating that employers pay healthcare premiums into a state run fund for all employees
20
immediately upon hiring. If legislation similar to this were to be enacted in the states in which Peets does business, it could have an adverse affect
on Peets business, financial condition, results of operations and cash flows, and its stock price.
Because Peets relies heavily on common carriers to ship its coffee on a daily basis, any disruption in their services or increase in shipping costs could adversely affect its business.
Peets relies on a number of common carriers to deliver coffee to its customers and retail stores. Peets considers roasted coffee
a perishable product and it relies on these common carriers to deliver fresh roasted coffee on a daily basis. Peets has no control over these common carriers and the services provided by them may be interrupted as a result of labor shortages,
contract disputes or other factors. If Peets experiences an interruption in these services, it may be unable to ship its coffee in a timely manner. A delay in shipping could:
|
|
|
have an adverse impact on the quality of the coffee shipped, and thereby adversely affect Peets brand and reputation;
|
|
|
|
result in the disposal of an amount of coffee that could not be shipped in a timely manner; and
|
|
|
|
require Peets to contract with alternative, and possibly more expensive, common carriers.
|
Any significant increase in shipping costs could lower Peets profit margins or force Peets to raise prices, which could cause
its revenue and profits to suffer.
Peets depends on the expertise of key personnel. If these individuals leave or
change their role within the company without effective replacements, Peets operations may suffer.
The success of
Peets business is dependent to a large degree on its management and its coffee roasters and purchasers. If members of Peets management leave without effective replacements, its ability to implement its business strategy could be
impaired. If Peets lost the services of its coffee roasters and purchasers, its ability to source and purchase a sufficient supply of high quality coffee beans and roast coffee beans consistent with its quality standards could suffer. In
either case, Peets business and operations could be adversely affected.
Peets may not be able to hire or
retain additional management and other personnel and its recruiting and training costs may increase as a result of turnover, both of which may increase Peets costs and reduce its profits and may adversely impact its ability to implement its
business strategy.
The success of Peets business depends upon its ability to attract and retain highly
motivated, well-qualified management and other personnel, including technical personnel and retail employees. Peets faces significant competition in the recruitment of qualified employees. Peets ability to execute its business strategy
may suffer if:
|
|
|
Peets is unable to recruit or retain a sufficient number of qualified employees;
|
|
|
|
the costs of employee compensation or benefits increase substantially; or
|
|
|
|
the costs of outsourcing certain tasks to third party providers increase substantially.
|
A significant interruption in the operation of Peets roasting and distribution facilities could potentially disrupt its
operations.
Peets currently only has one roasting and distribution facility. A significant interruption in the
operation of Peets roasting and distribution facility, whether as a result of a natural disaster or other causes, could significantly impair Peets ability to operate its business. Since Peets only roasts its coffee to order, it
does not carry inventory of roasted coffee in its roasting plant. Therefore, a disruption in service in Peets roasting facility would significantly impact its sales in its retail and specialty channels almost immediately.
21
A major earthquake could seriously disrupt Peets entire business.
Peets roasting and distribution facility, and several of its stores are located near several major earthquake
faults in the San Francisco Bay area. The impact of a major earthquake in the San Francisco Bay area on Peets facilities, infrastructure and overall operations is difficult to predict, and an earthquake could seriously disrupt Peets
entire business. Peets insurance may not adequately cover its losses and expenses in the event of an earthquake. As a result, a major earthquake in the San Francisco Bay area could not only seriously disrupt Peets business but may also
lead to substantial losses.
Peets has a high deductible workers compensation insurance program and more
claims and higher costs from these claims may adversely affect Peets profits.
For the policy years beginning
March 2002 through February 2008, Peets workers compensation insurance program was a modified self-insured program with a high deductible with an overall program ceiling to limit exposure. The majority of Peets business is in
California, which has experienced an unpredictable workers compensation environment. Therefore, Peets is highly exposed to this environment. Additionally, Peets has had to estimate its liability for existing claims whose outcome is
uncertain. If a greater amount of claims occur or the settlement costs increase beyond what Peets anticipated, Peets expenses could increase and its profitability may decrease. For the policy years beginning March 1, 2008,
Peets has purchased a guaranteed cost policy and therefore its self-insured claims exposure is limited to incidents prior to March 1, 2008.
Peets roasting methods are not proprietary, so competitors may be able to duplicate them, which could harm Peets competitive position.
Peets considers its roasting methods essential to the flavor and richness of its roasted whole bean coffee and, therefore, essential to
its brand. Because Peets does not hold any patents for its roasting methods, it may be difficult for Peets to prevent competitors from copying its roasting methods. If Peets competitors copy its roasting methods, the value of its
brand may be diminished, and it may lose customers to its competitors. In addition, competitors may be able to develop roasting methods that are more advanced than Peets roasting methods, which may also harm its competitive position.
Competition in the specialty coffee market is intense and could affect Peets profits.
The specialty coffee category is competitive, dominated by Starbucks Corporation, which is larger than all the competitors combined. In
addition to Starbucks, Peets competitors include Green Mountain Coffee, Illy Caffè, Millstone (Smuckers), Seattles Best (Starbucks), Dunkin Donuts and Coffee Bean & Tea Leaf. There are also numerous
smaller, regional brands that compete in this category with either coffeehouses of their own or a presence in wholesale, or both. In addition, Peets indirectly competes with more mainstream brands as Maxwell House (Kraft) and Folgers
(Smuckers). In the grocery channel, Kraft and Smuckers are the largest brands since Kraft distributes its own brands as well as Starbucks and Seattles Best while Smuckers licenses and distributes the Dunkin Donut
brand in addition to its Folgers and Millstone brands.
In every channel, Peets competes against at least one competitor
who is much larger and has more financial resources than it does. There is always a risk that one of these competitors could undertake a strategy that involves very high spending or discounting that would negatively impact Peets operating
results.
Adverse public or medical opinion about caffeine may harm Peets business.
Peets specialty coffee contains significant amounts of caffeine and other active compounds, the health effects of some of which are not
fully understood. A number of research studies conclude or suggest that excessive consumption of caffeine may lead to increased heart rate, nausea and vomiting, restlessness and anxiety, depression, headaches, tremors, sleeplessness and other
adverse health effects. An unfavorable report on
22
the health effects of caffeine or other compounds present in coffee could significantly reduce the demand for coffee, which could harm Peets business and reduce its revenues and profits.
Adverse publicity regarding customer complaints may harm Peets business.
Peets may be the subject of complaints or litigation from customers alleging beverage and food-related illnesses, injuries suffered on
the premises or other quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect Peets, regardless of whether such allegations are true or whether Peets is ultimately held
liable.
Risks Relating to Diedrich
Historical losses from continuing operations may continue and, as a result, the price of Diedrichs common stock may be negatively affected.
Diedrich had net losses from continuing operations of $179,000 for the fiscal year ended June 24, 2009 and $11,385,000 for the fiscal
year ended June 25, 2008. Diedrich could continue to suffer losses in the future, which may negatively affect Diedrichs stock price.
If Diedrich is not able to grow its business, the results of its operations and its financial condition may be adversely impacted.
Diedrich is a specialty coffee roaster, wholesaler and ecommerce retailer. The majority of Diedrichs revenue is generated from
wholesale customers. To grow, Diedrich must:
|
|
|
expand Diedrich Coffee, Coffee People and Gloria Jeans wholesale sales;
|
|
|
|
continue to add additional production capacity to meet planned product demands;
|
|
|
|
continue to upgrade inventory control, marketing and information systems; and
|
|
|
|
impose and maintain strict quality control from green coffee acquisition to the fresh cup of brewed coffee in a customers hand.
|
Future inability to grow Diedrichs business resulting from, among other things, failing to execute
any of the above factors may adversely affect its business, financial condition, results of its operations and cash flows, and its stock price.
Because Diedrich has only one roasting facility, a significant interruption in the operation of this facility could potentially disrupt its operations.
Diedrich currently operates one coffee roasting facility and one distribution facility. A significant interruption in the operation of either
of these facilities, whether as a result of a natural disaster or other causes, could significantly impair its ability to operate its business on a day-to-day basis and could have a material adverse effect on its business, financial condition,
results of operations and cash flows and its stock price.
Diedrichs industry is highly competitive and it may not
have the resources to compete effectively.
With low barriers to entry, competition in Diedrichs industry is
expected to increase from national and regional chains. Diedrichs whole bean coffees compete directly against specialty coffees sold at specialty retailers, variety and discount stores, and a growing number of specialty coffee stores. Many
specialty coffee companies, including Green Mountain Coffee Roasters, S&D Coffee, Boyd Coffee and Starbucks sell whole bean coffees through these channels. In addition, Diedrich competes to draw customers of standard or commercial coffee, and
consumers of substitute coffee products manufactured by a number of nationwide coffee manufacturers, such as Kraft Foods, Proctor & Gamble and Nestlé, to specialty grade coffee.
23
Diedrichs supply costs may be higher than it expects because of fluctuations in
availability and cost of unroasted coffee.
Increases in the price of green coffee, or the unavailability of adequate
supplies of green coffee of the quality Diedrich seeks, whether due to the failure of its suppliers to perform, conditions in coffee-producing countries, or otherwise, could have a material adverse effect on its business, financial condition,
results of operations and cash flows and its stock price. Should this happen, Diedrich may not be able to maintain its gross margins by raising prices without affecting demand.
Compliance with government regulations applicable to Diedrich could have a material adverse effect on its business, financial
condition and results of operations.
Diedrichs roasting facility is subject to licensing and reporting
requirements by a number of governmental authorities. These governmental authorities include federal, state and local health, environmental, labor relations, sanitation, building, zoning, fire, safety and other departments. Changes in any of these
laws or regulations could have a material adverse effect on Diedrichs business, financial condition, results of operations and cash flows and its stock price.
Diedrichs lack of diversification may affect business if demand is reduced.
Diedrichs business is primarily centered on one product: specialty grade coffee. Diedrichs operations have been limited to primarily the roasting and packaging of green coffee beans and the
sale of coffee in a variety of packaging formats, especially K-Cups, through its wholesale business channel. Any decrease in demand for specialty coffee would have a material adverse effect on Diedrichs business, financial condition, results
of operations and cash flows and its stock price.
Diedrichs wholesales revenues are generated
substantially all from the sale of K-Cups.
Diedrich generates substantially all of its revenues
from the sale of K-Cups which is licensed from Keurig on a non-exclusive basis. Any issues with this licensing arrangement will have a material adverse effect on Diedrichs operations. Keurig is also Diedrichs largest customer.
Diedrichs relationship with Keurig is critical to the success of Diedrichs business.
24
BACKGROUND OF THE TRANSACTION
Peets Expansion Strategy
Peets has been pursuing a strategy to develop a premium-quality, premium-priced brand (Peets) in the consumer packaged coffee business for many years. As part of that strategy, Peets developed its own direct store delivery
(DSD) selling and merchandising system beginning in 2003. The DSD system enabled Peets to deliver significantly fresher Peets brand coffee to grocery store shelves than competitors and also provided Peets a selling and
merchandising advantage at the store level since none of Peets competitors operated DSD systems.
This strategy proved
successful, as Peets enjoyed strong sales and earnings growth from 2003 through 2005 driven primarily by the rapid growth of Peets brand coffee sales through the DSD system in the grocery channel. At the same time, Peets continued
to grow its other channels of business, including expanding its e-commerce business and opening more of its own retail stores, primarily in California.
Consistent with the longer-term vision for Peets and the Peets brand, in 2006, Peets expanded the DSD system into a lead test market in New England to learn and qualify how to most
profitably and effectively expand the Peets brand nationally in grocery stores. The lead market was a success, and beginning in late 2007 Peets began to more aggressively expand into grocery stores in major eastern, southern and
midwestern markets, concurrently establishing the DSD system there.
From 2006 through 2008 (and into 2009), Peets made
major infrastructure investments to support its growth, including the DSD system, a new roast-to-order roasting facility, a new enterprise resource planning (ERP) system and additional management talent. During this same time period, the board and
management met regularly to discuss the long-term vision and strategy for Peets, since it had evolved from a small San Francisco Bay Area-based coffee retailer to a high growth, premium-quality, premium-priced brand in the consumer packaged
coffee business with core competencies in high quality coffee sourcing and evaluation, roast-to-order production capability and a powerful competitive advantage in its DSD selling and merchandising system.
In 2008, the management and the board agreed to extend Peets vision beyond just the Peets brand to become, as they expressed it,
the gold standard specialty coffee and tea company by leveraging Peets distribution and operating strengths. As part of this vision, Peets intent is to have leading premium-quality, premium-priced brands in the major consumer
segments of the at-home specialty coffee and tea market, sold through grocery stores.
Peets first
major initiative to further this strategy was licensing the Godiva
®
name and developing a premium-quality Godiva
brand coffee line to capture the high end in the flavored and medium-roast consumer segment. In addition to this initiative, which Peets introduced nationally in October/November 2009, management identified other strategic consumer
segments within the specialty coffee category that it planned to enter in a manner consistent with its broader vision.
One
such segment was the small but rapidly growing market for cartridge-based single cup coffee designed to be compatible with a specific brewing platform. By the start of 2008, it became clear to Peets that Green Mountain Coffee Roasters
Keurig brewer platform and its associated K-Cup cartridge format had become the leading single cup coffee brewing system in the United States by a wide margin and that this margin was likely to become larger given the existence of multiple,
significant barriers to entry including: (1) the integrated brewer/cartridge economic model in which, to be successful, the manufacturer (Green Mountain) did not need to make a profit on the machines, just the K-Cup cartridges;
(2) significant intellectual property protection associated with the design and functionality of the K-Cup cartridge, the machines that manufacture K-Cup cartridges and the machines that brew coffee using K-Cup cartridges, both individually and
in how they work together as a system; and (3) the large capital investment required to create a competing brewer platform and cartridge system.
25
The success of the Keurig system was evident, as Green Mountain publicly stated that the
Keurig brewers share of the single cup brewer market grew to over 80% by the end of 2008 and, according to a nationally recognized industry research organization, K-Cup cartridges were commanding a consumer price per pound of coffee in the
range of $20-$24, a more than 100% premium to specialty coffee in the traditional bag form. In addition, Peets own research with consumers who had made the significant investment in a Keurig brewer indicated that they were satisfied and
relatively insensitive to the higher price per pound they were paying for coffee in K-Cup cartridges.
Peets management
and board of directors carefully reviewed the various alternatives for entering this market and concluded that acquiring Diedrich, one of only three remaining independent licensees that are able to produce K-Cup cartridges and sell them directly to
customers, was in the best long-term interests of Peets and its shareholders. Peets believed such an acquisition would provide it a fast-start entry point into the K-Cup single cup market through Diedrichs existing roasting and
K-Cup packaging facility and also enable Peets to leverage its sales, marketing and DSD system to significantly build sales of Diedrichs existing business, and then add new brands and products, including the Peets brand, to expand
the K-Cup market and provide both trade customers and consumers with a broader choice.
Interactions Between Peets and Diedrich
In late June 2008, Patrick J. ODea, Peets Chief Executive Officer, through his assistant contacted the office of
Paul C. Heeschen, Diedrichs Chairman, to request an appointment for an introductory meeting with Mr. Heeschen. In July 2008, Messrs. ODea and Heeschen spoke by telephone to introduce themselves and agreed to meet in person later in
the month to discuss potential business opportunities for Peets and Diedrich.
On July 21, 2008, Messrs. ODea
and Heeschen met in Mr. Heeschens offices and discussed their respective companies businesses and various ways in which they might work together in the wholesale coffee business. In the course of this discussion, Mr. ODea
mentioned Peets interest in potentially acquiring or entering into a commercial relationship with Diedrich, and Mr. Heeschen advised Mr. ODea that Diedrich was working on certain initiatives to reorganize its operations.
Messrs. ODea and Heeschen agreed to speak again about a potential commercial relationship in the near future.
On
July 23, 2008, Mr. Heeschen called Mr. ODea and advised him that it would not be practicable for Diedrich to have any active dialogue with Peets about a potential commercial relationship before the completion of the
initiatives to reorganize its operations. Messrs. ODea and Heeschen agreed to speak again in the next few weeks.
In
August or September 2008, Messrs. ODea and Heeschen arranged an in-person meeting for themselves and members of their management teams to be held in late September 2008. In anticipation of this meeting, between September 19, 2008 and
September 27, 2008, Peets and Diedrich negotiated a mutual nondisclosure agreement that was executed as of September 27, 2008.
On September 29, 2008, representatives of Peets and Diedrich met at Peets roasting facility in Alameda, California. Participating in this meeting for Peets were:
Mr. ODea; Thomas P. Cawley, Chief Financial Officer; James E. Grimes, Vice President, Supply Chain and Information Systems; and Jon S. Weinberg, Senior Director, Strategic Planning and Analysis; and for Diedrich were Mr. Heeschen; J.
Russell Phillips, Chief Executive Officer; and Gregory D. Palmer, a member of Diedrichs board of directors. In the course of this meeting, the participants toured the roasting facility and exchanged more detailed information about their
respective businesses, and Peets reiterated its interest in entering into an extensive commercial relationship that would enable each of the companies to take advantage of the others capabilities through the production of each
companys branded products for sale through both companies channels of distribution. The parties agreed to continue discussions about a potential commercial relationship.
26
On December 10, 2008, Messrs. ODea and Heeschen spoke by telephone about various
aspects of a potential commercial relationship between Peets and Diedrich.
On December 16, 2008, Mr. Grimes
met with Mr. Phillips at Diedrichs manufacturing facility in Castroville, California, to tour the facility and discuss the possibility of Diedrich becoming a contract roaster of flavored coffees for Peets.
On December 19, 2008, Messrs. ODea and Heeschen spoke by telephone about a potential commercial relationship between Peets
and Diedrich, including a potential investment in Diedrich by Peets. Later that day, Mr. ODea emailed Mr. Heeschen a term sheet outlining potential terms of such a relationship. Mr. ODea also requested diligence
material relating to Diedrichs potential service as a contract roaster, and Diedrich subsequently provided certain cost estimates and historical financial information in response to this request.
On January 9, 2009, Messrs. ODea and Heeschen spoke by telephone, and Mr. Heeschen provided his reactions to the Peets
term sheet. They agreed to continue exploring a commercial relationship of the type described in the term sheet.
Between
January 23, 2009 and January 28, 2009, Messrs. ODea and Heeschen spoke by telephone and exchanged email messages generally continuing to explore a commercial relationship between Peets and Diedrich, discussing potential terms
and outlining additional near-term steps to be taken in pursuit of a commercial relationship, including asking their respective legal counsel to review and discuss various aspects of the contemplated relationship.
On February 13, 2009, Messrs. ODea and Heeschen spoke by telephone about various issues to be resolved in connection with the
contemplated commercial relationship.
On March 19, 2009, Messrs. Grimes and Cawley met with Mr. Phillips and Jack
Hosier, Diedrichs Vice President of Operations, at Diedrichs manufacturing facility in Castroville, California, to tour the facility and discuss further the possibility of Diedrich becoming a contract roaster and/or packer for certain
Peets products, including a new flavored coffee Peets was then developing and later introduced under the Godiva brand.
On March 23, 2009, Messrs. ODea and Heeschen spoke by telephone. They mutually concluded that continuing to pursue a potential commercial relationship in which Diedrich would contract roast and/or pack Peets products was no
longer of interest. Mr. Heeschen indicated that he was optimistic about reaching an agreement to sell the Gloria Jeans domestic franchise operations, after which time he would potentially be interested in having further discussions with
Peets about a potential business combination.
On March 27, 2009, Diedrich announced that it had entered into an
agreement for the sale of its Gloria Jeans Coffees domestic franchise operations.
On April 13, 2009,
Mr. ODea and H. William Jesse, Jr., Peets financial advisor, met with Mr. Heeschen in Mr. Heeschens offices. Messrs. ODea and Jesse expressed Peets interest in a possible acquisition of Diedrich.
Mr. Heeschen stated that any such discussion would be a matter for Diedrichs full board of directors and that any substantive discussion would have to be deferred until, at the earliest, after the completion of the pending sale of its
domestic franchise operations. Mr. Heeschen indicated that it would be advisable for Mr. Jesse to meet Timothy J. Ryan, Diedrichs Vice Chairman, and Mr. Heeschen subsequently arranged for an introductory meeting between Mr. Ryan and
Mr. Jesse, which took place in Mr. Ryans offices on April 29, 2009.
On April 17, 2009, Peets board
of directors created a Transaction Committee and delegated to it the boards authority to, among other things, identify and evaluate proposed acquisitions by Peets of other companies. Between April 17, 2009 and the execution of the
definitive merger agreement with Diedrich on November 2,
27
2009, the Transaction Committee held frequent formal meetings and informal discussions with Peets management, Mr. Jesse and representatives of Cooley Godward Kronish LLP
(Cooley), Peets legal counsel.
On May 8, 2009, Mr. Jesse contacted Mr. Heeschen by telephone
and inquired whether he felt that further discussions would be desirable. Mr. Heeschen indicated receptivity to further discussions but stated that all potential Diedrich participants would be fully occupied until the sale of the domestic
franchise operations was complete.
On June 15, 2009, Diedrich announced that it had completed the sale of its Gloria
Jeans Coffees domestic franchise operations.
On June 19, 2009, Messrs. ODea and Jesse met with Messrs.
Heeschen and Ryan and representatives of Cooley and Gibson, Dunn & Crutcher LLP (Gibson Dunn), Diedrichs legal counsel, at Gibson Dunns offices. Messrs. ODea and Jesse reiterated Peets interest in
acquiring Diedrich and explained various potential benefits to Diedrichs stockholders of a business combination between Peets and Diedrich. Messrs. Heeschen and Ryan stated that Diedrichs board of directors had made no decision to
pursue a sale of the company and was in the very early stages of considering Diedrichs future strategic direction following the very recent completion of the divestiture of substantially all of its retail and franchise operations.
On the afternoon of June 26, 2009, Mr. ODea and Jean-Michel Valette, Peets Chairman, delivered a confidential
letter to Diedrichs board of directors reiterating Peets strong interest in acquiring Diedrich. The letter stated that Peets preliminary thinking about the potential per-share consideration to be paid to Diedrichs
stockholders was a combination of $9.00 in cash per share and a contingent value right with a value that could fall within a very broad range depending on the future success of the combined companies K-Cup business and the future value of
Peets stock. The letter suggested that the companies enter into a period of exclusive negotiations with the objective of arriving at a definitive acquisition agreement.
On June 28, 2009, Mr. Heeschen delivered a letter to Messrs. ODea and Valette stating that Diedrichs board of
directors had discussed the Peets proposal, believed Peets and Diedrich had divergent views as to the valuation of Diedrich and considered it more prudent for Diedrich to continue its previously described process of evaluating its
strategic direction than to enter into exclusive negotiations with Peets.
During the week of June 29, 2009,
Messrs. Jesse and Heeschen spoke by telephone to review the status of the parties discussions. Mr. Jesse inquired whether, in light of Diedrichs rejection of Peets expression of interest, the parties should continue discussing
a potential transaction. Mr. Heeschen stated that, while further discussions would be welcome, the valuation reflected in Peets proposal was unacceptably low. Mr. Jesse responded that, in order to consider increasing its assessment
of the appropriate valuation of Diedrich, Peets would require access to confidential information of Diedrich. They agreed to stay in contact.
During the same week, representatives of Cooley and Gibson Dunn spoke by telephone to clarify Diedrichs understanding of certain aspects of Peets June 26, 2009 proposal.
Later in July or in August 2009, Messrs. Jesse and Heeschen spoke by telephone. Mr. Jesse suggested that the
parties have another meeting to discuss the possibility of a business combination between Peets and Diedrich, and they agreed to schedule a meeting later in August. In anticipation of that meeting, on August 13, 2009, Diedrich provided
Peets with an internal analysis of the market opportunity for Diedrich-branded K-Cups and financial projections for Diedrich as an independent company.
On August 19, 2009, Messrs. ODea, Jesse and Weinberg met with Messrs. Heeschen and Ryan and a representative of Gibson Dunn in Gibson Dunns offices. The Peets representatives made a
presentation regarding Peets view of the K-Cup market opportunity, how the combined Peets and Diedrich businesses would be positioned to address the opportunity and the benefits to Diedrichs stockholders of a business combination
with Peets with the payment to Diedrichs stockholders being structured as a combination of cash and contingent
28
value rights. The Diedrich representatives indicated general concurrence with Peets assessment of the market opportunity and positioning of the combined companies to address it but
expressed a negative reaction to the contingent value rights element of Peets proposal. They also indicated that Diedrich was conducting a strategic assessment that was expected to take several weeks and that further discussions should be
deferred until after the completion of that assessment.
On September 15, 2009, Messrs. Jesse and Heeschen spoke by
telephone. Mr. Heeschen advised Mr. Jesse that Diedrich had engaged Houlihan Lokey Howard & Zukin Capital, Inc. (Houlihan Lokey) as its financial advisor in connection with the evaluation of its strategic alternatives
and that Diedrich was prepared to make available to Peets additional confidential information to enable Peets to develop an updated valuation of Diedrich.
On September 17, 2009, Diedrich provided Peets with access to an electronic data room and began populating the data room with various documents containing confidential information
of Diedrich.
Between September 17, 2009 and November 2, 2009, representatives of Peets and Diedrich and their
financial, legal, accounting and tax advisors had frequent meetings, telephone conferences and email exchanges for the purpose of enabling Peets to conduct its due diligence investigation, which continued until the time at which the definitive
merger agreement was executed.
On October 9, 2009, Messrs. ODea and Jesse spoke by telephone with Mr. Ryan
and representatives of Houlihan Lokey. The Peets representatives indicated that they were interested in developing a formal proposal for an acquisition of Diedrich for a combination of cash and Peets stock and that their updated
preliminary assessment, based on due diligence completed to date, suggested a valuation of Diedrich in the mid-$20s per share. Later that day, the Houlihan Lokey representatives contacted Mr. Jesse by telephone and indicated that Diedrich
was prepared to participate in further due diligence to enable Peets to submit a formal acquisition proposal for consideration by Diedrichs board of directors.
On October 13, 2009, Mr. ODea delivered a letter to Diedrichs board of directors presenting a revised non-binding
proposal. The letter described two alternative transaction structures for the acquisition of Diedrich by Peets and indicated that Peets would be amenable to pursuing either structure. One transaction structure contemplated a one-step
merger in which each share of Diedrichs common stock would be converted into $18.00 in cash and a fraction of a share of Peets common stock having a value (based on a formula to be set forth in the definitive agreement) of $8.32, subject
to a cap on the share fraction at the level necessary to avoid the issuance of an aggregate number of shares large enough to require a vote of the Peets shareholders under applicable Nasdaq rules (the share fraction cap). The
letter noted that the total purchase price of $26.32 per share represented a 20% premium to the 30-day volume-weighted average closing price of Diedrichs common stock, which was $21.93 per share. Peets proposal for this transaction
structure included a commitment by all Diedrich directors and officers to vote their owned and controlled shares in favor of the merger, no fiduciary termination right, a break-up fee of 4.5% of the transaction value, a material adverse change
clause containing specific non-customary provisions favorable to Peets, and other customary terms and conditions. In the letter, Peets expressed the view that the one-step merger transaction would likely be completed within four to five
months after the execution of the definitive agreement.
The alternative transaction structure presented in the letter was an
all-cash acquisition at a price of $21.02 per share effected through a two-step structure comprising a cash tender offer followed by a second-step cash merger. The letter noted that the proposed purchase price per share was equal to the 90-day
volume-weighted average closing price of Diedrichs common stock. Peets proposal for this transaction structure included a commitment by all Diedrich directors and officers to tender their owned and controlled shares, a fiduciary
termination right in favor of Diedrich, a break-up fee of 4.5% of the transaction value, a material adverse change clause containing only customary terms, and other customary terms and conditions. In the letter, Peets expressed the view that
the tender offer portion of the two-step transaction could be completed in as little as five to six weeks after the execution of the definitive agreement.
29
On October 15, 2009, representatives of Houlihan Lokey and Mr. Jesse discussed
various aspects of Peets proposals by telephone. The Houlihan Lokey representatives indicated a general willingness to explore the terms reflected in Peets proposal for a one-step merger transaction but stated that the price per share
would need to be at least $28.50, representing a premium of approximately 30% to the 30-day volume-weighted average closing price of Diedrichs common stock, the stockholder voting obligation would need to be less restrictive, the break-up fee
could not exceed 2.5% of the transaction value and the material adverse change clause would have to be in customary form. They also requested the opportunity to discuss the status of Peets pending financing negotiations with the proposed
lender, indicated that certain other transaction terms should be discussed by Cooley and Gibson Dunn and expressed a strong preference for a two-step transaction structure in view of the greater speed with which the first step of such a transaction
could be completed.
On the afternoon of October 15, 2009, Messrs. ODea and Jesse spoke by telephone with
Mr. Ryan and representatives of Houlihan Lokey to convey Peets response to the terms proposed by Diedrich. They stated that Peets was prepared to agree to a slightly increased price per share of $26.58, with the stock component
being subject to the share fraction cap, a stockholder voting obligation that was less restrictive than its original proposal but still substantial, a break-up fee of 4.0% of the transaction value and a material adverse change clause in customary
form so long as Diedrichs representations and warranties were satisfactory to Peets. They also indicated that they would facilitate discussions between Houlihan Lokey and Peets proposed lender regarding the pending financing and
between Cooley and Gibson Dunn regarding transaction terms and expressed a willingness to consider a two-step transaction structure.
On October 16, 2009, Diedrich provided Peets with a term sheet reflecting Diedrichs position on selected terms of the transaction other than the price per share and the break-up fee percentage. The term sheet contemplated a
one-step cash-and-stock merger similar to Peets one-step proposal, except that (i) the cash component of the merger consideration would be automatically increased on a dollar-for-dollar basis to offset any reduction of the stock component
resulting from the application of the share fraction cap, (ii) there would be no contractual obligation on the part of Diedrichs directors and officers to vote their owned and controlled shares in favor of the merger, (iii) Diedrich
would have a fiduciary termination right, and (iv) the material adverse change definition would include specific non-customary provisions favorable to Diedrich.
Also on October 16, 2009, a representative of Houlihan Lokey discussed the status of Peets pending financing with a representative of the proposed lender.
Between October 16, 2009 and October 28, 2009, representatives of Peets, Diedrich and their respective financial and legal
advisors spoke frequently by telephone and exchanged revised term sheet proposals, as well as proposals for an exclusivity agreement providing generally that Diedrich would not entertain acquisition proposals from any party other than
Peets during a specified time period. In particular, on October 25, 2009, Messrs. ODea, Jesse and Ryan and representatives of Houlihan Lokey, Cooley and Gibson Dunn spoke by telephone. The Peets representatives indicated that
Peets was prepared to proceed with a proposed transaction on the basis of a price per share of $27.00, approximately $18.00 of which would be paid in cash and the balance in Peets common stock subject to the share fraction cap, provided
the other terms and conditions of the transaction were satisfactory to Peets. The Peets representatives noted that the proposed price represented premiums of approximately 14% and 21%, respectively, to the 30-day and 90-day
volume-weighted average closing prices of Diedrichs common stock. The Peets representatives also stated that Peets willingness to proceed with a transaction on the proposed terms was conditioned on a definitive agreement being
executed no later than November 2, 2009. The parties agreed to continue their negotiations of the term sheet and exclusivity agreement.
Early on the morning of October 28, 2009, Peets and Diedrich completed negotiations with respect to the forms of the term sheet and the exclusivity agreement, and on the afternoon of
October 28, 2009, they entered into the exclusivity agreement. That evening, Cooley delivered to Gibson Dunn a proposed form of definitive merger agreement to be signed by Peets and Diedrich and a proposed form of stockholder agreement to
be signed by each of Diedrichs directors and officers. Gibson Dunn subsequently provided copies of the proposed form of stockholder agreement to each of Diedrichs directors and officers.
30
Between October 28, 2009 and November 2, 2009, representatives of Cooley and
Gibson Dunn spoke by telephone and exchanged draft documents frequently in order to negotiate the terms of the merger agreement on behalf of Peets and Diedrich and the stockholder agreement on behalf of Peets and Diedrichs
directors and officers. In particular, on the afternoon of October 30, 2009, Messrs. ODea and Jesse and a representative of Cooley spoke by telephone with Mr. Ryan and representatives of Houlihan Lokey and Gibson Dunn and expressed
their concerns about valuation in light of that days nearly 19% decline in the market price of Diedrichs common stock price to $21.80. The Diedrich representatives stated that a reduction in the purchase price would not be acceptable to
Diedrichs board of directors. The Peets representatives indicated that Peets willingness to move forward with a transaction at a price of $27.00 per share would be highly dependent on the performance of Diedrichs stock on the
next trading day.
By the afternoon of November 1, 2009, the negotiating teams had reached substantial agreement on the
material terms of the agreements other than the amount and composition of the consideration to be paid to Diedrichs stockholders in the transaction, although negotiation of various details of the merger agreement and related documents
continued for the rest of the day and through the night until the afternoon of November 2, 2009.
On November 1,
2009, the Peets board of directors met telephonically with members of senior management of Peets, Mr. Jesse and representatives of Cooley to discuss the merger agreement and the transactions contemplated thereby. At the meeting, the
Peets board of directors determined that the transactions contemplated by the merger agreement were advisable and fair to, and in the best interests of, Peets and its shareholders, and the directors voted unanimously to approve the
merger agreement, the offer, the merger and the other transactions contemplated by the merger agreement.
On the afternoon of
November 2, 2009, Messrs. ODea, Jesse and Ryan and representatives of Houlihan Lokey, Cooley and Gibson Dunn spoke by telephone at approximately 12:00 p.m. PST and again slightly after the close of trading on the Nasdaq Stock Market. In
the latter conversation, the Peets representatives noted that the market price of Diedrichs common stock had declined that day by an additional 6.6% to $20.36 per share. They indicated that, in light of the significant recent stock price
decline, Peets was prepared to proceed with the transaction only at a reduced price per share of $26.00, with $17.00 payable in cash and $9.00 payable in Peets common stock, with the stock component subject to the share fraction cap, and
otherwise on the terms reflected in the form of definitive merger agreement that had been negotiated between the parties. The Peets representatives noted that the proposed price represented premiums of approximately 8% to the 30-day
volume-weighted average closing price of Diedrichs common stock of $24.17 per share and 28% to the closing price of Diedrichs common stock on November 2, 2009.
A short while later, representatives of Houlihan Lokey spoke with Mr. Jesse by telephone and proposed a price of $26.50 per share, with
$18.00 payable in cash and the balance in Peets common stock. After conferring with Mr. ODea, Mr. Jesse contacted the Houlihan Lokey representatives and stated that Peets would not increase the total price above $26.00
per share but would be willing to increase the cash component to $17.33 per share, leaving $8.67 per share to be paid in Peets common stock. The Houlihan Lokey representatives indicated that they would convey the proposal to Diedrichs
board of directors.
Later on the afternoon of November 2, 2009, the Diedrich board of directors met, together with
members of Diedrichs senior management and representatives of Houlihan Lokey and Gibson Dunn, to discuss the merger agreement and the transactions contemplated thereby. After full discussion, the Diedrich board of directors unanimously
approved the merger agreement and the transactions contemplated thereby, as more fully described under Unanimous Recommendation of the Diedrich Board of Directors beginning on page 33 of this prospectus/offer to purchase.
The definitive merger agreement was executed and delivered by representatives of Peets, Marty Acquisition Sub, Inc. and Diedrich as of
November 2, 2009. In addition, each of Diedrichs directors and officers executed and delivered the appropriate form of stockholder agreement as of November 2, 2009.
31
The transaction was publicly announced on the afternoon of November 2, 2009.
Peets Reasons for the Transaction
In unanimously deciding to approve the merger agreement and related transactions, the Peets board of directors considered the factors listed below, as well as the information set forth under
Background of the Transaction beginning on page 25 of this prospectus/offer to purchase. The following discussion of factors considered by the Peets board of directors is not intended to be exhaustive, but includes the material
factors considered by the Peets board of directors. The factors considered included the following:
|
|
|
Consistent with Peets growth strategy, acquiring Diedrich would provide entry into the K-Cup market, where the proprietary Keurig and K-Cup
cartridge brewing system had become the clear leader with over an 80% share of single cup brewers at the end of 2008.
|
|
|
|
Combining Peets sales, marketing, DSD, e-commerce and production capabilities with Diedrichs existing K-Cup business may enable the
combined companies to build the Diedrich business beyond what Diedrich could accomplish alone, given the lack of comparable infrastructure within Diedrich.
|
|
|
|
Combining Peets existing coffees and teas with Diedrichs K-Cup production capabilities may enable the combined companies to grow within the
distinct K-Cup single serve market beyond Diedrichs existing brands and products.
|
|
|
|
Acquiring Diedrich would provide Peets with a second roasting and packaging facility with complementary capabilities to Peets existing
facility, including the ability to package K-Cups and produce flavored coffees.
|
|
|
|
Combining Diedrichs K-Cup cartridge manufacturing capability with Peets strength in selling products directly to retail trade customers,
such as grocery stores, may position the combined companies to compete effectively in the market for K-Cup single serve cartridges, in which retail trade customers currently lack an effective supplier other than Keurigs parent company, Green
Mountain Coffee Roasters.
|
|
|
|
The scale of the combined companies may enable them to operate more efficiently in the future than either company is able to achieve independently.
|
|
|
|
The combined companies would achieve permanent cost savings from eliminating duplicate costs and functions.
|
In view of the wide variety of factors considered by the Peets board of directors in connection with its evaluation of the merger
agreement and related transactions and the complexity of these factors, the Peets board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision. Rather, the Peets board of directors made its recommendation based on the totality of information presented to, and the investigation conducted by, it. In considering the factors discussed above, individual
directors may have given different weights to different factors.
There can be no assurance that the benefits of the potential
growth, synergies or opportunities considered by the Peets board of directors will be achieved through completion of the offer and the merger. See Risk Factors beginning on page 15 of this prospectus/offer to purchase.
Diedrichs Reasons for the Transaction
The factors considered by the Diedrich board of directors in making the determinations and the recommendation described below are described in Diedrichs solicitation/recommendation statement on
Schedule 14D-9, which has been filed with the SEC and is being mailed to you and other stockholders of Diedrich together with this prospectus/offer to purchase.
32
Unanimous Recommendation of the Diedrich Board of Directors
Based on all of the foregoing factors, the board of directors of Diedrich, by a unanimous vote of the members of the board of directors of
Diedrich:
|
|
|
determined that the merger agreement and the transactions contemplated thereby, including the offer and the merger, are fair to and in the best
interests of the stockholders of Diedrich;
|
|
|
|
adopted and approved the merger agreement and approved the offer, the merger and the other transactions contemplated by the merger agreement, in
accordance with the requirements of Delaware law;
|
|
|
|
declared that the merger agreement is advisable; and
|
|
|
|
resolved to recommend that the stockholders of Diedrich accept the offer and tender their shares of Diedrich common stock pursuant to the offer and (to
the extent necessary) adopt the merger agreement.
|
Accordingly, the Diedrich board of directors unanimously
recommends that the stockholders of Diedrich accept the offer and tender their shares of Diedrich common stock pursuant to the offer, and, to the extent necessary, vote to adopt the merger agreement.
As required by SEC rules, Diedrich has filed a solicitation/recommendation statement on Schedule 14D-9 describing its recommendation in
favor of the offer and the merger and related matters. Diedrich stockholders are encouraged to carefully review the Schedule 14D-9 and this prospectus/offer to purchase.
THE OFFER
The Purchaser is offering to purchase
each outstanding share of Diedrich common stock for a combination of Peets common stock and cash, subject to the terms and conditions described in this prospectus/offer to purchase and the related letter of transmittal. If the offer is
completed, in exchange for each share of Diedrich common stock that you validly tender and do not properly withdraw, you will receive a combination of $17.33 in cash, without interest, and a fraction of a share of Peets common stock determined
by dividing $8.67 by the volume weighted average price for one share of Peets common stock as reported on the Nasdaq Global Select Market for the five trading day period ending immediately prior to (and excluding) the date on which the
Purchaser accepts any shares of Diedrich common stock for exchange pursuant to the offer, provided that in no event will such fraction exceed 0.315 of a share of Peets common stock. Because the fraction of a share of common stock of
Peets is calculated based on future trading prices of Peets common stock that involve an averaging convention, the actual value of this fraction of a share at the time shares of Diedrich common stock are accepted for exchange in our
offer will likely be greater or less than $8.67.
Notwithstanding anything to the contrary in this prospectus/offer to
purchase, in the event that pursuant to Nasdaq Listing Rule 5635(a) (or its successor), the issuance of shares of Peets common stock (or rights with respect thereto) pursuant to the offer and the merger would otherwise require the
approval of the shareholders of Peets, then the fraction of a share of Peets common stock issuable to Diedrich stockholders pursuant to the offer or the merger will be reduced to be the greatest fraction of a share of Peets common
stock that would, if distributable to Diedrich stockholders pursuant to the offer and the merger, not require the approval of the shareholders of Peets with respect to such issuance.
You will not receive any fractional shares of Peets common stock in the offer. Instead, if you would otherwise be entitled to receive
a fraction of a share of Peets common stock in the offer, you will receive additional cash in an amount equal to such fraction multiplied by the closing trading price of a share of Peets common stock as reported on the Nasdaq Global
Select Market on the trading day immediately before the date on which the Purchaser accepts shares of Diedrich common stock for exchange pursuant to the offer.
33
By way of illustration, if you validly tendered 1,000 shares of Diedrich common stock in our
offer, and the relevant five trading day volume weighted average price of a share of Peets common stock were $36.00, the fraction of a share of Peets common stock issuable for each Diedrich share accepted for exchange pursuant to our
offer would be 0.240833, which, when valued using such average price, would be $8.64 worth of Peets common stock for each share of Diedrich common stock held by you. This would result in you receiving 240 shares of Peets common stock.
The value of the extra 0.833 of a share of Peets common stock would be paid in cash, based on the closing trading price of a share of Peets common stock as reported on the Nasdaq Global Select Market on the trading day immediately before
the date on which the Purchaser accepts shares of Diedrich common stock for exchange pursuant to the offer. Assuming, for the purposes of this illustration only, that such closing trading price were equal to $36.00, you would receive approximately
$30.00 in cash for the fractional share. In addition, you would receive $17,330 in cash, which when added to the value of the 240 shares of Peets common stock, $8,640 (valued at $8.64 per share), and the $30.00 for the 0.833 fractional share,
would equal $26.00 per share of Diedrich common stock, or $26,000 in total. However, as an alternative illustration, if you validly tendered 1,000 shares of Diedrich common stock in the offer and the relevant five trading day volume weighted average
price of a share of Peets common stock were $24.00, the fraction of a share of Peets common stock issuable for each Diedrich share accepted for exchange pursuant to the offer would in the absence of a cap, exceed 0.315, and would
therefore in accordance with the merger agreement, be 0.315. You would thus receive 315 shares of Peets common stock for such shares of Diedrich common stock, which, when valued using such average price, would be $7,560 ($7.56 worth of
Peets common stock for each share of Diedrich common stock held by you). In addition, you would receive $17,330 in cash, which when added to the $7,560 value of the 315 shares of Peets common stock, would equal $24.89 per share of
Diedrich common stock, or $24,890 in total.
The term expiration time means 12:00 midnight (one minute after 11:59
p.m.), Eastern Time, on Tuesday, December 15, 2009, unless the offer is extended, in which case the term expiration time means the latest time and date on which the offer, as so extended, expires.
If you are the record owner of your shares of Diedrich common stock and you tender your shares of Diedrich common stock directly to the
Depositary, you will not be obligated to pay any charges or expenses of the Depositary or any brokerage commissions. If you own your shares of Diedrich common stock through a broker, dealer, bank, trust company or other nominee and your broker,
dealer, bank, trust company or other nominee tenders the shares of Diedrich common stock on your behalf, your broker, dealer, bank, trust company or other nominee may charge you a fee for doing so. You should consult your broker, dealer, bank, trust
company or other nominee to determine whether any charges will apply. Except as otherwise provided in the instructions to the letter of transmittal, the Purchaser will pay transfer taxes, if any, on the purchase of Diedrich common stock pursuant to
the Purchasers offer. However, as set forth in the instructions to the letter of transmittal, under certain circumstances you may be required to pay such transfer taxes and the Purchaser may deduct these taxes from the consideration otherwise
payable to you.
Diedrich stockholders can call the Information Agent, Laurel Hill Advisory Group, LLC (between 9:00 a.m. and
5:30 p.m. Eastern Time) toll-free at (888) 742-1305 for answers to questions regarding the transaction.
Between the date
of the merger agreement and the date on which shares of Diedrich common stock are accepted for exchange pursuant to the offer, (1) if the outstanding shares of Diedrich common stock are changed into a different number or class of shares by
reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then both the cash and the stock components of the offer
consideration will be adjusted to the extent necessary or appropriate to achieve the same economic outcome, and (2) if the outstanding shares of Peets common stock are changed into a different number or class of shares by reason of any
stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the stock component of the offer consideration will be adjusted to
the extent necessary or appropriate to achieve the same economic outcome.
34
The Purchaser is making this offer in order to acquire all of the outstanding shares of
Diedrich common stock. Peets intends, as soon as possible after completion of the offer, to have the Purchaser merge with and into Diedrich. The purpose of the merger is to enable Peets to acquire all remaining shares of Diedrich common
stock not tendered and purchased pursuant to the offer. In the merger, each then-outstanding share of Diedrich common stock (other than shares owned by Peets, the Purchaser or Diedrich or any wholly-owned subsidiary of Peets or Diedrich,
or held in Diedrichs treasury, or owned by any stockholder of Diedrich who properly exercises appraisal rights under Delaware law) will be converted into the right to receive a combination of $17.33 in cash, without interest, and the same
fraction of a share of Peets common stock received by holders of shares of Diedrich common stock purchased in the offer (subject to adjustment for stock splits, stock dividends and similar events).
The Purchasers obligation to accept tendered shares of Diedrich common stock and to deliver shares of Peets common stock and
cash in exchange for them is subject to the conditions referred to below under the caption Conditions to the Offer, including the minimum condition and other conditions that are discussed below.
Stockholder List
Diedrich
has provided the Purchaser with a list and security position listings of Diedrichs stockholders for the purpose of enabling the Purchaser to communicate with and distribute this prospectus/offer to purchase to holders of shares of Diedrich
common stock. The Purchaser will send this prospectus/offer to purchase, the related letter of transmittal and other relevant materials to record holders of shares of Diedrich common stock and the Purchaser will also furnish such materials to
brokers, dealers, banks, trust companies and other nominees whose names, or the names of whose nominees, appear on the list of Diedrichs stockholders, or, if applicable, who are listed as participants in a clearing agencys security
position listing, for subsequent transmittal to beneficial owners of shares of Diedrich common stock.
Timing of the Offer; Extension,
Termination and Amendment of the Offer
The offer is scheduled to expire at 12:00 midnight (one minute after 11:59 p.m.),
Eastern Time, on Tuesday, December 15, 2009. However, subject to Peets and Diedrichs termination rights under the merger agreement: (1) if, at any time as of which the offer is scheduled to expire, any condition to the offer
has not been satisfied or waived, the Purchaser is required to extend the offer on one or more occasions for additional successive periods of up to 20 business days per extension (but not beyond March 31, 2010); and (2) the Purchaser is
required to extend the offer at any time or from time to time for any period required by any rule, regulation, interpretation or position of the SEC or the staff of the SEC applicable to the offer.
In addition, if less than 90% of the number of outstanding shares of Diedrich common stock are accepted for exchange pursuant to the offer,
the Purchaser may, in its sole discretion (and without the consent of Diedrich or any other person), but is not required to, elect to provide for one or more subsequent offering periods (of up to 20 business days in the aggregate) in accordance with
Rule 14d-11 under the Exchange Act. During any subsequent offering period, if there is one, Diedrich stockholders would be permitted to tender their shares to the Purchaser for the same consideration payable in the offer.
The Purchaser may at any time increase the consideration to be paid for each share of Diedrich common stock in the offer and may, subject to
applicable law, at any time waive or make any other changes to the terms and conditions of the offer except that, without the prior written consent of Diedrich:
|
|
|
the minimum condition may not be amended or waived; and
|
|
|
|
no change may be made to the offer that (1) changes the form of consideration to be delivered by the Purchaser pursuant to the offer,
(2) decreases either the cash component or the stock component of the offer consideration, (3) decreases the number of shares of Diedrich common stock to be purchased by
|
35
|
the Purchaser in the offer, (4) modifies the offer or the conditions to the offer in a manner adverse to the stockholders of Diedrich or imposes conditions to the offer in addition to the
conditions to the offer set forth in the merger agreement, or (5) except as provided above, extends the expiration time of the offer.
|
The Purchaser will follow any extension, termination or amendment of the offer, as promptly as practicable, with a public announcement thereof. In the case of an extension of the offer, the Purchaser will
make an announcement no later than 9:00 a.m., Eastern Time, on the next business day after the previously scheduled expiration time of the offer. Without limiting the manner in which the Purchaser may choose to make any public announcement,
subject to applicable law, the Purchaser will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the PR Newswire and/or Dow Jones news services. The phrase business
day as used in this paragraph has the meaning set forth in Rule 14d-1 under the Exchange Act.
If the Purchaser makes a
material change in the terms of the offer, the Purchaser will distribute additional offer materials and extend the offer to the extent required by applicable law. The minimum period during which the offer must remain open following such a change
will depend upon the relative materiality of the changed terms. However, with respect to a change in price or a change in the percentage of securities sought, the Purchaser must keep the offer open for at least ten business days from the date
materials disclosing such change are made available to Diedrich stockholders.
In no event will interest be paid on the
cash component of the offer consideration, regardless of any extension of or amendment to the offer.
Under
Rule 14d-11 under the Exchange Act, the Purchaser may elect to provide for a subsequent offering period, immediately following the expiration time of the offer, of between three and 20 business days, in order to accept shares not tendered prior
to the expiration time of the offer, provided that: (1) the initial period of the offer has expired; (2) the Purchaser offers the same form and amount of consideration for shares of Diedrich common stock in the subsequent offering period
that were offered pursuant to the offer; (3) the Purchaser immediately accepts and promptly pays for all shares of Diedrich common stock that were validly tendered prior to the expiration time of the offer; (4) the Purchaser announces the
results of the offer, including the approximate number and percentage of shares of Diedrich common stock that were validly tendered in the offer, no later than 9:00 a.m., Eastern Time, on the next business day after the expiration time of the
offer; and (5) the Purchaser immediately accepts and promptly delivers consideration for all shares of Diedrich common stock as they are tendered during the subsequent offering period.
The Purchaser does not currently intend to provide for a subsequent offering period following the completion of the offer, although the
Purchaser reserves the right to do so in its sole discretion.
Procedures for Tendering Shares of Diedrich Common Stock in the Offer
Valid Tender
For a stockholder to validly tender shares of Diedrich common stock in the offer, prior to the expiration time of the offer:
|
1.
|
each certificate representing the tendered shares, together with the letter of transmittal (or a photocopy of it), properly completed and duly executed, together with
any required signature guarantees (as described below under the caption Signature Guarantees) and any other required documents required by the letter of transmittal, must be received by the Depositary at one of its addresses listed on
the back cover of this prospectus/offer to purchase prior to the expiration time of the offer;
|
|
2.
|
in the case of a tender effected pursuant to the book-entry transfer procedures described below under the caption Book-Entry Transfer,
(1) either the letter of transmittal, properly completed and duly executed, together with any required signature guarantees (as described below under the caption
|
36
|
Signature Guarantees), or an agents message (as described below under the caption Book-Entry Transfer), and any other required documents, must be received by the
Depositary at one of its addresses listed on the back cover of this prospectus/offer to purchase prior to the expiration time of the offer, and (2) the shares of Diedrich common stock to be tendered must be delivered pursuant to the book-entry
transfer procedures described below under the caption Book-Entry Transfer and a book-entry confirmation (as described below under the caption Book-Entry Transfer) must be received by the Depositary prior to the expiration
time of the offer; or
|
|
3.
|
the tendering stockholder must comply with the guaranteed delivery procedures described below under the caption Guaranteed Delivery prior to the expiration
time of the offer.
|
Stockholders must use one of these methods to validly tender shares of Diedrich common stock
in the offer. The valid tender of shares of Diedrich common stock in accordance with one of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms of and subject to the
conditions to the offer.
The method of delivery of shares of Diedrich common stock to be tendered in the offer, the letter
of transmittal and all other required documents, including delivery through the book-entry transfer facility described below, is at the election and risk of the tendering stockholder. Shares of Diedrich common stock to be tendered in the offer will
be deemed delivered only when actually received by the Depositary (including, in the case of a book-entry transfer, by book-entry confirmation described below). If delivery of shares of Diedrich common stock is made by mail, registered mail with
return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.
Book-Entry Transfer
The Depositary will notify The Depository Trust
Company (the book-entry transfer facility) to establish an account with respect to the shares of Diedrich common stock for purposes of the offer as promptly as practicable after the date of this offer to purchase. Any financial institution that is a
participant of the book-entry transfer facilitys system may effect a book-entry delivery of shares of Diedrich common stock in the offer by causing the book-entry transfer facility to transfer such shares into the Depositarys account in
accordance with the book-entry transfer facilitys procedures for such transfer. The confirmation of a book-entry transfer of shares into the Depositarys account at the book-entry transfer facility is sometimes referred to in this
prospectus/offer to purchase as a book-entry confirmation. The term agents message as used in this prospectus/offer to purchase means a message, transmitted by the book-entry transfer facility to, and received by, the Depositary
and forming a part of a book-entry confirmation, which states that (1) the book-entry transfer facility has received an express acknowledgment from the participant in the book-entry transfer facility tendering the shares of Diedrich common
stock that such participant has received, (2) the participant agrees to be bound by the terms of the letter of transmittal, and (3) the Purchaser may enforce such agreement against such participant.
Although delivery of shares of Diedrich common stock may be effected through book-entry transfer into the Depositarys account at the
book-entry transfer facility, the letter of transmittal (or a photocopy of it), properly completed and duly executed, together with any required signature guarantees (as described below under the caption Signature Guarantees), or an
agents message (as described above), and any other required documents, must be received by the Depositary at one of its addresses listed on the back cover of this prospectus/offer to purchase prior to the expiration time of the offer to effect
a valid tender of shares by book-entry.
Delivery of documents to the book-entry transfer facility in accordance with the
book-entry transfer facilitys procedures does not constitute delivery to the Depositary.
Signature Guarantees
No signature guarantee is required on the letter of transmittal that is being returned with shares of Diedrich common
stock being tendered in the offer if (1) the letter of transmittal is signed by the registered holder(s) of the
37
shares of Diedrich common stock tendered with such letter of transmittal, unless such registered holder(s) has completed either the box labeled Special Payment Instructions or the box
labeled Special Delivery Instructions on such letter of transmittal, or (2) shares of Diedrich common stock are tendered for the account of a financial institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program, the Stock Exchange Medallion Program or by any other eligible guarantor institution, as such term is defined in Rule 17Ad-15 under the Exchange Act (which
are sometimes referred to as eligible institutions in this prospectus/offer to purchase). A registered holder of shares of Diedrich common stock includes any participant in the book-entry transfer facilitys system whose name appears on a
security position listing as the owner of such shares. In all other cases, all signatures on the letter of transmittal that is being returned with shares of Diedrich common stock being tendered in the offer must be guaranteed by an eligible
institution. See Instructions 1 and 5 to the letter of transmittal enclosed with this prospectus/offer to purchase for more information. If certificates representing shares of Diedrich common stock being tendered in the offer are registered in the
name of a person other than the signer of the letter of transmittal that is being returned with such shares, or if payment is to be made or certificates representing shares of Diedrich common stock not being tendered or not accepted for exchange are
to be returned to a person other than the registered holder of the certificates surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered
holders or owners appear on such certificates, with the signatures on such certificates or stock powers guaranteed as described above. See Instructions 1 and 5 to the letter of transmittal enclosed with this prospectus/offer to purchase for more
information.
Guaranteed Delivery
If a stockholder desires to tender shares of Diedrich common stock in the offer and such stockholders certificates representing such shares are not immediately available, or the book-entry transfer
procedures described above under the caption Book-Entry Transfer cannot be completed on a timely basis, or time will not permit all required documents to reach the Depositary prior to the expiration time of the offer, such stockholder
may tender such shares if all the following conditions are met:
|
|
|
the tender is made by or through an eligible institution (as described above under the caption Signature Guarantees);
|
|
|
|
a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form enclosed with this prospectus/offer to purchase, is
received by the Depositary at its addresses listed on the back cover of this prospectus/offer to purchase prior to the expiration time of the offer; and
|
|
|
|
either (1) the certificates representing tendered shares of Diedrich common stock being tendered in the offer, together with the letter of
transmittal enclosed with this prospectus/offer to purchase (or a photocopy of it), properly completed and duly executed, and any required signature guarantees (as described above under the caption Signature Guarantees), and any other
required documents, are received by the Depositary at one of its addresses listed on the back cover of this prospectus/offer to purchase within three trading days (as described below) after the date of execution of such Notice of Guaranteed Delivery
or (2) in the case of a book-entry transfer effected pursuant to the book-entry transfer procedures described above under the caption Book-Entry Transfer, (i) either the letter of transmittal enclosed with this prospectus/offer
to purchase (or a photocopy of it), properly completed and duly executed, and any required signature guarantees (as described above under the caption Signature Guarantees), or an agents message (as described above under the caption
Book-Entry Transfer), and any other required documents, is received by the Depositary at one of its addresses listed on the back cover of this prospectus/offer to purchase and (ii) such shares are delivered pursuant to the
book-entry transfer procedures described above under the caption Book-Entry Transfer and a book-entry confirmation (as described above under the caption Book-Entry Transfer) is received by the Depositary, in each case within
three trading days after the date of execution of such Notice of Guaranteed Delivery. For purposes of the foregoing, a trading day is any day on which The Nasdaq Global Select Market is open for business.
|
38
The Notice of Guaranteed Delivery may be delivered by mail or facsimile transmission to the
Depositary, and must include a guarantee by an eligible institution in the form set forth in such Notice of Guaranteed Delivery. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed to ensure timely delivery.
The method of delivery of share certificates, the letter of
transmittal and all other required documents is at the option and risk of the tendering stockholder, and delivery will be made only when actually received by the Depositary.
Appointment
By executing and returning the letter of transmittal (or a photocopy of it), or in the case of a book-entry transfer, by delivery of an agents message in lieu of the letter of transmittal as described above under the caption above
under the caption Book-Entry Transfer, a stockholder tendering shares of Diedrich common stock in the offer will be irrevocably appointing a designee of the Purchaser as such stockholders attorneys-in-fact and proxies in the manner
described in the letter of transmittal, each with full power of substitution, to the full extent of such stockholders rights with respect to the shares of Diedrich common stock being tendered by such stockholder and accepted for exchange by
the Purchaser and with respect to any and all other shares of Diedrich common stock or securities issued or issuable in respect of such shares on or after the date of this prospectus/offer to purchase. All such proxies will be considered coupled
with an interest in the shares of Diedrich common stock being tendered. Such appointment will be effective when, and only to the extent that, the Purchaser accepts for exchange the shares of Diedrich common stock being tendered by such stockholder
as provided in this prospectus/offer to purchase. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such stockholder with respect to such shares of Diedrich common stock will, without further
action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be effective). The designees of the Purchaser will thereby be empowered to exercise all voting and other rights with
respect to such shares of Diedrich common stock in respect of any annual, special or adjourned meeting of Diedrichs stockholders, actions by written consent in lieu of any such meeting or otherwise, as they in their sole discretion deem
proper. The Purchaser reserves the right to require that, in order for shares of Diedrich common stock to be deemed validly tendered, immediately upon the Purchasers acceptance for exchange of such shares, the Purchaser must be able to
exercise full voting, consent and other rights with respect to such shares, including voting at any meeting of stockholders.
Determination of Validity
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any tender of shares of Diedrich common stock in the offer will be determined by the Purchaser in its sole discretion, which determination will be final and binding. The Purchaser reserves the absolute right to reject any
or all tenders of shares of Diedrich common stock determined by it not to be in proper form or the acceptance for exchange of or payment for which may, in the opinion of the Purchaser, be unlawful. The Purchaser also reserves the absolute right,
subject to applicable law, to waive any defect or irregularity in the tender of any shares of Diedrich common stock of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No
tender of shares of Diedrich common stock in the offer will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of the Purchaser, Peets, Diedrich, the Depositary, the
Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Subject to any rights of Diedrich under the merger
agreement, the Purchasers interpretation of the terms and conditions of the offer (including the letter of transmittal and the instructions thereto and any other documents related to the offer) will be final and binding.
Backup Withholding
In order to avoid backup withholding of United States federal income tax on payments in connection with the offer, a stockholder whose shares of Diedrich common stock are accepted for exchange in the
offer who is a U.S.
39
citizen, a U.S. resident alien or a business entity organized within the U.S. must, unless an exemption applies, provide the Depositary with such stockholders correct taxpayer
identification number on a Substitute Form W-9 and certify under penalty of perjury that such taxpayer identification number is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide such
stockholders correct taxpayer identification number or fails to provide the certifications described above, the United States Internal Revenue Service may impose a penalty on such stockholder and the payment to such stockholder in connection
with the offer may be subject to backup withholding at a rate of 28%. All stockholders tendering shares of Diedrich common stock in the offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the
letter of transmittal enclosed with this prospectus/offer to purchase to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Purchaser
and the Depositary). Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Stockholders who are individuals and not U.S. citizens or U.S. resident aliens
or are business entities organized outside the United States should complete, sign and return to the Depositary the main signature form and a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (or
other appropriate Form W-8), copies of which may be obtained by contacting the Depositary, to provide the information and certification necessary to avoid backup withholding. Stockholders that are not described in this section or otherwise have
questions about whether they should execute a Form W-8 or Substitute Form W-9 should consult their tax advisors. See Instruction 9 to the letter of transmittal enclosed with this prospectus/offer to purchase.
Withdrawal Rights
Except
as otherwise provided in this section, tenders of shares of Diedrich common stock in the offer are irrevocable. Shares of Diedrich common stock that are tendered in the offer may be withdrawn pursuant to the procedures described below at any time
prior to the expiration time of the offer and shares that are tendered may also be withdrawn at any time after January 16, 2010, unless accepted for exchange on or before that date as provided in this prospectus/offer to purchase. In the event
that the Purchaser provides for a subsequent offering period following the acceptance of shares of Diedrich common stock for exchange pursuant to the offer, (1) no withdrawal rights will apply to shares tendered during such subsequent offering
period and (2) no withdrawal rights will apply to shares that were previously tendered in the offer and accepted for exchange.
For a withdrawal of shares of Diedrich common stock previously tendered in the offer to be effective, a written or facsimile transmission notice of withdrawal must be received by the Depositary prior to the expiration time at one of its
addresses listed on the back cover of this prospectus/offer to purchase, specifying the name of the person having tendered the shares to be withdrawn, the number of shares to be withdrawn and the name of the registered holder of the shares to be
withdrawn, if different from the name of the person who tendered the shares. If certificates for shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown
on such certificates must be submitted to the Depositary and, unless such shares have been tendered by an eligible institution, any and all signatures on the notice of withdrawal must be guaranteed by an eligible institution. If shares have been
tendered pursuant to the book-entry transfer procedures described above, any notice of withdrawal must also specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn shares and otherwise comply
with the book-entry transfer facilitys procedures.
The Purchaser will decide all questions as to the form and validity
(including time of receipt) of any notice of withdrawal in its sole discretion, which decision will be final and binding. Neither Peets nor the Purchaser, nor Diedrich, the Depositary, the Information Agent or any other person will be under
any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification.
Withdrawals of shares of Diedrich common stock may not be rescinded. Any shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. However, withdrawn
shares
40
may be re-tendered at any time prior to the expiration time of the offer (as it may be extended) or during any subsequent offering period by following one of the procedures for tendering
described above.
Acceptance for Exchange of Diedrich Stock; Delivery of Cash and Peets Common Stock
On the terms of and subject to the conditions to the offer (including, if the offer is extended or amended, the terms and conditions of any
such extension or amendment), promptly after the expiration time of the offer, the Purchaser will accept for exchange, and will deliver consideration for, all shares of Diedrich common stock validly tendered to the Purchaser in the offer and not
withdrawn prior to the expiration time of the offer. Subject to the terms of the merger agreement, the Purchaser expressly reserves the right, in its sole discretion, to delay acceptance for exchange of or the delivery of consideration for shares of
Diedrich common stock that are tendered in the offer in order to comply in whole or in part with any applicable law. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidders obligation to
pay for or return tendered securities promptly after the termination or withdrawal of such bidders offer).
In all
cases, delivery of consideration for shares of Diedrich common stock that are accepted for exchange in the offer will be made only after timely receipt by the Depositary of:
|
|
|
the certificates representing such shares, together with the letter of transmittal enclosed with this prospectus/offer to purchase (or a photocopy of
it), properly completed and duly executed, and any required signature guarantees (as described in above under the caption Signature Guarantees); or
|
|
|
|
in the case of a transfer effected pursuant to the book-entry transfer procedures as described above under the caption Book-Entry Transfer
a book-entry confirmation and either the letter of transmittal enclosed with this prospectus/offer to purchase (or a photocopy of it), properly completed and duly executed, and any required signature guarantees (as described above under the caption
Signature Guarantees) or an agents message, and any other required documents.
|
The per
share consideration paid to any stockholder in the offer will be the highest per share consideration paid to any other stockholder in the offer.
For purposes of the offer, the Purchaser will be deemed to have accepted for exchange, and thereby purchased, shares of Diedrich common stock that are validly tendered in the offer and not withdrawn prior
to the expiration time of the offer as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchasers acceptance for exchange of such shares. On the terms of and subject to the conditions to the offer, the delivery
of consideration for shares of Diedrich common stock that are accepted for exchange in the offer will be made by deposit of the cash component with and delivery of the stock component to the Depositary, which will act as an agent for stockholders
tendering shares in the offer for the purpose of receiving the offer consideration from the Purchaser and transmitting payment to such stockholders whose shares of Diedrich common stock have been accepted for exchange in the offer.
If the Purchaser is delayed in its acceptance for exchange of, or delivery of consideration for, shares of Diedrich common stock that are
tendered in the offer, or is unable to accept for exchange, or pay for, shares that are tendered in the offer for any reason, then, without prejudice to the Purchasers rights under the offer (but subject to compliance with Rule 14e-1(c) under
the Exchange Act (relating to a bidders obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidders offer) and the terms of the merger agreement), the Depositary may, nevertheless, on
behalf of the Purchaser, retain shares of Diedrich common stock that are tendered in the offer, and such shares may not be withdrawn except to the extent that stockholders tendering such shares are entitled to do so as described above under the
caption Withdrawal Rights or as otherwise contemplated by federal securities laws.
If any shares of Diedrich
common stock that are tendered in the offer are not accepted for exchange pursuant to the terms and conditions of the offer for any reason, the certificates for such shares will be returned (and, if certificates are submitted for more shares than
are tendered, new certificates for the shares not tendered
41
will be sent) in each case without expense to the stockholder tendering such shares (or, in the case of shares delivered by book-entry transfer of such shares into the Depositarys account
at the book-entry transfer facility pursuant to the book-entry transfer procedures, such shares will be credited to an account maintained at the book-entry transfer facility), in each case, promptly after the expiration or termination of the offer.
Purpose of the Transaction; Plans for Diedrich; The Merger; Appraisal Rights
Purpose of the Transaction
The purpose of the transaction is to enable Peets to acquire the entire equity interest in, and thus control of, Diedrich. The offer, as the first step in the acquisition of Diedrich, is intended to
facilitate the acquisition of all of the outstanding shares of Diedrich common stock or, if fewer than all of the outstanding shares of Diedrich common stock are tendered and not properly withdrawn prior to the expiration time of the offer, such
lesser number of shares of Diedrich common stock, subject to the conditions to the offer described below under the caption Conditions to the Offer. The purpose of the merger, as the second step in the acquisition of Diedrich, is for
Peets to acquire any and all outstanding shares of Diedrich common stock that are not tendered in the offer and accepted for exchange by the Purchaser in the offer.
If the merger is completed, Peets common equity interest in Diedrich would increase to 100% and Peets would be entitled to all benefits resulting from that interest. These benefits include
complete control of management with regard to the future conduct of Diedrichs business and any increase in its value. Similarly, Peets also will bear the risk of any losses incurred in the operation of Diedrich and any decrease in its
value.
Stockholders of Diedrich who tender their shares of Diedrich common stock in the offer will cease to have any equity
interest in Diedrich and will not participate in its earnings or any future growth (except indirectly through ownership of Peets common stock received in the offer). If the merger is completed, the stockholders who have not tendered their
shares of Diedrich common stock in the offer will cease to have an equity interest in Diedrich and will not participate in its earnings or any future growth (except indirectly through ownership of Peets common stock received in the merger).
Similarly, the stockholders of Diedrich will not bear the risk of any decrease in the value of Diedrich common stock after tendering their shares of Diedrich common stock in the offer or having their shares of Diedrich common stock converted in the
merger (except indirectly through ownership of Peets common stock received in the offer or the merger).
The primary
benefit of the offer and the merger to the stockholders of Diedrich is that stockholders have the opportunity to sell all of their shares of Diedrich common stock for a combination of Peets stock and cash at a price that as of the date on
which the merger agreement was announced, represented a premium of approximately 27.7% over the last closing price of Diedrich shares before the announcement of the merger agreement, which was $20.36 per share.
Plans for Diedrich
If the Purchaser purchases the shares of Diedrich common stock that are tendered in the offer, Peets intends and will have the right to designate representatives to Diedrichs board of
directors who will constitute a majority of the board of directors and each committee of the board of directors and therefore control Diedrich. However, if shares of Diedrich common stock are accepted for exchange pursuant to the offer, until the
completion of the merger there are required to be at least two members of Diedrichs board of directors who were directors of Diedrich on the date of the merger agreement (or their successors). If Peets designees constitute a majority of
the Diedrich board of directors, prior to the completion of the merger, the affirmative vote of a majority of these directors, who were directors of Diedrich on the date of execution of the merger agreement (or their successors), will be required
for the Diedrich board of directors to take any of the following actions, to the extent that any such action could reasonably be expected to adversely affect holders of shares of Diedrich common stock, other than Peets or the Purchaser:
|
|
|
action by Diedrich with respect to any amendment or waiver of any term or condition of the merger agreement, the merger, or the certificate of
incorporation or bylaws of Diedrich;
|
42
|
|
|
termination of the merger agreement by Diedrich;
|
|
|
|
extension by Diedrich of the time for the performance of any of the obligations or other acts of Peets or the Purchaser, or any waiver or
assertion of any of Diedrichs rights under the merger agreement; or
|
|
|
|
other consent or action by Diedrich with respect to the offer, the merger or any of the other transactions contemplated by the merger agreement.
|
As a consequence of the merger, Diedrichs certificate of incorporation and bylaws will be replaced
with those of the Purchaser and Peets may further amend those documents. In addition, Diedrichs board of directors will be replaced with the board of directors of the Purchaser and Peets may change the board of directors
thereafter.
The merger agreement provides that the directors and officers of the Purchaser at the completion of the merger
will, from and after the completion of the merger, be the initial directors and officers, respectively, of Diedrich, as the surviving corporation. Peets may also change the officers or directors of Diedrich at any time after the completion of
the merger.
Peets intends to continue to review Diedrichs assets, corporate structure, operations, properties,
policies, management and personnel and, subject to the terms of the merger agreement, to consider whether any changes would be desirable in light of the circumstances then existing, and reserves the right to effect such changes as it deems
desirable, although, except as disclosed in this prospectus/offer to purchase, Peets has no current plans with respect to any such matters.
Following successful completion of the offer and the merger, Peets intends to integrate Diedrichs operations with those of Peets under the direction of Peets management.
Except as disclosed in this prospectus/offer to purchase, we do not have any present plans or proposals that would result in
an extraordinary corporate transaction, such as a merger, reorganization, liquidation, sale or transfer of material amounts of assets, relocation of operations, or any material changes in Diedrichs corporate structure or business.
The Merger
Approval of the Merger.
Under Section 251 of the Delaware General Corporation Law, the approval of the board of directors of Diedrich and, except as discussed below, the affirmative vote of
the holders of a majority of its outstanding common stock are required to approve a merger and adopt a merger agreement. The Diedrich board of directors has previously approved and declared advisable the merger and the merger agreement. If the
Purchaser accepts for exchange shares of Diedrich common stock pursuant to the offer (after satisfaction of the minimum condition), the Purchaser would have a sufficient number of shares of Diedrich common stock to adopt the merger agreement without
the affirmative vote of any other holder of shares of Diedrich common stock. Therefore, unless the merger is completed in accordance with the short-form merger provisions under Delaware law described below (in which case no action by the
stockholders of Diedrich, other than the Purchaser, will be required to complete the merger), the only remaining corporate action of Diedrich to complete the merger will be the adoption of the merger agreement by Peets, as holder of a majority
of the outstanding shares of Diedrich common stock. However, in connection with such adoption, Diedrich would be required to seek the approval of the adoption of the merger agreement by each of its other remaining stockholders as well.
Possible Short-Form Merger.
Section 253 of the Delaware General Corporation Law would permit the merger to occur without a
vote of Diedrichs stockholders if the Purchaser were to acquire at least 90% of the outstanding shares of Diedrich common stock in the offer or otherwise (including as a result of purchases by the Purchaser during any subsequent offering
period or upon exercise of the top-up option as described under the caption The Merger AgreementThe Top-Up Option). If, however, the Purchaser does not acquire at least 90% of the then outstanding shares of Diedrich common stock
pursuant to the offer or otherwise, and a vote of
43
Diedrichs stockholders is required under Delaware law, a longer period of time will be required to complete the merger. Peets has agreed in the merger agreement to complete the merger
as promptly as practicable following the acceptance for exchange of Diedrich common stock pursuant to the offer, and to complete the merger as a short-form merger if the Purchaser obtains ownership of at least 90% of the issued and outstanding
shares of Diedrich common stock in the offer or otherwise. Peets currently owns 221,559 shares of Diedrich common stock.
Appraisal Rights
Diedrich stockholders will not have appraisal rights in connection with the offer.
However, under Delaware corporate law, Diedrich stockholders are entitled to appraisal rights in connection with the merger.
If the merger is completed, holders of Diedrich common stock are entitled to appraisal rights under Section 262 of the Delaware General Corporation Law, or Section 262, provided that they comply with the conditions established by
Section 262.
The discussion below is not a complete summary regarding your appraisal rights under Delaware law and is
qualified in its entirety by reference to the text of the relevant provisions of Delaware law, which are attached to this prospectus/offer to purchase as Annex C. Diedrich stockholders intending to exercise appraisal rights should carefully review
Annex C. Failure to follow precisely any of the statutory procedures set forth in Annex C may result in a termination or waiver of these rights.
A record holder of shares of Diedrich common stock who makes the demand described below with respect to such shares, who continuously is the record holder of such shares through the date of completion of
the merger, who otherwise complies with the statutory requirements of Section 262 and who neither votes in favor of the adoption of the merger agreement nor consents thereto in writing will be entitled to an appraisal by the Delaware Court of
Chancery, or the Delaware Court, of the fair value of his or her shares of Diedrich common stock. All references in this summary of appraisal rights to a stockholder or holders of shares of Diedrich common stock are to the
record holder or holders of shares of Diedrich common stock.
Filing a Written Demand
. Stockholders who desire to
exercise their appraisal rights must satisfy all of the conditions of Section 262. Those conditions include, without limitation, the following:
|
|
|
In the event that any Diedrich stockholder vote is necessary to complete the merger, Diedrich stockholders electing to exercise appraisal rights must
not vote for adoption of the merger agreement. Also, because a submitted proxy not marked against or abstain will be voted for the proposal to adopt the merger agreement, the submission of a proxy not
marked against or abstain will result in the waiver of appraisal rights.
|
|
|
|
In the event that any Diedrich stockholder vote is necessary to complete the merger, Diedrich stockholders must deliver a written demand for appraisal
of shares before the vote on the merger agreement is taken. The written demand for appraisal should specify the stockholders name and mailing address, and that the stockholder is thereby demanding appraisal of his or her Diedrich common stock.
The written demand for appraisal of shares is in addition to and separate from a vote against the adoption of the merger agreement or an abstention from such vote.
|
|
|
|
If the Purchaser acquires 90% or more of the outstanding Diedrich common stock, then a vote of the Diedrich stockholders will not be required to
complete the merger. In this case, every Diedrich stockholder entitled to appraisal rights will receive a notice of approval of the merger, and will have to deliver a written demand for appraisal within 20 days after the date that this notice
is mailed to be entitled to any appraisal rights. The written demand for appraisal should specify the stockholders name and mailing address, and that the stockholder is thereby demanding appraisal of his or her Diedrich common stock.
|
|
|
|
A demand for appraisal should be executed by or for the stockholder of record, fully and correctly, as such stockholders name appears on the
share certificate. If the shares are owned of record in a
|
44
|
fiduciary capacity, such as by a trustee, guardian or custodian, this demand must be executed by or for the fiduciary. If the shares are owned by or for more than one person, as in a joint
tenancy or tenancy in common, such demand should be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record. However, the agent must
identify the record owner and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner. A person having a beneficial interest in Diedrich common stock held of record in the name of another person, such
as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized below in a timely manner to perfect whatever appraisal rights the beneficial owners may have.
|
|
|
|
Diedrich stockholders who wish to exercise appraisal rights in connection with the merger should mail or deliver a written demand to: Diedrich Coffee,
Inc., 28 Executive Park, Suite 200, Irvine, CA 92614, Attn: Corporate Secretary.
|
Notice by the Surviving
Corporation
Within ten days after the completion of the merger, Diedrich, as the surviving corporation in the merger, must provide notice of the date of completion of the merger to all of its stockholders who have complied with Section 262
and have not voted for the adoption of the merger agreement.
Filing a Petition for Appraisal
. Within 120 days after
the date of completion of the merger, either Diedrich or any stockholder who has complied with the required conditions of Section 262 may file a petition in the Delaware Court, with a copy served on Diedrich in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of all dissenting stockholders. There is no present intent on the part of Diedrich or Peets (as its successor) to file an appraisal petition and stockholders seeking to
exercise appraisal rights should not assume that Diedrich will file such a petition or that Diedrich will initiate any negotiations with respect to the fair value of such shares. Accordingly, holders of Diedrich common stock who desire to have their
shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262.
Within 120 days after the date of completion of the merger, any stockholder who has satisfied the requirements of Section 262 will be
entitled, upon written request, to receive from Diedrich a statement setting forth the aggregate number of shares of Diedrich common stock not voting in favor of the adoption of the merger agreement and with respect to which demands for appraisal
were received by Diedrich and the number of holders of such shares. Such statement must be mailed within 10 days after the stockholders request has been received by Diedrich or within 10 days after the expiration of the period for the delivery
of demands as described above, whichever is later.
Proceedings and Determination of Fair Market Value
. If a petition
for an appraisal is timely filed, at the hearing on such petition, the Delaware Court will determine which stockholders are entitled to appraisal rights. The Delaware Court may require the stockholders who have demanded an appraisal for their shares
and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the
Delaware Court may dismiss the proceedings as to such stockholder. Where proceedings are not dismissed, the Delaware Court will appraise the shares of Diedrich common stock owned by such stockholders, determining the fair value of such shares
exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value.
Although the parties believe that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair
value as determined by the Delaware Court and Diedrich stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the consideration they would receive pursuant to the merger
agreement. Moreover, Diedrich does not anticipate offering more than the merger consideration to any stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the
fair value of a share of Diedrich common stock is less than the merger consideration. In determining fair value, the Delaware Court is required to take into account all relevant factors. The Delaware Supreme Court has stated
that proof of value by any techniques or methods which
45
are generally considered acceptable in the financial community and otherwise admissible in court should be considered and that fair price obviously requires consideration of all
relevant factors involving the value of a company. The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be exclusive of any element of value arising
from the accomplishment or expectation of the merger. The Delaware Supreme Court has stated that such exclusion is a narrow exclusion that does not encompass known elements of value, but which rather applies only to the speculative elements of value
arising from such accomplishment or expectation. The Delaware Supreme Court has construed Section 262 to mean that elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered. Diedrich stockholders should be aware that investment banking opinions as to the fairness from a financial point of view of the consideration payable in a merger are not opinions as to
fair value under Section 262.
Costs of the Appraisal Proceeding
. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware Court deems equitable in the circumstances. However, costs do not include attorneys and expert witness fees. Each dissenting stockholder is responsible for his or
her attorneys and expert witness expenses, although, upon application of a dissenting stockholder, the Delaware Court may order that all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal
proceeding, including without limitation, reasonable attorneys fees and the fees and expenses of experts, be charged pro rata against the value of all shares of stock entitled to appraisal.
Rights of Diedrich Stockholders Seeking Appraisal Rights
. Any Diedrich stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the completion of the merger, be entitled to vote for any purpose any shares subject to such demand or to receive payment of dividends or other distributions on such shares, except for dividends or distributions
payable to stockholders of record at a date prior to the date of completion of the merger.
Withdrawal of Demands
for Appraisal Rights
. At any time within 60 days after the date of completion of the merger, any former Diedrich stockholder that shall have preserved such stockholders appraisal rights with respect to the merger will have the right to
withdraw such stockholders demand for appraisal and to accept the terms offered in the merger agreement. After this period, a stockholder may withdraw his, her or its demand for appraisal and receive payment for such stockholders shares
of Diedrich common stock as provided in the merger agreement only with Diedrichs consent. If no petition for appraisal is filed with the court within 120 days after the effective time of the merger, stockholders rights to appraisal (if
available) will cease. Inasmuch as Diedrich has no obligation to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis. Any stockholder may withdraw such stockholders demand for
appraisal by delivering to Diedrich a written withdrawal of his or her demand for appraisal and acceptance of the merger consideration, except (i) that any such attempt to withdraw made more than 60 days after the date of completion of the
merger will require written approval of Diedrich and (ii) that no appraisal proceeding in the Delaware Court shall be dismissed as to any stockholder without the approval of the Delaware Court, and such approval may be conditioned upon such
terms as the Delaware Court deems just.
Failure by any Diedrich stockholder to comply fully with the procedures
described above and set forth in Annex C to this prospectus/offer to purchase may result in termination of such stockholders appraisal rights. In view of the complexity of exercising your appraisal rights under Delaware law, if you are
considering exercising these rights you should consult with your legal counsel.
Conditions to the Offer
Notwithstanding any other provision of the offer or the merger agreement to the contrary, the Purchaser will not be required to accept for
exchange or deliver consideration for, and may delay the acceptance for exchange or the delivery of consideration for, any tendered shares of Diedrich common stock, if the minimum condition has
46
not been satisfied by midnight (one minute after 11:59 pm), Eastern Time, on the expiration date of the offer, taking into account any extensions made or if any of the following additional
conditions shall not be satisfied or have been waived in writing by Peets:
|
|
|
each of the representations and warranties of Diedrich contained in the merger agreement with respect to capitalization shall have been accurate in all
material respects as of the date of the merger agreement and shall be accurate in all material respects at and as of the expiration time of the offer with the same force and effect as if made on at and as of such time (except for representations and
warranties that by their terms are made only as of a specific date or time, which need only be accurate in all material respects as of such date or time);
|
|
|
|
each of the other representations and warranties of Diedrich contained in the merger agreement shall have been accurate in all respects as of the date
of the merger agreement and shall be accurate in all respects at and as of the expiration time of the offer as if made on and as of such expiration time with the same force and effect as if made at and as of such time (except for representations and
warranties that by their terms are made only as of a specific date or time, which need only be accurate in all respects as of such date or time), provided that, for purposes of determining the accuracy of all of the foregoing representations and
warranties, all company material adverse effect (as defined below) and other qualifications based on the word material contained in such representations and warranties shall be disregarded;
|
|
|
|
each covenant that Diedrich is required to comply with or to perform at or prior to the acceptance of shares of Diedrich common stock for exchange
pursuant to the offer shall have been complied with or performed in all material respects, or, if not complied with or performed in all material respects, such noncompliance or failure to perform shall have been cured;
|
|
|
|
since the date of the merger agreement, no company material adverse effect (as defined below) shall have occurred and be continuing;
|
|
|
|
Peets and Diedrich shall have received a certificate executed by the Chief Executive Officer or Chief Financial Officer of Diedrich confirming
that the conditions described in the three preceding paragraphs have been duly satisfied;
|
|
|
|
the waiting period applicable to the offer under the HSR Act shall have expired or been terminated;
|
|
|
|
no temporary restraining order, preliminary or permanent injunction or other order preventing the acquisition of or payment for shares of Diedrich
common stock pursuant to the offer or preventing completion of the merger shall have been issued by any court of competent jurisdiction or other governmental body and remain in effect, and there shall not have been any legal requirement enacted or
deemed applicable to the offer or the merger by a governmental authority that makes the acquisition of or payment for shares of Diedrich common stock pursuant to the offer or the completion of the merger illegal;
|
|
|
|
there shall not be pending, or threatened in writing, any legal proceeding by any governmental body challenging or seeking to restrain or prohibit the
acquisition of or payment for shares of Diedrich common stock pursuant to the offer or the completion of the merger or any of the other transactions contemplated by the merger agreement;
|
|
|
|
the registration statement of which this prospectus/offer to purchase is a part shall have become effective;
|
|
|
|
no triggering event (as defined below) shall have occurred; and
|
|
|
|
the merger agreement shall not have been validly terminated.
|
The term company material adverse effect means any effect, change, claim, event or circumstance that, considered together with
all other effects, changes, claims, events and circumstances, has had or could reasonably be expected to have or result in a material adverse effect on, (1) the business, financial condition or
47
results of operations of Diedrich or (2) the ability of Diedrich to complete the transactions contemplated by the merger agreement. The term company material adverse effect does
not include: (i) effects, changes, claims, events or circumstances resulting from (a) changes since the date of the merger agreement in general economic or political conditions or the securities, credit or financial markets worldwide,
(b) changes since the date of the merger agreement in conditions generally affecting the industry in which Diedrich operates, (c) changes since the date of the merger agreement in generally accepted accounting principles or the
interpretation thereof, (d) changes since the date of the merger agreement in legal requirements, (e) any acts of terrorism or war since the date of the merger agreement, or (f) any stockholder class action or derivative litigation
commenced against Diedrich since the date of the merger agreement and arising from allegations of breach of fiduciary duty of Diedrichs directors relating to their approval of the merger agreement or from allegations of false or misleading
public disclosure by Diedrich with respect to the merger agreement; (ii) any adverse impact on Diedrichs relationships with employees, customers and suppliers of Diedrich that is attributable to the announcement or pendency of the merger
agreement and the transactions contemplated by the merger agreement, or any other adverse impact on Diedrich that is directly (and to the extent) attributable to the announcement and pendency of the transactions contemplated by the merger agreement;
(iii) any failure after the date of the merger agreement to meet internal or analyst projections or forecasts for any period or changes in the trading price or trading volume of Diedrich common stock, in and of itself; or (iv) the taking
of any action required to be taken by Diedrich pursuant to the merger agreement or specifically instructed or consented to, in advance and in writing, by Peets. In the case of each of clauses (i)(a), (i)(b),
(i)(c), (i)(d) and (i)(e) above, the exception will apply so long as and only to the extent that such effects, changes, claims, events or circumstances do not disproportionately impact Diedrich relative to other participants
in the industry or industries in which Diedrich conducts its business and any facts or circumstances underlying, causing or contributing to any litigation of the type referred to in clause (i)(f) of the preceding sentence, or
underlying, causing or contributing to any failure or decline of the type referred to in clause (iii) of the preceding sentence, in each case that are not otherwise excluded from the definition of a company material adverse effect, may
be taken into account in determining whether there has been or would be a company material adverse effect.
A triggering
event will be deemed to have occurred if: (1) the board of directors of Diedrich shall have failed to unanimously recommend that Diedrichs stockholders accept the offer and tender their shares of Diedrich common stock pursuant to
the offer and (to the extent necessary) adopt the merger agreement (the Diedrich board recommendation) or shall have withdrawn or modified in a manner adverse to Peets the Diedrich board recommendation or shall have taken any other
action publicly that would cause a reasonable observer to conclude that the board of directors of Diedrich does not unanimously support the offer or the merger; (2) following the disclosure or announcement of a proposal or an inquiry with
respect to an alternative acquisition transaction, the board of directors of Diedrich fails to reaffirm publicly the Diedrich board recommendation, within ten business days after Peets requests in writing that such recommendation be reaffirmed
publicly; (3) the board of directors of Diedrich shall have publicly approved, endorsed or recommended any proposal for an alternative acquisition transaction; (4) Diedrich shall have entered into any letter of intent or contract
contemplating or providing for any proposal for an alternative acquisition transaction (other than a confidentiality agreement executed and delivered in accordance with the merger agreement); or (5) a tender or exchange offer relating to
securities of Diedrich shall have been commenced by a third party and Diedrich shall not have sent to its security holders, within ten business days after the commencement of such tender or exchange offer, a statement disclosing that Diedrich
recommends rejection of such tender or exchange offer.
Legal Matters
Except as described below, based on information provided by Diedrich, neither Peets nor Diedrich is aware of any license or regulatory
permit that appears to be material to the business of Diedrich that might be adversely affected by the acquisition of shares of Diedrich common stock in connection with the offer or the merger, or of any approval or other action by a domestic or
foreign governmental, administrative or regulatory agency or authority that would be required for the acquisition and ownership of shares of Diedrich common stock by the Purchaser in connection with the offer or the merger. Should any such approval
or other action be required, the
48
Purchaser currently contemplates that such approval or other action will be sought, except as described below under the caption State Takeover Laws. While, except as otherwise
described in this prospectus/offer to purchase, the Purchaser does not currently intend to delay the acceptance for exchange of, or payment for, shares of Diedrich common stock that are tendered in the offer pending the outcome of any such matter,
there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse
to Diedrichs business or that certain parts of Diedrichs business might not have to be disposed of or other substantial conditions complied with in the event that such approvals were not obtained or such other actions were not taken or
in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, the Purchaser could decline to accept for exchange, or deliver consideration for, shares of Diedrich
common stock that are tendered in the offer.
Delaware Law
In general, Section 203 of the Delaware General Corporation Law prevents an interested stockholder (generally, a stockholder owning 15%
or more of a corporations outstanding voting stock or an affiliate thereof) from engaging in a business combination (generally defined to include a merger and certain other transactions as described below) with a Delaware corporation for a
period of three years following the time when such stockholder became an interested stockholder unless certain board or stockholder approvals are obtained or the interested stockholder acquires at least 85% of the corporations voting stock
outstanding under certain circumstances.
Diedrichs board of directors has taken all actions necessary to exempt the
offer and the merger and the other transactions contemplated by the merger agreement from the provisions of Section 203 of the Delaware General Corporation Law.
State Takeover Statutes
A number of states have adopted laws that
purport, to varying degrees, to apply to attempts to acquire corporations that are incorporated in, or that have substantial assets, stockholders, principal executive offices or principal places of business or whose business operations otherwise
have substantial economic effects in, such states. Diedrich, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted such laws. Except as described in this prospectus/offer
to purchase, it is not known whether any of these laws will, by their terms, apply to the offer or the merger and the Purchaser has not complied with any such laws. To the extent that certain provisions of these laws purport to apply to the offer or
the merger, it is believed that there are reasonable bases for contesting such laws. Diedrich has represented to Peets that no such laws apply to the offer or the merger.
Antitrust
United States Antitrust Law.
Under the HSR Act, and the rules that have been promulgated under the HSR Act by the Federal Trade Commission (the FTC), certain acquisition transactions may not be completed unless certain
information has been furnished to the FTC and the Antitrust Division of the Department of Justice (the DOJ) and the applicable waiting period requirements have been satisfied. The offer and the merger are subject to the filing and
waiting period requirements of the HSR Act.
Pursuant to the requirements of the HSR Act, Peets, on behalf of itself and
the Purchaser, filed a Notification and Report Form with respect to the offer and the merger with the FTC and the DOJ on November 13, 2009, and Diedrich filed a Notification and Report Form with respect to the offer and the merger on
November 13, 2009. As a result, the waiting period applicable to the purchase of shares of Diedrich common stock pursuant to the offer is scheduled to expire at 11:59 p.m., Eastern Time, on December 14, 2009. However, prior to such time,
the FTC or the DOJ may extend the waiting period by requesting additional information or
49
documentary material relevant to the offer from Peets. If such a request is made, the waiting period will be extended until 11:59 p.m., Eastern Time, on the 30th day after substantial
compliance by Peets with such request, or on the next business day following that date if the 30th day would fall on a weekend or federal holiday. Thereafter, such waiting period can be extended only by court order.
The FTC and the DOJ frequently scrutinize the legality under the antitrust laws of transactions such as the offer and the merger. At any
time before the completion of the offer or the merger, the FTC or the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the Purchasers acquisition of
shares of Diedrich common stock in the offer, the merger or otherwise, or seeking the divestiture of shares of Diedrich common stock acquired by the Purchaser, or the divestiture of substantial assets of Peets, Diedrich or their respective
subsidiaries. At any time after the Purchasers acquisition of shares of Diedrich common stock in the offer and the merger, the FTC or the DOJ could take such action under the antitrust laws as either deems necessary or desirable in the public
interest, including seeking the divestiture of the shares of Diedrich common stock acquired by the Purchaser in the offer and the merger or the divestiture of substantial assets of Peets, Diedrich or their respective subsidiaries. In this
regard, the merger agreement provides that at the request of Peets, Diedrich must agree to divest, sell, dispose of, hold separate or otherwise take or commit to take any other action with respect to any of the businesses, product lines or
assets of Diedrich, provided that any such action is conditioned upon the completion of the offer or the merger. However, the merger agreement provides that neither Peets nor the Purchaser has any obligation to take any of the following
actions, if Peets determines in good faith that taking such actions could reasonably be expected to materially affect the business or interests of Peets, any of Peets subsidiaries or Diedrich in any adverse way: (1) to dispose
of or transfer or cause any of its subsidiaries to dispose of or transfer any assets, or to commit to cause Diedrich to dispose of or transfer any assets; (2) to discontinue or cause any of its subsidiaries to discontinue offering any product
or service, or to commit to cause Diedrich to discontinue offering any product or service; (3) to license or otherwise make available, or cause any of its subsidiaries to license or otherwise make available to any person any technology,
software or other intellectual property or intellectual property right, or to commit to cause Diedrich to license or otherwise make available to any person any technology, software or other intellectual property or intellectual property right;
(4) to hold separate or cause any of its subsidiaries to hold separate any assets or operations (either before or after the completion of the merger), or to commit to cause Diedrich to hold separate any assets or operations; (5) to make or
cause any of its subsidiaries to make any commitment, or to commit to cause Diedrich to make any commitment (to any governmental body or otherwise) regarding its future operations or the future operations of Diedrich; or (6) to contest any
legal proceeding or any order, writ, injunction or decree relating to the offer or the merger or any of the other transactions contemplated by the merger agreement. See The Merger AgreementOther Covenants beginning on page 67 of
this prospectus/offer to purchase.
Private parties, as well as state governments, may also bring legal action under the
antitrust laws under certain circumstances. Peets and Diedrich believe that the completion of the offer and the merger will not violate any antitrust laws. However, there can be no assurance that a challenge to the offer or the merger or other
acquisition of shares of Diedrich common stock by the Purchaser on antitrust grounds will not be made or, if such a challenge is made, of the result, including any delay of the completion of the offer and the merger. See The
OfferConditions to the Offer beginning on page 46 of this prospectus/offer to purchase for certain conditions to the offer, including conditions with respect to litigation and certain governmental actions.
Foreign Antitrust Law.
The antitrust and competition laws of certain foreign countries often apply to transactions such as the offer
and the merger and filings and notifications may be required when such laws are applicable. Peets and Diedrich do not believe that any such filings are required in connection with the offer or the merger.
Litigation Relating to the Transaction
On November 10, 2009, an action, George Mendenhall v. J. Russell Phillips, et al., was filed in the Superior Court of the State of California for the County of Orange. In this action, the plaintiff named
as defendants the
50
members of the board of directors of Diedrich, Diedrich, Peets and the Purchaser. The complaint asserts claims on behalf of Diedrichs stockholders who are similarly situated with the
plaintiff. Among other things, the complaint alleges that the members of the Diedrich board of directors have breached their fiduciary duties to Diedrichs stockholders in connection with the transaction, allegedly resulting in an unfair
process and unfair price to Diedrichs stockholders. The complaint seeks class certification and certain forms of equitable relief, including enjoining the completion of the transaction. Diedrich believes that the allegations of the complaint
are without merit and intends to vigorously contest the action. However, there can be no assurances that the defendants will be successful in such defense.
Certain Effects of the Offer
Market for the Shares of Diedrich
Common Stock
The acceptance for exchange of shares of Diedrich common stock tendered in the offer will reduce the
number of shares of Diedrich common stock that might otherwise trade publicly and also the number of holders of shares of Diedrich common stock. This could adversely affect the liquidity and market value of the remaining shares of Diedrich common
stock held by the public.
Nasdaq Listing
Depending upon the number of shares of Diedrich common stock tendered to and accepted by the Purchaser in the offer, the shares of Diedrich
common stock may no longer meet the published guidelines for continued inclusion on the Nasdaq Capital Market following completion of the offer. According to the published guidelines, the shares would only meet the criteria for continued listing on
the Nasdaq Capital Market if Diedrich has at least 500,000 publicly held shares, held by at least 300 round lot stockholders, with a market value of at least $1,000,000, at least two market makers, a minimum bid price of $1 per share and either:
|
|
|
stockholders equity of at least $2,500,000; or
|
|
|
|
market capitalization of at least $35,000,000 or net income for its most recently completed fiscal year, or two of the last three most recently
completed fiscal years, of at least $500,000.
|
If the Nasdaq Capital Market ceased publishing quotations for
the shares of Diedrich common stock, it is possible that the shares of Diedrich common stock would continue to trade in the over-the-counter market and that price or other quotations would be reported by other sources. The extent of the public
market for such shares of Diedrich common stock and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest
in maintaining a market in the shares of Diedrich common stock on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. Peets cannot predict whether the reduction
in the number of shares of Diedrich common stock that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the shares of Diedrich common stock or whether it would cause future market
prices to be greater or lesser than the price the Purchaser is offering.
Registration Under the Exchange Act
Shares of Diedrich common stock are currently registered under the Exchange Act. Diedrich can terminate that registration upon
application to the SEC if the outstanding shares of Diedrich common stock are not listed on a national securities exchange and if there are fewer than 300 holders of record of shares of Diedrich common stock. Termination of registration of the
shares of Diedrich common stock under the Exchange Act would reduce the information that Diedrich must furnish to its stockholders and to the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy statement in connection with stockholders meetings pursuant to Section 14(a) and the related requirement of furnishing an annual report to stockholders, no longer
applicable with respect to the shares of
51
Diedrich common stock. In addition, if the shares of Diedrich common stock are no longer registered under the Exchange Act, the requirements of Rule 13e-3 under the Exchange Act with respect
to going-private transactions would no longer be applicable to Diedrich. Furthermore, the ability of affiliates of Diedrich and persons holding restricted securities of Diedrich to dispose of such securities pursuant to Rule 144
under the Securities Act may be impaired or eliminated. If registration of the shares of Diedrich common stock under the Exchange Act were terminated, the shares would no longer be eligible for Nasdaq listing or for continued inclusion on the
Federal Reserve Boards list of margin securities, which would make the shares ineligible to be collateral for margin loans by brokers.
Peets may seek to cause Diedrich to apply for termination of registration of the shares of Diedrich common stock under the Exchange Act as soon after the acceptance for exchange of shares of
Diedrich common stock pursuant to the offer as the requirements for such termination are met. If the Nasdaq Capital Market listing and the Exchange Act registration of the shares of Diedrich common stock are not terminated prior to the merger, then
the shares of Diedrich common stock will be delisted from the Nasdaq Capital Market and the registration of the shares of Diedrich common stock under the Exchange Act will be terminated following the completion of the merger.
Margin Requirements
Shares of Diedrich common stock are currently margin securities under the regulations of the Board of Governors of the Federal Reserve System, which has the effect, among other things, of allowing brokers
to extend credit on the collateral of shares of Diedrich common stock.
Fees and Expenses
The Purchaser has retained Laurel Hill Advisory Group, LLC to act as the Information Agent for the offer, and Continental Stock
Transfer & Trust Company to serve as the Depositary for the offer. Each of the Information Agent and the Depositary will receive reasonable and customary compensation for its services, and will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection with its services, including certain liabilities and expenses under United States federal securities laws.
The Information Agent may contact holders of Diedrich common stock by mail, telephone, facsimile, email, telegraph and personal interview
and may request brokers, dealers, banks, trust companies and other nominees to forward materials relating to the offer to beneficial owners of Diedrich common stock.
The Purchaser will not pay any fees or commissions to any broker or dealer or other person (other than to the Depositary, the Information Agent and in the event that the laws of one or more jurisdictions
require the offer to be made by a broker or dealer licensed in such jurisdiction, to such broker or dealer) in connection with the solicitation of tenders of shares of Diedrich common stock in connection with the offer. Upon request, the Purchaser
will reimburse brokers, dealers, banks, trust companies and other nominees for customary mailing and handling expenses incurred by them in forwarding material to their customers.
ACCOUNTING TREATMENT OF THE TRANSACTION
Peets will account for the offer and the merger under the acquisition method of accounting for business combinations.
52
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This discussion is based on the United States Internal Revenue Code (which is referred to in this discussion as the
Code), the related Treasury regulations, administrative interpretations and court decisions, all of which are subject to change, possibly with retroactive effect. Any such change could affect the accuracy of the statements and the
conclusions discussed below and the tax consequences of the proposed acquisition. This discussion applies only to Diedrich stockholders that hold their shares of Diedrich common stock as capital assets within the meaning of Section 1221 of the
Code. This discussion does not address all federal income tax consequences of the proposed transaction that may be relevant to particular holders, including holders that are subject to special tax rules. Some examples of holders that are subject to
special tax rules are:
|
|
|
financial institutions;
|
|
|
|
tax-exempt organizations;
|
|
|
|
holders of shares of Diedrich holding stock as part of an integrated investment, including a straddle, consisting of shares of Diedrich
stock and one or more other positions;
|
|
|
|
holders who are foreign persons;
|
|
|
|
holders who own their shares indirectly through partnerships, trusts or other entities that may be subject to special treatment; and
|
|
|
|
holders who acquired their shares of Diedrich common stock through stock option or stock purchase programs or otherwise as compensation.
|
In addition, this discussion does not address any consequences arising under the laws of any state, local
or foreign jurisdiction or the tax consequences of transactions effectuated prior to, subsequent to or concurrently with the proposed transaction other than as set forth in this discussion, including any transaction in which shares of Diedrich
common stock are acquired or shares of Peets common stock are disposed of, or the tax consequences to holders of Diedrich stock options, Diedrich warrants or other rights to acquire shares of Diedrich common stock.
DIEDRICH STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO SPECIFIC TAX CONSEQUENCES TO THEM OF THE PROPOSED TRANSACTION,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND OF CHANGES IN APPLICABLE TAX LAWS.
Neither
Diedrich nor Peets intends to obtain a ruling from the Internal Revenue Service with respect to the federal income tax consequences of the exchange of shares of Diedrich common stock for Peets common stock and/or cash pursuant to the
proposed transaction.
The acquisition of Diedrich will not qualify as a reorganization within the meaning of
Section 368(a) of the Code, and accordingly, Diedrich stockholders will be required to recognize gain or loss with respect to each share of Diedrich common stock surrendered in the proposed transaction in an amount equal to the difference
between (1) the sum of the fair market value of any Peets common stock and cash received in the proposed transaction and (2) the tax basis of the shares of Diedrich common stock surrendered in exchange therefor. The amount and
character of gain or loss will be computed separately for each block of Diedrich common stock exchanged by the holder. A Diedrich stockholders tax basis in the shares of Peets common stock received in the proposed transaction would in
this case equal their fair market value at the time of the completion of the offer or the merger, as applicable, and the holding period for the Peets common stock will begin the day after the completion of the offer or the merger, as
applicable.
Certain U.S. holders may be subject to information reporting with respect to the cash received in exchange for
Diedrich common stock, including cash received instead of a fractional share interest in shares of Peets common stock.
53
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Interests of Named Experts and Counsel.
No expert named in this prospectus/offer to purchase as having prepared or certified any
part hereof or counsel named in this prospectus/offer to purchase as having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of such securities, was
employed for such purpose on a contingent basis, or at the time of such preparation, certification or opinion or at any time thereafter through the date of effectiveness of this prospectus/offer to purchase or that part of this prospectus/offer to
purchase to which such preparation, certification or opinion relates, had, or is to receive in connection with the offering, a substantial interest, direct or indirect, in Peets or any of its subsidiaries or was connected with Peets or
any of its subsidiaries as a promoter, managing underwriter (or any principal underwriter), voting trustee, director, officer, or employee.
Interests of Certain Persons in the Transaction.
Peets and the Purchaser have entered into material arrangements with certain officers and directors of Diedrich (including Diedrichs
largest stockholder) in connection with the offer and the merger, including the stockholder agreements described below in Other Agreements Related to the Transaction. In addition, Peets will continue in effect certain
indemnification and insurance rights of the Diedrich directors and officers as described below in The Merger AgreementDirectors and Officers Indemnification and Insurance. The information contained in the
Solicitation/Recommendation Statement on Schedule 14D-9 of Diedrich dated November 17, 2009 and the Information Statement attached as Annex A thereto, is incorporated herein by reference. Each material agreement, arrangement or
understanding and any actual or potential conflict of interest between Diedrich or its affiliates and Diedrichs executive officers, directors or affiliates, or between Diedrich or its affiliates and Peets or the Purchaser or their
respective executive officers, directors or affiliates is incorporated herein by reference pursuant to the preceding sentence.
SOURCE AND AMOUNT OF FUNDS
Peets intends to use the proceeds from senior
secured credit facilities, together with cash on hand, to finance the offer and the merger, the costs and expenses related to the offer and the merger and the ongoing working capital and other general corporate purposes of the combined organization
after completion of the merger. With respect to debt financing, Peets has received a commitment letter from Wells Fargo and Wells Fargo Securities to provide up to $140.0 million of senior secured credit facilities, a portion of which would be
available to finance a portion of the offer, including the payment of related transaction costs, charges, fees and expenses. Funding of the debt financing is subject to the satisfaction of the conditions set forth in the commitment letters under
which the financing will be provided. See Other Agreements Related to the Transaction
Financing Commitment beginning on page 70 of this prospectus/offer to purchase. Peets does not expect to draw down the entire
senior secured credit facilities in connection with the completion of the offer. Peets expects that the funds available pursuant to the arrangements described above will be sufficient to complete the offer. The offer is not conditioned upon
any financing arrangements.
THE MERGER AGREEMENT
Introduction
The following
is a summary of certain material terms of the merger agreement. The following summary does not purport to be a complete description of the terms and conditions of the merger agreement and is qualified in its entirety by reference to the merger
agreement attached as Annex A-1 and the amendment thereto attached as Annex A-2 to this prospectus/offer to purchase and is incorporated herein by reference.
STOCKHOLDERS OF DIEDRICH ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE OFFER AND THE MERGER BECAUSE IT IS THE LEGAL DOCUMENT THAT GOVERNS THE OFFER AND
THE MERGER. IN THE EVENT OF ANY DISCREPANCY BETWEEN THE TERMS OF THE MERGER AGREEMENT AND THE FOLLOWING SUMMARY, THE MERGER AGREEMENT WILL CONTROL.
54
The merger agreement is attached to this prospectus/offer to purchase to provide additional
information regarding the terms of the transactions described herein and is not intended to provide any other factual information or disclosure about Diedrich, Peets or the Purchaser. The representations, warranties and covenants contained in
the merger agreement were made only for purposes of such agreement and as of a specific date, were solely for the benefit of the parties to such agreement (except as to certain indemnification obligations), are subject to limitations agreed upon by
the contracting parties, including being qualified by disclosure schedules, were made for the purposes of allocating contractual risk between and among the parties thereto instead of establishing these matters as facts, and may be subject to
standards of materiality applicable to the contracting parties that differ from those applicable to investors. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger
agreement, which subsequent information may or may not be fully reflected in Diedrichs public disclosures. Investors are not third-party beneficiaries under the merger agreement and, in light of the foregoing reasons, should not rely on the
representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Diedrich, Peets or the Purchaser or any of their respective subsidiaries or affiliates.
The Offer
The merger
agreement provides for the commencement of the offer by the Purchaser as promptly as practicable after the date of the merger agreement and to the extent feasible and with the reasonable cooperation of Diedrich and Diedrichs representatives,
within ten business days after the date of the merger agreement. The obligation of the Purchaser to accept for exchange and to deliver consideration for shares of Diedrich common stock tendered pursuant to the offer is subject to the satisfaction of
the minimum condition and certain other conditions described in The OfferConditions to the Offer. The merger agreement provides that without the prior written consent of Diedrich, (1) the minimum condition may not be amended
or waived, (2) no change may be made to the offer that changes the form of consideration to be delivered by the Purchaser in the offer or that decreases any component of the consideration to be paid for each share of Diedrich common stock
accepted for exchange in the offer, and (3) no change may be made to the offer that (a) decreases the number of shares of Diedrich common stock sought to be purchased by the Purchaser in the offer, (b) modifies the offer or the offer
conditions in a manner adverse to the stockholders of Diedrich or imposes conditions to the offer in addition to those set forth in the merger agreement or (c) except as otherwise provided in the merger agreement, extends the expiration time of
the offer beyond the initial expiration time of the offer.
The offer is initially scheduled to expire 20 business days
following the date of the commencement of the offer. The merger agreement provides that subject to the parties respective termination rights under the merger agreement: (1) if, at any time as of which the offer is scheduled to expire, any
condition to the offer has not been satisfied or waived, the Purchaser must extend the offer on one or more occasions for additional successive periods of up to 20 business days per extension (but not beyond March 31, 2010); and (2) the
Purchaser must extend the offer at any time or from time to time for any period required by any rule, regulation, interpretation or position of the SEC or the staff of the SEC applicable to the offer. In addition, if less than 90% of the number of
outstanding shares of Diedrich common stock are accepted for exchange pursuant to the offer, the Purchaser may, in its sole discretion (and without the consent of Diedrich or any other person), elect to provide for one or more subsequent offering
periods (of up to 20 business days in the aggregate) in accordance with Rule 14d-11 under the Exchange Act.
The Top-Up Option
The merger agreement provides that Peets and the Purchaser have an assignable and irrevocable option (the
top-up option) to purchase from Diedrich a number of shares of Diedrich common stock (the top-up option shares) that, when added to the number of shares of Diedrich common stock owned by Peets or the Purchaser at the
time of exercise of the top-up option, constitutes the lesser of (1) the top-up number (as defined below) or (2) the aggregate number of shares of Diedrich common stock that Diedrich is authorized to issue under its certificate of
incorporation but that are not issued and outstanding (and are not subscribed for or otherwise committed to be issued) at the time of exercise of the top-up option. The top-up number means the number of
55
shares of Diedrich common stock that, when added to the number of shares of Diedrich common stock owned of record by Peets or the Purchaser or any other subsidiaries of Peets at the
time of exercise of the top-up option, constitutes a designated percentage of the number of shares of Diedrich common stock that would be outstanding immediately after the issuance of all shares of Diedrich common stock subject to the top-up option,
which percentage shall be designated by Peets at its sole discretion, provided that such percentage may be greater than 90% but less than 91%. The top-up option may be exercised by Peets or the Purchaser, in whole or in part, at any time
on or after the acceptance of shares of Diedrich common stock for exchange pursuant to the offer (the acceptance time). The aggregate purchase price payable for the shares of Diedrich common stock being purchased by Peets or the
Purchaser pursuant to the top-up option may be determined by multiplying the number of such shares by an amount equal to the sum of (1) $17.33 plus (2) the amount determined by multiplying (A) the same fraction of a share of
Peets common stock received by holders of shares of Diedrich common stock purchased in the offer, times (B) the parent average stock price, which is the volume weighted average price for one share of Peets common stock
as reported on the Nasdaq Global Select Market for the five trading day period ending immediately prior to (and excluding) the date on which the acceptance for exchange of Diedrich common stock pursuant to the offer occurs. Peets or the
Purchaser may elect, in their discretion, to pay the aggregate purchase price payable for the top-up option shares by delivering a promissory note to Diedrich in lieu of cash, which would bear interest at a rate of 3% per annum and have a
maturity date of one year, and may be prepaid without premium or penalty.
Appointment of Peets Designees to Diedrichs Board of
Directors after Acceptance for Exchange of Shares Tendered in the Offer
The merger agreement provides that, effective upon
the acceptance for exchange of shares of Diedrich common stock in the offer and from time to time thereafter, Peets will be entitled to designate the number of directors to serve on the board of directors of Diedrich, rounded up to the next
whole number, equal to the product of (1) the total number of directors on Diedrichs board of directors (giving effect to the election of any additional directors pursuant to these provisions) and (2) a fraction having a numerator
equal to the aggregate number of shares of Diedrich common stock then beneficially owned by Peets or the Purchaser or any other subsidiaries of Peets (including all shares of Diedrich common stock accepted for exchange pursuant to the
offer), and having a denominator equal to the total number of shares of Diedrich common stock then outstanding.
Promptly
following a written request from Peets, Diedrich must take all actions necessary and reasonably available to Diedrich to cause Peets designees to be elected or appointed to Diedrichs board of directors, including seeking and
accepting resignations of incumbent directors and, if such resignations are not obtained, increasing the size of Diedrichs board of directors. Furthermore, after the acceptance time, Diedrich must (to the extent requested by Peets) cause
individuals designated by Peets to constitute the number of members, rounded up to the next whole number, on (1) each committee of Diedrichs board of directors and (2) the board of directors of each subsidiary of Diedrich (and
each committee thereof) that represents at least the same percentage as individuals designated by Peets represent on Diedrichs board of directors.
The merger agreement further provides that, at all times until the completion of the merger, at least two of the members of Diedrichs board of directors are continuing directors who were
directors of Diedrich on November 2, 2009, the date that the merger agreement was executed (the continuing directors). However, if at any time prior to the completion of the merger there is only one continuing director serving as a
director of Diedrich for any reason, then Diedrichs board of directors must cause an individual selected by the remaining continuing director to be appointed to serve on Diedrichs board of directors (and such individual shall be deemed
to be a continuing director for purposes of the merger agreement). Diedrich must designate, prior to the acceptance for exchange of Diedrich common stock pursuant to the offer, two alternate continuing directors that the board of directors of
Diedrich must appoint in the event of death, disability or resignation of the continuing directors, each of whom shall, following such appointment to Diedrichs board of directors, be deemed to be a continuing director of Diedrich.
56
After the election or appointment of the directors designated by Peets to
Diedrichs board of directors and prior to the completion of the merger, the approval of a majority of the continuing directors will be required to authorize any of the following actions of Diedrich, to the extent the action in question could
reasonably be expected to affect adversely the holders of shares of Diedrich common stock (other than Peets or the Purchaser): (1) any action by Diedrich with respect to any amendment or waiver of any term or condition of the merger
agreement, the merger or the certificate of incorporation or bylaws of Diedrich; (2) any termination of the merger agreement by Diedrich; (3) any extension by Diedrich of the time for the performance of any of the obligations or other acts
of Peets or the Purchaser, or any waiver or assertion of any of Diedrichs rights under the merger agreement; or (4) any other consent or action by Diedrichs board of directors with respect to the offer, the merger or any of
the transactions contemplated by the merger agreement.
The Merger
The merger agreement provides that, at the completion of the merger, subject to the terms and conditions thereof, the Purchaser will be
merged with and into Diedrich, and Diedrich will continue as the surviving corporation and a wholly-owned subsidiary of Peets.
What
Diedrich Stockholders will Receive in the Merger
At the completion of the merger, each outstanding share of Diedrich
common stock (other than shares held by Diedrich, Peets or the Purchaser or any other wholly-owned subsidiary of Peets or Diedrich or shares as to which appraisal rights have been perfected) will be converted into the right to receive
$17.33 in cash, without interest, and the same fraction of a share of Peets common stock received by holders of shares of Diedrich common stock purchased in the offer.
No fractional shares of Peets common stock will be issued in connection with the merger. Instead, each Diedrich stockholder otherwise
entitled to receive a fraction of a share of Peets common stock in the merger will receive an additional cash amount equal to such fraction multiplied by the closing trading price of a share of Peets common stock as reported on the
Nasdaq Global Select Market on the trading day immediately before the date the merger is completed.
Between the date of the
merger agreement and the completion of the merger, (1) if the outstanding shares of Diedrich common stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend,
reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then both the cash and the stock components of the merger consideration will be adjusted to the extent necessary or appropriate to achieve
the same economic outcome, and (2) if the outstanding shares of Peets common stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock
split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the stock component of the merger consideration will be adjusted to the extent necessary or appropriate to achieve the same economic outcome.
To the extent that any Diedrich stockholder owns shares of Diedrich common stock that are unvested, subject to repurchase by
Diedrich or otherwise subject to a repurchase option, risk of forfeiture or other condition under any applicable agreement with Diedrich or under which Diedrich has rights, then subject to any vesting of such shares of Diedrich common stock that may
occur at or prior to the completion of the merger, the consideration deliverable with respect to such shares of Diedrich common stock in the merger will also be unvested and subject to the same repurchase option, risk of forfeiture or other
condition.
The merger agreement provides that promptly following the completion of the merger, Continental Stock
Transfer & Trust Company, which has been selected by Peets to act as Depositary, will mail to each record holder of Diedrich common stock a letter of transmittal and instructions for use, which each remaining record holder can use to
exchange Diedrich common stock certificates for the consideration described above and cash for any fractional share of Peets common stock. Diedrich common stock certificates that are not delivered for
57
exchange in the offer should not be surrendered for exchange by Diedrich stockholders before the completion of the merger. After the completion of the merger, transfers of Diedrich common stock
will not be registered on the stock transfer books of Diedrich.
After the completion of the merger, all previously
outstanding shares of Diedrich common stock will no longer be outstanding and will automatically be cancelled and retired and will cease to exist, and each holder of a certificate representing any such shares of Diedrich common stock will cease to
have any rights with respect thereto, except the right to receive the consideration described above and cash for any fractional share of Peets common stock. Peets will not pay dividends or other distributions on any shares of Peets
common stock to be issued in exchange for any Diedrich common stock certificate that is not surrendered until the Diedrich common stock certificate is surrendered as provided in the merger agreement.
Possible Short-Form Merger
Section 253 of the Delaware General Corporation Law will permit the merger to occur without a vote of Diedrichs stockholders if the Purchaser were to acquire ownership of at least 90% of the outstanding shares of Diedrich common
stock in the offer or otherwise (including as a result of purchases by the Purchaser during any subsequent offering period or upon exercise of the top-up option). If, however, the Purchaser does not acquire ownership of at least 90% of the
outstanding shares of Diedrich common stock, and a vote of Diedrichs stockholders is required under Delaware law, a longer period of time will be required to complete the merger. Peets has agreed in the merger agreement to cause all
shares of Diedrich common stock owned by Peets, the Purchaser or any other subsidiary of Peets to be voted in favor of the adoption of the merger agreement at any meeting of Diedrichs stockholders to adopt the merger agreement, and
to complete the merger as a short form merger as soon as practicable following the time such ownership is first obtained, without a stockholders meeting in accordance with Section 253 of the Delaware General Corporation Law, if the
Purchaser obtains ownership of at least 90% of the outstanding shares of Diedrich common stock in the offer or otherwise.
Treatment of
Diedrich Stock Options
Upon the acceptance for exchange of Diedrich common stock pursuant to the offer, each stock option
to purchase shares of Diedrich common stock from Diedrich that is outstanding and unexercised immediately prior to such acceptance will automatically be cancelled and converted into the right to receive the following (without the need for any
exercise of the stock option or other action on the part of Diedrich or any option holder):
|
|
|
if the exercise price per share of such stock option is less than $17.33, then (1) an amount of cash determined by multiplying (A) the number
of shares of Diedrich common stock that were subject to such stock option immediately prior to such acceptance, times (B) the amount by which $17.33 exceeds the exercise price per share of such stock option, and (2) a number of shares of
Peets common stock determined by multiplying (A) the number of shares of Diedrich common stock that were subject to such stock option immediately prior to such acceptance, times (B) the same fraction of a share of Peets common
stock received by holders of shares of Diedrich common stock purchased in the offer;
|
|
|
|
if the exercise price per share of such stock option is equal to $17.33, then (1) no cash and (2) a number of shares of Peets common
stock determined by multiplying (A) the number of shares of Diedrich common stock that were subject to such stock option immediately prior to such acceptance, times (B) the same fraction of a share of Peets common stock received by
holders of shares of Diedrich common stock purchased in the offer;
|
|
|
|
if the exercise price per share of such stock option is greater than $17.33 but less than the total stock option value (as defined below), then
(1) no cash and (2) a number of shares of Peets common stock determined by multiplying (A) the number of shares of Diedrich common stock that were subject to such stock option immediately prior to such acceptance, times
(B) the same fraction of a share of Peets common stock received by holders of shares of Diedrich common stock purchased in the offer, times (C) the in-the-money option percentage (as defined below); and
|
58
|
|
|
if the exercise price per share of such stock option is greater than the total stock option value (as defined below), then (1) no cash and
(2) no shares of Peets common stock.
|
For purposes of the foregoing: (1) the
in-the-money option percentage with respect to a stock option means the percentage corresponding to a fraction (A) whose numerator is the sum of (a) an amount equal to the product of (i) the same fraction of a share of
Peets common stock received by holders of shares of Diedrich common stock purchased in the offer, times (ii) the parent average stock price,
minus
(b) the amount by which the exercise price per share of such stock option
exceeds $17.33, and (B) whose denominator is an amount equal to the product of the same fraction of a share of Peets common stock received by holders of shares of Diedrich common stock purchased in the offer times the parent average stock
price; and (2) the total stock option value means the sum of (A) $17.33, plus (B) the product of (i) the same fraction of a share of Peets common stock received by holders of shares of Diedrich common stock
purchased in the offer times (ii) the parent average stock price.
Except in the case of any stock option whose exercise
price per share is greater than the total stock option value (which will simply be cancelled without any consideration being payable therefor), the vesting terms previously applicable to any stock option that is cancelled and converted into a right
as described above will continue in full force and effect and in all respects apply to such right, and the cash and shares of Peets common stock payable or issuable in respect of such right, as set forth above, will be delivered to the holder
of such right at such times and in the same percentages as the cancelled stock option would have become vested in connection with or following the acquisition of shares of Diedrich common stock pursuant to the offer and/or completion of the merger.
Any vesting of a stock option that occurs by reason of the acquisition of shares of Diedrich common stock pursuant to the offer and/or completion of the merger (whether alone or in combination with any other event) will be given effect by its
application to the right into which such stock option is converted upon its cancellation.
Treatment of Diedrich Warrants
Upon the acceptance for exchange of Diedrich common stock pursuant to the offer, each Diedrich warrant that is outstanding immediately
prior to such acceptance will automatically be cancelled and converted into the right to receive the following (without the need for any exercise of the warrant or other action on the part of Diedrich or any warrant holder):
(1) an amount of cash determined by multiplying (A) the number of shares of Diedrich common stock that were subject to
such Diedrich warrant immediately prior to such acceptance, times (B) $17.33, times (C) the in-the-money warrant percentage (as defined below), plus
(2) a number of shares of Peets common stock determined by multiplying (A) the number of shares of Diedrich common
stock that were subject to such Diedrich warrant immediately prior to such acceptance, times (B) the same fraction of a share of Peets common stock received by holders of shares of Diedrich common stock purchased in the offer, times
(C) the in-the-money warrant percentage.
For purposes of the foregoing, the in-the-money warrant percentage
with respect to a Diedrich warrant means the percentage corresponding to a fraction (1) whose numerator is the sum of (A) $17.33,
plus
(B) an amount equal to the product of (a) the same fraction of a share of Peets
common stock received by holders of shares of Diedrich common stock purchased in the offer, times (b) the parent average stock price, minus (C) the exercise price per share of such Diedrich warrant, and (2) whose denominator is the
sum of (A) $17.33, plus (B) an amount equal to the product of (a) the same fraction of a share of Peets common stock received by holders of shares of Diedrich common stock purchased in the offer, times (b) the parent
average stock price.
59
Representations and Warranties
Diedrich made representations and warranties with respect to itself to Peets and the Purchaser in the merger agreement, relating to,
among other things:
|
|
|
its due organization and valid existence, ownership of equity securities in other entities and qualification to do business as a foreign corporation;
|
|
|
|
its certificate of incorporation and bylaws;
|
|
|
|
SEC filings, internal controls and procedures and financial statements;
|
|
|
|
the absence of certain changes since the end of Diedrichs most recent full fiscal year;
|
|
|
|
its receivables, customers, inventories and cash;
|
|
|
|
its real property and equipment;
|
|
|
|
its intellectual property;
|
|
|
|
its material contracts;
|
|
|
|
its undisclosed liabilities;
|
|
|
|
its compliance with legal requirements;
|
|
|
|
certain business practices;
|
|
|
|
governmental authorizations;
|
|
|
|
employee and labor matters and benefit plans;
|
|
|
|
its insurance policies;
|
|
|
|
transactions with affiliates;
|
|
|
|
legal proceedings and orders;
|
|
|
|
its authority to enter into, and the enforceability of, the merger agreement;
|
|
|
|
the inapplicability of certain anti takeover statutes;
|
|
|
|
the vote required to adopt the merger agreement, approve the merger and complete the transactions contemplated by the merger agreement;
|
|
|
|
its non contravention of laws and agreements, and absence of needed consents;
|
|
|
|
the fairness opinion received by its board of directors from its financial advisor;
|
|
|
|
the financial advisory fees payable by it to its financial advisor; and
|
|
|
|
the absence of misleading information with respect to information regarding Diedrich provided to stockholders of Diedrich.
|
Each of Peets and, as applicable, the Purchaser made representations and warranties to Diedrich in
the merger agreement, including representations relating to:
|
|
|
its due organization and valid existence;
|
|
|
|
its certificate of incorporation and bylaws;
|
60
|
|
|
its SEC filings and financial statements;
|
|
|
|
its authority to enter into, and the enforceability of, the merger agreement;
|
|
|
|
the absence of any required vote by Peets shareholders to issue Peets common stock in connection with the offer or the merger (please note
that the fraction of a share of Peets common stock issuable to Diedrich stockholders pursuant to the offer or the merger is subject to reduction if the issuance of shares of Peets common stock (or rights with respect thereto) pursuant to
the offer and the merger would otherwise require the approval of the shareholders of Peets);
|
|
|
|
the absence of certain changes since the end of Peets most recent fiscal quarter;
|
|
|
|
its non contravention of laws and agreements, and absence of needed consents;
|
|
|
|
the absence of misleading information with respect to information regarding Peets and the Purchaser provided to Diedrich stockholders; and
|
|
|
|
the sufficiency of funds to complete the transactions contemplated by the merger agreement.
|
Conduct of Business Pending the Merger
The merger agreement provides that prior to completion of the merger or the termination of the merger agreement, Diedrich must:
|
|
|
provide Peets and its representatives with reasonable access to its personnel and assets and to its books, records and other documents, subject
to the existing confidentiality agreement between Diedrich and Peets;
|
|
|
|
conduct its business and operations in the ordinary course and in accordance with past practices, and in compliance, in all material respects, with all
applicable legal requirements and the requirements of all material contracts;
|
|
|
|
use commercially reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and other
employees and maintain its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, distributors, resellers, employees and other persons having business relationships with Diedrich;
|
|
|
|
keep in full force all of its insurance policies (or reasonably equivalent policies); and
|
|
|
|
promptly notify Peets of any notice or other communication from any person alleging that the consent of such person is or may be required in
connection with any of the transactions contemplated by the merger agreement, and any legal proceeding commenced, or, to Diedrichs knowledge, threatened against, relating to or involving or otherwise affecting Diedrich that relates to the
completion of the transactions contemplated by the merger agreement.
|
The merger agreement further provides
that prior to the earlier of the completion of the merger or the termination of the merger agreement, without the prior written consent of Peets, subject to applicable law, Diedrich must not, and must not permit any of its subsidiaries to,
take any of the following actions:
|
|
|
declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or
otherwise reacquire any shares of capital stock or other securities;
|
|
|
|
sell, issue, grant or authorize the issuance or grant of any capital stock or other security, any option, call, warrant or right to acquire any capital
stock or other security or any instrument convertible into or exchangeable for any capital stock or other security, except that Diedrich may issue shares of Diedrich common stock upon the exercise of outstanding options or warrants, and, in the
ordinary course of business, grant to certain employees options having an exercise price equal to the fair market value of the Diedrich common stock at the time of the grant under its stock option plans;
|
61
|
|
|
amend or waive any of its rights under, or accelerate the vesting under, or otherwise modify, any provision of any of Diedrichs stock option
plans or any provision of any agreement evidencing any outstanding stock option or any restricted stock purchase agreement;
|
|
|
|
amend or permit the adoption of any amendment to its certificate of incorporation or bylaws, or effect or become a party to any merger, consolidation,
share exchange, business combination, amalgamation, recapitalization, reclassification of shares, stock split, reverse stock split, division or subdivision of shares, consolidation of shares or similar transaction;
|
|
|
|
other than in the ordinary course of business consistent with past practices, enter into any material contract or amend, terminate or waive any
material right or remedy under any material contract.
|
|
|
|
form any subsidiary or acquire any equity or other interest in any other entity;
|
|
|
|
make any capital expenditure, subject to certain permitted dollar thresholds;
|
|
|
|
grant any exclusive license or right with respect to any material intellectual property and intellectual property rights that Diedrich owns, other than
any grant that occurs in accordance with the terms of a contract in effect as of the date of the merger agreement;
|
|
|
|
enter into, renew or become bound by, or permit any of the material assets owned or used by it to become bound by, any contract the effect of which
would be to grant to any person following the merger any right or license to any intellectual property right owned as of the date of the merger agreement by Diedrich or Peets;
|
|
|
|
acquire, lease or license any right or other asset from any other person or sell or otherwise dispose of, lease or license any right or other asset to
any other person (except in each case for assets (that are not material individually or in the aggregate) acquired, leased, licensed or disposed of by Diedrich in the ordinary course of business and consistent with past practices), or, other than in
the ordinary course of business in connection with the collection of accounts receivable, waive or relinquish any material right;
|
|
|
|
other than in the ordinary course of business consistent with past practices, write off as uncollectible, or establish any extraordinary reserve with
respect to, any receivable or other indebtedness;
|
|
|
|
make any pledge of any of its material assets or permit any of its material assets to become subject to any encumbrances, except for encumbrances that
do not materially detract from the value of such assets or materially impair the operations of Diedrich;
|
|
|
|
permit any cash, cash equivalents or short-term investments of Diedrich to become subject to any encumbrance;
|
|
|
|
lend money to any person, incur or guarantee any indebtedness (including capital lease obligations) or obtain or enter into any bond or letter of
credit or any related contract, in each case in excess of $50,000 individually or $250,000 in the aggregate, or announce, offer, arrange, syndicate or issue any debt securities (including convertible securities) or announce, arrange or syndicate any
bank financing;
|
|
|
|
establish, adopt, enter into or amend any employee plan or employment agreement, pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or other compensation (including equity-based compensation, whether payable in stock, cash or other property) or remuneration payable to, any of its directors or any of its
officers or other employees, subject to certain exceptions;
|
|
|
|
hire any employee (1) at the director level with compensation that is inconsistent with Diedrichs compensation guidelines or its past
practices, (2) at the level of Vice President or above, or (3) with an annual base salary in excess of $150,000;
|
|
|
|
other than in the ordinary course of business consistent with past practices, materially change any of its pricing policies, product return policies,
product maintenance polices, service policies, product modification or upgrade policies, personnel policies or other business policies, or any of its methods of accounting or accounting practices (other than as required by GAAP) in any respect;
|
62
|
|
|
make any material tax election;
|
|
|
|
commence any legal proceeding, other than legal proceedings commenced for the routine collection of bills;
|
|
|
|
settle any claim or legal proceeding, other than claims or legal proceedings against Diedrich that do not relate to tax or tax-related matters and with
respect to which the settlement involves solely the payment by Diedrich of an amount less than $50,000 individually and less than $250,000 in the aggregate for all such claims and legal proceedings settled during the period prior to the completion
of the merger;
|
|
|
|
pay, discharge, settle or satisfy any claims (whether or not commenced prior to the date of the merger agreement), except that Diedrich may pay,
discharge, settle or satisfy any claim if the only obligation involved on the part of Diedrich will be payment of money in an amount not to exceed $50,000 individually and not to exceed $250,000 in the aggregate for all such claims during the period
prior to the completion of the merger; or
|
|
|
|
agree or commit to take any of the actions described above.
|
Diedrich is further required by the merger agreement to notify Peets of the discovery by Diedrich of: (1) any event, condition,
fact or circumstance that occurred or existed on or prior to the date of the merger agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by Diedrich in the merger agreement; (2) any event,
condition, fact or circumstance that occurs, arises or exists after the date of the merger agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by Diedrich in the merger agreement if such event,
condition, fact or circumstance had occurred, arisen or existed on or prior to the date of the merger agreement; (3) any material breach of any covenant or obligation of Diedrich; and (4) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions to the offer or the merger impossible or would make the failure of any such condition reasonably likely. Diedrich is also obligated by the merger agreement to either renegotiate certain
existing equipment leases that have change in control provisions so that the lessor no longer has the right to either demand accelerated rent or repossess the equipment by reason of the acceptance of shares of Diedrich common stock for exchange
pursuant to the offer or the completion of the merger, or if Diedrich is unable to renegotiate all such leases in the manner described above, exercise its buyout option with respect to all of such leases that have not been renegotiated, with
the result that Diedrich obtains fee ownership in all such equipment and the lessors rights with respect to such equipment are terminated. The merger agreement further provides that if Diedrich becomes obligated to exercise such buyout option,
but determines in good faith that it has inadequate funds to do so, then Diedrich must promptly notify Peets of the amount of funds so required and provide Peets with reasonable documentary evidence supporting such calculation, and
Peets must thereafter either (A) make such funds available to Diedrich (which Diedrich must use solely for the purpose of exercising such buyout option), or (B) waive Diedrichs obligation to exercise such buyout option.
Prohibition on Solicitation of Alternative Transactions; Go-Shop Period
The merger agreement provides that until the completion of the merger, except during the go-shop period described below, Diedrich may not,
directly or indirectly, and must not cause or permit any of its representatives to, directly or indirectly, (1) solicit, initiate, knowingly encourage or knowingly facilitate the making, submission or announcement of any offer, proposal,
inquiry, or indication of interest relating to an acquisition transaction (as defined below) (an acquisition proposal), (2) furnish any non-public information regarding Diedrich to any person in connection with or in response to any
such offer, proposal, inquiry, request for information or indication of interest, (3) engage in discussions or negotiations with any person with respect to any such offer, proposal, inquiry, request for information or indication of interest,
(4) approve, endorse or recommend any acquisition proposal or (5) enter into any letter of intent or similar document or any contract contemplating or providing for any acquisition proposal. An acquisition transaction is
defined as any of the following:
|
|
|
any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization,
recapitalization, tender offer, exchange offer or
|
63
|
other similar transaction: (a) in which Diedrich is a constituent corporation; (b) in which a person or group of persons directly or indirectly acquires beneficial or record ownership
of securities representing more than 15% of the outstanding securities of any class of voting securities of Diedrich; or (c) in which Diedrich issues securities representing more than 15% of the outstanding securities of any class of voting
securities of Diedrich; or
|
|
|
|
any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or
more of the consolidated net revenues, consolidated net income or consolidated assets of Diedrich.
|
However,
the merger agreement also sets forth certain exceptions to the foregoing prohibitions. First, during the go-shop period, which is defined to be the period between the date of the merger agreement and 5:00 p.m. Pacific Time on
November 23, 2009, Diedrich may (directly or through its representatives) take any of the actions set forth above, provided that (1) Diedrich may not take any of such actions with respect to any person unless Diedrich has informed
Peets in writing of the identity of such person prior to taking any such action, and (2) Diedrich may not furnish any non-public information regarding Diedrich to any person unless the board of directors of Diedrich (or a committee
thereof) has determined in good faith, after consultation with Diedrichs outside legal counsel and its financial advisor(s), that such person has made or is financially capable of making a superior proposal (as defined below), and
that such person would be reasonably capable of consummating the transaction contemplated by such superior proposal. A superior proposal is defined in the merger agreement as an unsolicited bona fide written offer by a third party to
purchase, in exchange for consideration consisting exclusively of cash or publicly traded equity or debt securities or a combination thereof, all or substantially all of the outstanding shares of Diedrich common stock or Diedrichs assets, that
(A) was not obtained or made as a direct or indirect result of a breach of the merger agreement and (B) is on terms and conditions that the board of directors of Diedrich (or a committee thereof) determines, in its reasonable, good faith
judgment, after consultation with Diedrichs financial advisors and outside counsel, and after taking into account the likelihood and timing of completion of the purchase transaction contemplated by such superior proposal, to be more favorable
from a financial point of view to Diedrichs stockholders than the offer and the merger.
Second, at any time prior to
the acceptance for exchange of shares of Diedrich common stock in the offer (whether during the go-shop period or thereafter), Diedrich is permitted to furnish non-public information regarding Diedrich to, and enter into discussions or negotiations
with, any person and its representatives in response to a written acquisition proposal that is submitted to Diedrich by such person (and not withdrawn), which the board of directors of Diedrich determines in good faith (after consultation with its
financial advisor(s)) is, or could reasonably be expected to lead to, a superior proposal if (1) neither Diedrich nor any representative of Diedrich has breached in any material respect any of the non-solicitation provisions set forth in the
merger agreement, (2) the board of directors of Diedrich determines in good faith, after consultation with Diedrichs outside legal counsel, that the failure to take such action could reasonably be expected to constitute a breach of
Diedrichs board of directors fiduciary obligations to Diedrichs stockholders under applicable law, (3) prior to furnishing any such non-public information to, or entering into discussions or negotiations with, such person,
(A) Diedrich gives written notice to Peets of the identity of such person and of Diedrichs decision to furnish non-public information to, or enter into discussions or negotiations with, such person, and (B) Diedrich receives
from such person an executed confidentiality agreement containing customary limitations on the use and disclosure of all non-public written and oral information furnished to such person by or on behalf of Diedrich that are no less favorable to
Diedrich than the confidentiality provisions and use restrictions of the existing confidentiality agreement between Diedrich and Peets, and (4) contemporaneously with or prior to furnishing any such non-public information to such person,
Diedrich makes available to Peets all such non-public information (to the extent such non-public information has not been previously made available to Peets).
The merger agreement also requires that Diedrich promptly advise Peets of any acquisition proposal or any request for non-public information received by Diedrich at any time prior to the completion
of the merger (including the identity of the Person making or submitting such proposal or request and the material terms thereof) and provide Peets with a copy of such proposal or request if it is in writing, and that Diedrich keep
64
Peets promptly informed with respect to any material development relating to such proposal or request and any modification or proposed modification thereto, and provide Peets with
copies of such development, modification and proposed modification if they are in writing. Finally, the merger agreement provides that except to the extent necessary to engage in the activities permitted during the go-shop period, Diedrich agrees
not to release any person from, or to amend or waive any provision of, any confidentiality, standstill, nonsolicitation or similar agreement to which Diedrich is or becomes a party or under which Diedrich has or acquires any rights, and
will use commercially reasonable efforts to enforce or cause to be enforced each such agreement at the request of Peets.
Diedrich
Stockholders Meeting
The merger agreement provides that, if the adoption of the merger agreement by Diedrichs
stockholders is required by law in order to complete the merger, Diedrich will, as promptly as practicable following the later of the acceptance for exchange of shares of Diedrich common stock in the offer or the expiration of any subsequent
offering period, take all action necessary under all applicable legal requirements to hold a meeting of the holders of Diedrich common stock to vote on the adoption of the merger agreement, and prepare and file with the SEC a proxy statement
relating to such meeting. Additionally, Peets has agreed in such event to prepare and file a post-effective amendment to the registration statement. Peets and Diedrich have also agreed to use reasonable efforts to have any such
post-effective amendment declared effective as promptly as practicable after it is filed, and cause the proxy statement to be mailed to Diedrichs stockholders. Peets has also agreed to cause all shares of Diedrich common stock owned by
Peets or any subsidiary of Peets to be voted in favor of the adoption of the merger agreement at such Diedrich stockholder meeting.
If the Purchaser owns at least 90% of the outstanding shares of Diedrich common stock after the acceptance for exchange of shares of Diedrich common stock in the offer or the expiration of any subsequent
offering period, then the parties are required under the merger agreement to take all necessary and appropriate action to cause the merger to become effective as soon as practicable without a stockholders meeting.
Recommendation of Diedrichs Board of Directors
The board of directors of Diedrich has unanimously recommended that the stockholders of Diedrich accept the offer, tender their shares of Diedrich common stock pursuant to the offer and (to the extent
necessary) adopt the merger agreement. The merger agreement provides that, except as provided below, the board of directors of Diedrich may not withdraw or modify in a manner adverse to Peets or the Purchaser the Diedrich board recommendation.
Notwithstanding the foregoing, the merger agreement provides that the Diedrich board recommendation in favor of the offer and
the merger may be withdrawn or modified in a manner adverse to Peets and the Purchaser prior to the acceptance for exchange of shares of Diedrich common stock in the offer in two circumstances. First, the merger agreement provides that such
recommendation may be withdrawn or modified in a manner adverse to Peets and the Purchaser if: (1) a proposal for an acquisition transaction is made that did not result from a breach by Diedrich of any of the nonsolicitation provisions of
the merger agreement; (2) at least one day prior to the date of any meeting of Diedrichs board of directors (or any committee thereof) at which such board of directors (or committee) will consider whether such proposal may constitute
a superior proposal or whether such proposal may require Diedrich to withdraw or modify the Diedrich board recommendation, Diedrich provides Peets with a written notice specifying the date and time of such meeting, the reasons for holding such
meeting and a description of such proposal; (3) Diedrichs board of directors determines in good faith, after consultation with Diedrichs outside legal counsel and its financial advisor(s), (A) that such proposal would, if the
merger agreement or the offer were not amended or an alternative transaction with Peets were not entered into, constitute a superior proposal and (B) that in light of such proposal, the failure to withdraw or modify the Diedrich board
recommendation, if the merger agreement or the offer were not amended or an alternative transaction with Peets were not entered into, could reasonably be expected to constitute a breach of Diedrichs
65
board of directors fiduciary obligations to Diedrichs stockholders under applicable law; (4) Diedrich delivers to Peets a written notice with respect to such proposal
stating that Diedrich (or its board of directors) intends to change the Diedrich board recommendation and/or terminate the merger agreement with respect to such proposal (including as an attachment the proposed form of definitive acquisition duly
executed by the person making such proposal, providing for the consummation of the transaction contemplated by such proposal); (5) during the four business day period commencing on the date of Peets receipt of such notice (as such
period may be extended if such proposal is thereafter amended), Diedrich shall have made its representatives reasonably available for the purpose of engaging in negotiations with Peets (to the extent Peets desires to negotiate) regarding
a possible amendment of the merger agreement or the offer or a possible alternative transaction so that the proposal that is the subject of such notice ceases to be a superior proposal, (6) any definitive written proposal made by Peets or
the Purchaser to amend the merger agreement or the offer or enter into an alternative transaction during the negotiations described in clause (5) above shall have been considered by the board of directors of Diedrich in good faith,
and (7) following the negotiation period described above, Diedrichs board of directors determines in good faith, after consultation with Diedrichs outside legal counsel and its financial advisor(s), and after taking into account any
definitive written proposal submitted to Diedrich by Peets or the Purchaser to amend the merger agreement or the offer or to enter into an alternative transaction as a result of negotiations between Diedrich and Peets or the Purchaser,
that (A) such proposal constitutes a superior proposal, and (B) in light of such proposal, the failure to withdraw or modify the Diedrich board recommendation could reasonably be expected to constitute a breach of Diedrichs board of
directors fiduciary obligations to Diedrichs stockholders under applicable law.
Second, the merger agreement
provides that the Diedrich board recommendation in favor of the offer and the merger may be withdrawn or modified in a manner adverse to Peets and the Purchaser if: (1) there shall occur or arise after the date of the merger agreement an
intervening event, defined as a material and fundamental development or material and fundamental change in circumstances that relates to Diedrich but does not relate to any acquisition proposal; (2) neither Diedrich nor any
representative of Diedrich had any knowledge of such intervening event or, as of the date of the merger agreement, could reasonably foresee that such intervening event would occur; (3) at least one day prior to the date of any meeting of
Diedrichs board of directors (or any committee thereof) at which such board of directors (or committee) will consider whether such intervening event may require Diedrich to withdraw or modify the Diedrich board recommendation, Diedrich
provides Peets with a written notice specifying the date and time of such meeting, the reasons for holding such meeting and a description of such intervening event; (4) Diedrichs board of directors determines in good faith, after
consultation with Diedrichs outside legal counsel and its financial advisor(s), that, in light of such intervening event, the failure to withdraw or modify the Diedrich board recommendation, if the merger agreement or the offer were not
amended or an alternative transaction with Peets were not entered into, could reasonably be expected to constitute a breach of Diedrichs board of directors fiduciary obligations to Diedrichs stockholders under applicable law;
(5) the Diedrich board recommendation is not withdrawn or modified at any time within the period of four business days after Peets receives written notice from Diedrich confirming that Diedrichs board of directors has
determined that the failure to withdraw or modify the Diedrich board recommendation in light of such intervening event could reasonably be expected to constitute a breach of its fiduciary obligations to Diedrichs stockholders under applicable
law; (6) during such four business day period, if requested by Peets, Diedrich engages in good faith negotiations with Peets to amend the merger agreement or the offer or enter into an alternative transaction so that the
failure to withdraw or modify the Diedrich board recommendation in light of such intervening event could reasonably be expected to constitute a breach of its fiduciary obligations to Diedrichs stockholders under applicable law; and (7) at
the end of such four business day period, Diedrichs board of directors determines in good faith, after consultation with Diedrichs outside legal counsel and its financial advisor(s), that the failure to withdraw or modify the
Diedrich board recommendation could not reasonably be expected to constitute a breach of the fiduciary obligations of Diedrichs board of directors to Diedrichs stockholders under applicable law in light of such intervening event (taking
into account any definitive written proposal submitted to Diedrich by Peets or the Purchaser to amend the merger agreement or the offer or enter into an alternative transaction as a result of the negotiations described above).
66
The merger agreement further provides that the Diedrich board recommendation will be deemed
to have been modified in a manner adverse to Peets and the Purchaser if it ceases to be unanimous.
Directors and
Officers Indemnification and Insurance
The merger agreement provides for the continuation, for the six year period
following the completion of the merger, of all rights to indemnification by Diedrich existing in favor of the directors and officers of Diedrich as of the date of the merger agreement for their acts and omissions as directors and officers, as
provided in Diedrichs charter documents and in individual indemnification agreements with Diedrich, will survive the merger for a period of six years. Without limiting the foregoing, the merger agreement further provides that Peets must
cause Diedrich (as the surviving corporation of the merger) to, to the fullest extent permitted under applicable law, indemnify and hold harmless each of such directors and officers against any costs or expenses (including advancing attorneys
fees and expenses in advance of the final disposition of any action to each of such directors and officers to the fullest extent permitted by applicable law), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative arising out of, relating to or in connection with any action or omission by such directors and
officers occurring or alleged to have occurred at or before the completion of the merger. The merger agreement further provides that prior to the completion of the merger, Diedrich is required to purchase and prepay a six-year tail
policy on terms and conditions providing substantially equivalent benefits and coverage levels as the current policies of directors and officers liability insurance and fiduciary liability insurance maintained by Diedrich with respect to
matters arising at or before the completion of the merger, covering without limitation the offer and the merger, provided that if such tail policy is not available at a cost equal to or less than 300% of the aggregate annual premiums
paid by Diedrich during the most recent policy year for its existing director and officer liability insurance policies, Diedrich is required to purchase the best coverage as is reasonably available for such amount.
Employee Benefits
Pursuant
to the merger agreement, Peets has agreed to provide certain employee benefits to any employees of Diedrich who continue employment with Peets or Diedrich following the completion of the merger.
Other Covenants
The merger
agreement provides that each party must (1) use commercially reasonable efforts to file, as soon as practicable after the date of the merger agreement, all notices, reports and other documents required to be filed by such party with any
governmental body with respect to the offer and the merger, including preparing and filing the notification and report forms required to be filed under the HSR Act in connection with the offer and the merger, and must submit promptly any additional
information requested by any such governmental body, and (2) commercially reasonable efforts to obtain each consent (if any) required to be obtained pursuant to any applicable law by such party in connection with the offer and the merger.
However, neither Peets nor the Purchaser has any obligation under the merger agreement to take any of the following actions, if Peets determines in good faith that taking such actions could reasonably be expected to materially affect the
business or interests of Peets, any of Peets subsidiaries or Diedrich in any adverse way: (i) to dispose of or transfer or cause any of its subsidiaries to dispose of or transfer any assets, or to commit to cause Diedrich to dispose
of or transfer any assets; (ii) to discontinue or cause any of its subsidiaries to discontinue offering any product or service, or to commit to cause Diedrich to discontinue offering any product or service; (iii) to license or otherwise
make available, or cause any of its subsidiaries to license or otherwise make available to any person any technology, software or other intellectual property or intellectual property right, or to commit to cause Diedrich to license or otherwise make
available to any person any technology, software or other intellectual property or intellectual property right; (iv) to hold separate or cause any of its subsidiaries to hold separate any assets or operations (either before or after the
completion of the merger), or to commit to cause Diedrich to hold
67
separate any assets or operations; (v) to make or cause any of its subsidiaries to make any commitment, or to commit to cause Diedrich to make any commitment (to any governmental body or
otherwise) regarding its future operations or the future operations of Diedrich; or (vi) to contest any legal proceeding or any order, writ, injunction or decree relating to the offer or the merger.
The merger agreement also provides that until the completion of the merger, upon the request of Peets, Diedrich must, and must
instruct its representatives to, cooperate reasonably with Peets in connection with Peets financing of the offer and the merger in various ways set forth in the merger agreement, provided that such requested cooperation does not
unreasonably interfere with the ongoing operations of Diedrich.
Conditions to Completion of the Merger
The merger agreement provides that the respective obligations of Peets and the Purchaser, on the one hand, and Diedrich, on the other
hand, to complete the merger are subject to the following conditions: (1) if required by applicable law in order to complete the merger, the merger agreement shall have been duly adopted by the required vote of Diedrichs stockholders;
(2) no temporary restraining order, preliminary or permanent injunction or other order preventing the completion of the merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any law
enacted or deemed applicable to the merger by a governmental body having authority over any of the parties that makes completion of the merger illegal; (3) the registration statement of which this prospectus/offer to purchase is a part and the
required post-effective amendment thereto relating to the merger shall have become effective in accordance with the provisions of the Securities Act, and no stop order shall have been issued by the SEC and be outstanding, and no proceeding for that
purpose shall have been initiated by the SEC and be outstanding or be threatened by the SEC; and (4) shares of Diedrich common stock validly tendered (and not withdrawn) pursuant to the offer shall have been accepted for exchange and paid for
pursuant to the offer.
Termination of the Merger Agreement
The merger agreement provides that it may be terminated as follows:
|
|
|
by mutual written consent of Peets and Diedrich at any time prior to the completion of the merger;
|
|
|
|
by either Peets or Diedrich at any time prior to the completion of the merger if any U.S. court or other U.S. governmental body having authority
over the parties shall have issued a final and nonappealable judgment, order, injunction, writ or decree or taken any other action having the effect of (1) permanently restraining, enjoining or otherwise prohibiting (A) prior to such
acceptance, the acceptance of shares of Diedrich common stock for exchange pursuant to the offer or the delivery of consideration in exchange therefor, or (B) prior to the completion of the merger, the merger, (2) prior to the acceptance
of shares of Diedrich common stock for exchange pursuant to the offer, making the acquisition of or delivery of consideration for shares of Diedrich common stock pursuant to the offer illegal, or (3) prior to the completion of the merger,
making the completion of the merger illegal;
|
|
|
|
by either Peets or Diedrich at any time after March 31, 2010 and prior to the acceptance of shares of Diedrich common stock for exchange
pursuant to the offer if such acceptance shall not have occurred on or prior to March 31, 2010 (the end-date termination right);
|
|
|
|
by Peets at any time prior to the acceptance of shares of Diedrich common stock for exchange pursuant to the offer if a triggering event (as
defined in The OfferConditions to the Offer) shall have occurred (the triggering event termination right);
|
|
|
|
by Diedrich at any time prior to the acceptance of shares of Diedrich common stock for exchange pursuant to the offer, in order to accept a superior
proposal and enter into a definitive acquisition agreement relating to such superior proposal, if (1) such superior proposal shall not have resulted from a breach by Diedrich of any of the nonsolicitation provisions of the merger agreement,
(2) Diedrich and
|
68
|
its board of directors shall have satisfied in all material respects all of the notice, negotiation and other requirements set forth in the merger agreement with respect to such superior proposal
and the related mandatory negotiation period(s) with Peets shall have expired, (3) Diedrich shall have, or shall have caused to be, paid to Peets the applicable termination fee described below, and (iv) Diedrich enters into the
definitive acquisition agreement relating to such superior proposal immediately following the termination of the merger agreement (the superior offer termination right);
|
|
|
|
by Peets at any time prior to the acceptance of shares of Diedrich common stock for exchange pursuant to the offer if: (1) any of
Diedrichs representations and warranties contained in the merger agreement shall be inaccurate as of the date of the merger agreement or shall have become inaccurate as of a date subsequent to the date of the merger agreement (as if made on
such subsequent date), in either case such that either of the Diedrich representation conditions would not be satisfied; or (2) any of Diedrichs covenants contained in the merger agreement shall have been breached such that the Diedrich
covenant condition would not be satisfied; in each case subject to certain notice and cure rights;
|
|
|
|
by Diedrich at any time prior to the acceptance of shares of Diedrich common stock for exchange pursuant to the offer if (1) any of the
representations and warranties of Peets or the Purchaser contained in the merger agreement shall be inaccurate as of the date of the merger agreement or shall have become inaccurate as of a date subsequent to the date of the merger agreement
(as if made on such subsequent date), or (2) any of Peets or the Purchasers covenants contained in the merger agreement shall have been breached, subject in each of the foregoing cases to certain notice and cure rights, and provided
that such inaccuracy or breach has had or could reasonably be expected to have or result in a material adverse effect on the Purchasers ability to purchase and pay for shares of Diedrich common stock validly tendered (and not properly
withdrawn) pursuant to the offer or Peets or the Purchasers ability to otherwise complete the transactions contemplated by the merger agreement; or
|
|
|
|
by Peets at any time prior to the acceptance of shares of Diedrich common stock for exchange pursuant to the offer if a company material adverse
effect (as defined in The OfferConditions to the Offer) shall have occurred, subject to certain cure rights.
|
Termination Fees
The merger agreement provides that all expenses incurred in connection with the merger
agreement, the offer and the merger will be paid by the party incurring such expenses, whether or not the offer or the merger is completed. However, there are several circumstances under which Diedrich may become obligated to pay Peets a
termination fee at or following the termination of the merger agreement, as follows:
|
|
|
The merger agreement provides that if (1) the merger agreement is terminated by Peets or Diedrich pursuant to the end-date termination
right, (2) at or prior to the time of the termination of the merger agreement, an acquisition proposal involving at least a 50% interest in Diedrich shall have been publicly disclosed, announced or commenced (and not withdrawn at least
five business days prior to the time of termination), and (3) within one year after the date of termination of the merger agreement, (i) an acquisition transaction involving Diedrich is consummated or (ii) a definitive
agreement contemplating an acquisition transaction involving Diedrich is executed and such acquisition transaction is ultimately consummated, then Diedrich must pay to Peets, in cash at the time such acquisition transaction is consummated, a
nonrefundable termination fee in the amount of $8,517,000.
|
|
|
|
The merger agreement provides that if the merger agreement is terminated (1) by Peets at any time based upon the withdrawal or modification
in a manner adverse to Peets or the Purchaser of the Diedrich board recommendation, or the board of directors of Diedrich having taken certain other actions publicly that would cause a reasonable observer to conclude that the board of
directors of Diedrich does not unanimously support the offer or the merger (a termination described in this clause (i), an adverse recommendation termination), (2) by Peets following the expiration of the go-shop period (the
period between the date of the merger agreement and 5:00 p.m. Pacific Time on November 23, 2009) pursuant to any other component of the triggering event termination right, or (3) by Diedrich following the expiration of the go-shop period
pursuant to the superior offer
|
69
|
termination right, then Diedrich must pay to Peets, in cash at the time specified in the next sentence, a nonrefundable termination fee in the amount of $8,517,000. In the case of any such
termination of the merger agreement by Peets, the termination fee referred to in the preceding sentence must be paid by Diedrich within two business days after such termination, and in the case of any such termination of the merger agreement
by Diedrich, the termination fee referred to in the preceding sentence must be paid by Diedrich at or prior to the time of such termination.
|
|
|
|
The merger agreement provides that if the merger agreement is terminated during the go-shop period either (1) by Diedrich pursuant to the superior
offer termination right, or (2) by Peets pursuant to the triggering event termination right (other than an adverse recommendation termination), then Diedrich must pay to Peets, in cash at or prior to the time of such termination, a
nonrefundable termination fee in the amount of $6,388,000.
|
The merger agreement further provides that in
the event of any termination of the merger agreement, the merger agreement will be of no further force or effect, provided that (1) the termination, termination fee and miscellaneous provisions of the merger agreement (and the existing
confidentiality agreement between Diedrich and Peets) will survive the termination of the merger agreement and will remain in full force and effect, (2) the termination of the merger agreement will not relieve any party from any liability
for any prior material breach of any covenant or obligation contained in the merger agreement and will not relieve any party from any liability for any material breach of any representation or warranty contained in the merger agreement, and
(3) no termination of the merger agreement will in any way affect any of the parties rights or obligations with respect to any shares of Diedrich common stock accepted for exchange pursuant to the offer prior to such termination. The
merger agreement also provides that, except with respect to any liability of Diedrich for any willful or intentional breach of any covenant or obligation contained in the merger agreement, the payment of the termination fees described above will be
the exclusive remedy of Peets and the Purchaser with respect to a termination of the merger agreement under the circumstances that entitle Peets to receive such termination fee, subject to the payment of such termination fee.
OTHER AGREEMENTS RELATED TO THE TRANSACTION
Financing Commitment
Peets has received a commitment letter, dated as of November 2, 2009, from Wells Fargo and Wells Fargo Securities to provide, subject to the conditions set forth in the debt commitment letter, $140.0 million of senior secured
credit facilities (not all of which is expected to be drawn in connection with the completion of the offer) for the purpose of financing the offer and the merger, to refinance certain existing indebtedness of Diedrich and its subsidiaries, paying
fees and expenses incurred in connection with the foregoing and for providing ongoing working capital and for other general corporate purposes.
The debt commitment expires on the earliest of (1) the acceptance for exchange of Diedrich common stock pursuant to the offer, (2) termination of the merger agreement, (3) April 1,
2010, if the Purchaser shall not have accepted for purchase shares pursuant to the offer representing the minimum condition on or prior to March 31, 2010, (4) the date on which Peets enters into a commitment letter, definitive credit
agreement or similar agreement for a financing with certain financial institutions other than Wells Fargo or Wells Fargo Securities, and (5) April 15, 2010. The documentation governing the financing has not been finalized and, accordingly,
their actual terms may differ from those described in this prospectus/offer to purchase.
Although the financing described in
this prospectus/offer to purchase is not subject to a due diligence or market out, such financing may not be considered assured. Peets and the Purchaser have represented in the merger agreement that Peets or the Purchaser
will have at the time of the acceptance of the tendered shares of Diedrich common stock in the offer, sufficient funds available to satisfy the cash consideration for each share of
70
Diedrich common stock validly tendered (and not withdrawn) in the Offer. As of the date of this prospectus/offer to purchase, no alternative financing arrangements or alternative financing plans
have been made in the event the financing described herein is not available as anticipated.
Conditions Precedent to the
Commitment
. The availability of the senior secured credit facilities contemplated by the financing commitment is subject, among other things, to (1) the entering into of certain definitive documentation regarding the senior secured credit
facilities, (2) the merger agreement being in full force and effect (without any amendment, supplement or other modification that materially affects the interests of the lenders under the senior secured credit facilities), (3) satisfaction
of the conditions to the Purchasers obligations under the merger agreement (except to the extent the failure to satisfy a condition would not relieve Peets or the Purchaser from their obligations under the merger agreement)
(4) acceptance by the Purchaser of shares representing the minimum condition, and to the extent the exercise of the top-up option would result in the Purchaser owning shares sufficient to complete a short-form merger, the exercise of such
top-up option, (5) Wells Fargo Securities having received certain historical financial statements with respect to Peets and Diedrich, (6) the pro forma ratio of Total Funded Debt (as defined in the commitment letter) to EBITDAR (as
defined in the commitment letter) of Peets and its subsidiaries not exceeding 4.25:1.00 and minimum EBITDAR for the twelve months ended as of the most recent fiscal quarter for which financial statements are available being at least $55.9
million, (7) receipt of certain customary information regarding anti-money-laundering, know your customer and USA Patriot Act rules and regulations, (8) the absence of any restraining order, preliminary or permanent injunction or other
order preventing the senior secured credit facilities from funding, (9) payment of required fees and expenses, (10) none of Peets, Diedrich or their respective subsidiaries announcing, offering, arranging, syndicating or issuing any
debt securities or bank financing and (11) from and after the date of the commitment letter, there not having occurred a company material adverse effect.
General
. The senior secured credit facilities will be comprised of a (1) $100.0 million term loan facility with a term of five years and (2) a $40.0 million revolving credit facility with
a term of five years.
Interest Rate and Fees
. Loans under the senior secured credit facilities are expected to bear
interest, at Peets option, at a rate equal to the adjusted London interbank offer rate or an alternate base rate, in each case plus an applicable margin. After Peets delivery of financial statements with respect to at least one full
fiscal quarter ending after the funding of the senior secured credit facilities, interest rates under the senior secured credit facilities shall be subject to change based on a Total Leverage Ratio (as defined in the commitment letter).
Guarantors
. All obligations under the senior secured credit facilities and under any interest rate protection or other hedging
arrangement or treasury management arrangements entered into with a lender or any of its affiliates will be unconditionally guaranteed jointly and severally by Peets and each of the existing and future direct and indirect, wholly-owned
subsidiaries of Peets; provided that guarantees by foreign subsidiaries will be required only to the extent that such guarantees would not have material adverse tax consequences for Peets.
Security
. The obligations of Peets and the guarantors under the senior secured credit facilities and the guarantees, and under
any interest rate protection or other hedging arrangement or treasury management arrangement entered into with a lender or any of its affiliates, will be secured, subject to certain customary exceptions to be agreed, (1) on a first-lien basis,
by all the capital stock of Peets and its subsidiaries (limited, in the case of foreign subsidiaries, to 100% of the non-voting capital stock and 66% of the voting capital stock of such subsidiaries) directly held by Peets or any
guarantor and (2) on a first-lien basis, by substantially all tangible and intangible assets of Peets and each guarantor. If certain security is not provided upon the initial funding of the senior secured credit facilities despite the use
of commercially reasonable efforts to do so, the delivery of such security will not be a condition precedent to the availability of the senior secured credit facilities on the initial funding date, but instead will be required to be delivered
following the initial funding date pursuant to arrangements to be agreed upon.
Other Terms
. The senior secured credit
facilities will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness,
71
investments, sales of assets, mergers and consolidations, prepayments of subordinated indebtedness, liens and dividends and other distributions. The senior secured credit facilities will also
include customary events of defaults including a change of control to be defined.
Stockholder Agreements
In order to induce Peets and the Purchaser to enter into the merger agreement, each of Paul C. Heeschen, Timothy J. Ryan, James W.
Stryker, Jeanne Ortiz, James L. Harris, James R. Phillips, Gregory D. Palmer, Sean M. McCarthy, Jack Hosier and Dana A. King has entered into a stockholder agreement with Peets, solely in his or her capacity as a stockholder of Diedrich. The
following is a summary of the stockholder agreements. The following summary does not purport to be a complete description of the terms and conditions of the stockholder agreements and is qualified in its entirety by reference to the forms of
stockholder agreements, copies of which are attached as Annex B-1 and Annex B-2 to this prospectus/offer to purchase and are incorporated herein by reference.
Pursuant to the terms of the stockholder agreements, each stockholder who entered into a stockholder agreement has agreed to:
|
|
|
tender (and not withdraw) all of the shares of Diedrich common stock beneficially owned by such stockholder in the offer, except that
Mr. Heeschens obligation to tender is limited to 1,832,580 of the shares beneficially owned by him, representing approximately 32% of the outstanding shares of Diedrich as of November 16, 2009; and
|
|
|
|
vote in favor of the merger, the adoption of the merger agreement and the terms thereof and the other actions contemplated therein, vote against any
action or agreement that would result in a breach of any representation, warranty, covenant or obligation of Diedrich in the merger agreement, and vote against any action that is intended, or that could reasonably be expected, to impede, interfere
with, delay, postpone, discourage or adversely affect the offer or the merger or any of the other transactions contemplated by the merger agreement or the stockholder agreement, except that Mr. Heeschens obligation to vote as provided above is
limited to 1,832,580 of the shares beneficially owned by him, to the extent not acquired in the offer.
|
Under the terms of the stockholder agreements, each stockholder has also agreed to restrictions on the transferability of its shares and the transferability of certain voting rights. Each stockholder agreement automatically terminates upon
completion of the merger, or upon termination of the merger agreement in accordance with its terms. Each stockholder agreement also contains customary representations and warranties.
Under the terms of his stockholder agreement, Mr. Heeschen has agreed not to exercise or cause or permit to be exercised any warrants
owned of record or beneficially by Mr. Heeschen unless consented to in advance by Peets.
As of November 16,
2009, 1,843,000 beneficially owned shares of Diedrich common stock (excluding shares issuable upon the exercise of options and warrants beneficially owned by such stockholders) were subject to the stockholder agreements, which represented in the
aggregate approximately 32.2% of the outstanding shares of Diedrich common stock as of that date.
INFORMATION RELATING TO DIEDRICH
Diedrich is subject to the informational
requirements of the Exchange Act and, in accordance therewith, is required to file reports and other information with the SEC relating to its business, financial condition and other matters. Certain information as of particular dates concerning
Diedrichs directors and executive officers, their remuneration, stock options and other matters, the principal holders of Diedrichs securities and any material interest of such persons in transactions with Diedrich is required to be
disclosed in Diedrichs proxy statements
72
distributed to Diedrichs stockholders and filed with the Securities and Exchange Commission. For information on how you can obtain copies of such filings, please see the section entitled
Where You Can Find Additional Information beginning on page 100 of this prospectus/offer to purchase.
As required
by SEC rules, Diedrich has filed a solicitation/recommendation statement on Schedule 14D-9 describing its recommendation in favor of the offer and the merger and related matters. Diedrich stockholders are encouraged to carefully review the
Schedule 14D-9 and this prospectus/offer to purchase.
Diedrich specializes in sourcing, roasting and
selling the worlds highest quality coffees. In recent years, the primary driver of Diedrichs growth has been the sale of K-Cup portion pack coffees and teas. Diedrich is one of only three independent roasters under non-exclusive license
to produce K-Cups for Keurigs top selling single-cup brewing system. Keurig is the wholly-owned subsidiary of Green Mountain Coffee Roaster, Inc. Diedrich markets its three leading brands of specialty coffeesDiedrich Coffee, Coffee
People and Gloria Jeans Coffeesthrough office coffee distributors, restaurants and specialty retailers and via Diedrichs web stores. In addition, Diedrich operates a coffee roasting facility and a distribution center in central
California that supplies freshly roasted coffee beans to its wholesale customers.
Diedrich was incorporated in Delaware in
August 1996. Diedrichs principal executive offices are located at 28 Executive Park, Suite 200, Irvine, CA 92614. The telephone number at that location is (949) 260-1600. Diedrichs internet address is www.diedrich.com.
INFORMATION RELATING TO PEETS AND THE PURCHASER
Information about Peets
The following is a brief description of the business of Peets. Additional information regarding Peets is contained in its filings with the SEC. For information on how you can obtain copies of such filings, please see the section
entitled Where You Can Find Additional Information beginning on page 100 of this prospectus/offer to purchase.
Peets is a specialty coffee roaster and marketer of fresh roasted whole bean coffee and tea. Peets sells its coffee under strict freshness standards through multiple channels of distribution including grocery stores, home
delivery, office and foodservice accounts and Peets-owned and operated stores in six states. Peets operates its business through two reportable segments: retail and specialty sales. As of November 2, 2009 Peets operated 195
retail stores in six states through which it sells whole bean coffee, beverages and pastries, tea, and other related items. In addition to sales through its retail stores, Peets sells its products through a network of grocery stores, including
Safeway, Stop & Shop, Kroger, Publix and Whole Foods Market. Other sales channels include home delivery and Peets foodservice and office business.
Peets was incorporated in Washington in 1971. Its principal executive offices are located at 1400 Park Avenue, Emeryville, CA 94608, and its telephone number is (510) 594-2100. Peets
internet address is www.peets.com.
Information about the Purchaser
The Purchaser was incorporated in Delaware on October 29, 2009 and is a wholly-owned subsidiary of Peets. Its principal executive
offices are located at 1400 Park Avenue, Emeryville, CA 94608 and its telephone number is (510) 594-2100. Since it is a newly formed corporation with no operating history, and it was created specifically to enable Peets to acquire all of
the outstanding shares of Diedrich common stock, it does not have financial information to be presented in this prospectus/offer to purchase.
The name, citizenship, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of Peets and the Purchaser are
set forth in Schedule I hereto.
73
During the last five years, none of the Purchaser, Peets or, to the best knowledge of
the Purchaser and Peets, any of the persons listed in Schedule I to this prospectus/offer to purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to any
judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to,
federal or state securities laws, or a finding of any violation of such laws.
Except as described in this prospectus/offer to
purchase, none of the Purchaser, Peets or, to the knowledge of the Purchaser and Peets, any of the persons listed in Schedule I to this prospectus/offer to purchase, or any associate or majority-owned subsidiary of Peets, the
Purchaser or any of the persons listed in Schedule I to this prospectus/offer to purchase, beneficially owns any equity security of Diedrich, and none of the Purchaser, Peets or, to the knowledge of the Purchaser and Peets, any of the
other persons or entities referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of Diedrich during the past 60 days.
Except as described in this prospectus/offer to purchase or the Tender Offer Statement on Schedule TO filed by Peets with the
Securities and Exchange Commission to which this prospectus/offer to purchase is filed as an exhibit, (i) there have not been any contacts, transactions or negotiations between the Purchaser or Peets, any of their respective subsidiaries
or, to the knowledge of the Purchaser and Peets, any of the persons listed in Schedule I to this prospectus/offer to purchase, on the one hand, and Diedrich or any of its directors, officers or affiliates, on the other hand, that are required
to be disclosed pursuant to the rules and regulations of the Securities and Exchange Commission and (ii) none of the Purchaser, Peets or, to the knowledge of the Purchaser and Peets, any of the persons listed on Schedule I to this
prospectus/offer to purchase, has any contract, arrangement, understanding or relationship with any person with respect to any securities of Diedrich.
74
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information gives effect to the proposed acquisition by
Peets of Diedrich. The merger will be accounted for under the acquisition method in accordance with FASB Codification 805 Business Combinations (ASC 805). Under the acquisition method of accounting, the total estimated purchase
price, calculated as described in Note 1 to this unaudited pro forma condensed combined financial information, is allocated to the net tangible and intangible assets of Diedrich acquired in connection with the offer and the merger, based on
their fair values as of the completion of the offer and the merger. Independent valuation specialists are currently conducting an independent valuation in order to assist management of Peets in determining the fair values of a significant
portion of these assets. The preliminary work performed by the independent valuation specialists has been considered in managements estimates of the fair values reflected in this unaudited pro forma condensed combined financial information.
75
PEETS COFFEE & TEA, INC. UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Peets
As
of
September 27,
2009
|
|
Diedrich
As
of
September 16,
2009
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,966
|
|
$
|
3,082
|
|
|
$
|
(151,492
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,000
|
(d)
|
|
$
|
8,556
|
|
Short-term marketable securities
|
|
|
4,232
|
|
|
|
|
|
|
(4,232
|
)(i)
|
|
|
|
|
Accounts receivable, net
|
|
|
10,682
|
|
|
6,321
|
|
|
|
|
|
|
|
17,003
|
|
Inventories
|
|
|
30,564
|
|
|
5,601
|
|
|
|
|
|
|
|
36,165
|
|
Deferred income taxescurrent
|
|
|
2,907
|
|
|
|
|
|
|
|
|
|
|
2,907
|
|
Notes receivable, net
|
|
|
|
|
|
2,634
|
|
|
|
|
|
|
|
2,634
|
|
Prepaid expenses and other
|
|
|
8,029
|
|
|
1,229
|
|
|
|
|
|
|
|
9,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
73,380
|
|
|
18,867
|
|
|
|
(15,724
|
)
|
|
|
76,523
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
106,900
|
|
|
5,268
|
|
|
|
|
|
|
|
112,168
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
162,700
|
(f)
|
|
|
162,700
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
29,114
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,056
|
(k)
|
|
|
95,170
|
|
Deferred income taxesnon current
|
|
|
3,146
|
|
|
|
|
|
|
6,678
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,824
|
)(n)
|
|
|
|
|
Other assets, net
|
|
|
2,764
|
|
|
1,887
|
|
|
|
3,100
|
(h)
|
|
|
7,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
186,190
|
|
$
|
26,022
|
|
|
$
|
242,100
|
|
|
$
|
454,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
|
$
|
8,811
|
|
$
|
5,891
|
|
|
|
|
|
|
$
|
14,702
|
|
Accrued compensation and benefits
|
|
|
9,568
|
|
|
1,935
|
|
|
|
|
|
|
|
11,503
|
|
Deferred revenue
|
|
|
4,759
|
|
|
|
|
|
|
|
|
|
|
4,759
|
|
Current debt and current portion of long-term debt
|
|
|
|
|
|
2,000
|
|
|
$
|
(2,000
|
)(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,111
|
(d)
|
|
|
11,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
23,138
|
|
|
9,826
|
|
|
|
9,111
|
|
|
|
42,075
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
1,374
|
|
|
|
(1,374
|
)(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,889
|
(d)
|
|
|
128,889
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
66,056
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,824
|
)(n)
|
|
|
56,232
|
|
Deferred lease credits
|
|
|
7,264
|
|
|
125
|
|
|
|
(125
|
)(o)
|
|
|
7,264
|
|
Other long-term liabilities
|
|
|
950
|
|
|
278
|
|
|
|
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
31,352
|
|
|
11,603
|
|
|
|
192,733
|
|
|
|
235,688
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
88,320
|
|
|
63,420
|
|
|
|
(63,420
|
)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,712
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,993
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,178
|
(c)
|
|
|
158,203
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
3,838
|
|
|
|
|
|
|
(3,861
|
)(i)
|
|
|
(23
|
)
|
Retained earnings (accumulated deficit)
|
|
|
62,680
|
|
|
(49,001
|
)
|
|
|
49,001
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(626
|
)(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,390
|
(i)
|
|
|
60,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
154,838
|
|
|
14,419
|
|
|
|
49,367
|
|
|
|
218,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
186,190
|
|
$
|
26,022
|
|
|
$
|
242,100
|
|
|
$
|
454,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed combined pro forma financial information.
76
PEETS COFFEE & TEA, INC. UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Peets
Year
Ended
December 28,
2008
|
|
Diedrich
Year Ended
December 10,
2008
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
|
|
(in thousands, except per share data)
|
|
Retail stores
|
|
$
|
187,719
|
|
|
|
|
|
|
|
|
|
$
|
187,719
|
|
Specialty sales
|
|
|
97,103
|
|
$
|
47,032
|
|
|
|
|
|
|
|
144,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
284,822
|
|
|
47,032
|
|
|
|
|
|
|
|
331,854
|
|
|
|
|
|
|
Cost of sales and related occupancy expenses
|
|
|
133,537
|
|
|
39,116
|
|
|
|
|
|
|
|
172,653
|
|
Operating expenses
|
|
|
98,844
|
|
|
4,372
|
|
|
|
|
|
|
|
103,216
|
|
General and administrative expenses
|
|
|
22,519
|
|
|
7,552
|
|
|
|
|
|
|
|
30,071
|
|
Depreciation and amortization expenses
|
|
|
12,921
|
|
|
1,391
|
|
|
$
|
8,093
|
(p)
|
|
|
22,405
|
|
Goodwill impairment
|
|
|
|
|
|
6,311
|
|
|
|
|
|
|
|
6,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses from operations
|
|
|
267,821
|
|
|
58,742
|
|
|
|
8,093
|
|
|
|
334,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
17,001
|
|
|
(11,710
|
)
|
|
|
(8,093
|
)
|
|
|
(2,802
|
)
|
Interest income (expense), net
|
|
|
726
|
|
|
(369
|
)
|
|
|
(6,727
|
)(q)
|
|
|
(6,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax
|
|
|
17,727
|
|
|
(12,079
|
)
|
|
|
(14,820
|
)
|
|
|
(9,172
|
)
|
Income tax provision (benefit)
|
|
|
6,562
|
|
|
104
|
|
|
|
(6,017
|
)(s)
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
11,165
|
|
$
|
(12,183
|
)
|
|
$
|
(8,803
|
)
|
|
$
|
(9,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
$
|
(0.64
|
)
|
Diluted
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
$
|
(0.64
|
)
|
Shares used in calculation of net income (loss) from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,723
|
|
|
|
|
|
|
|
|
|
|
15,433
|
|
Diluted
|
|
|
13,997
|
|
|
|
|
|
|
|
|
|
|
15,433
|
|
See notes to condensed combined pro forma financial information.
77
PEETS COFFEE & TEA, INC. UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Peets Nine Months
Ended
September 27,
2009
|
|
Diedrich Nine Months
Ended
September 16,
2009
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
|
|
(in thousands, except per share data)
|
|
Retail stores
|
|
$
|
144,686
|
|
|
|
|
|
|
|
|
|
$
|
144,686
|
|
Specialty sales
|
|
|
74,889
|
|
$
|
53,805
|
|
|
|
|
|
|
|
128,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
219,575
|
|
|
53,805
|
|
|
|
|
|
|
|
273,380
|
|
Cost of sales and related occupancy expenses
|
|
|
99,812
|
|
|
39,776
|
|
|
|
|
|
|
|
139,588
|
|
Operating expenses
|
|
|
76,804
|
|
|
3,290
|
|
|
|
|
|
|
|
80,094
|
|
General and administrative expenses
|
|
|
17,782
|
|
|
5,606
|
|
|
$
|
(128
|
)(r)
|
|
|
23,260
|
|
Depreciation and amortization expenses
|
|
|
11,200
|
|
|
1,510
|
|
|
|
6,070
|
(p)
|
|
|
18,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses from operations
|
|
|
205,598
|
|
|
50,182
|
|
|
|
5,942
|
|
|
|
261,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
13,977
|
|
|
3,623
|
|
|
|
(5,942
|
)
|
|
|
11,658
|
|
Interest income (expense), net
|
|
|
111
|
|
|
(889
|
)
|
|
|
(4,121
|
)(q)
|
|
|
(4,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, before income tax
|
|
|
14,088
|
|
|
2,734
|
|
|
|
(10,063
|
)
|
|
|
6,759
|
|
Income tax provision (benefit)
|
|
|
5,158
|
|
|
(38
|
)
|
|
|
(4,086
|
)(s)
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
8,930
|
|
$
|
2,772
|
|
|
$
|
(5,977
|
)
|
|
$
|
5,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
$
|
0.39
|
|
Diluted
|
|
$
|
0.67
|
|
|
|
|
|
|
|
|
|
$
|
0.38
|
|
Shares used in calculation of net income from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,977
|
|
|
|
|
|
|
|
|
|
|
14,687
|
|
Diluted
|
|
|
13,267
|
|
|
|
|
|
|
|
|
|
|
14,985
|
|
See notes to condensed combined pro forma financial information.
78
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1) Description of Transaction
On November 2, 2009, Peets, the Purchaser and Diedrich entered into a merger agreement that contemplates the acquisition by Peets, through the Purchaser, of all of the outstanding equity interests of Diedrich for a total
purchase price valued at $213.0 million, including approximately $70.0 million in Peets common stock, $137.0 million in cash (of which approximately $124.0 million is expected to be funded with debt), and $6.0 million representing Peets
current investment in Diedrich common stock. The merger agreement contemplates a two-step transaction comprised of a combination cash and stock exchange offer for all of the issued and outstanding shares of Diedrich common stock, followed by a
merger of the Purchaser with and into Diedrich. In the offer, the Purchaser will deliver a combination of $17.33 in cash and a fraction of a share of Peets common stock having a numerator equal to $8.67 and a denominator equal to the Parent
Average Stock Price (as defined in the merger agreement) in exchange for each share of Diedrich common stock validly tendered in the offer (and not withdrawn), provided that in no event will such fraction of a share exceed 0.315 of a share of
Peets common stock, subject to adjustment for stock splits, stock dividends and similar events. In addition, upon the acquisition by the Purchaser of shares of Diedrich common stock tendered in the offer, all outstanding in-the-money warrants
and options to acquire Diedrich common stock will be automatically converted into a combination of cash and shares of Peets common stock based on formulae set forth in the merger agreement, and certain of the options will vest in full as a
result of the transactions contemplated by the merger agreement.
The merger agreement provides that the Purchaser will use
commercially reasonable efforts to commence the offer as promptly as practicable after the date of the merger agreement. The obligation of the Purchaser to accept for exchange and deliver consideration for shares of Diedrich common stock validly
tendered in the offer is subject to a number of conditions set forth in the merger agreement, including (i) that more than 50% of the outstanding shares of Diedrich common stock (determined, at the option of Peets, on a fully-diluted
basis based on a formula set forth in the merger agreement) have been validly tendered in the offer and (ii) other conditions set forth in Exhibit B to the merger agreement, including conditions with respect to the accuracy of Diedrichs
representations and warranties in the merger agreement, Diedrichs compliance with its covenants set forth in the merger agreement and no material adverse effect with respect to Diedrich having occurred and being continuing.
The merger agreement further provides that, following the completion of the offer (and if necessary, the adoption of the merger agreement by
Diedrichs stockholders) and subject to the satisfaction or waiver of certain conditions set forth in the merger agreement, the Purchaser will be merged with and into Diedrich, and Diedrich will become a wholly-owned subsidiary of Peets.
Upon completion of the merger, each then-outstanding share of Diedrich common stock held by persons other than Peets, the Purchaser and Diedrich, or any wholly-owned subsidiary of Peets or Diedrich, or held in Diedrichs treasury,
or owned by any stockholder of Diedrich who properly preserves appraisal rights under applicable law, will be converted into the right to receive the same combination of cash and fraction of a share of Peets common stock delivered in the
offer. The respective boards of directors of Peets and Diedrich have approved the merger agreement, the offer and the merger, and the Diedrich board of directors has agreed to recommend that Diedrichs stockholders tender all of their
outstanding shares of Diedrich common stock into the offer and if necessary, vote in favor of the adoption of the merger agreement. For a detailed description of the offer and the merger, see the sections of this prospectus/offer to purchase
entitled The Offer and The Merger Agreement.
The merger agreement may be terminated by either
Peets or Diedrich under certain circumstances set forth in the merger agreement, including the failure of the offer to be completed on or before March 31, 2010 for any reason, including the failure of the minimum tender condition to the
offer. If the merger agreement is terminated (a) in certain circumstances following the receipt by Diedrich of an alternative acquisition proposal, (b) as a result of the Diedrich board of directors changing its recommendation in favor of
the offer and the merger, or (c) as a result of certain triggering events with respect to Diedrich (as described in the merger agreement), Diedrich will be obligated to pay a termination fee to Peets as provided in the merger
agreement.
79
2) Debt Obligations Related to the Transaction
In conjunction with the entering into the merger agreement, on November 2, 2009, Peets entered into a commitment letter with Wells
Fargo and Wells Fargo Securities, setting forth the material terms and conditions of: (a) a senior secured revolving credit facility in an aggregate amount up to $40.0 million to be provided by Wells Fargo and a syndicate of financial
institutions and other institutional lenders (the Lenders) to Peets, as borrower; and (b) one or more tranches of term loans in an aggregate amount up to $100.0 million to be provided by the Lenders to Peets, each of
which is to be guaranteed by all existing and future subsidiaries of Peets. Wells Fargo and Wells Fargo Securities have committed to provide the financing described in the commitment letter through the earliest to occur of (a) completion
of the offer, (b) termination of the merger agreement, (c) April 1, 2010, if the offer has not been completed on or prior to March 31, 2010 and (d) April 15, 2010, unless the commitment letter is terminated earlier by
Peets. The commitment letter provides that the revolving credit facility and term loans would mature five years after the closing of the financing.
Peets intends to use the proceeds from the senior secured credit facilities, together with cash on hand, to finance the offer and merger and the costs and expenses related to the merger and the
ongoing working capital and other general corporate purposes of the combined organization after completion of the merger.
The
senior credit facilities are subject to the negotiation of mutually acceptable credit or loan agreements and other mutually acceptable definitive documentation, which are expected to include customary representations and warranties, affirmative and
negative covenants, provisions for security, mandatory prepayments upon the occurrence of certain events, financial covenants (including maximum total leverage ratio, minimum fixed charge coverage ratio and minimum net income tests) and provisions
for events of default. The Lenders obligations to provide the financing are subject to the satisfaction of specified conditions, including that more than 50% of the shares of Diedrich common stock (determined on a fully-diluted basis based on
a formula set forth in the merger agreement) have been validly tendered, no material adverse effect having occurred with respect to Diedrich, the absence of debt other than certain permitted debt, the accuracy of specified representations and
warranties, compliance with a minimum earnings before interest, taxes, depreciation and rent (EBITDAR) requirement and a maximum total leverage ratio after giving effect to the offer, and other customary conditions.
3) Basis of Presentation
The offer and the merger are reflected in the unaudited pro forma condensed combined financial information as being accounted for under the acquisition method in accordance with FASB Codification 805 Business Combinations (ASC
805). Under the acquisition method, the total estimated purchase price is calculated as described in Note 1 to the unaudited pro forma condensed combined financial information. In accordance with ASC 805, the assets acquired and the liabilities
assumed have been measured at fair value based on various preliminary estimates. These estimates are based on key assumptions of the offer and the merger. Due to the fact that the unaudited pro forma condensed combined financial information has been
prepared based on preliminary estimates, the final amounts recorded for the offer and the merger may differ materially from the information presented. These estimates are subject to change pending further review of the fair value of assets acquired
and liabilities assumed. In addition, the final determination of the recognition and measurement of the identified assets acquired and liabilities assumed will be based on an estimate of the fair market value of actual net tangible and intangible
assets and liabilities of Diedrich at the time of the completion of the merger.
Under ASC 805, acquisition-related
transaction costs (i.e., advisory, legal, valuation, other professional fees) and certain acquisition-related restructuring charges impacting Diedrich are not included as a component of consideration transferred but are accounted for as expenses in
the periods in which the costs are incurred. Total acquisition-related transaction costs expected to be incurred by Peets and Diedrich are estimated to be approximately $7.0 million and are reflected in the unaudited pro forma condensed
combined balance sheet as a reduction of cash and retained earnings. The unaudited pro forma condensed combined financial information
80
does not reflect any acquisition-related restructuring charges to be incurred in connection with the offer and the merger but these charges are expected to be in the range of approximately $2.0
million. These costs will be expensed as incurred.
The unaudited pro forma condensed combined financial information does not
reflect ongoing cost savings that Peets expects to achieve as a result of the offer and the merger or the costs necessary to achieve the costs savings or synergies.
For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed as reflected in the unaudited pro forma condensed combined financial information,
Peets has applied the guidance in FASB Codification 820 Fair Value Measurements and Disclosures (ASC 820) which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is
defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The historical balance sheet of Peets used to create the unaudited pro forma condensed combined balance sheet is as of
September 27, 2009, the last day of Peets third fiscal quarter. Peets results are based on a fiscal year that ends on the Sunday closest to the last day of December. The historical statements of income of Peets used to create
the unaudited pro forma condensed combined statements of operations are for the fiscal year ended December 28, 2008 and for the nine months ended September 27, 2009.
The historical balance sheet of Diedrich used to create the unaudited pro forma condensed combined balance sheet is as of September 16,
2009, the last day of Diedrichs first fiscal quarter. Diedrichs results are based on a fiscal year that ends on the Wednesday closest to the last day of June. The historical statements of operations of Diedrich used to create the
unaudited pro forma condensed combined statements of operations are for the four consecutive fiscal quarters ended December 10, 2008 and the three consecutive fiscal quarters ended September 16, 2009.
Tabular dollars are presented in thousands, except per share amounts.
4) Accounting Policies
Upon completion of the merger, Peets will
review Diedrichs accounting policies. As a result of that review it may become necessary to adjust the combined entitys financial statements to conform to those accounting policies that are determined to be more appropriate for the
combined entity. The unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.
81
5) Allocation of Purchase Price
Under the acquisition method of accounting, the total estimated purchase price as shown in the table below is allocated to Diedrichs
net tangible and intangible assets based on their estimated fair values as of the date of the completion of the merger. The preliminary estimated purchase price has been allocated based on preliminary estimates that are described in the introduction
to the unaudited pro forma condensed combined financial information. The allocation of the preliminary purchase price, estimated useful lives and first year amortization associated with certain assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
First Year
Amortization
|
|
Estimated
Useful Life
|
Net tangible assets acquired
|
|
$
|
14,419
|
|
|
|
|
|
|
Adjustments to:
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(59,378
|
)
|
|
|
|
|
|
Deferred lease credits
|
|
|
125
|
|
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
License agreement
|
|
|
124,000
|
|
|
$
|
4,960
|
|
25 years
|
Brand and trade names
|
|
|
11,000
|
|
|
|
1,100
|
|
10 years
|
Customer relationships
|
|
|
27,000
|
|
|
|
1,800
|
|
15 years
|
Roasting agreement
|
|
|
700
|
|
|
|
233
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
162,700
|
|
|
$
|
8,093
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
95,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preliminary estimated purchase price
|
|
$
|
213,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets.
For purposes of estimating the fair value of
the assets to be acquired in the merger, it is assumed that all assets will be used in a manner that represents their highest and best use. The favorable impact of buyer-specific synergies expected to be incurred upon completion of the merger are
excluded. The estimated fair values of the most significant acquired intangible assets are based on the amount and timing of projected future cash flows associated with the assets.
The preliminary estimates of fair values and weighted-average useful lives of the intangible assets will likely differ from the final
estimates of fair value to be reflected in accounting for the merger, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial information. The estimates of fair value and weighted-average
useful lives could be impacted by a variety of factors including legal, regulatory, contractual, competitive, economic or other factors. Increased knowledge about these factors upon completion of the merger could result in a change to the estimated
fair value of Diedrichs intangible assets and/or to the estimated weighted-average useful lives from what is assumed in the unaudited pro forma condensed combined financial information. In addition, the combined effect of any such changes
could result in a significant increase or decrease to the related amortization expense estimates.
Preliminary fair value estimates for both definite-lived intangible assets acquired, primarily consisting of a non-exclusive license to produce K-Cup
®
for Keurig, brand and trade names, customer relationships and a roasting agreement are noted in the table above. Amortization of customer relationships is calculated
using the straight line method as management is still giving consideration to using the accelerated amortization method. Amortization related to the fair value of amortizable intangible assets is reflected as an adjustment to the unaudited pro forma
condensed combined statements of operations. The determination of the useful lives was based upon an evaluation of a number of factors, including contractual arrangements, market share, consumer awareness, and economic factors pertaining to the
combined company.
Goodwill
. Approximately $95.2 million has been allocated to goodwill. Goodwill represents the excess
of the purchase price over the fair value of the underlying net tangible and intangible assets. $66.1 million of goodwill is related to the deferred tax liability recorded in the same amount for the tax effect of definite lived
82
identifiable intangible assets that are not tax deductible. In accordance with FASB Code 350, Goodwill and Other Intangible Assets (ASC 350), goodwill will not be amortized but instead will be
tested for impairment at least annually (more frequently if certain indicators are present). In the event that Peets determines that the value of goodwill has become impaired, Peets will incur an accounting charge for the amount of
impairment during the fiscal quarter in which the determination is made.
6) Estimate of Consideration Expected to be Delivered
The following is a preliminary estimate of consideration expected to be delivered to effect the acquisition of Diedrich
for purposes of the unaudited pro forma condensed combined financial information. The computations below are calculated based on a deemed per share price of $26.00. For further information please see the sections, What Diedrich Stockholders
will Receive in the Merger, Treatment of Diedrich Stock Options and Treatment of Diedrich Warrants beginning on page 57.
|
|
|
|
|
|
|
|
|
|
|
Conversion
Calculation
|
|
Estimated
Fair Value
|
|
Form of
Consideration
|
|
(shares in
thousands)
|
|
(in
thousands)
|
|
|
Number of shares of Diedrich common stock outstanding as of September 16, 2009, excluding Diedrich common stock held by Peets, which will be canceled as part of the
transaction
|
|
|
5,505.3
|
|
|
|
|
|
|
|
|
|
Multiplied by the deemed value of the Peets common stock being issued in the Offer in exchange for each share of Diedrich common stock
|
|
$
|
8.67
|
|
$
|
47,712
|
|
Peets common
stock
|
|
|
|
|
Multiplied by the cash consideration being paid in the Offer in exchange for each share of Diedrich common stock
|
|
$
|
17.33
|
|
$
|
95,424
|
|
Cash
|
|
|
|
|
Number of shares of Diedrich common stock underlying warrants outstanding as of September 16, 2009
|
|
|
1,987.0
|
|
|
|
|
|
|
|
|
|
Multiplied by $8.05 (the deemed value of the Peets common stock to be issued with respect to each share of Diedrich common stock underlying the warrants exchanged in the
transaction, assuming a weighted average exercise price of $1.85 per share)
|
|
$
|
8.05
|
|
$
|
15,993
|
|
Peets common
stock
|
|
|
|
|
Multiplied by $16.10 (the cash consideration to be paid with respect to each share of Diedrich common stock underlying the warrants exchanged in the transaction, assuming a weighted
average exercise price of $1.85 per share)
|
|
$
|
16.10
|
|
$
|
31,986
|
|
Cash
|
|
|
|
|
Number of shares of Diedrich common stock underlying vested stock options outstanding as of September 16, 2009
|
|
|
713.0
|
|
|
|
|
|
|
|
|
|
Multiplied by $8.67 (the deemed value of the Peets common stock to be issued with respect to each share of Diedrich common stock underlying the stock options exchanged in the
transaction)
|
|
$
|
8.67
|
|
$
|
6,178
|
|
Peets common
stock
|
|
|
|
|
Multiplied by $14.01 (the cash consideration to be paid with respect to each share of Diedrich common stock underlying the stock options exchanged in the transaction, assuming a
weighted average exercise price of $3.32 per share)
|
|
$
|
14.01
|
|
$
|
9,982
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated total consideration
|
|
|
|
|
$
|
207,275
|
|
|
|
|
|
|
Shares in Diedrich common stock ($26.00 per share value) already owned by Peets (to be canceled as part of the transaction)
|
|
|
|
|
|
5,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated purchase price
|
|
|
|
|
$
|
213,036
|
|
|
|
|
|
|
|
|
|
|
|
83
7) Pro Forma Adjustments
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the merger and has been
prepared for informational purposes only. The unaudited pro forma condensed combined financial information is based upon the historical consolidated financial statements and notes thereto of Peets and Diedrich and should be read in conjunction
with the historical financial statements for Peets and Diedrich.
The historical consolidated financial statements have
been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the offer and the merger, (2) factually supportable, and (3) with respect to
the statements of operations, expected to have a continuing impact on the combined results of Peets and Diedrich.
The
pro forma combined provision for income taxes does not necessarily reflect the amounts that would have resulted had Peets and Diedrich filed consolidated income tax returns during the periods presented.
The unaudited pro forma condensed combined financial information does not include liabilities that may result from integration activities
which are not presently estimable. Management of Peets is in the process of making these assessments and estimates of these costs are not currently known. However, liabilities ultimately may be recorded for severance costs for Diedrich
employees, costs of vacating some facilities of Diedrich, or other costs associated with exiting activities of Diedrich that would affect the pro forma financial information. These costs will be expensed as incurred.
Peets has not identified any existing Diedrich contingencies where the related asset, liability or impairment is probable and the
amount of the asset, liability or impairment can be reasonably estimated. Prior to the end of the purchase price allocation period, if information becomes available which would indicate it is probable that such events have occurred and the amounts
can be reasonably estimated, such items will be included in the purchase price allocation.
Certain stock options will vest
upon the close of the transaction, which will result in an immaterial charge to Diedrich. Such amount has not been included as it is non-recurring and has no net effect on the combined companys equity.
The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:
(a) To record the fair value of Peets stock exchanged in the offer and the merger with Diedrichs shareholders.
(b) To record the fair value of Peets stock distributable to Diedrichs warrant holders.
(c) To record stock issued upon exercise of vested stock options.
(d) To record the full borrowings allowable under the term loan and revolving credit facility. Peets ultimate
borrowings will be dependent on cash on hand at the time of closing. The amount classified as current represents the first three quarterly scheduled payments on the term loan beginning in March 2010.
(e) To eliminate Diedrichs equity and accumulated deficit.
(f) To record the fair value of Diedrichs identifiable intangible assets and goodwill.
(g) To record transaction fees to be expensed.
(h) To record deferred financing fees on the term loan and revolving credit facility, which include banking and legal costs.
84
(i) To eliminate common stock owned by Peets in Diedrich prior to the
offer and the merger and record a gain of $5.4 million, $3.9 million of which was recorded in accumulated other comprehensive income as of September 27, 2009, based on the purchase price. For purposes of the pro forma adjustments, the gain is
gross of taxes.
(j) To record cash to be utilized in connection with the offer and merger transaction, as
follows:
|
|
|
|
Cash consideration
|
|
$
|
137,392
|
Deferred financing fees
|
|
|
3,100
|
Other transaction fees
|
|
|
7,000
|
Payment of long-term debt
|
|
|
2,000
|
Payment of short-term debt
|
|
|
2,000
|
|
|
|
|
Total cash
|
|
$
|
151,492
|
|
|
|
|
(k) To record a deferred tax liability and associated goodwill
related to identifiable intangible assets acquired at the estimated federal and state blended statutory tax rate of 40.6%.
(l) To record payment of outstanding debt of Diedrich, including elimination of the discount on notes payable.
(m) To record the fair value of deferred income taxes based on Peets ability to more likely than not utilize Diedrichs net operating loss carryforwards.
(n) To reclassify deferred income taxes to a net non-current liability.
(o) To eliminate Diedrichs deferred lease credits.
(p) To amortize acquired intangible assets. See Note 5.
(q) To eliminate Diedrichs interest expense assuming all debt is paid; and to record interest expense on the term loan
and revolving credit facility including amortization of deferred financing fees, assuming a fully drawn facility of $140.0 million and an average interest rate of 4.70%. Quarterly payments are assumed to be made on the term loan beginning in March
2008 and interest only payments are assumed to be made against the revolving credit facility. The interest rate is calculated based on the 3 month LIBOR on November 5, 2009 plus the applicable interest margins based on the Total Leverage Ratio,
as defined in the commitment letter. Additionally, the interest rate assumes that Peets purchases a 2 year interest rate hedge to fix the rate on $70.0 million of the facility as required by the commitment letter, which results in a premium of
135 basis points over the assumed spread to LIBOR for that portion of the facility. The pro forma adjustments are based on the pro forma combined Total Leverage Ratio, which is the highest margin. Actual interest rates for the credit facilities and
the cost to purchase an interest rate hedge may vary from the assumed rate. The effect of a 0.125% change in interest rates would result in a $173,000 change in annual interest expense. Deferred financing fees are amortized over a five year period.
(r) To eliminate transaction fees incurred.
(s) To record tax adjustment to pro forma statements of operations using the estimated federal and state blended statutory
rate of 40.6%. This rate does not reflect Peets effective tax rate, which includes other tax items, such as state taxes, as well as other tax charges or benefits, and does not take into account any historical or possible future tax events that
may impact the combined company.
8) Pro Forma Net Income (Loss) per Share from Continuing Operations
Shares used in computing pro forma combined basic and diluted net income from continuing operations per share is the sum of Peets
shares, and Diedrich shares. Diedrich shares are calculated by multiplying each share of Diedrich common stock by an exchange ratio of approximately 0.208 of a share of Peets common stock for each share of Diedrich common stock outstanding
(representing the amount determined by dividing $8.67 by the closing price of Peets common shares on November 16, 2009 of $41.58, although the actual exchange ratio will
85
ultimately be determined pursuant to a formula set forth in the merger agreement, and in no event will exceed 0.315 of a share of Peets common stock, subject to adjustment for stock splits,
stock dividends and similar events). Dilutive potential common shares have been included only if they have a dilutive effect on earnings per share. Actual shares may vary due to the difference between the assumed exchange ratio and the actual
exchange ratio. The effect of a decrease in Peets stock price at the time of closing up to the maximum shares possible (using the exchange ratio of 0.315) under the merger agreement would result in an 875 share increase in diluted weighted
average shares and a $0.04 decrease in diluted pro forma loss from continuing operations per share for 2008 and an 879 share increase in diluted average shares and a $0.02 decrease in diluted pro forma income from continuing operations per share for
the nine month period ended September 27, 2009.
86
COMPARATIVE AND HISTORICAL PER SHARE MARKET PRICE DATA
Peets common stock trades on the Nasdaq Global Select Market under the symbol PEET. Diedrich common
stock trades on the Nasdaq Capital Market under the symbol DDRX. Diedrich common stock first began trading on the Nasdaq National Market on September 12, 1996.
The following table shows the high and low prices per share of Peets common stock as reported on the Nasdaq Global Select Market and
Diedrich common stock as reported on the Nasdaq Capital Market on (1) November 2, 2009, the last full trading day before the public announcement of the offer and the merger, and on November 16, 2009, the last full trading day before
the printing of this prospectus/offer to purchase.
The table also includes the equivalent high and low prices per share of
Diedrich common stock on those dates. The equivalent high and low price per share reflects the fluctuating value of the merger consideration that Diedrich stockholders would receive in exchange for each share of Peets common stock if the
merger was completed on either of these dates.
As of November 16, 2009, there were approximately 362 holders of record
of Peets common stock and 13,098,477 shares of Peets common stock outstanding. As of November 16, 2009, there were approximately 498 holders of record of Diedrich common stock and 5,726,813 shares of Diedrich common stock
outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peets
Common Stock
|
|
Diedrich
Common Stock
|
|
Estimated
Equivalent
Diedrich
Per Share Price(1)
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
November 2, 2009
|
|
$
|
34.56
|
|
$
|
33.04
|
|
$
|
22.90
|
|
$
|
19.79
|
|
$
|
26.00
|
|
$
|
26.00
|
November 16, 2009
|
|
$
|
41.62
|
|
$
|
39.18
|
|
$
|
26.40
|
|
$
|
25.85
|
|
$
|
26.00
|
|
$
|
26.00
|
(1)
|
The equivalent price per share amounts are calculated by adding (a) the cash component of the offer consideration, or $17.33, to (b) the stock component of
the offer consideration having a value equal to $8.67 per share, based on a formula set forth in the merger agreement.
|
The following table sets forth the high and low closing sales prices of Peets common stock for the periods indicated. The prices indicated below have been appropriately adjusted to give retroactive effect to all stock splits that have
occurred through the date of this proxy statement/prospectus.
|
|
|
|
|
|
|
|
|
Peets
Common
Stock
|
|
|
Low
|
|
High
|
Year Ended December 30, 2007
|
|
|
|
|
|
|
First quarter
|
|
$
|
24.94
|
|
$
|
28.20
|
Second quarter
|
|
|
24.63
|
|
|
28.89
|
Third quarter
|
|
|
23.35
|
|
|
28.01
|
Fourth quarter
|
|
|
26.02
|
|
|
30.06
|
|
|
|
Year Ended December 28, 2008
|
|
|
|
|
|
|
First quarter
|
|
|
19.89
|
|
|
29.07
|
Second quarter
|
|
|
20.86
|
|
|
24.92
|
Third quarter
|
|
|
18.79
|
|
|
28.88
|
Fourth quarter
|
|
|
19.05
|
|
|
27.92
|
|
|
|
Year Ending December 27, 2009
|
|
|
|
|
|
|
First quarter
|
|
|
19.41
|
|
|
23.54
|
Second quarter
|
|
|
21.33
|
|
|
29.00
|
Third quarter
|
|
|
25.20
|
|
|
28.54
|
Fourth quarter (through November 16, 2009)
|
|
|
27.51
|
|
|
41.58
|
87
The following table sets forth the high and low closing sales prices of Diedrichs common stock for the
periods indicated. The prices indicated below have been appropriately adjusted to give retroactive effect to all stock splits that have occurred through the date of this proxy statement/prospectus.
|
|
|
|
|
|
|
|
|
Diedrich
Common
Stock
|
|
|
Low
|
|
High
|
Year Ended June 25, 2008
|
|
|
|
|
|
|
First quarter
|
|
$
|
3.61
|
|
$
|
4.28
|
Second quarter
|
|
|
3.47
|
|
|
3.80
|
Third quarter
|
|
|
2.90
|
|
|
3.58
|
Fourth quarter
|
|
|
1.90
|
|
|
2.95
|
|
|
|
Year Ended June 24, 2009
|
|
|
|
|
|
|
First quarter
|
|
|
1.71
|
|
|
2.35
|
Second quarter
|
|
|
0.30
|
|
|
2.29
|
Third quarter
|
|
|
0.30
|
|
|
0.70
|
Fourth quarter
|
|
|
0.31
|
|
|
18.71
|
|
|
|
Year Ending June 23, 2010
|
|
|
|
|
|
|
First quarter
|
|
|
17.36
|
|
|
25.59
|
Second quarter (through November 16, 2009)
|
|
|
18.40
|
|
|
29.88
|
Following the completion of the merger, Peets common stock will continue to be
listed on the Nasdaq Global Select Market, and there will be no further market for Diedrich common stock.
The foregoing
tables show only historical information. These tables may not provide meaningful information to you in determining whether to tender your shares of Diedrich common stock. Diedrich stockholders should obtain current market quotations for Peets
common stock and Diedrich common stock and review carefully the other information contained in this prospectus/offer to purchase and in Diedrichs solicitation/recommendation statement on Schedule 14D-9, or incorporated by reference into this
prospectus/offer to purchase or the Schedule 14D-9, in considering whether to tender shares in the offer. See the section entitled Where You Can Find Additional Information beginning on page 100 of this prospectus/offer to purchase.
88
COMPARISON OF RIGHTS OF PEETS SHAREHOLDERS AND DIEDRICH
STOCKHOLDERS
The rights of Peets shareholders are currently governed by the Washington Business Corporation Act
(Washington law), Peets articles of incorporation and Peets bylaws. The rights of Diedrich stockholders are currently governed by Delaware law, Diedrichs certificate of incorporation and Diedrichs bylaws. Upon
completion of the merger, Diedrich stockholders will automatically become Peets shareholders, and their rights as Peets shareholders will be governed by Washington law, Peets articles of incorporation and Peets bylaws.
The following paragraphs summarize some of the important differences between the rights of Peets shareholders and the
rights of Diedrich stockholders. This summary does not purport to be a complete statement of all of those differences or a complete description of the specific provisions referred to in this summary. Peets bylaws and articles of incorporation
provide that, should Peets become subject to Section 2115 of the California Corporations Code, Peets shareholders would have certain rights that differ from the rights described below. The summary below is qualified in its entirety
by reference to Washington law, Peets articles of incorporation, Peets bylaws, Delaware law, Diedrichs certificate of incorporation and Diedrichs bylaws, and Diedrich stockholders should carefully review the relevant
provisions thereof. For more information on how to obtain these documents, see Where You Can Find Additional Information beginning on page 100 of this prospectus/offer to purchase.
AUTHORIZED CAPITAL STOCK
|
|
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs authorized capital stock consists of 20,500,000 shares of capital stock, consisting of:
17,500,000 shares of Diedrich common stock, $0.01 par value
3,000,000 shares of Diedrich preferred stock, $0.01 par value per share.
|
|
Peets authorized capital stock consists of 60,000,000 shares of capital stock, consisting of:
50,000,000 shares of Peets common stock, no par value
10,000,000 shares of Peets preferred stock, no par value per share.
|
|
STOCK LISTING
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs common stock is listed on the NASDAQ Capital Market.
|
|
Peets common stock is listed on the NASDAQ Global Select Market.
|
|
VOTING RIGHTS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Each share of Diedrichs common stock entitles its holder to one vote on all matters on which common stockholders are entitled to vote.
|
|
Each share of Peets common stock entitles its holder to one vote on all matters on which common stockholders are entitled to vote.
|
|
CUMULATIVE VOTING
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs certificate of incorporation does not provide for cumulative voting. Accordingly, holders of Diedrich common stock have no cumulative voting rights in connection
with the election of directors.
|
|
Peets articles of incorporation provide that no shareholder entitled to vote at an election for directors may cumulate votes. Accordingly, holders of Peets common stock
have no cumulative voting rights in connection with the election of directors.
|
89
|
|
|
NUMBER OF DIRECTORS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs bylaws provide that the number of directors that constitute the board of directors shall be determined by a resolution of its board of directors, but in no event
shall there be fewer than three (3) or more than seven (7) directors. The Diedrich board of directors currently consists of five (5) directors.
|
|
Peets articles of incorporation and bylaws provide that the number of directors that constitute the board of directors shall be fixed exclusively by resolution adopted by the
majority of the authorized number of directors. The Peets board of directors currently consists of eight (8) directors.
|
|
CLASSIFICATION OF BOARD OF DIRECTORS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs certificate of incorporation and bylaws do not classify its board of directors into separate classes.
|
|
Peets articles of incorporation and bylaws classify its board of directors into three separate classes with staggered three-year terms.
|
|
ELECTION OF DIRECTORS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs bylaws provide that directors shall be elected annually by Diedrichs stockholders, and the persons receiving the greatest number of votes, up to the number of
directors to be elected, shall be the directors.
|
|
Peets articles of incorporation provide that at each annual meeting of shareholders, directors shall be elected for three-year terms to succeed the directors of the class
whose terms expire at such annual meeting. The persons receiving the greatest number of votes cast by the shares entitled to vote in the election, up to the number of directors to be elected, shall be directors.
|
|
FILLING VACANCIES ON THE BOARD OF DIRECTORS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Delaware law provides that, unless the certificate of incorporation or bylaws provide otherwise, vacancies and newly created directorships may be filled by the affirmative vote of a
majority of the directors then in office or a sole remaining director, even though less than a quorum. Diedrichs bylaws provide that any vacancy in the board of directors, whether because of death, resignation, disqualification, an increase in
the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, even if less than a quorum, or by a sole remaining director.
|
|
Under Washington law, unless the articles of incorporation provide otherwise, a vacancy may be filled by the shareholders or by the affirmative vote of a majority of the directors
then in office, even though less than a quorum. Peets articles of incorporation and bylaws provide that any vacancy on the board of directors resulting from death, resignation, disqualification, removal, any increase in the number of
directors, or other causes shall, unless the board of directors determines by resolution that such vacancy shall be filled by shareholders, be filled only by the affirmative vote of a majority of the directors then in office, even if less than a
quorum.
|
90
|
|
|
REMOVAL OF DIRECTORS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Under Delaware law, the affirmative vote of a majority of the shares entitled to vote for the election of directors is required to remove directors, with or without cause, subject
to certain exceptions. Diedrichs bylaws provide that any director or the entire board of directors may be removed, either with or without cause, by the affirmative vote of the stockholders having a majority of voting power of all issued and
outstanding stock entitled to vote at the election of directors.
|
|
Under Washington law, shareholders may remove one or more directors with or without cause, unless the articles of incorporation provide otherwise. Peets articles of
incorporation and bylaws provide that directors may only be removed for cause.
|
|
INTERESTED DIRECTORS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Under Delaware law, specified contracts or transactions in which one or more of a corporations directors has an interest are not
void or voidable solely because of such interest if such contract or transaction
is ratified by the corporations stockholders or a majority of
disinterested members of the board of directors or a committee thereof if the material facts of the contract or transaction are disclosed or known, or
was fair to the corporation at the time it was approved.
|
|
Washington law permits transactions in which one or more directors have a conflicting interest if:
a majority,
although no fewer than two, of the qualified directors on the board of directors, or on the committee considering the transaction, approves the transaction;
an affirmative vote of a majority of all qualified shares approves the
transaction; or
at the time of commitment, the transaction was fair to the corporation.
Such vote must occur after the directors have received disclosure of the conflicting interest, with certain limited exceptions, or the vote will be invalid.
Further, a committee vote is valid only if all members of the committee are qualified
directors and, either:
are all the qualified directors on the board of directors; or
were appointed by the affirmative vote of a majority of the board of
directors qualified directors.
A director is a qualified director if
he or she has neither a conflicting interest regarding the transaction; nor any familial, financial, professional or employment relationship with a second director who does have a conflicting interest, if the relationship would reasonably be
expected to exert influence on the first directors judgment in voting on the transaction.
|
91
|
|
|
|
|
Qualified shares are defined generally as shares other than those beneficially owned, or the voting of which is controlled, by a director who has a conflicting interest regarding
the transaction.
|
|
STOCKHOLDER AND SHAREHOLDER PROPOSALS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs bylaws allow stockholders to propose business, including the nomination of an individual for election as a director, to
be brought before any annual or special stockholder meeting.
For business
to be properly submitted by a stockholder before an annual stockholder meeting, written notice must be delivered to Diedrichs secretary not earlier than one hundred twenty (120) days prior to nor later than ninety (90) days prior to the
anniversary of the preceding years annual meeting, or, if the date of the annual meeting is advanced more than thirty (30) days or delayed more than sixty (60) days from such anniversary date, not earlier than one hundred twenty
(120) days and not later than the later of (x) the ninetieth (90th) day prior to such meeting and (y) the tenth (10th) day after the date on which the Diedrich publicly announces such annual stockholder meeting.
Only such business specified in the notice of a special stockholders meeting may be
conducted at such special meeting of Diedrichs stockholders. In the event that a special stockholders meeting is called for the purpose of electing one or more directors to Diedrichs board of directors, any stockholder of record entitled
to vote at such meeting at the time such notice is delivered may nominate a person or persons for election to the board of directors by delivering a notice to the secretary of Diedrich not earlier than one hundred twenty (120) days prior
to such special meeting nor later than the later of (x) ninety (90) days prior to such special meeting and (y) ten (10) days following the public announcement of such special meeting.
Any notice of proposed stockholder business delivered to Diedrichs secretary must
contain:
(1) as to each person nominated for election as a director, all
information that is required to be provided by the Securities and Exchange Commissions proxy rules, and such nominees written consent to being named as a nominee and to serving as a director if elected;
|
|
Peets bylaws provide that a shareholder may propose business to be conducted at an annual meeting, including the nomination of an
individual for election as director, by notice in writing delivered to Peets secretary at Peets principal executive offices not earlier than one hundred twenty (120) days prior to nor later than the ninety (90) days prior to the
anniversary of the preceding years annual shareholder meeting, or, in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at
the time of the previous years proxy statement, not earlier than the ninetieth (90th) or later than the sixtieth (60th) day prior to such annual meeting. In the event public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual meeting, such notice must be delivered no later than ten (10) days following the day on which public announcement of the date of such meeting is first made by the corporation.
Such notice must contain:
a brief
description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting;
the name and address, as they appear on Peets books, of the shareholder
proposing such business;
the class and number of shares of Peets shares which are beneficially owned by the shareholder;
any material interest of the shareholder in such business; and
any other
information that is required to be provided by the Securities and Exchange Commissions proxy rules.
|
92
|
|
|
(2) as to any other business that the stockholder proposes to bring before the meeting:
a brief
description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend
Diedrichs bylaws, the language of the proposed amendment);
the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made, and their respective names and addresses;
the class and number of shares of Diedrichs capital stock that are owned beneficially and of record by such stockholder and such beneficial owner;
a
representation that the stockholder is a holder of record of Diedrichs entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination;
a
representation whether the stockholder or the beneficial owner, if any, intends or is part of a group that intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of Diedrichs outstanding
capital stock required to approve or adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies from stockholders in support of such proposal or nomination
|
|
|
|
ACTION BY WRITTEN CONSENT
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Under Delaware law, unless the certificate of incorporation provides otherwise, actions may be taken by the stockholders by written consent, provided that the written consent is
signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote on the matter were present and voted.
|
|
Under Washington law, shareholder action with respect to a public company may be taken without a meeting only if written consents setting forth such action are signed by all
shareholders entitled to vote on the action. Peets articles of incorporation provides that any action by Peets shareholders must be taken at a special or annual meeting of Peets shareholders.
|
93
|
|
|
Diedrichs bylaws allow its stockholders to take any action by the written consent, without prior notice and without a vote, that would or could otherwise be taken at an annual
meeting or special meeting of the Diedrich stockholders. Such written consent must be signed by holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous consent must be given to those stockholders who did not consent in writing.
|
|
|
|
ADVANCE NOTICE OF STOCKHOLDER OR SHAREHOLDER MEETINGS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs bylaws provide that Diedrich must give notice of annual and special meetings of its stockholders not more than sixty (60) days before the date of such meeting and
not less than ten (10) days before the date of such meeting to each stockholder of record entitled to vote at such meeting.
|
|
Peets bylaws provide that Peets must give notice to its shareholders of each meeting of its shareholders not more than sixty (60) days before the date of such meeting
and not less than ten (10) days (or, if the proposed business to be conducted such meeting includes an amendment of Peets articles of incorporation, a voluntary liquidation, a proposed merger, consolidation, or disposition of substantially all
of Peets assets, twenty (20) days) before the date of such meeting.
|
|
CALLING SPECIAL MEETINGS OF STOCKHOLDERS OR SHAREHOLDERS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Under Delaware law, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in the certificate of incorporation or the
bylaws. Diedrichs bylaws provide that special meetings of stockholders may only be called by the board of directors, the chairman of the board, or the president of Diedrich with the concurrence of a majority of the board of
directors.
|
|
Washington law provides that a special meeting of shareholders of a corporation may be called by its board of directors, by holders of at least 10% of all the votes entitled to
be cast on any issue proposed to be considered at the special meeting, or by other persons authorized to do so by the articles of incorporation or bylaws of the corporation. However, Washington law allows a corporations articles of
incorporation to limit or deny entirely the right of shareholders to call a special meeting. Peets bylaws provide that special meetings of shareholders may only be called by a majority of the board of directors, the chairperson of the board of
directors (if one be elected), or the chief executive officer.
|
94
|
|
|
APPRAISAL OR DISSENTERS RIGHTS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Under Delaware law, if Diedrich is a party to a merger, under certain circumstances, a Diedrich stockholder may be entitled to appraisal rights pursuant to which such stockholder
may receive cash in the amount of the fair value of his or her shares in lieu of the consideration he or she would otherwise receive in the transaction. A Delaware corporations charter may also provide that appraisal rights shall be available
in the event of the sale of all or substantially all of a corporations assets or the adoption of an amendment to its charter, however Diedrichs charter does not provide for such rights. See the section entitled Appraisal
Rights beginning on page 44 of this prospectus/offer to purchase.
|
|
Under Chapter 23B.13 of the Washington Business Corporation Act, a shareholder is entitled to dissent from, and obtain the fair value of his or her shares in connection with,
certain corporate actions, including certain mergers, share exchanges and sales of all or substantially all of the corporations property other than in the usual and regular course of business, which require shareholder approval. To the extent
that the articles, bylaws or resolutions of the board of directors provide for dissenters rights, shareholders also may exercise these rights in connection with any corporate action taken by shareholder vote. Shareholders generally will not
have such dissenters rights if shareholder approval is not required to effect the corporate action. If Peets is a party to a merger, under certain circumstances, a Peets shareholder may be entitled to appraisal rights pursuant to
which such stockholder may receive cash in the amount of the fair value of his or her shares in lieu of the consideration he or she would otherwise receive in the transaction.
|
|
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Under Delaware, a directors personal liability to the corporation or its shareholders for monetary damages for conduct as a
director may be eliminated or limited in the corporations articles, except that the articles may not limit the liability of a director:
for any breach of the directors duty of loyalty to the corporation or its
stockholders;
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
for conduct violating Section 174 of the Delaware General Corporation Law
(pertaining to unlawful distributions); or
for any transaction from which the director derived an improper personal benefit.
Diedrichs certificate of incorporation provides that, to the fullest extent permitted by Delaware law, as now exists or may hereafter be amended, no
director will be personally liable to Diedrich or its stockholders for monetary damages for breach of fiduciary duty as a director.
|
|
Under Washington law, a directors personal liability to the corporation or its shareholders for monetary damages for conduct as a
director may be eliminated or limited in the corporations articles, except that the articles may not limit the liability of a director:
for acts or omissions by a director that involve intentional misconduct or a
knowing violation of the law,
for conduct violating Section 23B.08.310 of the Washington Business Corporation Act (pertaining to unlawful distributions); or
for any
transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.
Peets articles of incorporation provide that, if Washington law is amended to further eliminate or limit the personal liability of directors, then the
liability of Peets directors shall be deemed eliminated or limited to the fullest extent permitted under Washington law.
|
95
|
|
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Delaware law generally permits indemnification of a person who acted in good faith and in a manner that he or she reasonably believed to
be in or not opposed to the best interests of the corporation or in the case of a criminal action, had no reason to believe that his or her conduct was unlawful.
Diedrichs bylaws provide that Diedrich shall, to the fullest extent provided by Delaware law, indemnify and hold harmless each person who is a party
to, is threatened to be made a party of, or initiates (with the consent or ratification of Diedrichs board of directors) any proceeding by reason of the fact that such person was, is, or allegedly committed an action in his or her official
capacity as, a director or officer or Diedrich (or was serving as such at another entity at Diedrichs request), against any expense (including attorneys fees) or liability reasonably incurred or suffered in connection with such
proceeding. Diedrich must also provide to such person, to the extent not prohibited by law, advancement of expenses (including attorneys fees) incurred in defending such proceeding prior to its final disposition. If required by Delaware law,
such advancement of expenses shall be conditioned on the receipt of an undertaking by and on behalf of such indemnified person to repay all amounts so advanced if it is later adjudicated that such person is not entitled to indemnification under
Diedrichs bylaws.
Diedrichs bylaws also provide that it may
indemnify its employees and agents to the same extent as its directors and officers.
|
|
Washington law generally permits indemnification of a person who acted in good faith and in a manner the person reasonably believed
to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that the conduct was unlawful. Indemnification is permissible under Washington law, except
that a corporation must indemnify a present or former officer or director who is successful on the merits or otherwise in the defense of certain specified actions, suits or proceedings for expenses, including attorneys fees, actually and
reasonably incurred in connection therewith.
Peets bylaws provide
that it must indemnify its directors and executive officers against all reasonable expenses (including attorneys fees) in any proceeding to which he or she was a party because of being a director or executive officer of the
corporation:
if he or she if wholly successful in the defense of such proceeding; or
if he or she acted in good faith and reasonably believed: (a) if acting in an
official capacity with the corporation, that his or her conduct was in the corporations best interests; (b) in the case of any criminal proceeding, he or she had no reasonable cause to believe the his or her conduct was unlawful; and, (c) in
all other cases, this or her conduct was at least not opposed to the corporations best interests.
However, Peets bylaws provide that it shall not indemnify a director in connection with a proceeding by or in the right of the corporation in which a director or executive officer is adjudged liable
to the corporation, or in connection with any other proceeding charging improper personal benefit to a director or executive officer, whether or not involving action in the his or her official capacity, in which the director or executive officer was
adjudged liable on the basis that personal benefit was improperly received by the him or her.
Peets bylaws also provide that it may indemnify and advance expenses (including attorneys fees) to other officers, employees or agents to the same extent to its directors.
|
96
|
|
|
VOTE ON CERTAIN FUNDAMENTAL ISSUES
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Delaware law generally provides that, unless otherwise specified in a corporations charter or unless the provisions of the Delaware law relating to business combinations
indicated herein are applicable, a sale or other disposition of all or substantially all of the corporations assets, a merger or consolidation of the corporation with another corporation or a dissolution of the corporation requires the
affirmative vote of a majority of the outstanding stock entitled to vote on the matter. However, under Delaware law, unless required by its charter, no vote of the stockholders of a constituent corporation surviving a merger is necessary to
authorize such merger if certain requirements are met.
|
|
Under Washington law, a merger or share exchange must be approved by the affirmative vote of a majority of directors when a quorum is
present and by two-thirds of all votes entitled to be cast by each voting group entitled to vote as a separate group, unless another percentage is specified in the articles of incorporation (which percentage may not be below a majority of all votes
entitled to be cast by such voting group). The sale of all or substantially all of a corporations assets other than in the regular course of business or a vote to dissolve the corporation must be approved by the affirmative vote of a majority
of directors when a quorum is present and by two-thirds of all votes entitled to be cast on the proposal unless another percentage is specified in the articles of incorporation (which percentage may not be below a majority of all votes entitled to
be cast by such voting group).
Under Washington law, a merger may also
become effective without the approval of the surviving corporations shareholders if certain requirements are met.
|
|
BUSINESS COMBINATION RESTRICTIONS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Section 203 of the Delaware General Corporation Law limits specified business combinations of Delaware corporations with interested
stockholders. Under the Delaware General Corporation Law, an interested stockholder (a stockholder whose beneficial ownership in the corporation is at least 15% of the outstanding voting securities) cannot enter specified business combinations with
the corporation for a period of three years following the time that the stockholder became an interested stockholder unless:
prior to that time, the corporations board of directors approved either
the business combination or the transaction in which the stockholder became an interested stockholder;
upon consummation of the transaction in which any person becomes an interested
stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares
|
|
Chapter 23B.19 of the Washington Business Corporation Act, which applies to Washington corporations that have a class of voting stock
registered with the SEC under section 12 or 15 of the Exchange Act, prohibits a target corporation, with certain exceptions, from engaging in certain significant business transactions with a person or group of persons who or which beneficially owns
10% or more of the voting shares of the target corporation for a period of five years after such share acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the board of directors of the target
corporation prior to the time of the initial acquisition by the acquiring person.
These prohibited transactions include, among other things:
a merger, share exchange or consolidation with, dispositions of a certain amount of assets to, or issuance or redemption of
|
97
|
|
|
owned by specified employee stock ownership plans and persons who are both directors and officers of the
corporation; or
at or subsequent to such time, the business combination is both approved by the board of directors and authorized at an annual or special meeting of stockholders, not by written consent, by the
affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholders.
|
|
shares to or from, the acquiror or its affiliates or associates;
termination
of 5% or more of the employees of the target corporation or its subsidiaries who are employed in Washington State following the acquirors acquisition of 10% or more of the shares; or
allowing
the acquiror to receive any disproportionate benefit as a shareholder.
|
|
AMENDMENT OF CERTIFICATE OF INCORPORATION AND ARTICLES OF INCORPORATION
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Delaware law generally provides that the affirmative vote of a majority of the outstanding shares entitled to vote, and in certain circumstances, a separate class vote is required
to amend a corporations certificate of incorporation. It also provides that a certificate of incorporation may provide for a greater or lesser vote than would otherwise be required by Delaware law. Diedrich has reserved the right to amend,
alter, change or repeal any provisions contained in its certificate of incorporation, in the manner now or hereafter prescribed by statute, with all rights conferred on stockholders granted subject to such reservation.
|
|
Washington law generally requires that any amendment to a corporations articles of incorporation be approved by each voting group entitled to vote on the amendment by a
majority of all the votes entitled to be cast by that voting group unless another percentage is specified (1) in the articles of incorporation, (2) by the board of directors as a condition to its recommendation or (3) by the provisions of Washington
law. Peets has reserved the right to amend, alter, change or repeal any provision contained in its articles of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on shareholders are granted subject to
such reservation. The affirmative vote of the holders of at least sixty six and two-thirds percent (66
2
/
3
%) of the outstanding capital stock entitled to vote generally in the election of Peets directors is required to alter, amend or repeal the articles of
incorporation.
|
|
AMENDMENT OF BYLAWS
|
Diedrich Stockholder Rights
|
|
Peets Shareholder Rights
|
Diedrichs certificate of incorporation and bylaws provide that its board of directors may make, repeal, alter, amend and rescind its bylaws. Diedrichs bylaws provide
that its bylaws may be altered, amended or repealed, and new bylaws may be made, by its stockholders at any annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed
amendment, modification, repeal or adoption is given in the notice of the special meeting. Diedrichs bylaws further provide that any bylaw made or altered by its stockholders may be altered or repealed by either of Diedrichs board of
directors or stockholders.
|
|
Peets articles of incorporation and bylaws provide that its bylaws may be altered, amended or repealed by either (i) the vote of at least a majority of the authorized number
of directors, or (ii) the affirmative vote of the holders of at least sixty six and two-thirds percent (66
2
/
3
%) of the outstanding capital stock entitled to vote generally in the election of Peets directors.
|
98
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows Peets to incorporate by reference information into this prospectus/offer to purchase, which means that we
can disclose important information to Diedrichs stockholders by referring them to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus/offer to purchase, except for
any information superseded by information contained directly in this prospectus/offer to purchase. The information that Peets or Diedrich files with the SEC later will automatically update and supersede this information. This prospectus/offer
to purchase incorporates by reference the documents listed below that Peets and Diedrich have previously filed with the SEC. These documents contain important information about Peets and Diedrich and their respective businesses,
financial conditions and results of operations.
|
|
|
Peets filings (File no. 0-32233)
|
|
Period
|
Annual Report on Form 10-K
|
|
Year ended December 28, 2008, as filed on March 13, 2009
|
Quarterly Report on Form 10-Q
|
|
Quarter ended March 29, 2009, as filed on May 7, 2009
|
Quarterly Report on Form 10-Q
|
|
Quarter ended June 28, 2009, as filed on August 6, 2009
|
Quarterly Report on Form 10-Q
|
|
Quarter ended September 27, 2009, as filed on November 6, 2009
|
Current Report on Form 8-K
|
|
Filed on November 4, 2009
|
The description of Peets common stock contained in Registration Statement 8-A/A
|
|
Filed on January 18, 2001, as amended January 23, 2001
|
|
|
|
Diedrich filings (File no. 0-21203)
|
|
Period
|
Annual Report on Form 10-K
|
|
Year ended June 24, 2009, as filed on September 22, 2009
|
Quarterly Report on Form 10-Q
|
|
Quarter ended September 16, 2009, as filed on November 2, 2009
|
Current Report on Form 8-K
|
|
Filed on October 28, 2009
|
Current Report on Form 8-K
|
|
Filed on November 3, 2009
|
All information and documents subsequently filed by Peets and Diedrich pursuant
to Section 13(a), Section 13(c), Section 14 or Section 15(d) of the Exchange Act but prior to the earlier of the date that the merger agreement is terminated or the date on which the merger becomes effective shall also be deemed
to be incorporated herein by reference and will constitute a part of this document from the date of filing of that information or document.
Neither Peets nor the Purchaser has authorized anyone to give any information or make any representation about the offer that is different from, or in addition to, that contained in this
prospectus/offer to purchase or in any of the materials that Peets and the Purchaser have incorporated by reference into this prospectus/offer to purchase. Therefore, if anyone provides information of this sort, Diedrichs stockholders
should not rely on it. If Diedrich stockholders are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document are unlawful, or if it is unlawful to direct these
types of activities, to any Diedrich stockholders then the offer presented in this document does not extend to such stockholders. The information contained in this document speaks only as of the date of this document unless the information
specifically indicates that another date applies, and neither the mailing of this prospectus to the stockholders nor the issuance of shares of Peets common stock pursuant to the offer or in the merger shall create any implication to the
contrary.
Diedrich stockholders may obtain copies of this prospectus/offer to purchase and the documents incorporated herein
by reference herein and Diedrichs Schedule 14D-9 and the documents incorporated herein by reference without charge (excluding all exhibits unless such exhibits have been specifically incorporated by reference in this prospectus/offer to
purchase) by contacting Peets at its address or telephone number indicated below under the caption Where You Can Find Additional Information.
99
LEGAL MATTERS
Cooley Godward Kronish LLP, counsel to Peets, will pass upon the validity of the Peets common stock to be issued in the offer
and the merger for Peets.
EXPERTS
The consolidated financial statements incorporated in this prospectus/offer to purchase by reference from the Form 10-K of Peets
Coffee & Tea, Inc. and subsidiaries (the Company) for the fiscal year ended December 28, 2008, and the effectiveness of the Companys internal control over financial reporting have been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference (which report (1) expresses an unqualified opinion on the consolidated financial statements and includes an explanatory
paragraph referring to the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes and (2) expresses an unqualified opinion on the effectiveness of the internal control over financial
reporting). Such consolidated financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements and schedule of Diedrich Coffee, Inc. at June 24, 2009 and June 25, 2008 and for each of the two years
in the period ended June 24, 2009 appearing in Diedrich Coffee, Inc.s Annual Report on Form 10-K, for the year ended June 24, 2009, have been audited by BDO Seidman, LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial statements are incorporated here by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Peets and Diedrich file annual, quarterly and other reports, proxy statements and other information with the SEC under the Exchange
Act. Such reports, proxy statements and other information may be read and copied at the public reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 20549, and at the regional offices of the SEC located at 3 World Financial
Center, Suite 400, New York, NY 10281 and 175 W. Jackson Boulevard, Suite 900, Chicago, IL 60604. Copies of such information should be obtainable by mail, upon payment of the SECs customary charges, by writing to the SECs principal
office at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain information by calling the SEC at 1-800-732-0330. The SEC also maintains a website at www.sec.gov that contains public filings reports, proxy statements and other
information relating to Diedrich and Peets that have been filed via the EDGAR System. Such material should also be available for inspection at the offices of the Financial Industry Regulatory Authority. located at 1735 K Street, NW,
Washington, D.C. 20006.
You may also request copies of these documents from the Purchaser, without charge, excluding all
exhibits, unless the Purchaser has specifically incorporated by reference an exhibit in this prospectus/offer to purchase. You may obtain documents incorporated by reference in this prospectus/offer to purchase by requesting them in writing or by
telephone from Laurel Hill Advisory Group, LLC (the Information Agent) at the address set forth below. You can also contact the Information Agent at its address and telephone number listed below for answers to your questions regarding the
transaction.
Laurel Hill Advisory Group, LLC
100 Wall Street, 22nd Floor
New York, NY 10005
Banks and Brokers Call Collect: (917) 338-3181
All Others Call Toll Free: (888) 742-1305
100
You may also obtain copies of this information from Peets website, www.peets.com, or
by sending an email to investorrelations@peets.com. Information contained on Peets or Diedrichs website does not constitute part of this prospectus/offer to purchase.
In order to receive timely delivery of any SEC filings or documents incorporated by reference, you must make your request no later than December 8, 2009.
You should rely only on the information contained in, or incorporated by reference into, this prospectus/offer to purchase, together with
the Schedule 14D-9 of Diedrich that has been mailed to you together with this prospectus/offer to purchase in deciding whether to tender your shares of Diedrich common stock in the offer. No one has been authorized to provide you with information
that is different from that contained in, or incorporated by reference into, this prospectus/offer to purchase or Schedule 14D-9 of Diedrich. You should not assume that the information contained in, or incorporated by reference into, this
prospectus/offer to purchase is accurate as of any date other than that November 17, 2009.
On November 17, 2009,
Peets filed a registration statement on Form S-4 with the SEC under the Securities Act to register the shares of Peets common stock to be issued in the offer and the merger, and Peets may also file amendments to that
registration statement. This prospectus/offer to purchase is a part of that registration statement and constitutes a prospectus of Peets for the shares of Peets common stock to be issued to Diedrichs stockholders in the offer and
the merger. As allowed by SEC rules, this prospectus/offer to purchase does not contain all of the information found in the registration statement or the exhibits to the registration statement. For further information relating to Peets and the
shares of Peets common stock, you should consult the registration statement and its exhibits. In addition, on November 17, 2009, Peets filed with the SEC a Tender Offer Statement on Schedule TO under the Exchange Act, to furnish
certain information about the offer, and Peets may also file amendments to the Schedule TO. On November 17, 2009, Diedrich filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 regarding the offer and the
merger, which includes an information statement pursuant to Section 14(f) of the Exchange Act and Rule 14F-1. You may obtain copies of the registration statement and its exhibits, the Schedule TO and the Schedule 14D-9 (and any
amendments to those documents) in the manner described above.
TRADEMARKS
This document contains trademarks of Peets and Diedrich and may contain trademarks of others.
101
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus/offer to purchase are, and statements in other material filed or to be filed with
the SEC (as well as information included in oral statements or other written statements made or to be made by Peets) will be, forward-looking within the meaning of the Securities Act and the Exchange Act. Generally, the words will,
may, should, continue, believe, expect, intend, anticipate or similar expressions identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate
indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or managements good faith belief with respect to future events, and is
subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.
You should understand that the following important factors, in addition to those discussed under the caption Risk Factors and in the documents that are incorporated herein by reference, could
affect the future results of Peets, Diedrich and the combined company following the completion of the offer and the merger and could cause those results or other outcomes to differ materially from those expressed or implied in the
forward-looking statements:
|
|
|
business expansion or cost savings expected to result from the proposed acquisition may not be fully realized or realized within the expected
time-frame;
|
|
|
|
operating results following the proposed acquisition may be lower than expected;
|
|
|
|
Peets may experience increased competitive pressure among companies in its industry generally or actions directed specifically against it by
competitors;
|
|
|
|
Peets and its subsidiaries may not be successful in implementing their business expansion and other financial and operational initiatives;
|
|
|
|
Peets may be adversely affected by industry competition, conditions, performance and consolidation;
|
|
|
|
Peets may be adversely affected by legislative and/or regulatory developments;
|
|
|
|
Peets may experience adverse changes in labor costs;
|
|
|
|
Peets may be adversely affected by global and domestic economic repercussions from recent terrorist activities and the government response
thereto;
|
|
|
|
Peets may be adversely affected by labor stoppages; and
|
|
|
|
Peets may be adversely affected by the outcome of claims and litigation.
|
Forward-looking statements speak only as of the date the statements were made. Peets assumes no obligation to update forward-looking
information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If Peets does update one or more forward- looking statements, no inference should be drawn that Peets will
make additional updates with respect thereto or with respect to other forward-looking statements.
102
Annex A-1
AGREEMENT AND PLAN OF MERGER
among:
P
EET
S
C
OFFEE
& T
EA
, I
NC
.,
a Washington corporation;
M
ARTY
A
CQUISITION
S
UB
, I
NC
.,
a Delaware corporation; and
D
IEDRICH
C
OFFEE
, I
NC
.,
a Delaware corporation
Dated as of November 2, 2009
AGREEMENT AND PLAN OF MERGER
T
HIS
A
GREEMENT
AND
P
LAN
OF
M
ERGER
(
Agreement
) is made and entered into as of November 2, 2009, by and among:
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
, a Washington
corporation (
Parent
);
M
ARTY
A
CQUISITION
S
UB
, I
NC
., a Delaware corporation and a wholly-owned subsidiary of Parent (
Acquisition
Sub
); and
D
IEDRICH
C
OFFEE
, I
NC
.
, a Delaware corporation (the
Company
). Certain capitalized terms used in this Agreement are defined in
Exhibit A
.
R
ECITALS
A.
The boards of directors of Parent, Acquisition Sub and the Company have each determined that it is in the best interests of their respective stockholders for Parent to acquire the Company upon
the terms and subject to the conditions set forth in this Agreement.
B.
In furtherance of the contemplated acquisition
of the Company by Parent, on the terms and subject to the conditions set forth in this Agreement: (a) Acquisition Sub shall make an exchange offer (such exchange offer, as it may be amended from time to time, being referred to in this Agreement
as the
Offer
) to acquire all of the issued and outstanding shares of Company Common Stock at the Per Share Consideration (as defined in
Section 1.1(a)
) for each such share; and (b) after acquiring shares of
Company Common Stock pursuant to the Offer, Acquisition Sub shall merge into the Company (the merger of Acquisition Sub into the Company being referred to in this Agreement as the
Merger
).
C.
In order to induce Parent and Acquisition Sub to enter into this Agreement and to consummate the Contemplated Transactions,
concurrently with the execution and delivery of this Agreement certain stockholders of the Company are executing and delivering stockholder agreements in favor of Parent and Acquisition Sub (the
Stockholder Agreements
).
A
GREEMENT
The parties to this Agreement, intending to be legally bound, agree as follows:
Section 1. T
HE
O
FFER
1.1 Conduct of the Offer
.
(a)
Parent shall cause Acquisition Sub to, and Acquisition Sub shall, use commercially reasonable
efforts to commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer as promptly as practicable after the date of this Agreement and to the extent feasible and with the reasonable cooperation of the Company and the
Companys Representatives, within ten (10) business days after the date of this Agreement. Each share of Company Common Stock accepted by Acquisition Sub in accordance with the terms and subject to the conditions of the Offer shall be
exchanged for the right to receive a combination of (i) $17.33, net to the holder of such share in cash (the
Cash Component
), and (ii) a fraction of a share of Parent Common Stock having a numerator equal to $8.67 and
having a denominator equal to the Parent Average Stock Price (the
Applicable Fraction
);
provided, however
, that in no event will the Applicable Fraction exceed 0.315 of a share of Parent Common Stock. The date on which
Acquisition Sub commences the Offer, within the meaning of Rule 14d-2 under the Exchange Act, is referred to in this Agreement as the
Offer Commencement Date
.
(b)
The obligation of Acquisition Sub to accept for exchange (and the obligation of Parent to cause Acquisition Sub to
accept for exchange) shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer shall be subject to (i) the condition (the
Minimum Condition
) that there shall be validly tendered (and not
withdrawn) a number of shares of Company
A-1-1
Common Stock that, together with any shares of Company Common Stock owned by Parent, Acquisition Sub or any other Subsidiaries of Parent immediately prior to the acceptance for exchange of shares
of Company Common Stock pursuant to the Offer, represents more than 50% of the Adjusted Outstanding Share Number (as defined below) and (ii) the other conditions set forth in
Exhibit B
. The Minimum Condition and the other conditions
set forth in
Exhibit B
are referred to collectively as the
Offer Conditions
. For purposes of this Agreement, the
Adjusted Outstanding Share Number
shall be the sum of (1) the aggregate number of
shares of Company Common Stock issued and outstanding immediately prior to the Acceptance Time,
plus
(2) at the election of Parent, an additional number of shares up to (but not exceeding) the aggregate number of shares of Company Common
Stock issuable upon the exercise of all Company Options, Company Warrants and other rights to acquire Company Common Stock that are outstanding immediately prior to the acceptance of shares of Company Common Stock for exchange pursuant to the Offer
and that are vested and exercisable or will be vested and exercisable prior to the Effective Time (but in all cases excluding the shares of Company Common Stock subject to the Top-Up Option).
(c)
Acquisition Sub expressly reserves the right, in its sole discretion, to (i) increase the Per Share
Consideration and (ii) waive or make any other changes to the terms and conditions of the Offer;
provided, however
, that without the prior written consent of the Company: (A) the Minimum Condition may not be amended or waived; and
(B) no change may be made to the Offer that (1) changes the form of consideration to be delivered by Acquisition Sub pursuant to the Offer, (2) decreases any component of the Per Share Consideration, (3) decreases the number of
shares of Company Common Stock to be purchased by Acquisition Sub in the Offer, (4) modifies the Offer or the Offer Conditions in a manner adverse to the stockholders of the Company or imposes conditions to the Offer in addition to the Offer
Conditions, or (5) except as provided in
Section 1.1(d)
, extends the expiration time of the Offer beyond the initial expiration time of the Offer. Subject to the terms and conditions of the Offer and this Agreement, Acquisition Sub
shall, and Parent shall cause Acquisition Sub to, (x) accept for exchange all shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer as soon as practicable after Acquisition Sub is permitted to do so under
applicable Legal Requirements (and in any event in compliance with Rule 14e-1(c) of the Exchange Act) and (y) deliver the Per Share Consideration in exchange for each share of Company Common Stock accepted for exchange pursuant to the
Offer.
(d)
The Offer shall initially be scheduled to expire 20 business days following the Offer
Commencement Date (calculated as set forth in Rule 14d-1(g)(3) and Rule 14e-1(a) under the Exchange Act). Notwithstanding anything to the contrary contained in this Agreement, but subject to the parties respective termination rights
under
Section 8.1
: (i) if, at the time as of which the Offer is scheduled to expire, any Offer Condition is not satisfied and has not been waived, then, subject to the parties respective termination rights under
Section 8.1
, Acquisition Sub shall extend the Offer on one or more occasions, for additional successive periods of up to 20 business days per extension (with the length of such periods to be determined by Parent), until all Offer
Conditions are satisfied or validly waived in order to permit the Acceptance Time to occur;
provided, however
, that in no event shall Acquisition Sub be required to extend the Offer to a date later than March 31, 2010; and
(ii) Acquisition Sub shall extend the Offer from time to time for any period required by any rule, regulation, interpretation or position of the SEC or the staff of the SEC applicable to the Offer. If less than 90% of the number of outstanding
shares of Company Common Stock are accepted for exchange pursuant to the Offer, Acquisition Sub may, in its sole discretion (and without the consent of the Company or any other Person), elect to provide for one or more subsequent offering periods
(of up to 20 business days in the aggregate) in accordance with Rule 14d-11 under the Exchange Act. Subject to the terms and conditions of this Agreement, Acquisition Sub shall promptly accept for exchange, and deliver consideration for, all
shares of Company Common Stock that are validly tendered during any such subsequent offering period (or any extension thereof). For the avoidance of doubt, if, at any scheduled expiration date of the Offer, all of the Offer Conditions have been
satisfied or waived in writing by Parent, and this Agreement has not otherwise been terminated in accordance with its terms,
A-1-2
Acquisition Sub shall promptly accept for exchange, and deliver consideration for, all Shares validly tendered and not validly withdrawn pursuant to the Offer in accordance with this Agreement.
For the further avoidance of doubt, the Acceptance Time shall not be extended by any subsequent offering periods.
(e)
No fractional shares of Parent Common Stock shall be issued in connection with the Offer, and no certificates or scrip for any such fractional shares shall be issued in connection with the Offer. Any holder of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock in the Offer (after aggregating all fractional shares of Parent Common Stock issuable to such holder in the Offer) shall, in lieu of such fraction of a
share, be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing trading price of a share of Parent Common Stock as reported on the Nasdaq Capital Market on the
trading day immediately before the trading day that includes the Acceptance Time.
(f)
As soon as
practicable after the date of this Agreement but in no event after the Offer Commencement Date, Parent shall prepare and file with the SEC a registration statement on Form S-4 to register the offer and sale of Parent Common Stock pursuant to
the Offer (the
Registration Statement
). The Registration Statement will include a preliminary prospectus containing the information required under Rule 14d-4(b) under the Exchange Act (the
Preliminary
Prospectus
). On the Offer Commencement Date, Parent and Acquisition Sub shall: (i) cause to be filed with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer, which will contain or incorporate by reference
the Preliminary Prospectus and forms of the related letter of transmittal and summary advertisement (such Tender Offer Statement on Schedule TO and all exhibits, amendments and supplements thereto being referred to collectively in this
Agreement as the
Offer Documents
); and (ii) cause the Offer Documents to be disseminated to holders of shares of Company Common Stock to the extent required by applicable Legal Requirements (including the Exchange Act and the
rules and regulations thereunder). Parent and Acquisition Sub shall cause the Registration Statement and the Offer Documents to comply in all material respects with applicable Legal Requirements (including the Exchange Act and the Securities Act and
the rules and regulations thereunder). The Company and its counsel shall be given reasonable opportunity to review and comment on the Registration Statement and the Offer Documents (including all amendments and supplements thereto) prior to the
filing thereof with the SEC, and Parent and Acquisition Sub shall include all additions, deletions or changes thereto suggested by the Company and its legal counsel that Parent determines, in its good faith discretion, to be appropriate. Parent and
Acquisition Sub shall promptly provide the Company and its counsel with a copy of any written comments and a description of any oral comments received by Parent, Acquisition Sub or their counsel from the SEC or its staff with respect to the
Registration Statement or the Offer Documents. Each of Parent and Acquisition Sub shall use reasonable efforts to respond promptly to any comments of the SEC or its staff with respect to the Registration Statement, the Offer Documents or the Offer.
To the extent required by applicable Legal Requirements (including the Exchange Act and the Securities Act and the rules and regulations thereunder), (1) each of Parent, Acquisition Sub and the Company shall correct promptly any information
provided by it for use in the Registration Statement or the Offer Documents to the extent that it becomes aware that such information shall be or shall have become false or misleading in any material respect and (2) Parent and Acquisition Sub
shall take all steps necessary to promptly cause the Registration Statement and the Offer Documents, as supplemented or amended to correct such information, to be filed with the SEC and to be disseminated to holders of shares of Company Common
Stock. The Company shall promptly furnish to Parent and Acquisition Sub all information concerning the Company and the Companys stockholders that may be required or reasonably requested in connection with any action contemplated by this
Section 1.1(f)
. Parent shall use commercially reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as possible after its filing and to maintain its effectiveness for so long as
shall be required for the issuance of Parent Common Stock pursuant to the Offer and the Merger. Following the time the Registration Statement is declared effective, Parent shall file the final prospectus included therein under Rule 424(b) under
the Securities Act.
A-1-3
(g)
Between the date of this Agreement and the date on which any
particular share of Company Common Stock is accepted for exchange pursuant to the Offer, (i) if the outstanding shares of Company Common Stock are changed into a different number or class of shares by reason of any stock split, division or
subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Per Share Consideration shall be adjusted to the extent necessary or appropriate to
achieve the same economic outcome, and (ii) if the outstanding shares of Parent Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock
split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Applicable Fraction shall be adjusted to the extent necessary or appropriate to achieve the same economic outcome.
(h)
Notwithstanding anything to the contrary in this Agreement (including
Section 1.1(a)
), in the event
that pursuant to Nasdaq Listing Rule 5635(a) (or its successor), the issuance of shares of Parent Common Stock (or rights with respect thereto) as part of the Contemplated Transactions would, but for the provisions of this
Section 1.1(h)
, require the approval of the stockholders of Parent, then the Applicable Fraction shall automatically (and without any action on the part of any party hereto) be reduced to be the greatest fraction of a share of Parent
Common Stock that would, if such fraction were the Applicable Fraction, not require the approval of the stockholders of Parent with respect to such issuance.
1.2 Company Actions
.
(a)
The Company hereby consents to the Offer and represents and warrants to Parent and Acquisition Sub that the Companys board of directors, at a meeting duly called and held on
November 2, 2009, has by the unanimous vote of all directors of the Company (i) determined that this Agreement and the Contemplated Transactions, including the Offer and the Merger, are fair to and in the best interests of the
Companys stockholders, (ii) adopted and approved this Agreement and approved the Offer, the Merger and the other Contemplated Transactions, in accordance with the requirements of the Delaware General Corporation Law (the
DGCL
), (iii) declared that this Agreement is advisable, (iv) resolved to recommend that the stockholders of the Company accept the Offer and tender their shares of Company Common Stock pursuant to the Offer and (to the
extent necessary) adopt this Agreement, and (v) to the extent necessary, adopted a resolution having the effect of causing the Company not to be subject to any restriction set forth in any state takeover law or similar Legal Requirement that
would otherwise apply to the Stockholder Agreements, the Offer, the Merger or any of the other Contemplated Transactions.
(b)
Contemporaneously with the filing of the Schedule TO or as promptly as practicable thereafter on the Offer Commencement Date, the Company shall file with the SEC and (following or
contemporaneously with the dissemination of the Offer Documents and related documents) disseminate to holders of shares of Company Common Stock a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or
supplements thereto, the
Schedule 14D-9
) that, subject to
Section 5.3
, shall reflect the Company Board Recommendation. Without limiting the foregoing, the parties hereto shall use commercially reasonable efforts
to cause the Schedule 14D-9 to be disseminated concurrently with and in the same mailing envelope as the Offer Documents. The Company shall cause the Schedule 14D-9 and the filing and dissemination thereof to comply in all material
respects with applicable Legal Requirements (including the Exchange Act and the rules and regulations thereunder). Parent and its legal counsel shall be given reasonable opportunity to review and comment on the Schedule 14D-9 (including any
amendment or supplement thereto) prior to the filing thereof with the SEC, and the Company shall include all additions, deletions or changes thereto suggested by Parent and its legal counsel that the Company determines, in its good faith discretion,
to be appropriate. The Company shall promptly provide Parent and its legal counsel with a copy of any written comments and a description of any oral comments received by the Company or its legal counsel from the SEC or its staff with respect to the
Schedule 14D-9 and shall use commercially reasonable
A-1-4
efforts to respond promptly to any such comments. To the extent required by applicable Legal Requirements (including the Exchange Act and the rules and regulations thereunder), (i) each of
Parent, Acquisition Sub and the Company shall promptly correct any information provided by it for use in the Schedule 14D-9 to the extent that it becomes aware that such information shall be or shall have become false or misleading in any
material respect, and (ii) the Company shall take all steps necessary to cause the Schedule 14D-9, as supplemented or amended to correct such information, to be filed with the SEC and, if required by applicable Legal Requirements, to be
disseminated to holders of shares of Company Common Stock.
(c)
The Company shall promptly provide to
Parent (i) a list of the Companys stockholders as well as mailing labels and any available listing or computer file containing the names and addresses of all record holders of shares of Company Common Stock and lists of securities
positions of shares of Company Common Stock held in stock depositories, in each case accurate and complete as of the most recent practicable date, and (ii) such additional information (including updated lists of stockholders, mailing labels and
lists of securities positions) and such other assistance as Parent may reasonably request in connection with the Offer or the Merger. Except as may be required by applicable Legal Requirements, and except as may be necessary to disseminate the Offer
Documents, Parent and Acquisition Sub shall hold in confidence, in accordance with the terms of the Confidentiality Agreement and this Agreement, any information contained in any such labels, listings and files provided by the Company to Parent.
1.3 Directors
.
(a)
Effective upon the Acceptance Time and from time to time thereafter, Parent shall be entitled to designate, to
serve on the Companys board of directors, the number of directors, rounded up to the next whole number, determined by multiplying: (i) the total number of directors on the Companys board of directors (giving effect to any increase
in the size of the Companys board of directors effected pursuant to this
Section 1.3(a)
);
by
(ii) a fraction having (x) a numerator equal to the aggregate number of shares of Company Common Stock then beneficially
owned by Parent or Acquisition Sub or any other Subsidiaries of Parent (including all shares of Company Common Stock accepted for exchange pursuant to the Offer) and (y) a denominator equal to the total number of shares of Company Common Stock
then issued and outstanding. Promptly following a written request from Parent, the Company shall take all actions necessary and reasonably available to the Company to cause Parents designees (the
Parent Designees
) to be
elected or appointed to the Companys board of directors, including seeking and accepting resignations of incumbent directors and, if such resignations are not obtained, increasing the size of the Companys board of directors. From and
after the Acceptance Time, to the extent requested by Parent, the Company shall also, as permitted by all applicable Legal Requirements (including the rules of the Nasdaq Capital Market), cause the Parent Designees to constitute the number of
members, rounded up to the next whole number, on (1) each committee of the Companys board of directors and (2) the board of directors of each Subsidiary of the Company (and each committee thereof) that represents at least the same
percentage as individuals designated by Parent represent on the board of directors of the Company. In furtherance of the foregoing, Parent shall designate an adequate number of Parent Designees so that the audit committee of the Company has at least
three (3) members, and each of the Parent Designees serving on such audit committee shall be an independent director as defined by Rule 5605(a)(2) of the Nasdaq Marketplace Rules and eligible to serve on the Companys
audit committee under the Exchange Act and Nasdaq Marketplace Rules, and at least one (1) of whom shall be an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K and the instructions
thereto. Notwithstanding the provisions of this
Section 1.3
, at all times prior to the Effective Time (as defined in
Section 2.3
), at least two (2) of the members of the Companys board of directors shall be
individuals who were directors of the Company on the date of this Agreement (
Continuing Directors
);
provided, however
, that if at any time prior to the Effective Time there shall be only one Continuing Director serving as a
director of the Company for any reason, then the Companys board of directors shall, subject to the following sentence, cause an individual selected by the remaining Continuing Director to be appointed to serve on the
A-1-5
Companys board of directors (and such individual shall be deemed to be a Continuing Director for all purposes under this Agreement). The Company shall designate, prior to the Acceptance
Time, two (2) alternate Continuing Directors that the board of directors of the Company shall appoint in the event of death, disability or resignation of the Continuing Directors, each of whom shall, following such appointment to the
Companys board of directors, be deemed to be a Continuing Director of the Company.
(b)
In
connection with the performance of its obligations to cause the Parent Designees to be elected or appointed to the Companys board of directors, each of the Company and Parent shall use its commercially reasonable efforts to promptly take all
actions, and the Company shall cause to be included in the Schedule 14D-9 such information with respect to the Company and its officers and directors, as Section 14(f) of the Exchange Act and Rule 14f-1 thereunder require (subject to
the Companys receipt of the information with respect to Parent and its nominees, officers, directors and affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder). Parent shall supply to the Company in
writing and be solely responsible for any information with respect to itself and its nominees (including the Parent Designees), officers, directors and affiliates required by Section 14(f) and Rule 14f-1, and Parent shall use its
commercially reasonable efforts to provide such information to enable it to be filed with the SEC in the Schedule 14D-9 on the date the Offer Documents are filed with the SEC. The provisions of this
Section 1.3
are in addition to,
and shall not limit, any right that Acquisition Sub, Parent or any affiliate of Acquisition Sub or Parent may have (with respect to the election of directors or otherwise) under applicable Legal Requirements as a holder or beneficial owner of shares
of Company Common Stock.
(c)
Following the election or appointment of the Parent Designees to the
Companys board of directors pursuant to
Section 1.3(a)
and until the Effective Time, each of the following actions may be effected only if there are on the Companys board of directors one or more Continuing Directors and such
action is approved by a majority of such Continuing Directors: (i) action by the Company with respect to any amendment or waiver of any term or condition of this Agreement, the Merger, or the certificate of incorporation or bylaws of the
Company; (ii) termination of this Agreement by the Company; (iii) extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Acquisition Sub, or any waiver or assertion of any of the
Companys rights under this Agreement; or (iv) other consent or action by the Company with respect to the Offer, the Merger or any of the other Contemplated Transactions;
provided
that, in each case, the taking of such action could
reasonably be expected to affect adversely the holders of shares of Company Common Stock (other than Parent or Acquisition Sub). To the extent permitted under applicable Legal Requirements, until the Effective Time, (x) the approval of any of
the foregoing actions by a majority of the Continuing Directors shall constitute the valid authorization of the Companys board of directors with respect to such action (
provided
that all other requirements under the Companys
certificate of incorporation and bylaws and under applicable Legal Requirements are satisfied) and (y) in addition to any requirements under the Companys certificate of incorporation and bylaws, any quorum of the Companys board of
directors for the purposes of any meeting thereof or transacting of business thereby with respect to the approval of any of the foregoing actions shall be deemed to require the attendance of at least one (1) Continuing Director.
1.4 Top-Up Option.
(a)
The Company hereby grants to Parent and Acquisition Sub an assignable and irrevocable option (the
Top-Up Option
), exercisable upon the terms and subject to the conditions set
forth in this Agreement, to purchase from the Company an aggregate number of newly-issued shares of Company Common Stock equal to the lesser of (i) the Top-Up Number (as defined below) or (ii) the aggregate number of shares of Company
Common Stock that the Company is authorized to issue under its certificate of incorporation but that are not issued and outstanding (and are not subscribed for or otherwise committed to be issued) at the time of exercise of the Top-Up Option.
Top-Up Number
means the number of shares of Company Common Stock that, when added to the number of shares of
A-1-6
Company Common Stock owned of record by Parent or Acquisition Sub or any other Subsidiaries of Parent at the time of exercise of the Top-Up Option, constitutes a designated percentage of the
number of shares of Company Common Stock that would be outstanding immediately after the issuance of all shares of Company Common Stock subject to the Top-Up Option, which percentage shall be designated by Parent at its sole discretion,
provided
that such percentage shall be greater than 90% but less than 91%.
(b)
The Top-Up Option
may be exercised by Parent or Acquisition Sub, in whole or in part, at any time at or after the Acceptance Time but prior to the earlier of the Effective Time and the date on which this Agreement is terminated. The aggregate purchase price payable
for the shares of Company Common Stock being purchased by Parent or Acquisition Sub pursuant to the Top-Up Option shall be determined by multiplying the number of such shares
by
an amount equal to the sum of (i) the Cash Component and
(ii) the amount determined by multiplying (A) the Applicable Fraction
by
(B) the Parent Average Stock Price. Such purchase price may be paid by Parent or Acquisition Sub, at its election, either entirely in cash or by executing
and delivering to the Company a promissory note having a principal amount equal to such purchase price, or by any combination of the foregoing. Any such promissory note shall bear interest at the rate of 3% per annum, shall mature on the first
anniversary of the date of execution thereof and may be prepaid without premium or penalty.
(c)
In the
event Parent or Acquisition Sub wishes to exercise the Top-Up Option, Parent or Acquisition Sub shall deliver to the Company a notice setting forth (i) the number of shares of Company Common Stock that Parent or Acquisition Sub intends to
purchase pursuant to the Top-Up Option, (ii) the manner in which Parent or Acquisition Sub intends to pay the applicable exercise price and (iii) the place, date and time at which the closing of the purchase of such shares of Company
Common Stock by Parent or Acquisition Sub is to take place, which date shall not be more than ten (10) business days after the date of such notice. At the closing of the purchase of such shares of Company Common Stock, Parent or Acquisition Sub
shall cause to be delivered to the Company the consideration required to be delivered in exchange for such shares, and the Company shall cause to be issued to Parent or Acquisition Sub (as the case may be) a certificate representing such shares or,
at Parent or Acquisition Subs request or otherwise if the Company does not then have certificated shares, the applicable number of uncertificated shares represented by book-entry (
Book-Entry Shares
).
(d)
Acquisition Sub acknowledges that the shares of Company Common Stock that Acquisition Sub may acquire upon
exercise of the Top-Up Option will not be registered under the Securities Act and will be issued in reliance upon an exemption thereunder for transactions not involving a public offering. Acquisition Sub represents and warrants to the Company that
Acquisition Sub is, and will be upon the purchase of shares subject to the Top-Up Option, an accredited investor, as defined in Rule 501 of Regulation D under the Securities Act. Acquisition Sub agrees that the Top-Up Option
and the shares to be acquired upon exercise thereof are being and will be acquired by Acquisition Sub for its own account, for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof (within the
meaning of the Securities Act).
Section 2. T
HE
M
ERGER
2.1 Merger of Acquisition Sub into the Company
. At the Effective Time (as defined in
Section 2.3
), upon
the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, Acquisition Sub shall be merged with and into the Company. Following the Merger, the Company shall continue as the surviving corporation (the
Surviving Corporation
), and the separate corporate existence of Acquisition Sub shall cease.
2.2 Effect of the Merger
. The Merger shall have the effects set forth in this Agreement and in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the properties, rights,
privileges, immunities, powers and franchises of the Company and Acquisition Sub shall
A-1-7
vest in the Surviving Corporation, and all debts, liabilities, obligations and duties of the Company and Acquisition Sub shall become the debts, liabilities, obligations and duties of the
Surviving Corporation.
2.3 Closing; Effective Time
. The consummation of the Merger (the
Closing
) shall take place at the offices of Cooley Godward Kronish
LLP
, 3175 Hanover Street, Palo Alto, California, at 10:00 a.m. on a date to be designated by Parent, which shall be no later than the second
(2nd) business day after the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in
Section 7
, or at such other place or at such other time or on such other date as Parent and the Company
mutually agree in writing. The day on which the Closing takes place is referred to as the
Closing Date
. Subject to the provisions of this Agreement, Parent, Acquisition Sub and the Company shall cause the Merger to be consummated
by causing a certificate of merger complying with Section 251 or a certificate of ownership and merger complying with Section 253, as applicable, of the DGCL (either, the
Certificate of Merger
) to be filed with the
Secretary of State of the State of Delaware on the Closing Date. The Merger shall become effective upon the date and time of the filing of such Certificate of Merger, or at such later time as may be mutually agreed in writing by the Company and
Parent and specified in such Certificate of Merger (the
Effective Time
).
2.4 Certificate
of Incorporation and Bylaws; Directors and Officers
. Unless otherwise determined by Parent prior to the Effective Time:
(a)
the Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety immediately after the Effective Time to conform to the Certificate of Incorporation of Acquisition
Sub as in effect immediately prior to the Effective Time, except that the name of the Surviving Corporation shall be Diedrich Coffee, Inc.;
(b)
the Bylaws of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Bylaws of Acquisition Sub as in effect immediately prior to the Effective Time;
and
(c)
the directors and officers of the Surviving Corporation immediately after the Effective Time
shall be the respective individuals who are directors and officers of Acquisition Sub immediately prior to the Effective Time.
2.5 Conversion of Shares
.
(a)
At the Effective
Time, by virtue of the Merger and without any further action on the part of Parent, Acquisition Sub, the Company or any holder of shares of the Company:
(i)
any shares of Company Common Stock then held by the Company or any wholly owned Subsidiary of the Company or held in the Companys treasury shall be canceled and retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor;
(ii)
any shares of Company Common
Stock then owned of record by Parent, Acquisition Sub or any other wholly owned Subsidiary of Parent shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;
(iii)
except as provided in
clauses
(i)
and
(ii)
above and subject
to
Sections 2.5(b)
,
2.5(c)
and
2.7
, each share of Company Common Stock then outstanding shall be converted into the right to receive (upon the proper surrender of the certificate representing such share or, in the case of a
Book-Entry Share, the proper surrender of such Book-Entry Share) the Per Share Consideration; and
(iv)
each share of the common stock, $0.001 par value per share, of Acquisition Sub then outstanding shall be converted into one newly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.
(b)
Between the date of this Agreement and the Effective Time, (i) if the outstanding shares of Company Common
Stock are changed into a different number or class of shares by reason of any stock
A-1-8
split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Per Share
Consideration shall be adjusted to the extent necessary or appropriate to achieve the same economic outcome, and (ii) if the outstanding shares of Parent Common Stock are changed into a different number or class of shares by reason of any stock
split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Applicable Fraction shall be adjusted to the extent necessary or
appropriate to achieve the same economic outcome.
(c)
If (i) any share of Company Common Stock
outstanding immediately prior to the Effective Time is unvested or is subject to a repurchase option, risk of forfeiture or other condition under any restricted stock purchase agreement or other agreement with the Company or under which the Company
has any rights, and (ii) such restricted stock purchase agreement or other agreement does not provide that the vesting of such share of Company Common Stock shall fully accelerate at or prior to the Effective Time, then the amount payable with
respect thereto (or with respect to any portion that does not accelerate at or prior to the Effective Time) pursuant to
Section 2.5(a)(iii)
will also be unvested and subject to the same repurchase option, risk of forfeiture or other
condition. The Company shall take all action that may be necessary to ensure that, from and after the Effective Time, Parent is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement
or other agreement.
(d)
No fractional shares of Parent Common Stock shall be issued in connection with
the Merger, and no certificates or scrip for any such fractional shares shall be issued in connection with the Merger. Any holder of Company Common Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock in the
Merger (after aggregating all fractional shares of Parent Common Stock issuable to such holder in the Merger) shall, in lieu of such fraction of a share and upon surrender of such holders Stock Certificate(s) (as defined in
Section 2.6(b)
), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing trading price of a share of Parent Common Stock as reported on the Nasdaq
Capital Market on the trading day immediately before the trading day that includes the Effective Time.
2.6
Surrender of Certificates; Stock Transfer Books
.
(a)
Prior to the Effective Time, Parent shall
designate a bank or trust company to act as exchange agent in the Merger (the
Exchange Agent
). Promptly after the Effective Time, Parent shall deposit with the Exchange Agent (i) cash in an amount equal to the cash payable
pursuant to
Section 2.5(a)(iii)
, (ii) certificates representing any shares of Parent Common Stock issuable pursuant to
Section 2.5(a)(iii)
and (iii) cash sufficient to make any payments in lieu of fractional shares
of Parent Common Stock that would have been payable with respect to Company Common Stock but for
Section 2.5(d)
, in each case excluding amounts applicable to shares of Company Common Stock with respect to which the holder thereof has
perfected appraisal rights under Section 262 of the DGCL. The cash amounts and any shares of Parent Common Stock so deposited with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to
such shares, are referred to collectively as the
Exchange Fund
. The cash in the Exchange Fund shall be invested by the Exchange Agent as directed by Parent in money market funds or similar short-term liquid investments.
(b)
Promptly after the Effective Time (and in any event no more than five (5) business days after
the Effective Time), Parent will instruct the Exchange Agent to promptly mail to the Persons who, immediately prior to the Effective Time, were record holders of certificates representing shares of Company Common Stock (
Stock
Certificates
) or uncertificated shares of Company Common Stock represented by Book-Entry Shares, (i) a letter of transmittal in customary form and containing such provisions as Parent may reasonably specify (including, in the case of
holders of Stock Certificates, a provision confirming that delivery of Stock Certificates shall be effected, and risk of loss and title to Stock Certificates shall pass, only upon delivery of such Stock Certificates to the Exchange Agent), and
(ii) instructions for use in effecting the surrender of Stock Certificates and Book-Entry Shares. Upon
A-1-9
surrender of a Stock Certificate or Book-Entry Share to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required
by the Exchange Agent or Parent, (A) the holder of such Stock Certificate or Book-Entry Share shall be entitled to receive in exchange therefor the consideration deliverable to such holder pursuant to
Section 2.5(a)(iii)
and any
cash payment in lieu of a fractional share of Parent Common Stock in accordance with
Section 2.5(d)
, and (B) the Stock Certificate or Book-Entry Share so surrendered shall be canceled. Until surrendered as contemplated by this
Section 2.6(b)
, each Stock Certificate or Book-Entry Share shall be deemed, from and after the Effective Time, to represent solely the right to receive the Per Share Consideration for each share of Company Common Stock formerly evidenced
by such Stock Certificate or Book-Entry Share. If any Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition to the delivery of any consideration with respect thereto, require the owner of such
lost, stolen or destroyed Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against the Exchange Agent, Parent or the Surviving
Corporation with respect to such Stock Certificate.
(c)
No dividends or other distributions declared or
made with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Stock Certificate with respect to any shares of Parent Common Stock that such holder has the right to receive in
the Merger until such holder surrenders such Stock Certificate in accordance with this
Section 2.6
(at which time such holder shall be entitled, subject to the effect of applicable escheat or similar laws, to receive all such dividends
and distributions, without interest).
(d)
Any portion of the Exchange Fund that remains undistributed
to holders of Stock Certificates or Book-Entry Shares as of the date that is nine (9) months after the date on which the Merger becomes effective shall be delivered to Parent upon demand, and any holders of Stock Certificates or Book-Entry
Shares who have not theretofore surrendered their Stock Certificates or Book-Entry Shares in accordance with this
Section 2.6
shall thereafter look only to Parent for satisfaction of their claims for delivery of consideration in
connection with the Merger. Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of Company Common Stock or to any other Person with respect to any cash amounts or shares of Parent Common Stock delivered to any
public official pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement.
(e)
At the Effective Time, holders of Stock Certificates and Book-Entry Shares that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company, and the stock transfer books
of the Company shall be closed with respect to all shares of Company Common Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of Company Common Stock shall be made on such stock transfer books after
the Effective Time. If, after the Effective Time, a valid Stock Certificate is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in this
Section 2.6
.
(f)
Parent and the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable to any holder or former holder of Company Common Stock pursuant to this Agreement such amounts as Parent or the Surviving Corporation determines in good faith may be required to be deducted or withheld
therefrom under the Code or any provision of state, local or foreign Tax law or under any other Legal Requirement. To the extent any such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been paid.
(g)
If any Stock
Certificate has not been surrendered by the earlier of (i) the fifth anniversary of the date on which the Merger becomes effective or (ii) the date immediately prior to the date on which the consideration that such Stock Certificate
represents the right to receive would otherwise escheat to or become the property of any Governmental Body, then such consideration shall, to the extent
A-1-10
permitted by applicable Legal Requirements, become the property of the Surviving Corporation, free and clear of any claim or interest of any Person previously entitled thereto.
2.7 Appraisal Rights
.
(a)
Notwithstanding anything to the contrary contained in this Agreement, any share of Company Common Stock that, as of the Effective Time, is held by a holder who is entitled to, and who has
properly preserved, appraisal rights under Section 262 of the DGCL with respect to such share shall not be converted into or represent the right to receive the Per Share Consideration in accordance with
Section 2.5(a)(iii)
, and the
holder of such share shall be entitled only to such rights as may be granted to such holder pursuant to Section 262 of the DGCL with respect to such share;
provided, however,
that if such appraisal rights shall not be perfected or the
holder of such share shall otherwise lose such holders appraisal rights with respect to such share, then, as of the later of the Effective Time or the time of the failure to perfect such rights or the loss of such rights, such share shall
automatically be converted into and shall represent only the right to receive (upon the surrender of the Stock Certificate representing such share) the Per Share Consideration in accordance with
Section 2.5(a)(iii)
.
(b)
The Company shall give Parent (i) prompt notice of (A) any written demand received by the Company prior
to the Effective Time to require the Company to purchase shares of Company Common Stock pursuant to Section 262 of the DGCL and (B) any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the
DGCL, and (ii) the opportunity to direct all negotiations and proceedings with respect to any such demand, notice or instrument. Without limiting the generality of the foregoing, the Company shall not make any payment or settlement offer prior
to the Effective Time with respect to any such demand unless Parent shall have consented in writing to such payment or settlement offer.
2.8 Further Action
. If, at any time after the Effective Time, any further action is determined by Parent to be necessary or desirable to carry out the purposes of this Agreement or to vest the
Surviving Corporation with full right, title and possession of and to all rights and property of Acquisition Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of
Acquisition Sub, in the name of the Company and otherwise) to take such action.
Section 3.
R
EPRESENTATIONS
AND
W
ARRANTIES
OF
THE
C
OMPANY
Except as explicitly set forth in (i) the Annual Report on Form 10-K filed by the Company with the SEC with respect to the fiscal year ended June 24, 2009, (ii) any Current Reports on
Form 8-K filed by the Company with the SEC since the filing date of the Form 10-K referred to above, and (iii) the most recent draft of the Quarterly Report on Form 10-Q to be filed by the Company with the SEC with respect to the
quarter ended September 16, 2009, a copy of which draft has been furnished to Parent, excluding any risk factors or similar statements that are cautionary, predictive or forward-looking in nature (but, for the purpose of
clarification, including and giving effect to any factual or historical statements included in any such statements) in a manner where the relevance of such information to a particular representation and warranty below is readily apparent, and except
as set forth in the Disclosure Schedule (it being understood that any exception or disclosure set forth in any part or subpart of the Disclosure Schedule shall be deemed an exception or disclosure, as applicable, only with respect to: (a) the
corresponding Section or subsection of this
Section 3
; (b) the Section or subsection of this
Section 3
corresponding to any other part or subpart of the Disclosure Schedule that is explicitly cross-referenced therein;
and (c) any other Section or subsection of this
Section 3
with respect to which the relevance of such exception or disclosure is readily apparent), the Company represents and warrants to Parent and Acquisition Sub as follows:
3.1 Due Organization; Former Subsidiary; Etc.
(a)
The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of
Delaware and has all necessary corporate power and authority: (i) to conduct its
A-1-11
business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Company Contracts.
(b)
The Company is qualified to do business as a
foreign corporation, and is in good standing (except for any jurisdiction that does not recognize such concept) under the laws of all jurisdictions where the nature of its business requires such qualification, except where the failure to be so
qualified or in good standing, individually or in the aggregate, do not constitute a Company Material Adverse Effect.
(c)
The Company has no Subsidiaries, and does not own any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in Part 3.1(c) of the Disclosure Schedule. The Company has
not agreed and is not obligated to make, and is not bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity. Except as set forth on Part 3.1(c) of the Disclosure
Schedule, the Company has not, at any time, been a general partner of, or has otherwise been liable for any of the debts or other obligations of, any general partnership, limited partnership or other Entity.
3.2 Certificate of Incorporation and Bylaws.
The Company has Made Available to Parent accurate and complete copies of
its certificate of incorporation, bylaws and other charter and organizational documents (collectively the
Charter Documents
), each as currently in effect. The Company has Made Available to Parent accurate and complete copies of:
(a) the charters of all committees of the Companys board of directors; and (b) any code of conduct or similar policy adopted by the Company or by the board of directors, or any committee of the board of directors, of the Company. The
Company has not violated any of its Charter Documents.
3.3 Capitalization, Etc.
(a)
The authorized capital stock of the Company consists of: (i) 17,500,000 shares of Company Common Stock, of
which 5,726,813 shares have been issued and are outstanding as of the date of this Agreement; and (ii) 3,000,000 shares of Company Preferred Stock, of which no shares have been issued or are outstanding. The Company does not hold any shares of
its capital stock in its treasury. All of the outstanding shares of Company Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in Part 3.3(a) of the Disclosure Schedule:
(A) none of the outstanding shares of Company Common Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar right; (B) none of the outstanding shares of Company Common Stock is
subject to any right of first refusal in favor of the Company; and (C) there is no Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or from
granting any option or similar right with respect to), any shares of Company Common Stock. The Company is not under any obligation, nor is the Company bound by any Company Contract pursuant to which it may become obligated, to repurchase, redeem or
otherwise acquire any outstanding shares of Company Common Stock or other securities. The Company holds no repurchase right with respect to shares of Company Common Stock (including shares issued pursuant to the exercise of stock options).
(b)
As of the date of this Agreement: (i) 791,500 shares of Company Common Stock are subject to
issuance pursuant to Company Options; and (ii) 261,417 shares of Company Common Stock are reserved for future issuance pursuant to equity awards not yet granted under the Company Equity Plans. Part 3.3(b) of the Disclosure Schedule sets
forth with respect to each Company Option outstanding as of the date of this Agreement the following information: (A) the particular plan (if any) pursuant to which such Company Option was granted; (B) the name of the holder of such
Company Option; (C) the number of shares of Company Common Stock subject to such Company Option; (D) the per-share exercise price (if any) of such Company Option; (E) the date on which such Company Option was granted; (F) the
applicable vesting schedule, and the extent to which such Company Option is vested and exercisable; (G) the date on which such Company Option expires; and (H) whether such
A-1-12
Company Option is an incentive stock option (as defined in the Code) or a non-qualified stock option. The Company has Made Available to Parent accurate and complete copies of all
equity plans pursuant to which any outstanding Company Options were granted by the Company, and the forms of all stock option agreements evidencing such Company Options. The exercise price of each Company Option is no less than the fair market value
of a share of Company Common Stock as determined on the date of grant of such Company Option. All grants of Company Options were recorded on the Companys financial statements (including, any related notes thereto) contained in the Company SEC
Documents (as defined in
Section 3.4(a)
) in accordance with GAAP, and no such grants involved any back dating, forward dating or similar practices with respect to the effective date of grant (whether intentionally
or otherwise). There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights or equity-based awards with respect to the Company other than as set forth in Part 3.3(b) of the Disclosure
Schedule.
(c)
As of the date of this Agreement, 1,987,000 shares of Company Common Stock are subject to
issuance pursuant to Company Warrants. Part 3.3(c) of the Disclosure Schedule sets forth with respect to each Company Warrant outstanding as of the date of this Agreement the following information: (A) the name of the holder of such
Company Warrant; (B) the number of shares of Company Common Stock subject to such Company Warrant; (C) the per-share exercise price (if any) of such Company Warrant; (D) the date on which such Company Warrant was granted; (E) the
applicable vesting schedule, if any, and the extent to which such Company Warrant is vested and exercisable; and (F) the date on which such Company Warrant expires. The Company has Made Available to Parent accurate and complete copies of all
Company Warrants and all related agreements.
(d)
Except as set forth in Parts 3.3(b) and 3.3(c) of
the Disclosure Schedule, there is: (i) as of the date of this Agreement, no outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of the
Company; (ii) as of the date of this Agreement, no outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of the Company; or (iii) no
stockholder rights plan (or similar plan commonly referred to as a poison pill) or Company Contract under which the Company is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities.
(e)
All outstanding shares of Company Common Stock, Company Options, Company Warrants and other
securities of the Company have been issued and granted in compliance with: (i) all applicable securities laws and other applicable Legal Requirements; and (ii) all requirements set forth in applicable Contracts.
3.4 SEC Filings; Internal Controls and Procedures; Financial Statements.
(a)
Except as set forth on Part 3.4(a) of the Disclosure Schedule, the Company has filed with the SEC all
registration statements, proxy statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents required to be filed by the Company with the SEC since January 1, 2005, and all amendments thereto
(the
Company SEC Documents
). All statements, reports, schedules, forms and other documents required to have been filed by the Company or its officers with the SEC have been so filed on a timely basis. The Company has Made
Available to Parent accurate and complete copies of each Company SEC Document (including each exhibit thereto) that is not publicly available through the SECs EDGAR database. As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the Company SEC Documents complied as to form with the applicable requirements of the Securities Act or the Exchange Act (as the case may
be) and the applicable rules and regulations of the SEC thereunder; and (ii) none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Each of the certifications and statements required by: (A) Rule 13a-14 or
A-1-13
Rule 15d-14 under the Exchange Act; (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act); or (C) any other rule or regulation promulgated by the SEC or applicable
to the Company SEC Documents (collectively, the
Certifications
) are accurate and complete, and comply as to form and content with all applicable Legal Requirements. As used in this Agreement, the term
file
and
variations thereof, when used in reference to the SEC, shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.
(b)
The Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) are reasonably designed to ensure that: (i) all material information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC; and (ii) all material information concerning the Company is made known on a timely basis to the individuals responsible for the preparation of the Companys
filings with the SEC and other public disclosure documents.
(c)
The Company maintains a system of
internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with managements
general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP; (iii) access to assets is permitted only in accordance with managements general or
specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Companys management has completed an
assessment of the effectiveness of the Companys system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended June 24, 2009, and such
assessment concluded that such controls were effective. Since June 24, 2009, neither the Company nor the Companys independent registered accountant has identified or been made aware of: (A) any significant deficiency or material
weakness in the design or operation of internal control over financial reporting utilized by the Company; (B) any illegal act or fraud, whether or not material, that involves the Companys management or other employees; or (C) any
claim or allegation regarding any of the foregoing.
(d)
The consolidated financial statements
(including any related notes) contained or incorporated by reference in the Company SEC Documents (as amended prior to the date of this Agreement): (i) complied as to form in all material respects with the published rules and regulations of the
SEC applicable thereto; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial
statements, as permitted by Form 10-Q, Form 8-K or any successor form under the Exchange Act, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that
will not, individually or in the aggregate, be material in amount), and (iii) fairly presented, in all material respects, the consolidated financial position of the Company and its consolidated Subsidiaries as of the respective dates thereof
and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries for the periods covered thereby. No financial statements of any Person other than the Company are required by GAAP to be included in the
consolidated financial statements of the Company. With respect to the financial statements (including any related notes) contained or incorporated by reference in the Company SEC Documents, there have been no deficiencies or weaknesses identified in
writing by the Company or the Companys independent auditors (whether current or former) in the design or operation of internal controls of financial reporting utilized by the Company and its consolidated Subsidiaries.
(e)
The Companys auditor has at all times since the date of enactment of the Sarbanes-Oxley Act been: (i) a
registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) independent with respect to the Company within the meaning of Regulation S-X under the
A-1-14
Exchange Act; and (iii) to the Knowledge of the Company, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations
promulgated by the SEC and the Public Company Accounting Oversight Board thereunder. All non-audit services performed by the Companys auditors for the Company that were required to be approved in accordance with Section 202 of the
Sarbanes-Oxley Act were so approved.
(f)
Part 3.4(f) of the Disclosure Schedule lists all
securitization transactions, special purpose entities, unconsolidated Subsidiaries, joint ventures, material minority interest investments and all other off-balance sheet arrangements (as defined in Item 303(c) of Regulation S-K
under the Exchange Act) effected by the Company or the Former Subsidiary since January 1, 2005. The Company does not have any obligation or other commitment to become a party to any such off-balance sheet arrangements in the future.
(g)
As of the date of this Agreement, there are no unresolved comments issued by the staff of the SEC
with respect to any of the Company SEC Documents.
(h)
Except as set forth on Part 3.4(h) of the
Disclosure Schedule, the Company is, in all material respects, in compliance with (i) the applicable rules and regulations of the NASDAQ Stock Market LLC, (ii) the applicable listing requirements of the NASDAQ Capital Market, and
(iii) the applicable provisions of the Sarbanes-Oxley Act, and has not since January 1, 2005 received any notice asserting any non-compliance with the rules and regulations of the NASDAQ Stock Market LLC, the listing requirements of the
NASDAQ Capital Market or the applicable provisions of the Sarbanes-Oxley Act.
3.5 Absence of Changes.
Since the date of the Year-End Balance Sheet:
(a)
there has not been any Company Material Adverse
Effect;
(b)
there has not been any material loss, damage or destruction to, or any material
interruption in the use of, any of the assets of the Company (whether or not covered by insurance);
(c)
the Company has not: (i) declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of capital stock; or (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities, other than repurchases from employees of the Company following termination of employment pursuant to the terms of applicable pre-existing restricted stock purchase agreements;
(d)
the Company has not sold, issued or granted, or authorized the issuance of: (i) any capital stock or other
security (except for Company Common Stock issued upon the valid exercise of outstanding Company Options); (ii) any option, warrant or right to acquire any capital stock or any other security (except for Company Options identified in
Part 3.3(b) of the Disclosure Schedule); or (iii) any instrument convertible into or exchangeable for any capital stock or other security;
(e)
the Company has not amended or waived any of its rights under, or permitted the acceleration of vesting under: (i) any provision of any of the Company Equity Plans; (ii) any provision
of any Contract evidencing any outstanding Company Option; (iii) any restricted stock agreement; or (iv) any other Contract evidencing or relating to any equity award (whether payable in cash or stock);
(f)
the Company has not: (i) acquired, leased or licensed any material right or other material asset from any
other Person; (ii) sold or otherwise disposed of, or leased or licensed, any material right or other material asset to any other Person; or (iii) waived or relinquished any material right; except for, in each case, rights or other assets
acquired, leased, licensed or disposed of in the ordinary course of business and consistent with past practices;
(g)
the Company has not written off as uncollectible, or established any extraordinary reserve with respect to, any account receivable or other indebtedness in excess of $20,000 in each case and $100,000 in the aggregate;
A-1-15
(h)
the Company has not: (i) lent money to any Person in excess
of $250,000 in the aggregate; or (ii) incurred or guaranteed any indebtedness (other than indebtedness for reimbursement of expenses made in the ordinary course of business) in excess of $250,000 in the aggregate;
(i)
the Company has not: (i) adopted, established or entered into any Company Employee Plan; (ii) caused or
permitted any Company Employee Plan to be amended in any material respect; or (iii) materially increased the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to any of its directors,
officers or other employees;
(j)
to the Knowledge of the Company, there has been no violation of, and
neither the Companys board of directors nor any committee of the Companys board of directors has granted any waiver with respect to, the Companys Code of Ethics;
(k)
the Company has not changed any of its methods of accounting or accounting practices in any material respect,
except as required by GAAP;
(l)
the Company has not entered into any material transaction or taken any
other material action outside the ordinary course of business or inconsistent with past practices; and
(m)
the Company has not agreed or committed to take any of the actions referred to in
clauses
(c)
through
(l)
above.
3.6 Title to Assets.
The Company owns, and has good and valid title to, all assets reflected on the Year-End Balance
Sheet (except for assets sold or otherwise disposed of in the ordinary course of business since the date of the Year-End Balance Sheet, free and clear of any Encumbrances, except for: (i) any Encumbrance for current taxes not yet due and
payable; (ii) Encumbrances that have arisen in the ordinary course of business and that do not (individually or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of the
Company; and (iii) Encumbrances described in Part 3.6 of the Disclosure Schedule (
clauses
(i)
through
(iii)
, collectively,
Permitted Encumbrances
). The Company is the
lessee of, and holds valid leasehold interests in, all leasehold estates reflected in the Year-End Balance Sheet and has enjoyed undisturbed possession of such leasehold estates.
3.7 Receivables; Customers; Inventories; Cash.
(a)
All existing accounts receivable of the Company (including those accounts receivable reflected on the Year-End
Balance Sheet that have not yet been collected and those accounts receivable that have arisen since the date of the Year-End Balance Sheet and have not yet been collected): (i) represent, in all material respects, valid obligations of customers
of the Company arising from bona fide transactions entered into in the ordinary course of business; and (ii) are current and, to the Knowledge of the Company, will be collected in full when due, without any counterclaim or set off (net of an
allowance for doubtful accounts not to exceed $250,000 in the aggregate).
(b)
Part 3.7(b) of the
Disclosure Schedule accurately identifies, and provides an accurate and complete breakdown of the revenues received from, each customer or other Person that accounted for more than 5% of the consolidated gross revenues of the Company in the fiscal
year ended June 24, 2009. The Company has not received any written notice or, to the Knowledge of the Company, other communication indicating that any such customer is ceasing, will cease or plans to cease dealing with the Company.
(c)
The inventory of the Company reflected on the Year-End Balance Sheet was as of June 24, 2009, and the
current inventory of the Company (the
Current Inventory
) is, in all material respects, in usable and saleable condition in the ordinary course of business. The Current Inventory is not, in any material respect, excessive and is,
in all material respects, adequate in relation to the requirements of the businesses of the Company, and none of the Current Inventory is obsolete, slow moving, unmarketable or of limited value in relation to the businesses of the Company, in any
material respect. The finished goods, work in progress, raw materials and other materials and supplies included in the Current Inventory are, in all material respects, of a standard that is at least as high as the generally accepted standard
prevailing in the industries in which the Company operate.
A-1-16
(d)
The cash equivalents and short-term investments of the Company
are liquid and unimpaired. The Year-End Balance Sheet accurately reflects the fair market value of the cash equivalents and short-term investments of the Company as of June 24, 2009. Except as set forth in Part 3.7(d) of the Disclosure
Schedule, none of the cash, cash equivalents or short-term investments of the Company is subject to any restriction or other Encumbrance.
3.8 Real Property; Equipment.
(a)
The Company does
not own a fee interest in any real property. Part 3.8(a) of the Disclosure Schedule sets forth an accurate and complete description of each real property lease pursuant to which the Company leases real property from any other Person. (All real
property leased to the Company, including all buildings, structures, fixtures and other improvements leased to the Company, are referred to as the
Leased Real Property
.) The present use and operation of the Leased Real Property
is, in all material respects, in compliance with all applicable zoning, land use, building, fire, health, labor, safety and environmental laws and other Legal Requirements. To the Knowledge of the Company, no Legal Proceeding is pending or has been
threatened that challenges or adversely affects the continuation of the present leasehold ownership, use or operation of any Leased Real Property by the Company. To the Knowledge of the Company, there is no existing plan or study by any Governmental
Body or by any other Person that challenges or otherwise adversely affects the continuation of the present ownership, use or operation of any Leased Real Property by the Company. Except as set forth on Part 3.8(a) of the Disclosure Schedule,
there are no subleases, licenses, occupancy agreements or other contractual obligations to which the Company is party that grant the right of use or occupancy of any of the Leased Real Property to any Person other than the Company, and there is no
Person in possession of or with a right to occupy, any of the Leased Real Property other than the Company.
(b)
All items of equipment and other tangible assets owned by or leased to the Company are, in all material respects, adequate for the uses to which they are being put, in good condition and repair (ordinary wear and tear excepted)
and adequate for the conduct of the business of the Company in the manner in which such business is currently being conducted.
3.9 Intellectual Property.
(a)
Part 3.9(a) of
the Disclosure Schedule accurately identifies:
(i) in Part 3.9(a)(i) of the Disclosure Schedule:
(A) each item of Registered IP that is part of the Company IP; (B) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable registration or serial number; and (C) any other Person that has
an ownership interest in such item of Registered IP and the nature of such ownership interest;
provided, however
, that nothing in this Agreement shall constitute any representation or warranty by Company that any Registered IP, if an
application for registration, shall proceed to grant or registration.
(ii) in Part 3.9(a)(ii) of the
Disclosure Schedule: (A) each Contract (including any Contract entered into in settlement or avoidance of litigation) pursuant to which any material Intellectual Property or Intellectual Property Right is licensed or otherwise provided (but not
assigned) to the Company (other than implied licenses to Intellectual Property Rights where the Company receives a license to the Intellectual Property which embodies the Intellectual Property Rights, or software license agreements for any
third-party software that is generally available on standard terms or is licensed under an Open Source License); and (B) whether these licenses are exclusive or nonexclusive (for purposes of this Agreement, a covenant not to sue or not to
assert infringement claims shall be deemed to be equivalent to a license); and
(iii) in Part 3.9(a)(iii)
of the Disclosure Schedule: (A) each patent license or cross-license (other than implied licenses to Intellectual Property Rights where the Company receives a license to the Intellectual Property which embodies the Intellectual Property Rights)
to which the Company is a party pursuant to which any Person has been granted any license under, or
A-1-17
otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any Company IP; and (B) whether these licenses, rights and interests are exclusive or
nonexclusive.
(b)
The Company has sufficient rights to all of the material Intellectual Property and
Intellectual Property Rights in or relating to the Company Products and necessary to conduct its business in the manner that such business is, as of the date of this Agreement, being conducted by the Company and planned by the Company to be
conducted.
(c)
All Company IP is valid, subsisting and enforceable. The Company is not bound by, and no
Company IP is subject to, any settlement, Legal Proceeding, Order or stipulation that limits or restricts, or would limit or restrict, in any material respect the ability of the Company to use, transfer, license, exploit, assert or enforce any
Company IP or that may adversely affect the validity of any Company IP differently from the manner in which such Company IP is, as of the date of this Agreement, being used by the Company and planned by the Company to be used. The Company has taken
sufficient reasonable steps to maintain the confidentiality of, and otherwise protect and enforce its rights in, all material proprietary information held by the Company, or purported to be held by the Company, as a trade secret.
(d)
Neither the execution, delivery or performance of this Agreement or the Stockholder Agreements, nor the
consummation of the Offer or the Merger or any of the other Contemplated Transactions will, with or without notice or the lapse of time, result in or give any other Person the right or option to cause, impose or declare: (i) a loss of, or
Encumbrance on, any Company IP; (ii) an obligation to make any payment or royalties or the loss or acceleration of any payment or royalties; (iii) a breach, modification, cancellation, termination or suspension of any Contract listed or
required to be listed in Part 3.9(a) of the Disclosure Schedule or any Material Contract relating to any Company IP; (iv) the release, disclosure or delivery of any Company IP by or to any escrow agent or other Person; (v) the grant,
assignment or transfer to any other Person of any license or other right or interest under, to or in any of the Company IP; or (vi) any restriction on pursuing any claim or enforcing any material Intellectual Property Right or any other
material restriction, including any noncompetition restriction, on the operation or scope of the business of the Company.
(e)
To the Knowledge of the Company, since January 1, 2007, no Person has infringed, misappropriated or otherwise violated, and no Person is currently infringing, misappropriating or otherwise
violating, any Company IP.
(f)
Except as set forth in Part 3.9(f) of the Disclosure Schedule,
neither the Company nor any of the Company Products, since January 1, 2007, has infringed (directly, contributorily, by inducement or otherwise), misappropriated or otherwise violated (where such infringement, misappropriation, or violation has
not been settled, dismissed or otherwise concluded) or currently infringes (directly, contributorily, by inducement or otherwise), misappropriates or otherwise violates any Intellectual Property Right of any other Person.
(g)
(i) No infringement, misappropriation or similar claim or Legal Proceeding is pending (other than office
actions in connection with applications for Registered IP) or, to the Knowledge of the Company, threatened against the Company, and (ii) since January 1, 2007, the Company has not received any requests for indemnification or received
written notice of any claims from any Person that is, or has asserted or could reasonably be expected to assert that it is, entitled to be indemnified, defended, held harmless or reimbursed by the Company with respect to such claim or Legal
Proceeding (excluding any claim or Legal Proceeding that has been settled, dismissed or otherwise concluded).
(h)
Except for the Companys obligations to indemnify customers, distributors, resellers and sales representatives against third party infringement claims based on Company Products as part of the ordinary course of business, the
Company has not assumed, or agreed to discharge or otherwise take responsibility for, any obligation to indemnify, defend, hold harmless or reimburse any other Person with respect to any infringement, misappropriation or similar claim relating to
Intellectual Property Rights.
A-1-18
(i)
Except as set forth in Part 3.9(i) of the Disclosure
Schedule, the Company has complied at all applicable times and in all material respects with all Company Privacy Policies and with all applicable Legal Requirements pertaining to privacy, user data, or Personal Data and none of (i) the
execution, delivery, or performance of this Agreement or the Stockholder Agreement, (ii) the consummation of the Offer, the Merger or any of the other Contemplated Transactions, or (iii) Parents possession or use of any user data,
will or could reasonably be expected to result in any violation of any Company Privacy Policy or any Legal Requirement pertaining to privacy or Personal Data.
3.10 Contracts
.
(a)
Part 3.10 of the Disclosure Schedule identifies each Company Contract that constitutes a Material Contract (as defined below). For purposes of this Agreement, each of the following shall
be deemed to constitute a
Material Contract
:
(i) any Contract imposing any material
restriction on the right or ability of the Company: (A) to compete with any other Person; (B) to acquire any product or other asset or any services from any other Person; (C) to solicit, hire or retain any Person as an employee,
consultant or independent contractor; (D) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person; (E) to perform services for any other Person; (F) to
bring any claim or enforce any Intellectual Property right against any Person; or (G) to transact business or deal in any other manner with any other Person;
(ii) any Contract of the type required under
Section 3.9
to be identified on the Disclosure Schedule;
(iii) any Contract relating to the disposition or acquisition by the Company of a business unit or material
amount of assets outside the ordinary course of business;
(iv) any Contract that provides for indemnification
of any Indemnified Person (as defined in
Section 6.5(a)
);
(v) any Contract that contemplates or
involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $250,000 in the aggregate, or contemplates or involves the performance of services having a value in excess of $250,000 in the aggregate;
(vi) any Contract (other than Contracts evidencing Company Options): (A) relating to the acquisition,
issuance, voting, registration, sale or transfer of any securities; (B) providing any Person with any preemptive right, right of participation, right of maintenance or similar right with respect to any securities; or (C) providing to or
imposing upon the Company any right of first refusal with respect to, or right or obligation to repurchase or redeem, any securities;
(vii) any Contract incorporating or relating to any guaranty, any warranty, any sharing of liabilities or any indemnity or similar obligation, except for (A) Contracts which do not differ materially
from the standard forms Made Available by the Company to Parent, (B) the Companys obligations to indemnify customers, distributors, resellers and sales representatives against third party infringement claims based solely on Company
Products that are contained in Company Contracts entered into in the ordinary course of business, and (C) the Companys obligations to indemnify certain licensors, suppliers and other vendors that are contained in Company Contracts entered
into in the ordinary course of business;
(viii) any Contract containing standstill or similar
provisions;
(ix) any other Contract, if a breach or termination of such Contract would constitute a Company
Material Adverse Effect; and
(x) any material contract as such term is defined in
Item 601(b)(10) of Regulation S-K of the SEC.
A-1-19
(b)
The Company has Made Available to Parent an accurate and complete
copy of each Material Contract. To the Companys Knowledge, there are no agreements, understandings, arrangements or courses of dealing between the Company and any third party, written or oral, explicit or implicit, that could result in any
Material Contract, other than any agreement set forth on Part 3.10(b) of the Disclosure Schedule (any such agreement, a
Specified Contract
), being interpreted or enforced other than in accordance with the explicit terms
thereof that have been disclosed to Parent prior to the date of this Agreement. There are no agreements, understandings, arrangements or courses of dealing between the Company and any third party, written or oral, explicit or implicit, that could
result in any Specified Contract being interpreted or enforced other than in accordance with the explicit terms thereof that have been disclosed to Parent prior to the date of this Agreement.
(c)
Each Material Contract is valid and in full force and effect, and is enforceable against the Company (and to the
Knowledge of the Company is enforceable against each other party thereto) in accordance with its terms, and subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(d)
(i) The Company
is not in material violation or breach of, or in default under, any Material Contract; (ii) to the Knowledge of the Company, no other Person is in material violation or breach of, or in default under, any Material Contract; (iii) to the
Knowledge of the Company, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) could reasonably be expected to: (A) result in a material violation or breach of any of the provisions of
any Material Contract; or (B) give any Person the right to cancel, terminate, modify or declare a default or exercise any remedy under any Material Contract; and (iv) the Company has not received any written notice from another party to a
Material Contract asserting that the Company is in breach of or default under any such Material Contract.
3.11 Company Products.
(a)
Since January 1, 2009, to the Knowledge of the Company,
the Company has not received any written notice from any material supplier threatening to cease supplying products to the Company.
(b)
Except as set forth in Part 3.11(b) of the Disclosure Schedule, the Company is not bound by any Contract that limits or restricts the ability of the Company to develop, manufacture, market
or sell any Company Product for any period of time, in any territory, to or for any particular customer or group of customers or in any other material respect.
3.12 No Undisclosed Liabilities
. The Company does not have any accrued, contingent or other liabilities of any nature,
either matured or unmatured, except for: (a) liabilities identified in the Year-End Balance Sheet of the Company (or the notes thereto); (b) normal and recurring current liabilities that have been incurred by the Company since the date of
the Year-End Balance Sheet in the ordinary course of business and consistent with past practice; and (c) liabilities for performance of obligations of the Company under Company Contracts, to the extent such liabilities are readily ascertainable
(in nature, scope and amount) from the copies of such Company Contracts Made Available to Parent prior to the date of this Agreement.
3.13 Compliance with Legal Requirements
. Except as set forth on Part 3.13 of the Disclosure Schedule, the Company is, and the Company and the Former Subsidiary have at all times since
January 1, 2007 been in compliance in all material respects with all applicable Legal Requirements. Since January 1, 2007, neither the Company nor the Former Subsidiary has received any written notice or, to the Knowledge of the Company,
other communication from any Governmental Body or other Person, or otherwise obtained Knowledge, regarding any actual or possible violation of, inquiry or investigation relating to or failure of the Company or the Former Subsidiary, or any of their
respective Representatives, to comply with any material Legal Requirement, or any actual or possible violation by any Person of, or failure by any Person to comply with, any Legal Requirement relating to the Company Common Stock or the purchase or
sale of Company Common Stock, or any inquiry or investigation relating to any of the foregoing.
A-1-20
3.14 Certain Business Practices
. Neither the Company nor any
director, officer, other employee or agent of the Company has violated any provision of the Foreign Corrupt Practices Act of 1977, as amended.
3.15 Governmental Authorizations
. Except as set forth on Part 3.15 of the Disclosure Schedule, (a) The Company holds all Governmental Authorizations necessary to enable the Company to
conduct its businesses in the manner in which such businesses are currently being conducted, (b) all such Governmental Authorizations are valid and in full force and effect, and (c) the Company is, and at all times since January 1,
2007 has been, in compliance with the terms and requirements of such Governmental Authorizations. Since January 1, 2007, the Company has not received any written notice or, to the Knowledge of the Company, other communication from any
Governmental Body regarding: (i) any violation of or failure to comply with any term or requirement of any such Governmental Authorization; or (ii) any revocation, withdrawal, suspension, cancellation, termination or modification of any
such Governmental Authorization.
3.16 Tax Matters
.
(a)
Each of the Tax Returns required to be filed by or on behalf of the Company with respect to any taxable period
ending on or before the Closing Date (the
Company Returns
): (i) has been or will be filed on or before the applicable due date (taking into account any extensions of such due date); and (ii) has been, or will be when
filed, prepared in all material respects in compliance with all applicable Legal Requirements. All amounts shown on the Company Returns to be due on or before the Closing Date have been or will be paid on or before the Closing Date. The Company has
timely withheld and timely paid all Taxes which are required to have been withheld and paid by it in connection with amounts paid or owing to any employee, independent contractor, creditor, supplier, stockholder or other Person. There are no
material unsatisfied liabilities of the Company (including liabilities for interest, additions to Tax and penalties thereon and related expenses) with respect to any Tax (other than liabilities for Taxes that are being contested in good faith by the
Company and with respect to which adequate reserves for payment have been established on the Year-End Balance Sheet).
(b)
To the Knowledge of the Company, except as set forth in Part 3.16(b) of the Disclosure Schedule, since January 1, 2007, no Company Return has been examined or audited by any Governmental Body. No extension or waiver of
the limitation period applicable to any of the Company Returns has been granted by the Company or other Person(s) authorized by the Company, and no such extension or waiver has been requested in writing from the Company. The Company has not received
any notice or other communication in writing that any Company Return will be subject to an audit that has not commenced.
(c)
No Legal Proceeding with respect to Tax is pending or, to the Knowledge of the Company, threatened against or with respect to the Company. There are no liens for material Taxes upon any of the
assets of the Company except liens for current Taxes not yet due and payable.
(d)
The Company has not
been, and the Company will not be, required to include any adjustment in taxable income for any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code (or any comparable provision of state or foreign Tax laws) as a result
of transactions or events occurring, or accounting methods employed, prior to the Closing.
(e)
Part 3.16(e) of the Disclosure Schedule sets forth each country or state in which the Company files a Tax Return. Since January 1, 2007, no written claim has been received by the Company from any Governmental Body in a jurisdiction
where the Company does not file a Tax Return that it is or may be subject to taxation by that jurisdiction which has resulted or would reasonably be expected to result in a material Tax obligation.
(f)
There are no agreements relating to allocating or sharing of Taxes to which the Company is a party. The Company is
not liable for Taxes of any other Person, or is currently under any contractual obligation to indemnify any Person with respect to any amounts of such Persons Taxes or is a party to any agreement providing for payments by the Company with
respect to any amount of Taxes of any
A-1-21
other Person. For the purposes of this
Section 3.16(f)
, commercially reasonable agreements providing for the allocation or payment of real property Taxes attributable to real property
leased or occupied by the Company and commercially reasonable agreements for the allocation of payment of personal property Taxes, sales or use Taxes or value added Taxes with respect to personal property leased, used, owned or sold by the Company
in the ordinary course of business shall be disregarded.
(g)
The Company is not, and has not been since
January 1, 2007, either a distributing corporation or a controlled corporation within the meaning of Section 355(a)(1)(A) of the Code.
(h)
The Company is not and has never been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code.
(i)
The Company is not and has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code (or any similar provision of state, local or non-U.S. Tax law).
(j)
Except as set forth on Part 3.16(j) of the Disclosure Schedule, the Company has Made Available to Parent accurate and complete copies of all federal and state income Tax Returns of the
Company for all Tax years that remain open or are otherwise subject to audit, and all other material Tax Returns of the Company filed after December 31, 2006. The Company has disclosed on its federal income Tax Returns all positions that could
give rise to a material understatement penalty within the meaning of Section 6662 of the Code or any similar Legal Requirement.
(k)
The Company has not participated in, and is not currently participating in, a Listed Transaction or a Reportable Transaction within the meaning of Treasury Regulation
Section 1.6011-4(b)(2) or similar transaction under any corresponding or similar Legal Requirement.
(l)
The Company has never participated in an international boycott as defined in Section 999 of the Code.
(m)
The Company is not and has never been a passive foreign investment company within the meaning of Sections 1291 through 1297 of the Code.
(n)
The Company has not incurred (or been allocated) an overall foreign loss as defined in
Section 904(f)(2) of the Code which has not been previously recaptured in full as provided in Sections 904(f)(1) and/or 904(f)(3) of the Code.
(o)
The Company is not a party to a gain recognition agreement under Section 367 of the Code.
(p)
Since January 1, 2007, the Company is not and has not been a party to a transaction or agreement that is in conflict with, in any material respect, the Tax rules on transfer pricing in any
relevant jurisdiction. None of the transactions by the Company (or other related party) that occurred on or after January 1, 2007 is subject to any material adjustment, apportionment, allocation or re-characterization under Section 482 of
the Code or any similar federal, state or local or foreign rule or regulation, and all of such transactions have been effected on an arms length basis. The Company has made available to Parent copies or descriptions of all intercompany
agreements (whether or not in writing) that were entered into on or after January 1, 2007 and relate to transfer pricing.
(q)
The Company is, in all material respects, in compliance with all terms and conditions of any Tax exemptions, Tax holiday or other Tax reduction agreement, approval or order of any Governmental
Body.
3.17 Employee and Labor Matters; Benefit Plans
.
(a)
The Company has Made Available to Parent accurate and complete copies of all employee manuals and handbooks,
disclosure materials, policy statements and other materials relating to the employment of Company Associates.
A-1-22
(b)
To the Knowledge of the Company, no employee of the Company is a
party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person) that may have a material effect on the business or operations of the Company or, following the Merger, Parent or any of its
Subsidiaries.
(c)
The Company is not a party to or bound by any collective bargaining agreement or
union contract, and no collective bargaining agreement is being negotiated by the Company. To the Knowledge of the Company, there are no activities or proceedings of any labor union to organize any Company employees. There is no labor dispute,
strike or work stoppage pending against the Company or, to the Knowledge of the Company, threatened against the Company. The Company has not committed and, to the Knowledge of the Company, the Company has not been accused of committing any unfair
labor practice in connection with the operation of its business that could reasonably be expected to result in a material liability to the Company. There are no material actions, suits, claims, labor disputes or grievances pending or, to the
Knowledge of the Company, threatened relating to any labor, safety or discrimination matters involving any Company Associate, including charges of unfair labor practices or discrimination complaints, which, if adversely determined, could reasonably
be expected to result in a material liability to the Company.
(d)
None of the current or former
independent contractors of the Company is required to be reclassified as an employee.
(e)
Part 3.17(e)(i) of the Disclosure Schedule contains an accurate and complete list, as of the date of this Agreement, of each material Company Employee Plan and each Company Employee Agreement. Except as set forth in Part 3.17(e)(ii) of
the Disclosure Schedule, the Company does not intend, and the Company has not committed, to establish or enter into any new Company Employee Plan, Foreign Plan or Company Employee Agreement, or to modify any Company Employee Plan, Foreign Plan or
Company Employee Agreement (except to conform any such Company Employee Plan, Foreign Plan or Company Employee Agreement to the requirements of Section 409A of the Code or any other applicable Legal Requirements).
(f)
Except as set forth on Part 3.17(f) of the Disclosure Schedule, the Company has Made Available to Parent
accurate and complete copies of: (i) each material Company Employee Plan and each Company Employee Agreement, including all amendments thereto and all related trust documents; (ii) the most recent annual reports/filings, if any, required
under applicable Legal Requirements in connection with each Company Employee Plan; (iii) the most recent annual and periodic accounting of Company Employee Plan assets, if any, for each Company Employee Plan; (iv) the most recent summary
plan description together with the summaries of material modifications thereto, if any, required under ERISA or any similar Legal Requirement with respect to each Company Employee Plan; (v) all material written Contracts relating to each
Company Employee Plan, including administrative service agreements and group insurance contracts; (vi) all material correspondence to or from any Governmental Body relating to any Company Employee Plan since January 1, 2007; and
(vii) the most recent IRS determination or opinion letter issued with respect to each Company Employee Plan intended to be qualified under Section 401(a) of the Code.
(g)
(i) The Company and each of the Company Affiliates has performed in all material respects all obligations required to be performed by it under each Company Employee Plan, each Foreign Plan and each
Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance in all material respects with all applicable Legal Requirements.
(ii) Each Company Employee Plan intended to be qualified under Section 401(a) of the Code has obtained a favorable
determination letter (or opinion letter, if applicable, on which the adopting employer is entitled to rely) as to its qualified status under the Code, and no event has
A-1-23
occurred and no circumstance or condition exists that would reasonably be expected to result in the disqualification of any such Company Employee Plan.
(iii) No non-exempt prohibited transaction, within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA has occurred with respect to any Company Employee Plan.
(iv) There are no
claims or Legal Proceedings pending, or, to the Knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits), against any Company Employee Plan or against the assets of any Company Employee Plan.
(v) There are no audits, inquiries or Legal Proceedings pending or, to the Knowledge of the Company,
threatened by the IRS, DOL, or any other Governmental Body with respect to any Company Employee Plan.
(vi)
The Company and each of the Company Affiliates has made all contributions and other payments required by and due under the terms of each Company Employee Plan.
(h)
Neither the Company nor any Company Affiliate has at any time in the past six (6) years maintained,
established, sponsored, participated in or contributed to any: (i) Company Pension Plan subject to Title IV of ERISA; (ii) multiemployer plan within the meaning of Section (3)(37) of ERISA; or (iii) plan described in
Section 413 of the Code.
(i)
Except as set forth in Part 3.17(i) of the Disclosure Schedule,
no Company Employee Plan or Company Employee Agreement provides (except at no cost to the Company or any Company Affiliate) post-termination or retiree life insurance, post-termination or retiree health benefits or other post-termination or retiree
employee welfare benefits to any Person for any reason, except as may be required by COBRA or other applicable Legal Requirements.
(j)
Except as set forth in Part 3.17(j) of the Disclosure Schedule, and except as expressly required or provided by this Agreement, neither the execution and delivery of this Agreement, nor
the consummation of the Offer or the Merger or any of the other Contemplated Transactions will (either alone or upon the occurrence of termination of employment) constitute an event under any Company Employee Plan or Company Employee Agreement that
will result (either alone or in connection with any other circumstance or event) in or give rise to: (i) any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits
or obligation to fund benefits with respect to any Company Associate; or (ii) any parachute payment within the meaning of Section 280G(b)(2) of the Code. The Company is not a party to any agreement to compensate any Person for
excise taxes payable pursuant to Section 4999 of the Code.
(k)
Except as set forth in
Part 3.17(k) of the Disclosure Schedule, each of the Company and Company Affiliates: (i) is, and at all times has been, in compliance in all material respects with all applicable Legal Requirements respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case, with respect to Company Associates; (ii) has withheld and reported all amounts required by applicable Legal Requirements or by applicable Contracts to be withheld
and reported with respect to wages, salaries and other payments to Company Associates; (iii) is not liable for any arrears of wages or any Taxes or any penalty for failure to comply with the Legal Requirements applicable of the foregoing; and
(iv) is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of any Governmental Body with respect to unemployment compensation benefits, social security or other benefits or obligations for Company
Associates (other than routine payments to be made in the ordinary course of business and consistent with past practice).
(l)
There is no agreement, plan, arrangement or other Contract covering any Company Associate, and no payments have been made or will be made to any Company Associate, that, considered individually
or considered collectively with any other such Contracts or payments, will, or could reasonably be expected to, be characterized as a parachute payment within the meaning of
A-1-24
Section 280G(b)(2) of the Code or give rise directly or indirectly to the payment of any amount that would not be deductible pursuant to Section 162(m) of the Code (or any comparable
provision under state or foreign Tax laws). The Company is not a party to any agreement to compensate any Person for excise taxes payable pursuant to Section 4999 of the Code.
(m)
There are no loans or other advances that have been made by the Company to any Company Associate that are
currently outstanding, other than expense advances made to employees in the ordinary course of business.
(n)
To the Knowledge of the Company, except as set forth in Part 3.17(n) of the Disclosure Schedule, no executive officer of the Company or other employee of the Company at the level of Vice President or above: (i) has
indicated his or her intent to terminate his or her employment with the Company; or (ii) has received an offer to join a business that could reasonably be expected to be competitive with the Companys business.
3.18 Environmental Matters
.
(a)
The Company: (i) is and has since January 1, 2007 been in compliance in all material respects with, and
has not been and is not in material violation of or subject to any material liability under, any applicable Environmental Laws (as defined below); and (ii) possesses all permits and other Governmental Authorizations required under applicable
Environmental Laws, and is in compliance with the terms and conditions thereof.
(b)
The Company has not
received any written notice or, to the Knowledge of the Company, other communication, whether from a Governmental Body that alleges that the Company is not or might not be in compliance in any material respect with any Environmental Law.
(c)
To the Knowledge of the Company: (i) all Leased Real Property and any other property that is or was
controlled or used by the Company, and all surface water, groundwater and soil associated with or adjacent to such property, is free of any Materials of Environmental Concern (as defined below) or material environmental contamination of any nature
caused by the Company; (ii) none of the Leased Real Property or any other property that is or was controlled or used by the Company contains any underground storage tanks, asbestos, equipment using PCBs or underground injection wells; and
(iii) none of the Leased Real Property or any other property that is or was controlled or used by the Company contains any septic or other tanks or leach field or other area into which process wastewater or any Materials of Environmental
Concern have been Released (as defined below) by the Company.
(d)
The Company has never Released any
Materials of Environmental Concern except in compliance in all material respects with all applicable Environmental Laws.
(e)
To the Knowledge of the Company, the Company has never sent or transported, or arranged to send or transport, any Materials of Environmental Concern to a site that, pursuant to any applicable
Environmental Law: (i) has been placed on the National Priorities List of hazardous waste sites or any similar state list; (ii) is otherwise designated or identified as a potential site for remediation, cleanup, closure or
other environmental remedial activity; or (iii) is subject to a Legal Requirement to take removal or remedial action as detailed in any applicable Environmental Law or to make payment for the cost of cleaning up any
site.
(f)
For purposes of this
Section 3.18
: (i)
Environmental Law
shall mean any federal, state, local or foreign Legal Requirement relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any Legal
Requirement relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; (ii)
Materials of Environmental Concern
include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other substance that is regulated by
any
A-1-25
Environmental Law; and (iii)
Release
shall mean any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping or other releasing into the
environment, whether intentional or unintentional.
3.19 Insurance
. Except as set forth on
Part 3.19 of the Disclosure Schedule, the Company has Made Available to Parent a copy of all material insurance policies and all material self insurance programs and arrangements relating to the business, assets and operations of the Company.
Each of such insurance policies is in full force and effect. Since January 1, 2007, the Company has not received any (a) written notice or, to the Knowledge of the Company, other communication regarding any cancellation or invalidation of
any such insurance policy; or (b) written notice of refusal of any coverage or rejection of any material claim under any such insurance policy. Except as set forth in Part 3.19 of the Disclosure Schedule, there is no pending workers
compensation claim under any insurance policy of the Company. With respect to each Legal Proceeding that has been filed against the Company, the Company has provided written notice of such Legal Proceeding to the appropriate insurance carrier(s), if
any, and no such carrier has issued a denial of coverage or a reservation of rights with respect to any such Legal Proceeding, or, to the Knowledge of the Company, informed the Company of its intent to do so.
3.20 Transactions with Affiliates
. Except as set forth in the Company SEC Documents filed prior to the date of this
Agreement, between June 24, 2009 and the date of this Agreement, no event has occurred that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K promulgated by the SEC.
3.21 Legal Proceedings; Orders
.
(a)
Except as set forth in Part 3.21(a) of the Disclosure Schedule, there is not pending any Legal Proceeding,
and, to the Knowledge of the Company, no Person has threatened to commence any Legal Proceeding that involves the Company or any of the assets owned or used by the Company.
(b)
There is no Order to which the Company, or any of the assets owned or used by the Company, is subject. To the
Knowledge of the Company, no named executive officer of the Company is subject to any Order that prohibits such officer from engaging in or continuing any conduct, activity or practice relating to the business of the Company.
3.22 Authority; Inapplicability of Anti-takeover Statutes; Binding Nature of Agreement
. The board of directors of the
Company (at a meeting duly called and held) has: (a) unanimously determined that the Offer, the Merger and this Agreement are advisable and fair to and in the best interests of the Company and its stockholders; (b) unanimously authorized
and approved the execution, delivery and performance of this Agreement by the Company and unanimously approved the Offer and the Merger; (c) unanimously resolved to recommend that stockholders of the Company accept the Offer and tender their
shares of Company Common Stock pursuant to the Offer and adopt this Agreement; and (d) to the extent necessary, adopted a resolution having the effect of causing the Contemplated Transactions not to be subject to Section 203 of the DGCL.
This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of
debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
3.23 Vote Required
. If required under applicable Legal Requirements in order to permit the consummation of the Merger, the affirmative vote of the holders of a majority of the shares of Company Common Stock outstanding on the record
date for the Company Stockholders Meeting (the
Required
Company Stockholder Vote
) is the only vote of the holders of any class or series of the Companys capital stock necessary to adopt this Agreement, approve
the Merger or consummate any of the other Contemplated Transactions.
3.24 Non-Contravention; Consents
.
Except as set forth in Part 3.24 of the Disclosure Schedule, neither (1) the execution, delivery or performance of this Agreement or the Stockholder Agreements, nor
A-1-26
(2) the consummation of the Offer, the Merger or any of the other Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of: (i) any of the provisions of the Charter Documents of the
Company; or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of the Company;
(b) in any material respect, contravene, conflict with or result in a violation of any Legal Requirement or any Order to which the Company, or any of the assets owned or used by the Company, is subject;
(c) in any material respect, contravene, conflict with or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the business of the Company or to any of the
assets owned or used by the Company;
(d) in any material respect, contravene, conflict with or result in a
violation or breach of, or result in a default under, any provision of any Material Contract, or give any Person the right to: (i) declare a default or exercise any remedy under any such Material Contract; (ii) accelerate the maturity or
performance of any such Material Contract; or (iii) cancel, terminate or modify any right, benefit, obligation or other term of any such Material Contract;
(e) result in the imposition or creation of any Encumbrance upon or with respect to any material asset owned or used by the
Company, except for Permitted Encumbrances; or
(f) result in the transfer of any material asset of the Company
to any Person (except as contemplated by this Agreement).
Except as set forth in Part 3.24 of the Disclosure Schedule, the Company is
not and will not be required to make any filing with, give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement by the Company, (y) the execution, delivery
or performance of the Stockholder Agreements or (z) the consummation of the Offer, the Merger or any of the other Contemplated Transactions, except as may be required by the Securities Act, the Exchange Act, the DGCL, any applicable state or
foreign securities laws, the HSR Act, any foreign antitrust Legal Requirement and the NASD Bylaws.
3.25
Fairness Opinion
. The Companys board of directors has received the written opinion of Houlihan, Lokey, Howard & Zukin Capital, Inc. (
Houlihan Lokey
), financial advisor to the Company, dated November 2,
2009, to the effect that, as of the date of such opinion and subject to the matters set forth in such opinion, the Per Share Consideration is fair, from a financial point of view, to the holders of Company Common Stock (other than any Affiliates of
the Company or Parent, Acquisition Sub and their respective Affiliates). The Company has furnished (solely for informational purposes) a copy of said written opinion to Parent.
3.26 Financial Advisor
. Except for Houlihan Lokey, no broker, finder or investment banker is entitled to any
brokerage, finders or other fee or commission in connection with the Offer or the Merger or any of the other Contemplated Transactions based upon arrangements made by or on behalf of the Company.
3.27 Disclosure
. None of the information supplied or to be supplied by or on behalf of the Company for inclusion in
the Registration Statement, the Post-Effective Amendment, the Offer Documents or the Schedule 14D-9 will, at the time the Registration Statement is filed with the SEC, at the time the Post- Effective Amendment is filed with the SEC, at the time
the Offer Documents and the Schedule 14D-9 are mailed to stockholders of the Company or at any time between the time the Registration Statement is filed with the SEC and the Acceptance Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or
on behalf of the Company for inclusion in the Proxy Statement will, at the time the Proxy Statement is mailed to stockholders of the Company or at the time of the Company Stockholders Meeting
A-1-27
(or any adjournment or postponement thereof), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated by
the SEC thereunder. No representation or warranty is made by the Company with respect to written information supplied by Parent or Acquisition Sub specifically for inclusion in the Schedule 14D-9 or the Proxy Statement.
Section 4. R
EPRESENTATIONS
AND
W
ARRANTIES
OF
P
ARENT
AND
A
CQUISITION
S
UB
Except as explicitly set forth in (i) the Annual
Report on Form 10-K filed by Parent with the SEC with respect to the fiscal year ended December 28, 2008, (ii) any Current Reports on Form 8-K filed by Parent with the SEC since the filing date of the Form 10-K referred to
above, and (iii) the Quarterly Reports on Form 10-Q filed by Parent with the SEC since the filing date of the Form 10-K referred to above (excluding any risk factors or similar statements that are cautionary, predictive or
forward-looking in nature (but, for the purpose of clarification, including and giving effect to any factual or historical statements included in any such statements) in a manner where the relevance of such information to a particular representation
and warranty below is readily apparent, Parent and Acquisition Sub represent and warrant to the Company as follows:
4.1 Due Organization
.
(a) Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington and has all necessary corporate power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the
manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound. Parent is qualified to do business as a foreign corporation, and is in good standing (except for any
jurisdiction that does not recognize such concept) under the laws of all jurisdictions where the nature of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate,
do not constitute a Parent Material Adverse Effect.
(b) Acquisition Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own
and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.
4.2 Certificate of Incorporation and Bylaws
. Parent has Made Available to the Company accurate and complete copies of
its and Acquisition Subs certificate of incorporation, bylaws and other charter and organizational documents (collectively the
Parent Charter Documents
), each as currently in effect.
4.3 Capitalization
. The authorized capital stock of Parent consists of 50,000,000 shares of Parent Common Stock. As of
October 30, 2009, (a) 12,995,078 shares of Parent Common Stock are issued and outstanding and (b) 2,887,917 shares of Parent Common Stock are subject to issuance pursuant to securities convertible into or exchangeable for shares of
Parent Common Stock. There are no outstanding obligations of Parent or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Parent Common Stock or securities convertible into or exchangeable for Parent Common Stock. The shares of
Parent Common Stock to be issued in the Offer and the Merger will be duly authorized, validly issued, fully paid and nonassessable. All shares or other equity interests of the Subsidiaries of Parent are owned by Parent or another wholly owned
Subsidiary of Parent free and clear of any Encumbrance.
4.4 SEC Filings; Financial Statements
.
(a) Parent has filed with the SEC all registration statements, proxy statements, Certifications and other
statements, reports, schedules, forms and other documents required to be filed by Parent with the SEC since January 1, 2005, and all amendments thereto (the
Parent SEC Documents
). All statements,
A-1-28
reports, schedules, forms and other documents required to have been filed by Parent or its officers with the SEC have been so filed on a timely basis. Parent has Made Available to the Company
accurate and complete copies of each Parent SEC Document (including each exhibit thereto) that is not publicly available through the SECs EDGAR database. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing): (i) each of the Parent SEC Documents complied with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and the applicable rules and
regulations of the SEC thereunder; and (ii) none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading. Each of the certifications and statements required by: (A) Rule 13a-14 or Rule 15d-14 under the Exchange Act; (B) 18 U.S.C. §1350
(Section 906 of the Sarbanes-Oxley Act); or (C) any other rule or regulation promulgated by the SEC or applicable to the Parent SEC Documents are accurate and complete, and comply as to form and content with all applicable Legal
Requirements.
(b) The consolidated financial statements (including any related notes) contained or
incorporated by reference in the Parent SEC Documents (as amended prior to the date of this Agreement): (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by Form 10-Q,
Form 8-K or any successor form under the Exchange Act, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that will not, individually or in the aggregate, be
material in amount), and (iii) fairly presented, in all material respects, the consolidated financial position of Parent and its consolidated Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash
flows of Parent and its consolidated Subsidiaries for the periods covered thereby. No financial statements of any Person other than Parent are required by GAAP to be included in the consolidated financial statements of Parent. With respect to the
financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents, there have been no deficiencies or weaknesses identified in writing by Parent or Parents independent auditors (whether
current or former) in the design or operation of internal controls of financial reporting utilized by Parent and its consolidated Subsidiaries.
4.5 Authority; Binding Nature of Agreement
. Parent and Acquisition Sub have the absolute and unrestricted right, power and authority to perform their obligations under this Agreement; and the
execution, delivery and performance by Parent and Acquisition Sub of this Agreement have been duly authorized by any necessary action on the part of Parent and Acquisition Sub and their respective boards of directors. This Agreement constitutes the
legal, valid and binding obligation of Parent and Acquisition Sub, enforceable against them in accordance with its terms, subject to: (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and
(b) rules of law governing specific performance, injunctive relief and other equitable remedies.
4.6
No Vote Required
. No vote of the holders of Parent Common Stock is required to authorize the issuance of shares of Parent Common Stock in connection with the Offer or the Merger.
4.7 Absence of Changes
. Since June 28, 2009, except as otherwise contemplated by this Agreement, there has not
been any Parent Material Adverse Effect.
4.8 Non-Contravention; Consents
. Except as does not constitute
a Parent Material Adverse Effect, neither (1) the execution, delivery or performance by Parent or Acquisition Sub of this Agreement, nor (2) the consummation by Parent or Acquisition Sub of the Offer, the Merger or any of the other
Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):
(a)
contravene, conflict with or result in a violation of: (i) any of the provisions of the Parent
A-1-29
Charter Documents; or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of Parent or Acquisition Sub; or
(b) contravene, conflict with or result in a violation of any Legal Requirement or any Order to which Parent, Acquisition Sub
or any of the assets owned or used by either of them, is subject.
Each of Parent and Acquisition Sub is not and will not be required to make
any filing with, give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement by Parent or Acquisition Sub, or (y) the consummation of the Offer, the Merger
or any of the other Contemplated Transactions, except as may be required by the Securities Act, the Exchange Act, the DGCL, any applicable state or foreign securities laws, the HSR Act, any foreign antitrust Legal Requirement and the NASD Bylaws.
4.9 Disclosure
. None of the information supplied or to be supplied by or on behalf of Parent for
inclusion in the Registration Statement, the Post-Effective Amendment, the Offer Documents or the Schedule 14D-9 will, at the time the Registration Statement is filed with the SEC, at the time the Post-Effective Amendment is filed with the SEC
or at the time the Offer Documents and the Schedule 14D-9 are mailed to the stockholders of the Company or at any time between the time the Registration Statement is filed with the SEC and the Acceptance Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to
be supplied by or on behalf of Parent for inclusion in the Proxy Statement will, at the time the Proxy Statement is mailed to the stockholders of the Company or at the time of the Company Stockholders Meeting (or any adjournment or
postponement thereof), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are
made, not misleading. No representation or warranty is made by Parent or Acquisition Sub with respect to written information supplied by the Company specifically for inclusion in the Registration Statement, the Post-Effective Amendment or the Offer
Documents.
4.10 Funds
. Parent or Acquisition Sub will have, at the Acceptance Time, sufficient funds
available to satisfy the obligation to pay the Cash Component for each share of Company Common Stock validly tendered (and not withdrawn) in the Offer, and Parent or Acquisition Sub will have, at the Effective Time, sufficient funds available to
satisfy the obligation to pay the Cash Component for each share of Company Common Stock that is converted into the right to receive the Per Share Consideration pursuant to
Section 2.5(a)(iii)
in connection with the Merger.
Section 5. C
ERTAIN
C
OVENANTS
OF
THE
P
ARTIES
5.1 Access and Investigation
. During the period from the date of this Agreement through the earlier
of (1) the Effective Time and (2) the termination of this Agreement pursuant to
Section 8.1
(the
Pre-Closing
Period
), the Company shall, and shall cause the respective Representatives of the Company
to: (a) provide Parent and Parents Representatives with reasonable access to the Companys Representatives, personnel and assets and to all existing books, records, Tax Returns, work papers and other documents and information
relating to the Company; and (b) provide Parent and Parents Representatives with such copies of the existing books, records, Tax Returns, work papers and other documents and information relating to the Company, and with such additional
financial, operating and other data and information regarding the Company, as Parent may reasonably request. During the Pre-Closing Period, the Company shall, and shall cause the Representatives of the Company to, permit Parents senior
officers to meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers of the Company responsible for the Companys financial statements and the internal controls of the Company to discuss
such matters as Parent may deem necessary or appropriate in order to enable Parent to satisfy its obligations
A-1-30
under the Sarbanes-Oxley Act and the rules and regulations relating thereto. Without limiting the generality of any of the foregoing, during the Pre-Closing Period, the Company shall promptly
provide Parent with copies of:
(i)
all material operating and financial reports prepared by the Company
for the Companys senior management, including copies of the unaudited monthly consolidated balance sheets of the Company and the related unaudited monthly consolidated statements of operations, statements of stockholders equity and
statements of cash flows;
(ii)
any written materials or communications sent by or on behalf of the
Company to its stockholders;
(iii)
any material notice, document or other communication (other than any
communication that relates solely to routine commercial transactions and that is of the type sent in the ordinary course of business and consistent with past practices) sent by or on behalf of the Company to any party to any Company Contract that
constitutes a Material Contract or sent to the Company by any party to any Company Contract that constitutes a Material Contract;
(iv)
any notice, report or other document filed with or sent to any Governmental Body on behalf of the Company in connection with the Offer or the Merger or any of the other Contemplated
Transactions; and
(v)
any material notice, report or other document received by the Company from any
Governmental Body.
During the Pre-Closing Period, Parent shall promptly provide the Company with copies of any notice, report or other
document filed with or sent to any Governmental Body on behalf of Parent or Acquisition Sub in connection with the Offer or the Merger or any of the other Contemplated Transactions. Without limiting the effect of any of the other obligations set
forth in this Agreement, before filing any document with or furnishing any document to the SEC or any other Governmental Body in connection with the Offer or the Merger or any of the other Contemplated Transactions, each party shall consult with the
other party regarding the proposed content of such document. All information obtained pursuant to this
Section 5.1
shall be subject to the Confidentiality Agreement to the extent such information constitutes Confidential Information (as
defined in the Confidentiality Agreement).
5.2 Operation of the Companys Business.
(a)
Except in each case (x) as specifically required by any other provision of this Agreement or specifically set
forth in Part 5.2(a) of the Disclosure Schedule, (y) as required by any applicable Legal Requirement, or (z) with the prior written consent of Parent, during the Pre-Closing Period: (i) the Company shall conduct its business and
operations (A) in the ordinary course and in accordance with past practices and (B) in compliance, in all material respects, with all applicable Legal Requirements and the requirements of all Company Contracts that constitute Material
Contracts; (ii) the Company shall use commercially reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and other employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, licensors, licensees, distributors, resellers, employees and other Persons having business relationships with the Company; (iii) the Company shall keep in full force all insurance policies referred to
in
Section 3.19
(other than any such policies that are immediately replaced with substantially similar policies); and (iv) the Company shall promptly notify Parent of (A) any written notice or other communication of which the
Company has Knowledge from any Person alleging that the Consent of such Person is or may be required in connection with any of the Contemplated Transactions, and (B) any Legal Proceeding commenced, or, to the Knowledge of the Company,
threatened against, relating to, involving or otherwise affecting the Company that relates to the consummation of the Offer or the Merger or any of the other Contemplated Transactions. Except in each case (x) as specifically required by any
other provision of this Agreement, (y) as required by any applicable Legal Requirement, or (z) with the prior written consent of the Company, during the
A-1-31
Pre-Closing Period, Parent shall promptly notify the Company of (A) any written notice or other communication of which Parent has Knowledge from any Person alleging that the Consent of such
Person is or may be required in connection with any of the Contemplated Transactions, and (B) any Legal Proceeding commenced, or, to the Knowledge of Parent, threatened against, relating to, involving or otherwise affecting Parent or
Acquisition Sub that relates to the consummation of the Offer or the Merger or any of the other Contemplated Transactions.
(b)
Except in each case (x) as specifically required by any other provision of this Agreement or specifically set forth in Part 5.2(b) of the Disclosure Schedule, (y) as required by
any applicable Legal Requirement, or (z) with the prior written consent of Parent, during the Pre-Closing Period (which consent shall not be unreasonably withheld, conditioned or delayed, but only with respect to
clauses
(xi)
,
(xvii)
,
(xx)
,
(xxi)
and
(xxii)
below), the Company shall not:
(i)
declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital
stock, split, combine or reclassify any capital stock or repurchase, redeem or otherwise reacquire, directly or indirectly, any shares of capital stock or other securities, other than repurchases from employees of the Company following termination
of employment pursuant to the terms of applicable pre-existing restricted stock agreements;
(ii)
sell,
issue, grant deliver or authorize the sale, issuance, delivery or grant of: (A) any capital stock or other security; (B) any option, call, warrant or right to acquire any capital stock or other security; or (C) any instrument
convertible into or exchangeable for any capital stock or other security (except that: (1) the Company may issue shares of Company Common Stock upon the valid exercise of Company Options or Company Warrants outstanding as of the date of this
Agreement; and (2) the Company may, in the ordinary course of business and consistent with past practices, grant to any employee of the Company below the level of Vice President (x) options (having an exercise price equal to the fair
market value of the Company Common Stock covered by such options determined as of the time of the grant of such options, containing no vesting acceleration provisions and containing the Companys standard vesting schedule) or
(y) restricted stock units or restricted stock awards (containing no vesting acceleration provisions and containing the Companys standard vesting schedule) under the Company Equity Plans in connection with either the hiring of such
employee during the Pre-Closing Period or the Companys annual employee review process,
provided
that (I) any such award grants made to newly-hired employees of the Company shall be made in accordance with the Companys new
hire guidelines set forth in Part 5.2(b)(ii)(I) of the Disclosure Schedule; and (II) any award grants made to Company employees in connection with the Companys annual employee performance review process, shall be made in accordance
with the guidelines set forth in Part 5.2(b)(ii)(I) of the Disclosure Schedule;
(iii)
amend or
waive any of its rights under, or accelerate the vesting under, any provision of any of the Company Equity Plans or any provision of any Contract evidencing any outstanding Company Option or any restricted stock purchase agreement, or otherwise
modify any of the terms of any outstanding option, restricted stock units, warrant or other security or any related Contract, other than any acceleration of vesting that occurs in accordance with the terms of a Company Contract in effect as of the
date of this Agreement and previously Made Available to Parent;
(iv)
amend or permit the adoption of
any amendment to any of its Charter Documents, or effect or become a party to any merger, consolidation, share exchange, business combination, amalgamation, recapitalization, reclassification of shares, stock split, reverse stock split, division or
subdivision of shares, consolidation of shares or similar transaction;
(v)
form any Subsidiary or
acquire any equity interest or other interest in any other Entity;
(vi)
make any capital expenditure
(except that the Company may make any capital expenditure that: (A) does not exceed $250,000 individually; and (B) when added to all other
A-1-32
capital expenditures made on behalf of the Company during the calendar month in which such capital expenditure is made, does not exceed $2,000,000 in the aggregate);
(vii)
other than in the ordinary course of business consistent with past practices (A) enter into or become
bound by, or permit any of the material assets owned or used by it to become bound by, any Material Contract or (B) amend or terminate, or waive or exercise any material right or remedy under, any Material Contract;
(viii)
grant any exclusive license or right with respect to any Company IP, other than any grant of Company IP that
occurs in accordance with the terms of a Company Contract in effect as of the date of this Agreement and previously Made Available to Parent;
(ix)
enter into, renew or become bound by, or permit any of the material assets owned or used by it to become bound by, any Contract the effect of which would be to grant to any Person following
the Merger any right or license to any Intellectual Property right owned as of the date of this Agreement by the Company or Parent;
(x)
enter into, renew or become bound by, or permit any of the material assets owned or used by it to become bound by, any Contract containing, or otherwise subjecting the Company to, any
non-competition, exclusivity or other material restriction on the operation of the business of the Company or Parent;
(xi)
acquire, lease or license any right or other asset from any other Person or sell or otherwise dispose of, lease or license any right or other asset to any other Person (except in each case for assets (that are not material
individually or in the aggregate) acquired, leased, licensed or disposed of by the Company in the ordinary course of business and consistent with past practices), or, other than in the ordinary course of business in connection with the collection of
accounts receivable, waive or relinquish any material right;
(xii)
other than in the ordinary course
of business consistent with past practices, write off as uncollectible, or establish any extraordinary reserve with respect to, any receivable or other indebtedness;
(xiii)
make any pledge of any of its material assets or (B) permit any of its material assets to become subject
to any Encumbrances, except for Encumbrances that do not materially detract from the value of such assets or materially impair the operations of the Company;
(xiv)
permit any cash, cash equivalents or short-term investments of the Company to become subject to any
Encumbrance;
(xv)
(A) lend money to any Person, incur or guarantee any indebtedness (including
capital lease obligations) (other than indebtedness for reimbursement of expenses made in the ordinary course of business) or obtain or enter into any bond or letter of credit or any related Contract, in each case in excess of $50,000 individually
or $250,000 in the aggregate, or (B) announce, offer, arrange, syndicate or issue any debt securities (including convertible securities) or announce, arrange or syndicate any bank financing;
(xvi)
establish, adopt, enter into or amend any Company Employee Plan or Company Employee Agreement, pay any bonus or
make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation (including equity-based compensation, whether payable in stock, cash or other property) or remuneration
payable to, any of its directors or any of its officers or other employees (except that the Company: (A) may provide routine, reasonable salary increases to employees that are not at the Vice President level or above in the ordinary course of
business and in accordance with past practices in connection with the Companys customary employee review process; (B) may amend the Company Employee Plans to the extent required by Section 409A of the Code and other applicable Legal
Requirements; (C) may make customary bonus payments and profit sharing payments consistent with past practices in accordance with existing bonus and profit sharing plans referred to in Part 3.16(b) of the Disclosure Schedule); and
(D) may comply with requirements set
A-1-33
forth Company Employee Plans or Company Employee Agreements that are in existence as of the date of this Agreement or are entered into in compliance with this Agreement, each of which was
previously Made Available to Parent;
(xvii)
hire any employee (A) at the director level with
compensation that is inconsistent with the Companys compensation guidelines or its past practices; (B) at the level of Vice President or above, or (C) with an annual base salary in excess of $150,000;
(xviii)
other than in the ordinary course of business consistent with past practices, materially change any of its
pricing policies, product return policies, product maintenance polices, service policies, product modification or upgrade policies, personnel policies or other business policies, or any of its methods of accounting or accounting practices (other
than as required by GAAP) in any respect;
(xix)
make any material Tax election, amend any Tax Return
or file a claim for refund with respect to any Tax Return described in the first sentence of
Section 3.16(j)
, compromise or settle any Legal Proceeding with respect to any Tax or Tax-related matter, enter into or obtain any Tax ruling or
take any action that could reasonably be expected to have a material and adverse impact on the Tax liability of the Company;
(xx)
commence any Legal Proceeding, other than Legal Proceedings commenced for the routine collection of bills;
(xxi)
settle any claim or Legal Proceeding, other than claims or Legal Proceedings against the Company that do not
relate to Tax or Tax-related matters and with respect to which the settlement involves solely the payment by the Company of an amount less than $50,000 individually and less than $250,000 in the aggregate for all such claims and Legal Proceedings
settled during the Pre-Closing Period;
(xxii)
pay, discharge, settle or satisfy any claims (whether or
not commenced prior to the date of this Agreement), except that the Company may pay, discharge, settle or satisfy any claim if the only obligation involved on the part of the Company will be payment of money in an amount not to exceed $50,000
individually and not to exceed $250,000 in the aggregate for all such claims during the Pre-Closing Period; or
(xxiii)
agree or commit to take any of the actions described in
clauses
(i)
through
(xxii)
of this
Section 5.2(b)
.
(c)
Notwithstanding anything in
Section 5.2(a)
or
5.2(b)
to the contrary, if (i) the Parent
Designees constitute a majority of the directors sitting on the board of directors of the Company and (ii) the board of directors of the Company expressly directs or authorizes the Company (of its officers) to act or not act in a certain
manner, or expressly consents, in advance, to such action or inaction, then such action or inaction shall be deemed not to constitute a breach of
Section 5.2(a)
or
5.2(b)
;
provided, however
, that such direction,
authorization or consent, as applicable, of the board of directors of the Company shall be based on a resolution of the entire board of directors (and not the approval of merely the majority of the Continuing Directors, as contemplated by the
Section 1.3(c)
).
(d)
During the Pre-Closing Period, the Company shall promptly notify
Parent in writing if the Company has the right to exercise any right or option to repurchase shares of its capital stock from any Company Associate or other Person upon termination of such Person Persons service. The Company shall not exercise
any such repurchase right except to the extent directed by Parent in writing.
(e)
By not later than
immediately prior to the Acceptance Time, the Company shall either (i) renegotiate all existing equipment leases that have change in control provisions so that the lessor no longer has the right to either demand accelerated rent or repossess
the equipment by reason of the consummation of the Offer or the Merger, or (ii) if the Company shall have been unable to renegotiate all such leases in the manner described above, exercise its buyout option with respect to all of such
A-1-34
leases that have not been renegotiated, with the result that the Company shall obtain fee ownership in all such equipment and the lessors rights with respect to such equipment shall be
terminated. If the Company becomes obligated to exercise such buyout option, but determines in good faith that it has inadequate funds to do so, then the Company shall promptly notify Parent of the amount of funds so required and provide Parent with
reasonable documentary evidence supporting such calculation, and Parent shall thereafter either (A) make such funds available to the Company (which the Company shall use solely for the purpose of exercising such buyout option), or
(B) waive the Companys obligation to exercise such buyout option.
5.3 No Solicitation; Go-Shop;
Etc.
(a)
Subject to
Sections 5.3(b)
,
5.3(c)
and
5.3(g)
, during the
Pre-Closing Period, the Company shall not directly or indirectly, and shall not cause or permit any Representatives of the Company to, directly or indirectly, (i) solicit, initiate, knowingly encourage or knowingly facilitate the making,
submission or announcement of any Acquisition Proposal or Acquisition Inquiry, (ii) furnish any non-public information regarding the Company to any Person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry,
(iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal or Acquisition Inquiry, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar
document or any Contract contemplating or providing for any Acquisition Transaction or accepting any Acquisition Proposal;
provided, however
, that none of the foregoing restrictions shall apply to the Companys and its
Representatives interactions with Parent, Acquisition Sub and their respective Representatives. Without limiting the generality of the foregoing, the Company acknowledges and agrees that any action taken by any Representative of the Company
that, if taken by the Company would constitute a breach of this
Section 5.3
, shall be deemed to constitute a breach of this
Section 5.3
by the Company (whether or not such Representative is purporting to act on behalf of the
Company).
(b)
Notwithstanding the provisions of
Section 5.3(a)
, during the period between
the date of this Agreement and 5:00 p.m. Pacific Time on November 23, 2009 (the
Go-Shop Period
), the Company may (directly or through its Representatives) take any of the actions set forth in
Section 5.3(a)
,
provided
that (i) the Company shall not take any of the actions set forth in
Section 5.3(a)
with respect to such Person unless the Company has informed Parent in writing of the identity of such Person prior to taking any such
action, and (ii) the Company shall not furnish any non-public information regarding the Company to any Person unless the board of directors of the Company (or a committee thereof) has determined in good faith, after consultation with the
Companys outside legal counsel and its financial advisor(s), that such Person has made or is financially capable of making a Superior Proposal, and that such Person would be reasonably capable of consummating the transaction contemplated by
such Superior Proposal. Notwithstanding the foregoing, the Company shall, and shall cause its Representatives to, (A) immediately upon the expiration of the Go-Shop Period, cease and cause to be terminated all actions and activities that, but
for the provisions of this
Section 5.3(b)
, would have been prohibited by the terms of this Agreement and (B) during the Go-Shop Period, comply with all other requirements set forth in this
Section 5.3
(other than the
requirements set forth in
Section 5.3(a)
which is addressed by this
Section 5.3(b)
).
(c)
Nothing in this Agreement shall prohibit the Company or its board of directors from furnishing non-public information regarding the Company to, or entering into discussions or negotiations (including, as a part thereof,
exchanging any counterproposals) with, any Person and its Representatives in response to a written Acquisition Proposal that is submitted to the Company by such Person (and not withdrawn) which the board of directors of the Company determines in
good faith (after consultation with its financial advisor(s)) is, or could reasonably be expected to lead to, a Superior Proposal if (i) neither the Company nor any Representative of the Company shall have breached in any material respect any
of the provisions set forth in this
Section 5.3
, (ii) the board of directors of the Company determines in good faith, after consultation with the Companys outside legal counsel, that the failure to take such action could
reasonably be expected to constitute a breach of the
A-1-35
Companys board of directors fiduciary obligations to the Companys stockholders under applicable Legal Requirements, (iii) prior to furnishing any such non-public
information to, or entering into discussions or negotiations with, such Person, (A) the Company gives written notice to Parent of the identity of such Person and of the Companys decision to furnish non-public information to, or enter into
discussions or negotiations with, such Person, and (B) the Company receives from such Person an executed confidentiality agreement containing customary limitations on the use and disclosure of all non-public written and oral information
furnished to such Person by or on behalf of the Company that are no less favorable to the Company than the confidentiality provisions and use restrictions of the Confidentiality Agreement, and (iv) contemporaneously with or prior to furnishing
any such non-public information to such Person, the Company Makes Available to Parent all such non-public information (to the extent such non-public information has not been previously Made Available to Parent).
(d)
If the Company or any of its Representatives receives an Acquisition Proposal or any request for non-public
information at any time during the Pre-Closing Period (other than from Parent, Acquisition Sub or their respective Representatives), then the Company shall promptly (and in no event later than 24 hours after receipt of such Acquisition Proposal or
request) advise Parent in writing of such Acquisition Proposal or request (including the identity of the Person making or submitting such Acquisition Proposal or request and the material terms thereof) and provide Parent with a copy of such
Acquisition Proposal or request if it is in writing. The Company shall keep Parent promptly informed with respect to any material development relating to such Acquisition Proposal or request and any modification or proposed modification thereto, and
provide Parent with copies of such development, modification and proposed modification if they are in writing.
(e)
Subject to
Section 5.3(b)
, the Company shall immediately cease and cause to be terminated any existing discussions between the Company or any of its Representatives and any Person (other than Parent, Acquisition Sub
and their respective Representatives) with respect to any Acquisition Proposal or Acquisition Inquiry pending as of the date of this Agreement.
(f)
Except to the extent necessary to engage in the activities permitted during the Go-Shop Period, the Company agrees not to release any Person from, or to amend or waive any provision of, any
confidentiality, standstill, nonsolicitation or similar agreement to which the Company is or becomes a party or under which the Company has or acquires any rights, and will use commercially reasonable efforts to enforce or cause to be
enforced each such agreement at the request of Parent;
provided, however
, that this
Section 5.3(f)
shall not preclude the Company from responding to an unsolicited Acquisition Proposal submitted to the Company by a party that is
bound by a standstill agreement and shall not require the Company to enforce or cause to be enforced its rights under such standstill agreement relating to the submission of such unsolicited Acquisition Proposal. The Company
also shall promptly request each Person that has executed a confidentiality agreement in connection with its consideration of a possible Acquisition Transaction to return or destroy in accordance with the terms of such confidentiality agreement all
confidential information heretofore furnished to such Person by or on behalf of the Company,
provided
that in the case of any Person with respect to which the Company or its Representatives permissibly engages in the activities described in
Section 5.3(a)
during the Go-Shop Period, the Company shall not be required to make the foregoing request until the expiration of the Go-Shop Period.
(g)
Notwithstanding any other provision in this Agreement to the contrary:
(i)
Subject to the Companys right to make a Recommendation Change (as defined below) to the extent permitted by
Section 5.3(g)(ii)
or
5.3(g)(iii)
, the Company (1) consents to the inclusion of the Company Board Recommendation in the Offer Documents; and (2) agrees that the Company Board Recommendation shall not be withdrawn or
modified in a manner adverse to Parent or Acquisition Sub, and that no resolution of the board of directors of the Company or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Parent or Acquisition
Sub shall be adopted (it being understood that the Company
A-1-36
Board Recommendation shall be deemed to have been modified in a manner adverse to Parent and Acquisition Sub if it shall no longer be unanimous) (any such withdrawal, modification or adoption
being referred to in this Agreement as a
Recommendation Change
).
(ii)
A
Recommendation Change may be made at any time prior to the Acceptance Time if: (i) an Acquisition Proposal is made that did not result from a breach by the Company of any of the provisions of
Section 5.3
; (ii) at least
one (1) day prior to the date of any meeting of the Companys board of directors (or any committee thereof) at which such board of directors (or committee) will consider whether such Acquisition Proposal may constitute a Superior Proposal
or whether such Acquisition Proposal may require the Company to make a Recommendation Change, the Company provides Parent with a written notice specifying the date and time of such meeting, the reasons for holding such meeting and a description of
such Acquisition Proposal; (iii) the Companys board of directors determines in good faith, after consultation with the Companys outside legal counsel and its financial advisor(s), (A) that such Acquisition Proposal would, if
this Agreement or the Offer were not amended or an alternative transaction with Parent were not entered into, constitute a Superior Proposal and (B) that in light of such Acquisition Proposal, the failure to make a Recommendation Change, if
this Agreement or the Offer were not amended or an alternative transaction with Parent were not entered into, could reasonably be expected to constitute a breach of the Companys board of directors fiduciary obligations to the
Companys stockholders under applicable Legal Requirements; (iv) the Company delivers to Parent a Superior Proposal Notice in accordance with
Section 5.3(g)(iv)
with respect to such Acquisition Proposal (including as an
attachment the Specified Definitive Acquisition Agreement (as defined in
Section 5.3(g)(iv)
) relating to such Acquisition Proposal) and otherwise complies in all material respects with the notice, negotiation and other requirements set
forth in
Section 5.3(g)(iv)
; and (v) following the negotiation period(s) described in
Section 5.3(g)(iv)
, the Companys board of directors determines in good faith, after consultation with the Companys outside
legal counsel and its financial advisor(s), and after taking into account any definitive written proposal submitted to the Company by Parent or Acquisition Sub to amend this Agreement or the Offer or to enter into an alternative transaction as a
result of any negotiations contemplated by
Section 5.3(g)(iv)
, that (A) such Acquisition Proposal constitutes a Superior Proposal, and (B) in light of such Acquisition Proposal, the failure to make a Recommendation Change could
reasonably be expected to constitute a breach of the Companys board of directors fiduciary obligations to the Companys stockholders under applicable Legal Requirements.
(iii)
A Recommendation Change may also be made at any time prior to the Acceptance Time if: (i) there shall
occur or arise after the date of this Agreement a material and fundamental development or material and fundamental change in circumstances that relates to the Company but does not relate to any Acquisition Proposal (any such material development or
material change in circumstances unrelated to an Acquisition Proposal being referred to in this Agreement as an
Intervening Event
); (ii) neither the Company nor any Representative of the Company had any Knowledge of such
Intervening Event or, as of the date of this Agreement, could reasonably foresee that such Intervening Event would occur; (iii) at least one (1) day prior to the date of any meeting of the Companys board of directors (or any
committee thereof) at which such board of directors (or committee) will consider whether such Intervening Event may require a Recommendation Change, the Company provides Parent with a written notice specifying the date and time of such meeting, the
reasons for holding such meeting and a description of such Intervening Event; (iv) the Companys board of directors determines in good faith, after consultation with the Companys outside legal counsel and its financial advisor(s),
that, in light of such Intervening Event, the failure to make a Recommendation Change, if this Agreement or the Offer were not amended or an alternative transaction with Parent were not entered into, could reasonably be expected to constitute a
breach of the Companys board of directors fiduciary obligations to the Companys stockholders under applicable Legal Requirements; (v) a Recommendation Change is not made at any time within the period of four (4) business
days after
A-1-37
Parent receives written notice from the Company confirming that the Companys board of directors has determined that the failure to make a Recommendation Change in light of such Intervening
Event could reasonably be expected to constitute a breach of its fiduciary obligations to the Companys stockholders under applicable Legal Requirements; (vi) during such four (4) business day period, if requested by Parent, the
Company engages in good faith negotiations with Parent to amend this Agreement or the Offer or enter into an alternative transaction so that the failure to make a Recommendation Change in light of such Intervening Event could reasonably be expected
to constitute a breach of its fiduciary obligations to the Companys stockholders under applicable Legal Requirements; and (vii) at the end of such four (4) business day period, the Companys board of directors determines in good
faith, after consultation with the Companys outside legal counsel and its financial advisor(s), that the failure to make a Recommendation Change could reasonably be expected to constitute a breach of the fiduciary obligations of the
Companys board of directors to the Companys stockholders under applicable Legal Requirements in light of such Intervening Event (taking into account any definitive written proposal submitted to the Company by Parent or Acquisition Sub to
amend this Agreement or the Offer or enter into an alternative transaction as a result of the negotiations contemplated by
clause
(vi)
above).
(iv)
Notwithstanding anything to the contrary contained in
Section 5.3(g)(ii)
, a Recommendation Change
may not be made pursuant to
Section 5.3(g)(ii)
, and this Agreement may not be terminated pursuant to
Section 8.1(e)
, unless: (i) the board of directors of the Company shall have received an Acquisition Proposal that it
has determined to be a Superior Proposal pursuant to
Section 5.3(g)(ii)
and shall have received from the Person making such Acquisition Proposal a definitive acquisition agreement, duly executed on behalf of such Person, providing for
the consummation of the transaction contemplated by such Acquisition Proposal, or other duly executed summary of all of the terms of such Acquisition Proposal (in either case, the
Specified Definitive Acquisition Agreement
);
(ii) not less than four (4) business days (or such longer period as provided below) prior to any such Recommendation Change pursuant to
Section 5.3(g)(ii)
and not less than four (4) business days (or such longer period as
provided below) prior to any termination of this Agreement by the Company pursuant to
Section 8.1(e)
, the Company shall have delivered to Parent a written notice (the
Superior Proposal Notice
) stating that the Company
(or its board of directors) intends to take such action pursuant to
Section 5.3(g)(ii)
and/or
Section 8.1(e)
and intends to enter into the Specified Definitive Acquisition Agreement with respect to such Acquisition Proposal
(it being understood and agreed that any determination to send to Parent, or actual delivery to Parent of, a Superior Proposal Notice shall not, in and of itself, constitute a Triggering Event); (iii) during the four (4) business day
period commencing on the date of Parents receipt of such Superior Proposal Notice (as such period may be extended as provided below), the Company shall have made its Representatives reasonably available for the purpose of engaging in
negotiations with Parent (to the extent Parent desires to negotiate) regarding a possible amendment of this Agreement or the Offer or a possible alternative transaction so that the Acquisition Proposal that is the subject of the Superior Proposal
Notice ceases to be a Superior Proposal; and (iv) any definitive written proposal made by Parent or Acquisition Sub to amend this Agreement or the Offer or enter into an alternative transaction during the negotiations described in
clause
(iii)
above shall have been considered by the board of directors of the Company in good faith, and, after the expiration of the negotiation period described in
clause
(iii)
above,
the Companys board of directors shall have determined in good faith, after consultation with the Companys outside legal counsel and its financial advisor(s), that such Acquisition Proposal still constitutes a Superior Proposal;
provided, however
, that, in the event of any amendment to the financial or other material terms of such Acquisition Proposal, the Company shall be required to deliver to Parent a new Superior Proposal Notice (including as attachments thereto
a copy of the new Specified Definitive Acquisition Agreement relating to such amended Acquisition Proposal), and the negotiation period described in
clause
(iii)
above shall
A-1-38
be extended by an additional two (2) business days from the date of Parents receipt of such new Superior Proposal Notice, with respect to any such amendment.
(h)
Nothing in this Agreement shall prohibit the Company or its board of directors from disclosing to the
Companys stockholders a position with respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or Item 1012(a) of Regulation M-A;
provided, however
, that unless
such disclosure consists solely of a stop, look and listen communication containing only statements contemplated by Rule 14d-9(f) under the Exchange Act, the Company shall first comply with
Section 5.3(g)(iii)
to the
extent applicable to such disclosure and such disclosure may, to the extent provided herein, constitute a Triggering Event.
Section 6. A
DDITIONAL
C
OVENANTS
OF
THE
P
ARTIES
6.1 Stockholder Approval; Proxy Statement
.
(a)
If
the adoption of this Agreement by the Companys stockholders is required by applicable Legal Requirements in order to consummate the Merger, the Company shall, as promptly as practicable following the later of the Acceptance Time or the
expiration of any subsequent offering period provided in accordance with Rule 14d-11 under the Exchange Act, take all action necessary or advisable under applicable Legal Requirements to call, give notice of and hold a meeting of the holders of
Company Common Stock to vote on the adoption of this Agreement (the
Company Stockholders Meeting
). The Company shall ensure that all proxies solicited in connection with the Company Stockholders Meeting are solicited
in compliance with all applicable Legal Requirements.
(b)
If the adoption of this Agreement by the
Companys stockholders is required by applicable Legal Requirements in order to consummate the Merger, as soon as practicable following the later of the Acceptance Time or the expiration of any subsequent offering period provided in accordance
with Rule 14d-11 under the Exchange Act, (i) the Company shall prepare and file with the SEC the Proxy Statement, and (ii) Parent shall prepare and file with the SEC the Post-Effective Amendment. Each of Parent and the Company shall
use its reasonable efforts to (A) cause the Post-Effective Amendment and the Proxy Statement to comply in all material respects with applicable Legal Requirements (including the Exchange Act and the Securities Act and the rules and regulations
thereunder), (B) respond promptly to any comments received from the SEC or its staff with respect to the Post-Effective Amendment or the Proxy Statement, (C) have the Post-Effective Amendment declared effective under the Securities Act as
promptly as practicable after it is filed with the SEC, and (D) cause the Proxy Statement to be mailed to the Companys stockholders as promptly as practicable after the Post-Effective Amendment is declared effective under the Securities
Act. The Company (x) shall give Parent reasonable opportunity to comment on any correspondence with the SEC or its staff regarding the Proxy Statement or any proposed material to be included in the Proxy Statement prior to its transmission to
the SEC or its staff and (y) shall not transmit any such material to which Parent reasonably objects. Parent (I) shall give the Company reasonable opportunity to comment on any correspondence with the SEC or its staff regarding the
Post-Effective Amendment or any proposed material to be included in the Post-Effective Amendment prior to its transmission to the SEC or its staff and (II) shall not transmit any such material to which the Company reasonably objects. The
Company shall respond promptly to any comments received from the SEC or its staff with respect to the Proxy Statement, and shall correct promptly any information in the Proxy Statement if and to the extent that it becomes aware that such information
shall be or shall have become false or misleading in any material respect. If at any time prior to the Company Stockholders Meeting there shall occur any event that should be set forth in an amendment or supplement to the Post-Effective
Amendment or to the Proxy Statement, or the Post-Effective Amendment or the prospectus included therein is amended by Parent to correct any information therein, the Company shall (1) with respect to the Post-Effective Amendment and the
prospectus included therein, cooperate with Parent in filing such amendment or supplement with the SEC and transmitting such supplement or amendment to the Companys
A-1-39
stockholders, and (2) with respect to the Proxy Statement, promptly prepare such an amendment or supplement and, after obtaining the consent of Parent to such amendment or supplement,
promptly transmit such amendment or supplement to the Companys stockholders.
(c)
Notwithstanding
anything to the contrary contained in this Agreement, if Parent, Acquisition Sub or any other Subsidiary of Parent shall own, by virtue of the Offer or otherwise, in the aggregate at least 90% of the outstanding shares of Company Common Stock,
Parent, Acquisition Sub and the Company shall take all actions necessary and appropriate to cause the merger of Acquisition Sub into the Company to become effective as soon as practicable following the time such ownership is first obtained, without
a stockholders meeting in accordance with Section 253 of the DGCL.
(d)
If the adoption of
this Agreement by the Companys stockholders is required by applicable Legal Requirements in order to consummate the Merger, Parent agrees to cause all shares of Company Common Stock owned by Parent, Acquisition Sub or any other Subsidiary of
Parent to be present and voted in favor of the adoption of this Agreement at the Company Stockholders Meeting.
6.2 Company Options and Company Warrants
.
(a)
At the Acceptance Time, each
Company Option that is outstanding and unexercised as of immediately prior to the Acceptance Time, whether or not vested, shall automatically (and without any action on the part of any party hereto or the holder thereof) be cancelled and cease to
represent a right to acquire shares of Company Common Stock, and converted into the right (each, a
Right
) to receive the following:
(i)
if the exercise price per share of such Company Option is less than the Cash Component, then (A) an amount of cash determined by multiplying (1)
the number of shares of Company
Common Stock that were subject to such Company Option immediately prior to the Acceptance Time,
times
(2) the amount by which (x) the Cash Component
exceeds
(y) the exercise price per share of such Company Option, and
(B) a number of shares of Parent Common Stock determined by multiplying (1) the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Acceptance Time,
times
(2) the
Applicable Fraction;
(ii)
if the exercise price per share of such Company Option is equal to the Cash
Component, then (A) no cash and (B) a number of shares of Parent Common Stock determined by multiplying (1) the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Acceptance
Time,
times
(2) the Applicable Fraction;
(iii)
if the exercise price per share of such
Company Option is greater than the Cash Component but less than the Total Option Value (as defined below), then (A) no cash and (B) a number of shares of Parent Common Stock determined by multiplying (1) the number of shares of
Company Common Stock that were subject to such Company Option immediately prior to the Acceptance Time,
times
(B) the Applicable Fraction,
times
(C) the In-the-Money Option Percentage (as defined below); and
(iv)
if the exercise price per share of such Company Option is greater than the Total Option Value, then (A) no
cash and (B) no shares of Parent Common Stock.
For purposes of this
Section 6.2(a)
: (1) the
Total Option
Value
shall be the sum of (i) the Cash Component,
plus
(ii) the product of the Applicable Fraction
times
the Parent Average Stock Price; and (2) the
In-the-Money Option Percentage
shall be
the percentage corresponding to a fraction (i) whose numerator is the sum of (A) an amount equal to the product of the Applicable Fraction
times
the Parent Average Stock Price,
minus
(B) the amount by which the exercise
price per share of such Company Option
exceeds
the Cash Component, and (ii) whose denominator is an amount equal to the product of the Applicable Fraction
times
the Parent Average Stock Price. The vesting terms previously
applicable to any Company Option that is so cancelled and converted into a Right shall continue in full force and effect and in all respects apply to such Right, and the cash and shares of Parent Common Stock payable or issuable in respect of such
Right, as set forth in clauses (i) through (iv)
A-1-40
above, shall be delivered to the holder of such Right at such times and in the same percentages as the cancelled Company Option would have become vested in connection with or following the
acquisition of shares by Acquisition Sub pursuant to the Offer and/or consummation of the Merger. For the avoidance of doubt, any vesting of a Company Option that occurs by reason of the acquisition of shares by Acquisition Sub pursuant to the Offer
and/or consummation of the Merger (whether alone or in combination with any other event) shall be given effect by its application to the Right into which such Company Option shall be converted upon its cancellation. At the Acceptance Time,
Parents board of directors or a committee thereof shall succeed to the authority and responsibility of the Companys board of directors or any committee thereof with respect to each such Company Option and corresponding Right.
(b)
Within ten (10) business days following the Acceptance Time, Parent shall send to each former holder of a
Company Option a written notice setting forth the amount of cash and the number of shares of Parent Common Stock subject to each Right in respect of a Company Option.
(c)
Prior to the Acceptance Time, the Company shall use commercially reasonable efforts to take all action that may be
necessary (under the Company Equity Plans and otherwise) to effectuate the provisions of this
Section 6.2
and to ensure that, from and after the Effective Time, holders of Company Options have no rights with respect thereto other than
those specifically provided in this
Section 6.2
.
(d)
At the Acceptance Time, each Company
Warrant that is outstanding immediately prior to the Acceptance Time shall automatically (and without any action on the part of any party hereto or the holder thereof) be cancelled and cease to represent a right to acquire shares of Company Common
Stock, and converted into the right to receive (i) an amount of cash determined by multiplying (A)
the number of shares of Company Common Stock that were subject to such Company Warrant immediately prior to the Acceptance Time,
times
(B) the Cash Component,
times
(C) the In-the-Money Warrant Percentage (as defined below), and (ii) a number of shares of Parent Common Stock determined by multiplying (A) the number of shares of Company Common
Stock that were subject to such Company Warrant immediately prior to the Acceptance Time,
times
(B) the Applicable Fraction,
times
(C) the In-the-Money Warrant Percentage. For purposes of this
Section 6.2(d)
, the
In-the-Money Warrant Percentage
shall be the percentage corresponding to a fraction (1) whose numerator is the sum of (A) the Cash Component,
plus
(B) an amount equal to the product of the Applicable Fraction
times
the Parent Average Stock Price,
minus
(C) the exercise price per share of such Company Warrant, and (2) whose denominator is the sum of (A) the Cash Component,
plus
(B) an amount equal to the product of
the Applicable Fraction
times
the Parent Average Stock Price.
(e)
The Surviving Corporation
shall be entitled to deduct and withhold from the amounts otherwise payable pursuant to this
Section 6.2
such amounts as Parent or the Surviving Corporation is required to deduct and withhold under the Code, or any provision of state or
local Tax law. Notwithstanding the foregoing, no deduction or withholding shall be made with respect to amounts payable in consideration for the Company Warrants if the holder thereof provides documentation reasonably requested by Parent or the
Surviving Corporation that evidences that such deduction or withholding is not required.
6.3 Employees,
Compensation and Benefits
.
(a)
Parent agrees that, during the period commencing at the
Effective Time and ending on the first anniversary of the Effective Time, all employees of the Company who continue employment with Parent, the Surviving Corporation or any Subsidiary of the Surviving Corporation after the Effective Time
(
Continuing Employees
) will be provided with base salary, incentive compensation opportunities and employee benefits (excluding equity, equity-based and long-term incentive opportunities) that are no less favorable in the
aggregate than that provided by the Company and immediately prior to the Effective Time. Parent agrees that the acquisition of shares of Company Common Stock by Acquisition Sub pursuant to the Offer shall be deemed a change in control
and/or change of control for all purposes under each of the Company Employee Plans and Company Employee Agreements.
A-1-41
(b)
If Parent elects not to maintain the Surviving Corporations
health, vacation or 401(k) plans after the Effective Time, then, subject to any Legal Requirements: (i) all Continuing Employees shall be eligible to participate in Parents health, vacation and 401(k) plans, to substantially the same
extent as similarly situated employees of Parent; and (ii) for purposes of determining a Continuing Employees eligibility to participate in such plans, such Continuing Employee shall receive credit under such plans for his or her years of
continuous service with the Company prior to the Effective Time. Each such Continuing Employee will receive credit for purposes of eligibility to participate, level of benefits, vesting and vacation, sick and personal time off (but not for purposes
of benefit accrual) under such plan, program or policy for years of service with the Company,
provided
that such credit does not result in a duplication of benefits, compensation, incentive or otherwise. Parent shall cause any and all
pre-existing condition (or actively at work or similar) limitations, eligibility waiting periods and evidence of insurability requirements under Parents employee benefit plans in which Continuing Employees are eligible to participate after the
Effective Time to be waived with respect to such Continuing Employees and their eligible dependents, and shall provide Continuing Employees and their eligible dependents with credit for any co-payments, deductibles, and offsets (or similar payments)
made during the plan year in which the Effective Time occurs for the purposes of satisfying any applicable deductible, out-of-pocket, or similar requirements under any of Parents employee benefit plans in which they are eligible to participate
after the Effective Time.
(c)
Nothing in this
Section 6.3
or elsewhere in this Agreement
shall be construed to create a right in any Company Associate to employment with Parent, the Surviving Corporation or any other Subsidiary of Parent. Except for Indemnified Persons (as defined in
Section 6.4(a)
) to the extent of their
respective rights pursuant to
Section 6.4
, no Company Associate, and no Continuing Employee, shall be deemed to be a third party beneficiary of this Agreement. Nothing in this
Section 6.3(c)
shall limit the effect of
Section 9.9
.
(d)
Unless otherwise requested by Parent in writing at least two (2) days
prior to the Acceptance Time, the Company shall take (or cause to be taken) all actions necessary or appropriate to terminate, effective no later than the day prior to the date on which the Merger becomes effective, any Company Employee Plan that
contains a cash or deferred arrangement intended to qualify under Section 401(k) of the Code (a
Company 401(k) Plan
). If the Company is required to terminate any Company 401(k) Plan, then the Company shall provide to Parent
prior to the date on which the Acceptance Time occurs written evidence of the adoption by the Companys board of directors of resolutions authorizing the termination of such Company 401(k) Plan (the form and substance of which shall be subject
to the prior review and approval of Parent). The Company also shall take such other actions in furtherance of terminating such Company 401(k) Plan as Parent may reasonably request.
(e)
To the extent any employee notification or consultation requirements are imposed by applicable Legal Requirements
with respect to the Contemplated Transactions, the Company shall cooperate with Parent to ensure that such notification or consultation requirements are complied with prior to the Effective Time. Prior to the Effective Time, neither the Company nor
any ERISA Affiliate shall communicate with Continuing Employees regarding post-Closing employment matters, including post-Closing employee benefits and compensation, without the prior written approval of Parent, which shall not be unreasonably
withheld.
6.4 Indemnification of Officers and Directors
.
(a)
Parent and the Company agree that all rights to exculpation, indemnification and advancement of expenses existing
as of the date of this Agreement in favor of the current (as of the Effective Time) or former directors or officers of the Company (each, an
Indemnified Person
) as provided in the Charter Documents or in any Indemnification
Agreement (as defined below) shall survive the Merger and shall continue in full force and effect. For a period of six (6) years from the Effective Time, Parent shall cause the Surviving Corporation to maintain in effect the exculpation,
indemnification and advancement of expenses provisions of the Charter Documents as in effect as of the date of this
A-1-42
Agreement or in any Indemnification Agreements, and shall not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any
Indemnified Person;
provided, however
, that all rights to exculpation, indemnification and advancement of expenses in favor of such Indemnified Person in respect of any Action (as defined in
Section 5.5(b)
) pending or asserted or
any claim made against them within such six-year period shall continue until the final disposition of such Action or resolution of such claim. From and after the Effective Time, Parent shall cause the Surviving Corporation to honor, in accordance
with their respective terms, each of the covenants contained in this
Section 6.4
. For purposes of this Agreement,
Indemnification Agreement
shall mean any indemnification agreement between the Company and an
Indemnified Person, as such agreement is in effect as of the date of this Agreement.
(b)
Without
limitation of any superior rights in the Charter Documents or any Indemnification Agreement, Parent shall cause the Surviving Corporation to, to the fullest extent permitted under applicable Legal Requirements, indemnify and hold harmless each
Indemnified Person against any costs or expenses (including advancing attorneys fees and expenses in advance of the final disposition of any Action to each Indemnified Person to the fullest extent permitted by applicable Legal Requirements),
judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (an
Action
) arising out of, relating to or in connection with any action or omission by such Indemnified Person occurring or alleged to have occurred at or before the Effective Time (whether such Action is asserted or claimed prior
to, at or after the Effective Time) in connection with such Indemnified Person serving as an officer or director of the Company or at the request of the Company as a director, officer, employee, agent or trustee of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan. In the event of any such Action, Parent and the Surviving Corporation shall cooperate with the Indemnified Person in the defense of
any such Action.
(c)
Prior to the Effective Time, the Company shall purchase and prepay a six-year
tail policy on terms and conditions providing substantially equivalent benefits and coverage levels as the current policies of directors and officers liability insurance and fiduciary liability insurance maintained by the
Company (the
Existing D&O Policies
) with respect to matters arising at or before the Effective Time, covering without limitation the Contemplated Transactions (the
Tail Policy
);
provided,
however
, that if such tail policy is not available at a cost equal to or less than 300% of the aggregate annual premiums paid by the Company during the most recent policy year for the Existing D&O Policies (the
Maximum
Premium Amount
), the Company shall purchase the best coverage as is reasonably available for such amount. Parent shall cause the Tail Policy to be maintained in full force and effect, for its full term, and cause all obligations thereunder
to be honored by the Surviving Corporation. In the event that any of the carriers issuing or reinsuring the Tail Policy shall become insolvent or otherwise financially distressed such that any of them is unable to satisfy its financial obligations
under the Tail Policy at any time during the aforementioned six-year period, Parent agrees that it shall, from time to time, cause the Tail Policy to be replaced with another prepaid tail policy on terms and conditions providing
substantially equivalent benefits and coverage levels as the Tail Policy, with a term extending for the remainder of such six-year period (the
New Tail Policy
);
provided, however
, that in no event shall the maximum amount
that Parent is required to expend to obtain any New Tail Policy under this
Section 5.5(c)
exceed the amount by which the Maximum Premium Amount exceeds the sum of (i) the premium paid by the Company for the Tail Policy
plus
(ii)
the aggregate premium(s) paid by Parent and the Surviving Corporation to obtain any other New Tail Policy. In such event, references in this Agreement to the Tail Policy shall be deemed to include any New Tail Policy, as applicable.
(d)
The rights of each Indemnified Person hereunder shall be in addition to, and not in limitation of,
any other rights such Indemnified Person may have under the Charter Documents of the Company or the Surviving Corporation, under any other indemnification arrangement, under the DGCL or
A-1-43
otherwise. The provisions of this
Section 6.4
shall survive the consummation of the Merger and expressly are intended to benefit, and are enforceable by, each of the Indemnified
Persons.
(e)
This
Section 6.4
shall be binding on Parent and the Surviving Corporation and
their successors and assigns.
6.5 Regulatory Approvals and Related Matters
.
(a)
Each party shall use commercially reasonable efforts to file, as soon as practicable after the date of this
Agreement, all notices, reports and other documents required to be filed by such party with any Governmental Body with respect to the Offer, the Merger and the other Contemplated Transactions, and to submit promptly any additional information
requested by any such Governmental Body. Without limiting the generality of the foregoing, the Company and Parent shall, promptly after the date of this Agreement and in any event within ten (10) business days, prepare and file: (i) the
notification and report forms required to be filed under the HSR Act in connection with the Offer, the Merger and the other Contemplated Transactions; and (ii) if required in connection with the Offer, the Merger and the other Contemplated
Transactions, all notifications and other documents under all applicable foreign antitrust- or competition-related Legal Requirements. The Company and Parent shall respond as promptly as practicable to: (A) any inquiries or requests received
from the Federal Trade Commission or the Department of Justice for additional information or documentation; and (B) any inquiries or requests received from any state attorney general, foreign antitrust or competition authority or other
Governmental Body in connection with antitrust or competition matters. At the request of Parent, the Company shall agree to divest, sell, dispose of, hold separate or otherwise take or commit to take any other action with respect to any of the
businesses, product lines or assets of the Company,
provided
that any such action is conditioned upon the consummation of the Offer or the Merger.
(b)
Subject to the limitations set forth in
Section 6.5(c)
, Parent and the Company shall use commercially reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Offer and the Merger and make effective the other Contemplated Transactions. Without limiting the generality of the foregoing, but subject to the limitations set forth in
Section 6.5(c)
, each party to this Agreement:
(i) shall make all filings (if any) and give all notices (if any) required to be made and given by such party or any of its Subsidiaries in connection with the Offer and the Merger and the other Contemplated Transactions; (ii) shall use
commercially reasonable efforts to obtain each Consent (if any) required to be obtained pursuant to any applicable Legal Requirement by such party or any of its Subsidiaries in connection with the Offer and the Merger or any of the other
Contemplated Transactions; and (iii) shall use commercially reasonable efforts to lift any restraint, injunction or other legal bar to the Offer or the Merger or any of the other Contemplated Transactions. Each of Parent and the Company shall
provide the other party with a copy of each proposed filing with or other submission to any Governmental Body relating to any of the Contemplated Transactions, and shall give the other party a reasonable time prior to making such filing or other
submission in which to review and comment on such proposed filing or other submission. Each of Parent and the Company shall promptly deliver to the other party a copy of each such filing or other submission made, each notice given and each Consent
obtained.
(c)
Notwithstanding anything to the contrary contained in this
Section 6.6
or
elsewhere in this Agreement, neither Parent nor Acquisition Sub shall have any obligation under this Agreement to take any of the following actions, if Parent determines in good faith that taking such actions could reasonably be expected to
materially affect the business or interests of Parent, any of Parents Subsidiaries or the Surviving Corporation in any adverse way: (i) to dispose of or transfer or cause any of its Subsidiaries to dispose of or transfer any assets, or to
commit to cause the Company to dispose of or transfer any assets; (ii) to discontinue or cause any of its Subsidiaries to discontinue offering any product or service, or to commit to cause the Company to discontinue offering any product or
service; (iii) to license or otherwise make available, or cause any of its Subsidiaries to license or otherwise make available to any Person any technology, software or other Intellectual Property or Intellectual
A-1-44
Property Right, or to commit to cause the Company to license or otherwise make available to any Person any technology, software or other Intellectual Property or Intellectual Property Right;
(iv) to hold separate or cause any of its Subsidiaries to hold separate any assets or operations (either before or after the Closing Date), or to commit to cause the Company to hold separate any assets or operations; (v) to make or cause
any of its Subsidiaries to make any commitment, or to commit to cause the Company to make any commitment (to any Governmental Body or otherwise) regarding its future operations or the future operations of the Company; or (vi) to contest any
Legal Proceeding or any order, writ, injunction or decree relating to the Offer or the Merger or any of the other Contemplated Transactions.
6.6 Notification of Certain Matters
.
(a)
During the Pre-Closing Period, the Company shall promptly notify Parent in writing of the discovery by the Company of: (i) any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and
that caused or constitutes a material inaccuracy in any representation or warranty made by the Company in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that
would cause or constitute a material inaccuracy in any representation or warranty made by the Company in this Agreement if such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any material breach of any covenant or obligation of the Company; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the Offer Conditions or the conditions set forth in
Section 7
impossible or would make the failure of any such condition reasonably likely. No notification given to Parent pursuant to this
Section 6.6(a)
or any information or knowledge obtained pursuant to
Section 5.1
shall limit or otherwise affect any of the representations, warranties, covenants or obligations of the Company contained in this Agreement.
(b)
During the Pre-Closing Period, Parent shall promptly notify the Company in writing of the discovery by Parent of:
(i) any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by Parent or Acquisition Sub in this
Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by Parent or Acquisition
Sub in this Agreement if such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; (iii) any material breach of any covenant or obligation of Parent or Acquisition Sub; and
(iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the Offer Conditions or the conditions set forth in
Section 7
impossible or would make the failure of any such condition reasonably
likely. No notification given to the Company pursuant to this
Section 6.6(b)
or any information or knowledge obtained pursuant to
Section 5.1
shall limit or otherwise affect any of the representations, warranties, covenants
or obligations of Parent or Acquisition Sub contained in this Agreement.
6.7 Public Announcements
.
Parent and the Company shall consult with one another before any press release is issued by a party hereto or any public statement is made by a party hereto with respect to the Offer, the Merger or any of the other Contemplated Transactions. Except
as otherwise required or permitted by this Agreement, the parties to this Agreement shall not, and shall not permit any of their respective Subsidiaries or Representatives to, make any public disclosure regarding the Offer, the Merger or any of the
other Contemplated Transactions unless (a) the other parties shall have approved such disclosure (which approval shall not be unreasonably withheld, conditioned or delayed) or (b) such disclosure is required by applicable Legal
Requirements.
6.8 Listing
. Parent shall use commercially reasonable efforts to cause the shares of
Parent Common Stock being issued in the Offer to be promptly approved for listing (subject to notice of issuance) on The Nasdaq Capital Market at or prior to the Acceptance Time and shall cause the shares of Parent Common Stock being issued in the
Merger to be approved for listing (subject to notice of issuance) on The Nasdaq Capital Market at or prior to the Effective Time.
A-1-45
6.9 Financing
. During the Pre-Closing Period, upon the request of
Parent, the Company shall, and shall instruct its Representatives to, cooperate reasonably with Parent in connection with Parents financing of the Offer and the Merger, including by: (i) making senior management of the Company available
to participate in meetings and road shows, if any; (ii) providing on a timely basis information reasonably requested by Parent relating to such financing; (iii) preparing in a timely manner business projections and financial statements
(including pro forma financial statements), including delivery to Parent of a balance sheet, income statement and statement of cash flows for the Company for any fiscal year that has ended at least 90 days prior to the Closing Date and for any
fiscal quarter since the most recently ended fiscal year that has ended at least 45 days prior to the Closing Date; (iv) assisting in a timely manner in the preparation of offering memoranda, private placement memoranda, prospectuses and
similar documents; (v) providing such assistance as Parent may reasonably require in procuring a corporate credit rating for Parent from Standard & Poors Rating Services and a corporate family credit rating for Parent from
Moodys Investor Services, Inc.; (vi) obtaining the consent of, and customary comfort letters from, BDO Seidman, LLP (including by providing customary management letters and requesting legal letters to obtain such consent) if necessary or
desirable for Parents use of the Companys financial statements; (vii) using commercially reasonable efforts to ensure that the syndication effort of the lenders to Parent benefit materially from the existing lending relationships of
the Company; and (viii) providing such other documents as may be reasonably requested by Parent for such financing, including (x) confirmation of public or non-public nature of information provided, (y) solvency and closing
certificates and documents and information necessary to facilitate the pledge of collateral (including the release of any Encumbrances on the assets of the Company), and (z) providing such documentation and other information to Parents
lenders that is required by regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including without limitation, the Patriot Act;
provided
,
however
, to the extent that a
third party (including the Person brokering, arranging or providing the financing) is proposed to receive confidential information in connection with any of the foregoing activities, the Companys related obligations shall be subject to such
party first entering into a confidentiality agreement in form and substance reasonably acceptable to the Company. Without limiting the generality of the foregoing, all financial and other projections concerning the Company that are Made Available by
the Company to Parent after the date of this Agreement shall be prepared in good faith and shall be based upon assumptions that are reasonable at the time made. Notwithstanding the foregoing: (A) such requested cooperation shall not
unreasonably interfere with the ongoing operations of the Company; and (B) the Company shall not be required to pay any commitment or other similar fee or incur any other liability in connection with such financing prior to the Acceptance Time.
6.10 Stockholder Litigation
. The Company shall give Parent the opportunity to participate in the
defense or settlement of any stockholder litigation (including any class action or derivative litigation) against the Company and/or any of its directors or officers relating to this Agreement, the Offer, the Merger or any of the other Contemplated
Transactions or the Stockholder Agreements, and no compromise or full or partial settlement of any such litigation shall be agreed to by the Company without Parents prior written consent (which consent shall not be unreasonably withheld,
conditioned or delayed).
6.11 Section 16 Matters
. Prior to the Effective Time, Parent and the
Company shall take all such steps as may be required (to the extent permitted under applicable Legal Requirements and no-action letters issued by the SEC) to cause any dispositions of Company Common Stock (including derivative securities with
respect to Company Common Stock) in connection with the Merger by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company, and the acquisition of Parent Common Stock
(including derivative securities with respect to Parent Common Stock) by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent, to be exempt under Rule 16b-3
under the Exchange Act. At least five (5) days prior to the Closing Date, the Company shall furnish the following information to Parent for each individual who, in connection with the Contemplated Transactions, immediately after the Effective
Time, will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent: (a) the number of shares of Company Common Stock held by such individual and expected to be exchanged for
A-1-46
shares of Parent Common Stock pursuant to the Merger; (b) the number of Company Options and Company RSUs held by such individual and expected to be converted into options to purchase or
rights to be issued shares of Parent Common Stock in connection with the Merger; and (c) the number of other derivative securities (if any) with respect to Company Common Stock held by such individual and expected to be converted into shares of
Parent Common Stock or derivative securities with respect to Parent Common Stock in connection with the Merger.
Section 7. C
ONDITIONS
P
RECEDENT
TO
THE
M
ERGER
The respective obligations of the parties to effect the Merger are subject to the satisfaction, at or prior to the Closing, of each of the following conditions:
7.1 Stockholder Approval
. If required by applicable Legal Requirements in order to consummate the Merger, this
Agreement shall have been duly adopted by the Required Company Stockholder Vote.
7.2 No Restraints
. No
temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the Merger by a Governmental Body having authority over Parent, Acquisition Sub or the Company that makes consummation of the Merger illegal;
provided, however
, that prior to invoking this
Section 7.2
, each party shall have used its commercially reasonable efforts to have any such injunction, order or Legal Requirement or other prohibition lifted.
7.3 Effectiveness of Registration Statement
. The Registration Statement and the Post-Effective Amendment shall have
become effective in accordance with the provisions of the Securities Act, and no stop order shall have been issued by the SEC and be outstanding, and no proceeding for that purpose shall have been initiated by the SEC and be outstanding or be
threatened by the SEC, with respect to the Registration Statement or the Post-Effective Amendment.
7.4
Consummation of Offer
. Shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer shall have been accepted for exchange and paid for pursuant to the Offer;
provided, however
, that neither Parent nor
Acquisition Sub shall be entitled to assert the failure of this condition if, in breach of this Agreement or the terms of the Offer, Acquisition Sub fails to purchase any shares of Company Common Stock validly tendered (and not withdrawn) pursuant
to the Offer.
Section 8. T
ERMINATION
8.1 Termination
. This Agreement may be terminated:
(a)
by mutual written consent of Parent and the Company at any time prior to the Effective Time;
(b)
by either Parent or the Company at any time prior to the Effective Time if any U.S. court of competent
jurisdiction or other U.S. Governmental Body having authority over Parent, Acquisition Sub or the Company shall have issued a final and nonappealable judgment, order, injunction, writ or decree, or shall have taken any other action, having the
effect of (i) permanently restraining, enjoining or otherwise prohibiting (A) prior to the Acceptance Time, the acquisition or acceptance for exchange of, or the delivery of consideration in exchange for, shares of Company Common Stock
pursuant to the Offer or (B) prior to the Effective Time, the Merger, (ii) prior to the Acceptance Time, making the acquisition of or delivery of consideration for shares of Company Common Stock pursuant to the Offer illegal, or
(iii) prior to the Effective Time, making the consummation of the Merger illegal;
provided, however
, that (1) the party to this Agreement seeking to terminate this Agreement pursuant to this
Section 8.1(b)
shall have
used commercially reasonable efforts to resist or lift such judgment, order, injunction, writ or decree and (2) a party shall not be permitted to terminate this Agreement pursuant to this
Section 8.1(b)
if the issuance of such
judgment, order, injunction, writ or decree is attributable to the failure of such party to fulfill any of its obligations under this Agreement;
A-1-47
(c)
by either Parent or the Company at any time after March 31,
2010 and prior to the Acceptance Time if the Acceptance Time shall not have occurred on or prior to March 31, 2010;
provided, however,
that a party shall not be permitted to terminate this Agreement pursuant to this
Section 8.1(c)
if the failure of the Acceptance Time to occur on or prior to March 31, 2010 is attributable to the failure of such party to fulfill any of its obligations under this Agreement;
(d)
by Parent at any time prior to the Acceptance Time if a Triggering Event shall have occurred;
(e)
by the Company at any time prior to the Acceptance Time, in order to accept a Superior Proposal and enter into the
Specified Definitive Acquisition Agreement relating to such Superior Proposal, if (i) such Superior Proposal shall not have resulted from a breach by the Company of any of the provisions of
Section 5.3
, (ii) the Company and its
board of directors shall have satisfied in all material respects all of the notice, negotiation and other requirements set forth in
Section 5.3(g)
with respect to such Superior Proposal and the negotiation period(s) described in
Section 5.3(g)(iii)
shall have expired, (iii) the Company shall have, or shall have caused to be, paid to Parent the fee required to be paid to Parent pursuant to
Section 8.3(c)
or
Section 8.3(d)
, as
applicable, and (iv) the Company enters into the Specified Definitive Acquisition Agreement relating to such Superior Proposal immediately following the termination of this Agreement;
(f)
by Parent at any time prior to the Acceptance Time if: (i) any of the Companys representations and
warranties contained in this Agreement shall be inaccurate as of the date of this Agreement or shall have become inaccurate as of a date subsequent to the date of this Agreement (as if made on such subsequent date), in either case such that the
condition set forth in
clause
(a)
of
Exhibit B
or the condition set forth in
clause
(b)
of
Exhibit B
would not be satisfied (it being understood that, for purposes
of determining the accuracy of such representations and warranties as of the date of this Agreement or as of any subsequent date, (A) all Company Material Adverse Effect and other qualifications based on the word
material contained in such representations and warranties shall be disregarded and (B) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of this Agreement shall be
disregarded); or (ii) any of the Companys covenants contained in this Agreement shall have been breached such that the condition set forth in
clause
(c)
of
Exhibit B
would not be satisfied;
provided, however
, that if such inaccuracy or breach is curable by the Company within 30 days after receiving notice thereof and the Company is continuing to exercise reasonable efforts to cure such inaccuracy or breach, then Parent may
not terminate this Agreement under this
Section 8.1(f)
on account of such inaccuracy or breach (1) during the 30-day period commencing on the date on which the Company receives notice of such inaccuracy or breach or (2) after
such 30-day period if such inaccuracy or breach shall have been cured in a manner such that such inaccuracy or breach no longer results in the applicable condition set forth in
Exhibit B
not being satisfied;
(g)
by the Company at any time prior to the Acceptance Time if: (i) Parents representations and warranties
contained in this Agreement shall have failed to be accurate in all respects as of the date of this Agreement or shall have failed to be accurate in all respects as of a date subsequent to the date of this Agreement (as if made on such subsequent
date) (in each case, except for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all respects as of such date or time), and the inaccuracy in such representations and
warranties has had or could reasonably be expected to have or result in a material adverse effect on Acquisition Subs ability to purchase and pay for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer or
Parents or Acquisition Subs ability to otherwise consummate the Contemplated Transactions;
provided, however
, that, for purposes of determining the accuracy of such representations and warranties, all material adverse
effect and other qualifications based on the word material contained in such representations and warranties shall be disregarded; (ii) Parent or Acquisition Sub shall have materially failed to comply with or perform its
obligations under
Sections 1.1(a)
or
6.5(a);
or (iii) Parent or Acquisition Sub shall have materially failed to comply with or perform each covenant set forth in this Agreement (other than the covenants set forth in
A-1-48
Section 8.1(g)(ii)
above) that Parent or Acquisition Sub is required to comply with or perform, and such failure has a material adverse effect on Acquisition Subs ability to
purchase and pay for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer or Parents or Acquisition Subs ability to otherwise consummate the Contemplated Transactions;
provided, however
, that
if any inaccuracy or breach described in
clause
(i)
,
clause
(ii)
or
clause
(iii)
above is curable by Parent or Acquisition Sub within 30 days after
receiving notice thereof and Parent is continuing to exercise reasonable efforts to cure such inaccuracy or breach, then the Company may not terminate this Agreement under this
Section 8.1(g)
on account of such inaccuracy or breach
(1) during the 30-day period commencing on the date on which Parent receives notice of such inaccuracy or breach or (2) after such 30-day period if such inaccuracy or breach shall have been cured in a manner such that such inaccuracy or
breach no longer has a material adverse effect on Acquisition Subs ability to purchase and pay for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer or Parents or Acquisition Subs ability to
otherwise consummate the Contemplated Transactions; or
(h)
by Parent at any time prior to the
Acceptance Time if a Company Material Adverse Effect shall have occurred;
provided, however
, that if the Company can reasonably expect to cause such Company Material Adverse Effect to no longer constitute a Company Material Adverse Effect
prior to March 31, 2010 and the Company is continuing to exercise reasonable efforts to cause such Company Material Adverse Effect to no longer constitute a Company Material Adverse Effect, then Parent may not terminate this Agreement under
this
Section 8.1(h)
on account of such Company Material Adverse Effect prior to the expiration time of the Offer.
Notwithstanding
anything to the contrary contained in this
Section 8.1
, this Agreement may not be terminated by any party unless any fee required to be paid (or caused to be paid) by such party pursuant to
Section 8.3
at or prior to the time
of such termination shall have been paid in full.
8.2 Effect of Termination
. In the event of the
termination of this Agreement as provided in
Section 8.1
, this Agreement shall be of no further force or effect;
provided, however
, that (i) this
Section 8.2
,
Section 8.3
and
Section 9
(and
the Confidentiality Agreement) shall survive the termination of this Agreement and shall remain in full force and effect, (ii) the termination of this Agreement shall not relieve any party from any liability for any prior material breach of any
covenant or obligation contained in this Agreement and shall not relieve any party from any liability for any material breach of any representation or warranty contained in this Agreement, and (iii) no termination of this Agreement shall in any
way affect any of the parties rights or obligations with respect to any shares of Company Common Stock accepted for exchange pursuant to the Offer prior to such termination. Notwithstanding anything herein to the contrary, except with respect
to any liability of the Company for any willful or intentional breach of any covenant or obligation contained in this Agreement, the payment of the Termination Fee shall be the exclusive remedy of Parent and Acquisition Sub with respect to a
termination of this Agreement pursuant to
Sections 8.1(d)
or
8.1(e)
or a termination of this Agreement pursuant to
Sections 8.1(c)
) followed by payment of the Termination Fee pursuant to
Section 8.3(b)
.
8.3 Expenses; Termination Fees.
(a)
Except as set forth in this
Section 8.3
, all expenses incurred in connection with this Agreement and
the Contemplated Transactions shall be paid by the party incurring such expenses, whether or not any shares are purchased pursuant to the Offer and whether or not the Merger is consummated.
(b)
If (i) this Agreement is terminated by Parent or the Company pursuant to
Section 8.1(c)
, and
(ii) at or prior to the time of the termination of this Agreement an Acquisition Proposal shall have been publicly disclosed, announced or commenced (and not withdrawn at least five (5) business days prior to the time of termination), and
(iii) within one (1) year after the date of termination of this Agreement, (A) an Acquisition Transaction is consummated or (B) a definitive agreement contemplating an Acquisition Transaction is executed and such Acquisition
Transaction is ultimately consummated, then
A-1-49
the Company shall pay to Parent, in cash at the time such Acquisition Transaction (as it may have been modified, including any other Acquisition Transaction among or involving the parties to such
definitive agreement or any of such parties affiliates) is consummated, a nonrefundable fee in the amount of $8,517,000;
provided, however
, that for purposes of
clause
(iii)
above, all references to
15% in the definition of Acquisition Transaction shall be deemed to refer to 50%.
(c)
If this Agreement is terminated (i) by Parent at any time pursuant to
Section 8.1(d)
based upon
clause
(i)
of the definition of Triggering Event, (ii) by Parent
following the expiration of the Go-Shop Period pursuant to
Section 8.1(d)
based upon any of
clauses
(ii)
,
(iii)
,
(iv)
or
(v)
of the definition of
Triggering Event or (iii) by the Company following the expiration of the Go-Shop Period pursuant to
Section 8.1(e)
, then the Company shall pay to Parent, in cash at the time specified in the next sentence, a
nonrefundable fee in the amount of $8,517,000. In the case of any termination of this Agreement by Parent pursuant to
Section 8.1(d)
, the fee referred to in the preceding sentence shall be paid by the Company within two (2) business
days after such termination; and in the case of termination of this Agreement by the Company pursuant to
Section 8.1(e)
, the fee referred to in the preceding sentence shall be paid by the Company at or prior to the time of such
termination.
(d)
If, during the Go-Shop Period, this Agreement is terminated by the Company pursuant to
Section 8.1(e)
or by Parent pursuant to
Section 8.1(d)
based upon any of any of
clauses
(ii)
,
(iii)
,
(iv)
or
(v)
of the definition of
Triggering Event, then the Company shall pay to Parent, in cash at or prior to the time of such termination, a nonrefundable fee in the amount of $6,388,000.
(e)
If the Company fails to pay when due any amount payable under
Section 8.3(b)
,
Section 8.3(c)
or
Section 8.3(d)
, then (i) the Company shall reimburse Parent 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 Parent of its rights under this
Section 8.3
, and (ii) the Company shall pay to Parent interest on any amount that is overdue (for the period during which such amount is overdue) at a
rate per annum equal to 300 basis points over the prime rate (as announced by Bank of America or any successor thereto) in effect on the date such amount was originally required to be paid.
Section 9. M
ISCELLANEOUS
P
ROVISIONS
9.1 Amendment
. Subject to
Section 1.3
, this Agreement may be amended with the approval of the respective
boards of directors of the Company and Parent at any time (whether before or after the adoption of this Agreement by the Companys stockholders);
provided, however,
that after any such adoption of this Agreement by the Companys
stockholders, no amendment shall be made which under applicable Legal Requirements requires further approval of the stockholders of the Company without the further approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.2 Parent Guarantee
. Parent
shall cause Acquisition Sub to comply in all respects with each of its representations, warranties, covenants, obligations, agreements and undertakings pursuant to or otherwise in connection with this Agreement, the Offer, the Merger and the other
Contemplated Transactions.
9.3 Waiver
.
(a)
Subject to
Section 1.3
, at any time prior to the Effective Time, Parent and Acquisition Sub, on the
one hand, and the Company, on the other hand, may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any uncured inaccuracies in the representations and warranties of the other
contained herein or in any document delivered pursuant hereto and (iii) waive compliance by the other with any of the agreements or conditions contained herein;
provided, however
, that after any approval of this Agreement by the
Companys stockholders, there may not be any extension or waiver of this Agreement which would require the approval of the Companys stockholders under applicable Legal Requirements without the approval of such stockholders.
A-1-50
(b)
No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No party shall be deemed to have waived any claim arising out of this Agreement, or any
power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall
not be applicable or have any effect except in the specific instance in which it is given.
9.4 No Survival
of Representations and Warranties
. None of the representations and warranties contained in this Agreement or in any certificate delivered pursuant to this Agreement shall survive the Acceptance Time.
9.5 Entire Agreement; Counterparts
. Without limiting
Section 8.2
, this Agreement and the other agreements
referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject matter hereof and thereof;
provided,
however
, that the provisions of the Confidentiality Agreement shall not be superseded and shall remain in full force and effect. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same instrument.
9.6 Applicable Law; Jurisdiction
. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. In any action between any of the parties arising out of or
relating to this Agreement or any of the Contemplated Transactions: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware; and
(b) each of the parties irrevocably waives the right to trial by jury.
9.7 Disclosure Schedule
.
The fact that any item of information is disclosed in the Disclosure Schedule shall not be construed to mean that such information is required to be disclosed by this Agreement. Inclusion of any item in the Disclosure Schedule shall not be deemed an
admission that such item is material or that such item constitutes or is reasonably likely to result in a Company Material Adverse Effect. The Disclosure Schedule shall be arranged in separate parts corresponding to the sections contained in
Section 3
. However, descriptive headings in the Disclosure Schedule are inserted for reference purposes and for convenience of the reader only, and shall not affect the interpretation thereof or of this Agreement. Nothing contained in
the Disclosure Schedule shall be construed as an admission of liability or responsibility in connection with any pending, threatened or future matter or proceeding.
9.8 Attorneys Fees
. In any action at law or suit in equity to enforce this Agreement or the rights of any of the
parties hereunder, the prevailing party in such action or suit shall be entitled to receive a reasonable sum for its attorneys fees and all other reasonable costs and expenses incurred in such action or suit.
9.9 Assignability; Third Party Beneficiaries
. This Agreement shall be binding upon, and except as otherwise provided
in
Section 6.4
, shall be enforceable by and inure solely to the benefit of, the parties hereto and their respective successors and assigns;
provided, however
, that neither this Agreement nor any of the rights hereunder may be
assigned by any party hereto without the prior written consent of the other parties, and any attempted assignment of this Agreement or any of such rights by any party without such consent shall be void and of no effect. Nothing in this Agreement,
express or implied, is intended to or shall confer any right, benefit or remedy of any nature whatsoever upon any Person (other than (i) the parties hereto and (ii) the Indemnified Persons to the extent of their respective rights pursuant
to
Section 6.4
).
9.10 Notices
. Each notice, request, demand or other communication under
this Agreement shall be in writing and shall be deemed to have been duly given or made as follows: (a) if sent by registered or certified mail in the United States, return receipt requested, then such communication shall be deemed duly given
and
A-1-51
made upon receipt; (b) if sent by nationally recognized overnight air courier (such as DHL or Federal Express), then such communication shall be deemed duly given and made two (2)
business days after being sent; (c) if sent by facsimile transmission before 5:00 p.m. (California time) on any business day, then such communication shall be deemed duly given and made when receipt is confirmed; (d) if sent by facsimile
transmission on a day other than a business day and receipt is confirmed, or if sent after 5:00 p.m. (California time) on any business day and receipt is confirmed, then such communication shall be deemed duly given and made on the business day
following the date which receipt is confirmed; and (e) if otherwise actually personally delivered to a duly authorized representative of the recipient, then such communication shall be deemed duly given and made when delivered to such
authorized representative;
provided
that, in all cases, such notices, requests, demands and other communications are delivered to the address set forth below, or to such other address as any party shall provide by like notice to the other
parties to this Agreement:
if to Parent or Acquisition Sub:
Peets Coffee & Tea, Inc.
1400 Park Avenue
Emeryville, CA 94608
Attention: Chief Financial Officer
Facsimile: (510) 594-2180
with a copy (which shall not constitute notice)
to:
Cooley Godward Kronish LLP
101 California Street
San Francisco, CA 94111
Attention: Kenneth L. Guernsey
Facsimile: (650) 849-7400
if to the Company:
Diedrich Coffee, Inc.
28 Executive Park, Suite 200
Irvine, CA 92614
Attention: Chief Financial Officer
Facsimile: (949) 260-6781
with a copy (which shall not constitute notice)
to:
Gibson Dunn & Crutcher LLP
3161 Michelson Drive
Irvine, CA 92612
Attention: John M. Williams
Facsimile: (949) 451-4220
9.11 Cooperation
. The Company and Parent agree to cooperate
fully with each other and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other to evidence or reflect the Contemplated Transactions and to
carry out the intent and purposes of this Agreement.
9.12 Severability
. Any term or provision of this
Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any
other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall
have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable
A-1-52
and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not
exercise the power granted to it in the prior sentence, the parties hereto shall replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business
and other purposes of such invalid or unenforceable term.
9.13 Enforcement
. In the event of any breach
or threatened breach by Parent or Acquisition Sub, on the one hand, or the Company, on the other hand, of any covenant or obligation of such party contained in this Agreement, the other party shall be entitled to seek, in addition to any monetary or
damages remedy: (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation; and (b) an injunction restraining such breach or threatened breach.
9.14 Construction
.
(a)
For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders;
the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.
(b)
The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of
this Agreement.
(c)
As used in this Agreement, the words include and including,
and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words without limitation.
(d)
Except as otherwise indicated, all references in this Agreement to Sections, Exhibits and
Schedules are intended to refer to Sections of this Agreement and Exhibits or Schedules to this Agreement.
(e)
The bold-faced headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of
this Agreement.
[Signature page follows.]
A-1-53
I
N
W
ITNESS
W
HEREOF
, the
parties have caused this Agreement to be executed as of the date first above written.
|
|
|
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
|
|
|
By:
|
|
/s/ Patrick ODea
|
Name:
|
|
Patrick ODea
|
Title:
|
|
CEO
|
|
M
ARTY
A
CQUISITION
S
UB
, I
NC
.
|
|
|
By:
|
|
/s/ Tom Cawley
|
Name:
|
|
Tom Cawley
|
Title:
|
|
CFO
|
|
D
IEDRICH
C
OFFEE
, I
NC
.
|
|
|
By:
|
|
/s/ James R. Phillips
|
Name:
|
|
James R. Phillips
|
Title:
|
|
President/CEO
|
S
IGNATURE
P
AGE
TO
A
GREEMENT
AND
P
LAN
OF
M
ERGER
A-1-54
E
XHIBIT
A
C
ERTAIN
D
EFINITIONS
For purposes of the Agreement (including this
Exhibit A
and
Exhibit B
):
Acceptance Time.
Acceptance Time
shall mean the first time as of which Acquisition Sub accepts any shares of Company Common Stock for exchange pursuant to the Offer.
Acquisition Inquiry
.
Acquisition Inquiry
shall mean an inquiry, indication of interest or request for information
(other than an inquiry, indication of interest or request for information made or submitted by Parent, Acquisition Sub or any of their respective Subsidiaries or by any of their respective Representatives on their behalf) that could reasonably be
expected to lead to an Acquisition Proposal.
Acquisition Proposal
.
Acquisition Proposal
shall mean
any offer, proposal, inquiry or indication of interest (other than an offer, proposal, inquiry or indication of interest made or submitted by Parent, Acquisition Sub or any of their respective Subsidiaries or by any of their respective
Representatives on their behalf) relating to any Acquisition Transaction.
Acquisition Transaction
.
Acquisition Transaction
shall mean any transaction or series of transactions with any Person other than Parent or Acquisition Sub or any of their respective Subsidiaries involving:
(a)
any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition
of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (i) in which the Company is a constituent corporation; (ii) in which a Person or group (as defined in the Exchange Act
and the rules thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of the Company; or (iii) in which the
Company issues securities representing more than 15% of the outstanding securities of any class of voting securities of the Company; or
(b)
any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or more of the consolidated net revenues,
consolidated net income or consolidated assets of the Company.
Affiliate
.
Affiliate
of any Person
shall mean another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.
Agreement
.
Agreement
shall mean the Agreement and Plan of Merger to which this
Exhibit A
is attached, as it may be amended from time to time.
COBRA
.
COBRA
shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
Code
.
Code
shall mean the Internal Revenue Code of 1986, as amended.
Company Affiliate
.
Company Affiliate
shall mean any Person under common control with the Company within the
meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations thereunder.
Company
Associate
.
Company Associate
shall mean any current or former employee, independent contractor, consultant or director of or to the Company or any Company Affiliate.
A-1-55
Company Board Recommendation
.
Company Board Recommendation
shall
mean the recommendation of the Companys board of directors that the stockholders of the Company accept the Offer and tender their shares of Company Common Stock pursuant to the Offer and adopt the Agreement.
Company Common Stock
.
Company Common Stock
shall mean the Common Stock, $0.01 par value per share, of the Company.
Company Contract
.
Company Contract
shall mean any Contract to which the Company is a party, by
which the Company or any of its assets are bound or pursuant to which the Company has any rights.
Company Employee
Agreement
.
Company Employee Agreement
shall mean any management, employment, severance, transaction bonus, change in control, consulting, relocation, repatriation or expatriation agreement or other Contract between the Company
or any Company Affiliate and any Company Associate, other than: (i) any such Contract which is terminable at will without any obligation on the part of the Company or any Company Affiliate to make any severance, change in control or
similar payment or provide any benefit; (ii) any Company Employee Plan; and (iii) any Foreign Plan.
Company
Employee Plan
.
Company Employee Plan
shall mean any plan, program, policy, practice or Contract providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards,
fringe benefits, retirement benefits or other benefits or remuneration of any kind, whether written, unwritten or otherwise and whether funded or unfunded, including each employee benefit plan, within the meaning of Section 3(3) of
ERISA (whether or not ERISA is applicable to such plan): (a) that is or has been maintained or contributed to, or required to be maintained or contributed to, by the Company or any Company Affiliate for the benefit of any Company Associate; and
(b) with respect to which the Company or any Company Affiliate has or may incur or become subject to any liability or obligation;
provided, however,
that Company Employee Agreements and Foreign Plans shall not be considered Company
Employee Plans.
Company Equity Plan
.
Company Equity Plan
shall mean any of the following, in each
case as amended: the Diedrich Coffee, Inc. 2000 Equity Incentive Plan; the 2000 Non-Employee Directors Stock Option Plan; the Amended and Restated Diedrich Coffee, Inc. 1996 Stock Incentive Plan; the Diedrich Coffee, Inc. 1996 Non-Employee Directors
Stock Option Plan; and the J. Russell Phillips Stock Option Agreement.
Company IP
.
Company IP
shall
mean all material Intellectual Property and Intellectual Property Rights that the Company owns (or purports to own) or in which the Company has (or purports to have) an exclusive license or similar exclusive right.
Company Material Adverse Effect
.
Company Material Adverse Effect
shall mean any effect, change, claim, event or
circumstance that, considered together with all other effects, changes, claims, events and circumstances, has had or could reasonably be expected to have or result in a material adverse effect on, (1) the business, financial condition or
results of operations of the Company or (2) the ability of the Company to consummate the Contemplated Transactions, but shall not include: (i) effects, changes, claims, events or circumstances resulting from (A) changes since the date
of the Agreement in general economic or political conditions or the securities, credit or financial markets worldwide, (B) changes since the date of the Agreement in conditions generally affecting the industry in which the Company operates,
(C) changes since the date of the Agreement in generally accepted accounting principles or the interpretation thereof, (D) changes since the date of the Agreement in Legal Requirements, (E) any acts of terrorism or war since the date
of the Agreement, or (F) any stockholder class action or derivative litigation commenced against the Company since the date of the Agreement and arising from allegations of breach of fiduciary duty of the Companys directors relating to
their approval of the Agreement or from allegations of false or misleading public disclosure by the Company with respect to the Agreement; (ii) any adverse impact on the Companys relationships with employees, customers and suppliers of
the Company that is attributable to the announcement or pendency of the Agreement and the
A-1-56
Contemplated Transactions, or any other adverse impact on the Company that is directly (and to the extent) attributable to the announcement and pendency of the Contemplated Transactions;
(iii) any failure after the date of the Agreement to meet internal or analyst projections or forecasts for any period or changes in the trading price or trading volume of Company Common Stock, in and of itself; or (iv) the taking of any
action required to be taken by the Company pursuant to the Agreement or specifically instructed or consented to, in advance and in writing, by Parent;
provided
that, (x) in the case of each of
clauses
(i)(A)
,
(i)(B)
,
(i)(C)
,
(i)(D)
and
(i)(E)
above, the exception shall apply so long as and only to the extent that such effects, changes, claims,
events or circumstances do not disproportionately impact the Company relative to other participants in the industry or industries in which the Company conducts its business and (y) any facts or circumstances underlying, causing or contributing
to any litigation of the type referred to in
clause
(i)(F)
of the preceding sentence, or underlying, causing or contributing to any failure or decline of the type referred to in
clause
(iii)
of the preceding sentence, in each case that are not otherwise excluded from the definition of a Company Material Adverse Effect, may be taken into account in determining whether there has been or would be
a Company Material Adverse Effect. Notwithstanding any of the foregoing, (x) for purposes of the representations and warranties of the Company in
Section 3
and the conditions set forth in
clauses
(a)
and
(b)
of
Exhibit B
, any effect, change, claim, event or circumstance that results or could reasonably be expected to result in (i) the termination of any Specified Contract, or (ii) a material adverse
effect on the value to the Company of any Specified Contract will be considered a Company Material Adverse Effect, and (y) any action taken by a party to a Specified Contract or any Affiliate of such party after the date of the Agreement, other
than effects, changes, claims, events and circumstances described in
clause
(x)
above, will not in and of itself be considered a Company Material Adverse Effect.
Company Option
.
Company Option
shall mean each option to purchase shares of Company Common Stock from the Company,
whether granted by the Company pursuant to a Company Equity Plan, assumed by the Company in connection with any merger, acquisition or similar transaction or otherwise issued or granted and whether vested or unvested;
provided
that the Top-Up
Option shall not be considered a Company Option.
Company Pension Plan
.
Company Pension Plan
shall
mean each Company Employee Plan that is an employee pension benefit plan, within the meaning of Section 3(2) of ERISA.
Company Preferred Stock
.
Company Preferred Stock
shall mean the Preferred Stock, $0.01 par value per share, of the Company.
Company Privacy Policy
. Company Privacy Policy shall mean each external or internal, past or current privacy policy of
the Company, including any policy relating to: (a) the privacy of any user of any Company Product or any user of any website of the Company; (b) the collection, storage, disclosure or transfer of any Personal Data; or (c) any employee
information.
Company Product
. Company Product shall mean any product or service that the Company
manufactured, marketed, distributed, leased (as lessor), licensed (as licensor) or sold at any time since January 1, 2008.
Company Warrants
.
Company Warrants
shall mean all warrants to acquire shares of Company Common Stock from the Company.
Confidentiality Agreement
.
Confidentiality Agreement
shall mean that certain Confidentiality Agreement dated as of March 5, 2008, between the Company and Parent, as amended
through the date hereof.
Consent
.
Consent
shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
A-1-57
Contemplated Transactions
.
Contemplated Transactions
shall mean:
(i) all actions and transactions contemplated by the Agreement, including (A) the Offer and the acceptance for exchange of shares of Company Common Stock pursuant to the Offer, and (B) the Merger; and (ii) all actions and
transactions contemplated by the Stockholder Agreements.
Contract
.
Contract
shall mean any written,
oral or other agreement, contract, subcontract, lease, understanding, instrument, warrant, note, debenture, indenture, option, warranty, purchase order, license, sublicense, or legally binding commitment or undertaking, and any amendments to any of
the foregoing.
Designated Representations
.
Designated Representations
shall mean the
representations and warranties of the Company contained in
Section 3.3
of the Agreement.
Disclosure
Schedule
.
Disclosure Schedule
shall mean the disclosure schedule that has been prepared by the Company in accordance with the requirements of
Section 9.7
of the Agreement and that has been delivered by the Company
to Parent on the date of the Agreement.
DOL
.
DOL
shall mean the United States Department of Labor.
Employee Plans
.
Employee Plans
shall mean each employment, consulting, salary, bonus, vacation,
deferred compensation, incentive compensation, stock purchase, stock option or other equity-based, severance, termination, retention, change-in-control, death and disability benefits, hospitalization, medical, life or other insurance, flexible
benefits, supplemental unemployment benefits, other welfare fringe benefits, profit-sharing, pension or retirement plans, program, practice agreement or commitment and each other employee benefit plan or arrangement, whether written, unwritten or
otherwise, funded or unfunded, including each Foreign Plan and each employee benefit plan, within the meaning of Section 3(3) of ERISA which is or has been sponsored, maintained, contributed to or required to be contributed to by
the Company and with respect to which the Company has or may have any liability or obligation.
Encumbrance
.
Encumbrance
shall mean any lien, pledge, hypothecation, charge, mortgage, easement, encroachment, imperfection of title, title exception, title defect, right of possession, lease, tenancy license, security interest, encumbrance,
claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security
or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).
Entity
.
Entity
shall mean any corporation (including any non-profit corporation), general partnership,
limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or
entity.
ERISA
.
ERISA
shall mean the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate
.
ERISA Affiliate
shall mean any Person that, together with the Company, is or was
at any time treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and any general partnership of which the Company is or has been a general partner.
Exchange Act
.
Exchange Act
shall mean the Securities Exchange Act of 1934, as amended.
FMLA
.
FMLA
shall mean the Family Medical Leave Act of 1993, as amended.
A-1-58
Foreign Plan
.
Foreign Plan
shall mean any (a) plan, program,
policy, practice, Contract or other arrangement mandated by a Governmental Body outside the United States to which the Company is required to contribute or under which the Company has or may have any material liability, (b) Employee Plan that
is subject to any of the Legal Requirements of any jurisdiction outside the United States or (c) Employee Plan that covers or has covered any former or current employee, consultant or director of the Company whose services are or have been
performed primarily outside of the United States.
Form S-4 Registration Statement
.
Form S-4
Registration Statement
shall mean the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of Parent Common Stock pursuant to the Offer and the Merger, as said registration statement
may be amended.
Former Subsidiary
.
Former Subsidiary
shall mean Praise U.S. Holdings, Inc., a
Delaware corporation.
Governmental Authorization
.
Governmental Authorization
shall mean any:
(a)
permit, license, certificate, franchise, permission, variance, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant
to any Legal Requirement; or (b) right under any Contract with any Governmental Body.
Governmental Body
.
Governmental Body
shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other governmental jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or
Entity and any court or other tribunal); or (d) self-regulatory organization (including the NASDAQ Stock Market LLC and the Financial Industry Regulatory Authority).
HIPAA
.
HIPAA
shall mean the Health Insurance Portability and Accountability Act of 1996, as amended.
HSR Act
.
HSR Act
shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Intellectual Property
.
Intellectual Property
shall mean algorithms, apparatus, databases, data collections,
diagrams, formulae, inventions (whether or not patentable), recipes, tools, files, records and data, all schematics, test methodologies, prototypes, processes, know-how, logos, marks (including brand names, product names, logos, and slogans),
methods, proprietary information, protocols, schematics, specifications, software, software code (in any form, including firmware, source code and executable or object code), techniques, user interfaces, URLs, web sites, works of authorship and
other forms of technology (whether or not embodied in any tangible form and including all tangible embodiments of the foregoing, such as instruction manuals, laboratory notebooks, samples, studies and summaries).
Intellectual Property Rights
.
Intellectual Property Rights
shall mean all rights of the following types, which may
exist or be created under the laws of any jurisdiction in the world: (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights and mask works; (b) trademark and trade name rights and
similar rights (collectively with those rights in
clause
(f)
,
Trademarks
); (c) trade secret rights; (d) patent and industrial property rights (collectively with those rights in
clause
(f)
,
Patents
); (e) other proprietary rights in Intellectual Property; and (f) rights in or relating to registrations, renewals, extensions, combinations, divisions and reissues of,
and applications for, any of the rights referred to in
clauses
(a)
through
(e)
above.
IRS
.
IRS
shall mean the United States Internal Revenue Service.
A-1-59
Knowledge
. An Entity shall be deemed to have
Knowledge
of a fact
or other matter if any of the members of its board of directors or any of its executive officers has actual knowledge of such fact or other matter.
Legal Proceeding
.
Legal Proceeding
shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate
proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.
Legal Requirement
.
Legal Requirement
shall mean any federal, state, local, municipal, foreign or other law,
statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, order, award, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Body.
Made Available
. Any statement in the Agreement to the effect that any information,
document or other material has been
Made Available
shall mean that such information, document or material was made available by the Company to Parent or by Parent to the Company, as applicable, for review prior to the execution of
the Agreement, by either (i) physically delivering such information to the recipient, (ii) delivering such information to the recipient in electronic format, whether via email or contained in a disc or other memory device, or (iii) by
making such information available to the recipient in a virtual data room maintained by such party or otherwise in connection with the Contemplated Transactions.
Open Source License
.
Open Source License
shall mean any license that has been designated as an approved open source license on www.opensource.org (including the GNU
General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL), the Sun Industry Standards Source License
(SISSL) and the Apache License).
Order
.
Order
shall mean any order, writ, injunction, judgment or
decree issued, entered or otherwise promulgated by a court of competent jurisdiction or other Governmental Body.
Parent
Average Stock Price
.
Parent Average Stock Price
shall mean the volume weighted average price for one share of Parent Common Stock as reported on the Nasdaq Capital Market for the five (5) trading day period ending
immediately prior to (and excluding) the date on which the Acceptance Time occurs.
Parent Common Stock
.
Parent Common Stock
shall mean the Common Stock, no par value per share, of Parent.
Parent Material
Adverse Effect
.
Parent Material Adverse Effect
shall mean any effect, change, claim, event or circumstance that, considered together with all other effects, changes, claims, events and circumstances, has or could reasonably be
expected to have or result in a material adverse effect on, (i) the business, financial condition or results of operations of Parent or (ii) the ability of Parent or Acquisition Sub to consummate the Contemplated Transactions, but shall
not include: (i) effects, changes, claims, events or circumstances resulting from (A) changes since the date of the Agreement in general economic or political conditions or the securities, credit or financial markets worldwide,
(B) changes since the date of the Agreement in conditions generally affecting the industry in which Parent operates, (C) changes since the date of the Agreement in generally accepted accounting principles or the interpretation thereof,
(D) changes since the date of the Agreement in Legal Requirements, (E) any acts of terrorism or war since the date of the Agreement, or (F) any stockholder class action or derivative litigation commenced against Parent since the date
of the Agreement and arising from allegations of breach of fiduciary duty of Parents directors relating to their approval of the Agreement or from allegations of false or misleading public disclosure by Parent with respect to the Agreement;
(ii) any adverse
A-1-60
impact on Parents relationships with employees, customers and suppliers of Parent that is attributable to the announcement or pendency of the Agreement and the Contemplated Transactions, or
any other adverse impact on Parent that is directly (and to the extent) attributable to the announcement and pendency of the Contemplated Transactions; (iii) any failure after the date of the Agreement to meet internal or analyst projections or
forecasts for any period or changes in the trading price or trading volume of Parent Common Stock, in and of itself; or (iv) the taking of any action required to be taken by Parent or Acquisition Sub pursuant to by the Agreement or specifically
instructed or consented to, in advance and in writing, by the Company;
provided
that, (x) in the case of each of
clauses
(i)(A)
,
(i)(B)
,
(i)(C)
,
(i)(D)
and
(i)(E)
above, the exception shall apply so long as and only to the extent that such effects, changes, claims, events or circumstances do not disproportionately impact Parent relative to other participants in the industry or
industries in which Parent conducts its business, and (y) any facts or circumstances underlying, causing or contributing to any litigation of the type referred to in
clause
(i)(F)
of the preceding sentence, or
underlying, causing or contributing to any failure or decline of the type referred to in
clause
(iii)
of the preceding sentence, in each case that are not otherwise excluded from the definition of a Parent Material
Adverse Effect, may be taken into account in determining whether there has been or would be a Parent Material Adverse Effect.
PBGC
.
PBGC
shall mean the United States Pension Benefit Guaranty Corporation.
Per Share
Consideration
.
Per Share Consideration
shall mean the Cash Component and the fraction of a share of Parent Common Stock representing the Applicable Fraction.
Person
.
Person
shall mean any individual, Entity or Governmental Body.
Personal Data
.
Personal Data
shall include (a) a natural persons name, street address, telephone
number, e-mail address, photograph, social security number, drivers license number, passport number and customer or account number, (b) any other piece of information that allows the identification of a natural person and (c) any
other data or information collected by or on behalf of the Company from users of Company Products or any website of the Company.
Post-Effective Amendment
.
Post-Effective Amendment
shall mean a post-effective amendment to the Registration Statement for the offer and sale of shares of Parent Common Stock in connection with the Merger, in which
the Proxy Statement shall be included as a prospectus.
Proxy Statement
.
Proxy Statement
shall mean
the proxy or information statement of the Company to be sent to the Companys stockholders in connection with the Company Stockholders Meeting.
Registered IP
.
Registered IP
shall mean all Intellectual Property Rights that are registered or filed with, or issued under the authority of, any Governmental Body, including all
granted Patents, registered copyrights, registered mask works and registered Trademarks and all applications for any of the foregoing.
Representatives
.
Representatives
shall mean directors, officers, other employees, agents, attorneys, accountants, advisors and representatives.
Sarbanes-Oxley Act
.
Sarbanes-Oxley Act
shall mean the Sarbanes-Oxley Act of 2002.
SEC.
SEC
shall mean the United States Securities and Exchange Commission.
Securities Act
.
Securities Act
shall mean the Securities Act of 1933, as amended.
Subsidiary
. An Entity shall be deemed to be a
Subsidiary
of another Person if such Person directly or indirectly
owns or purports to own, beneficially or of record, (a) an amount of voting securities or other interests
A-1-61
in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entitys board of directors or other governing body, or (b) at least 50% of
the outstanding equity, voting or financial interests in such Entity.
Superior Proposal
.
Superior
Proposal
shall mean an unsolicited bona fide written offer by a third party to purchase, in exchange for consideration consisting exclusively of cash or publicly traded equity or debt securities or a combination thereof, all or
substantially all of the outstanding shares of Company Common Stock or the Companys assets, that (a) was not obtained or made as a direct or indirect result of a breach of the Agreement and (b) is on terms and conditions that the
board of directors of the Company (or a committee thereof) determines, in its reasonable, good faith judgment, after consultation with the Companys financial advisors and outside counsel, and after taking into account the likelihood and timing
of consummation of the purchase transaction contemplated by such Superior Proposal, to be more favorable from a financial point of view to the Companys stockholders than the Transaction.
Tax
.
Tax
shall mean any tax (including any tax based upon or measured by income, capital gains, gross receipts,
profits, employment or occupation, any value-added tax, franchise tax, surtax, estimated tax, unemployment tax, national health insurance tax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff or duty (including any customs duty) and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental
Body.
Tax Return
.
Tax Return
shall mean any return (including any information return), report,
declaration, schedule, notice, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body relating to Taxes.
Triggering Event
. A
Triggering Event
shall be deemed to have occurred if: (i) the board of directors of the
Company shall have failed to make a Company Board Recommendation or shall have made a Recommendation Change, or shall have taken any other action publicly that would cause a reasonable observer to conclude that the board of directors of the Company
does not unanimously support the Offer or the Merger; (ii) following the disclosure or announcement of an Acquisition Proposal or an Acquisition Inquiry, the board of directors of the Company fails to reaffirm publicly the Company Board
Recommendation, within ten (10) business days after Parent requests in writing that such recommendation or determination be reaffirmed publicly; (iii) the board of directors of the Company shall have publicly approved, endorsed or
recommended any Acquisition Proposal; (iv) the Company shall have entered into any letter of intent or Contract contemplating or providing for any Acquisition Proposal (other than a confidentiality agreement executed and delivered in accordance
with
clause
(3)
of
Section 5.3(c)
of the Agreement); or (v) a tender or exchange offer relating to securities of the Company shall have been commenced by a third party and the Company shall not have
sent to its security holders, within ten (10) business days after the commencement of such tender or exchange offer, a statement disclosing that the Company recommends rejection of such tender or exchange offer.
Year-End Balance Sheet
. Year-End Balance Sheet shall mean the audited consolidated balance sheet of the Company and its
consolidated Subsidiaries as of June 24, 2009, included in the Companys Report on Form 10-K for the fiscal year then ended, as filed with the SEC on September 22, 2009.
A-1-62
E
XHIBIT
B
C
ONDITIONS
TO
THE
O
FFER
The obligation of Acquisition Sub to accept for exchange and deliver consideration for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer is subject to the
satisfaction of the Minimum Condition and the additional conditions set forth in
clauses
(a)
through
(l)
below. Accordingly, notwithstanding any other provision of the Offer or the Agreement to the
contrary, Acquisition Sub shall not be required to accept for exchange or deliver consideration for, and may delay the acceptance for exchange or the delivery of consideration for, any tendered shares of Company Common Stock, if (i) the Minimum
Condition shall not be satisfied by midnight, Eastern Time, on the expiration date of the Offer (taking into account any extensions made pursuant to
Section 1.1(d)
), or (ii) any of the following additional conditions shall not be
satisfied or have been waived in writing by Parent:
(a) each of the Designated Representations shall have been
accurate in all material respects as of the date of the Agreement, and shall be accurate in all material respects at and as of the expiration time of the Offer with the same force and effect as if made at and as of such time (in each case, except
for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all material respects as of such date or time);
provided, however
, that, for purposes of determining the
accuracy of such representations and warranties, (x) all Company Material Adverse Effect and other qualifications based on the word material contained in such representations and warranties shall be disregarded, and
(y) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of the Agreement shall be disregarded;
(b) each of the representations and warranties of the Company set forth in the Agreement (other than those referred to in
clause
(a)
above) shall have been accurate in all respects as of the date of the Agreement, and shall be accurate in all respects at and as of the expiration time of the Offer with the same force and effect as if made
at and as of such time (in each case, except for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all respects as of such date or time), except where the failure of such
representations and warranties to be accurate, including the circumstances constituting or giving rise to such inaccuracies, considered in the aggregate, do not constitute a Company Material Adverse Effect;
provided, however
, that, for
purposes of determining the accuracy of such representations and warranties, (x) all Company Material Adverse Effect and other qualifications based on the word material contained in such representations and warranties
shall be disregarded, and (y) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of the Agreement shall be disregarded;
(c) each covenant set forth in the Agreement that the Company is required to comply with or to perform at or prior to the
Acceptance Time shall have been complied with or performed in all material respects, or, if not complied with or performed in all material respects, such noncompliance or failure to perform shall have been cured;
(d) since the date of the Agreement, no Company Material Adverse Effect shall have occurred and be continuing;
(e) Parent and the Company shall have received a certificate executed by the Companys Chief Executive Officer or Chief
Financial Officer confirming that the conditions set forth in
clauses
(a)
,
(b)
,
(c)
and
(d)
of this
Exhibit B
have been duly satisfied;
(f) the waiting period applicable to the Offer under the HSR Act shall have expired or been terminated;
(g) no temporary restraining order, preliminary or permanent injunction or other order preventing the acquisition of or
payment for shares of Company Common Stock pursuant to the Offer or preventing consummation of the Merger shall have been issued by any court of competent jurisdiction or other
A-1-63
Governmental Body having authority over Parent, Acquisition Sub or the Company and remain in effect, and there shall not be any applicable Legal Requirement enacted or deemed applicable to the
Offer or the Merger by a Governmental Body having authority over Parent, Acquisition Sub or the Company that makes the acquisition of or payment for shares of Company Common Stock pursuant to the Offer or the consummation of the Merger illegal;
(h) there shall not be pending, or threatened in writing, any Legal Proceeding by any Governmental Body having
authority over Parent, Acquisition Sub or the Company challenging or seeking to restrain or prohibit the acquisition of or payment for shares of Company Common Stock pursuant to the Offer or the consummation of the Merger or any of the other
Contemplated Transactions;
(i) no Triggering Event shall have occurred; and
(j) the Agreement shall not have been validly terminated.
The foregoing conditions are for the sole benefit of Parent and Acquisition Sub and may be waived by Parent, in whole or in part at any time and from time to time, in the sole discretion of Parent.
A-1-64
Annex A-2
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
T
HIS
A
MENDMENT
N
O
. 1
TO
A
GREEMENT
AND
P
LAN
OF
M
ERGER
(this
Amendment
) is made and entered into as of
November 17, 2009, by and among:
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
, a Washington corporation (
Parent
);
M
ARTY
A
CQUISITION
S
UB
, I
NC
., a Delaware corporation and a wholly-owned subsidiary of Parent (
Acquisition Sub
); and
D
IEDRICH
C
OFFEE
,
I
NC
.
, a Delaware corporation (the
Company
).
R
ECITALS
A.
Parent, Merger Sub and the Company are parties to that certain Agreement and Plan of Merger dated as of November 2, 2009
(the
Merger Agreement
).
B.
Section 9.1 of the Merger Agreement permits the parties to amend
the Merger Agreement, with the approval of the respective boards of directors of the Company and Parent, by an instrument in writing signed on behalf of each of Parent, Merger Sub and the Company.
C.
The parties desire to amend the Merger Agreement as provided in this Amendment.
D.
The respective boards of directors of Parent, Merger Sub and the Company have approved this Amendment.
A
GREEMENT
The parties to this Amendment, intending to be legally bound, agree as follows:
Section 1. D
EFINITIONS
1.1
Definitions; References.
Each
capitalized term used but not defined in this Amendment shall have the meaning assigned to such term in the Merger Agreement. Each reference in the Merger Agreement (including references added to the Merger Agreement by means of this Amendment) to
hereof, hereunder, hereby, this Agreement, the Agreement or any similar term shall, from and after the date of this Amendment, refer to the Merger Agreement (as amended by this Amendment).
Each reference in the Merger Agreement (including references added to the Merger Agreement by means of this Amendment) to the date of this Agreement, date of the Agreement, the date hereof or any similar term
shall refer to November 2, 2009. Except as otherwise indicated, all references in the Merger Agreement (including references added to the Merger Agreement by means of this Amendment) to Sections are intended to refer to Sections of
the Merger Agreement (as amended by this Amendment), and not sections of this Amendment.
Section 2.
A
MENDMENTS
TO
M
ERGER
A
GREEMENT
2.1
Amendment to Certain Nasdaq References in the Merger Agreement.
All references to the Nasdaq Capital Market in Sections 1.1(e), 2.5(d) and 6.8 of the Merger Agreement, and in the definition of Parent Average Stock
Price in Exhibit A to the Merger Agreement, are hereby replaced with references to the Nasdaq Global Select Market.
2.2
Amendment to Section 4.3 of the Merger Agreement.
The first sentence of Section 4.3 of the Merger Agreement is hereby replaced in its entirety with the following:
A-2-1
The authorized capital stock of Parent consists of 50,000,000 shares of Parent Common
Stock, and 10,000,000 shares of the Preferred Stock, no par value per share, of Parent (of which no shares have been issued or are outstanding).
2.3. Amendment to Section 5.3(g)(iii) of the Merger Agreement.
Clause (vi) of Section 5.3(g)(iii) of the Merger Agreement is hereby replaced in its entirety with the following:
(vi) during such four (4) business day period, if requested by Parent, the Company engages in good faith
negotiations with Parent to amend this Agreement or the Offer or enter into an alternative transaction so that the failure to make a Recommendation Change in light of such Intervening Event could not reasonably be expected to constitute a breach of
its fiduciary obligations to the Companys stockholders under applicable Legal Requirements;
2.4. Amendment to Exhibit B to the Merger Agreement.
Exhibit B to the Merger Agreement is hereby amended and restated in its entirety to read as follows:
The obligation of Acquisition Sub to accept for exchange and deliver consideration for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer is subject to the
satisfaction of the Minimum Condition and the additional conditions set forth in
clauses
(a)
through
(k)
below. Accordingly, notwithstanding any other provision of the Offer or the Agreement to the
contrary, Acquisition Sub shall not be required to accept for exchange or deliver consideration for, and may delay the acceptance for exchange or the delivery of consideration for, any tendered shares of Company Common Stock, if (i) the Minimum
Condition shall not be satisfied by midnight, Eastern Time, on the expiration date of the Offer (taking into account any extensions made pursuant to
Section 1.1(d)
), or (ii) any of the following additional conditions shall not be
satisfied or have been waived in writing by Parent:
(a) each of the Designated Representations shall have been
accurate in all material respects as of the date of the Agreement, and shall be accurate in all material respects at and as of the expiration time of the Offer with the same force and effect as if made at and as of such time (in each case, except
for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all material respects as of such date or time);
provided, however
, that, for purposes of determining the
accuracy of such representations and warranties, (x) all Company Material Adverse Effect and other qualifications based on the word material contained in such representations and warranties shall be disregarded, and
(y) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of the Agreement shall be disregarded;
(b) each of the representations and warranties of the Company set forth in the Agreement (other than those referred to in
clause
(a)
above) shall have been accurate in all respects as of the date of the Agreement, and shall be accurate in all respects at and as of the expiration time of the Offer with the same force and effect as if made
at and as of such time (in each case, except for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all respects as of such date or time), except where the failure of such
representations and warranties to be accurate, including the circumstances constituting or giving rise to such inaccuracies, considered in the aggregate, do not constitute a Company Material Adverse Effect;
provided, however
, that, for
purposes of determining the accuracy of such representations and warranties, (x) all Company Material Adverse Effect and other qualifications based on the word material contained in such representations and warranties
shall be disregarded, and (y) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of the Agreement shall be disregarded;
(c) each covenant set forth in the Agreement that the Company is required to comply with or to perform at or prior to the
Acceptance Time shall have been complied with or performed in all material respects, or, if not complied with or performed in all material respects, such noncompliance or failure to perform shall have been cured;
A-2-2
(d) since the date of the Agreement, no Company Material Adverse Effect
shall have occurred and be continuing;
(e) Parent and the Company shall have received a certificate executed
by the Companys Chief Executive Officer or Chief Financial Officer confirming that the conditions set forth in
clauses
(a)
,
(b)
,
(c)
and
(d)
of this
Exhibit B
have been duly satisfied;
(f) the waiting period applicable to the Offer under the HSR
Act shall have expired or been terminated;
(g) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order shall have been issued by the SEC and be outstanding, and no proceeding for that purpose shall have been initiated by the SEC and be outstanding or be threatened by the SEC;
(h) no temporary restraining order, preliminary or permanent injunction or other order preventing the
acquisition of or payment for shares of Company Common Stock pursuant to the Offer or preventing consummation of the Merger shall have been issued by any court of competent jurisdiction or other Governmental Body having authority over Parent,
Acquisition Sub or the Company and remain in effect, and there shall not be any applicable Legal Requirement enacted or deemed applicable to the Offer or the Merger by a Governmental Body having authority over Parent, Acquisition Sub or the Company
that makes the acquisition of or payment for shares of Company Common Stock pursuant to the Offer or the consummation of the Merger illegal;
(i) there shall not be pending, or threatened in writing, any Legal Proceeding by any Governmental Body having authority over Parent, Acquisition Sub or the Company challenging or seeking to restrain or
prohibit the acquisition of or payment for shares of Company Common Stock pursuant to the Offer or the consummation of the Merger or any of the other Contemplated Transactions;
(j) no Triggering Event shall have occurred; and
(k) the Agreement shall not have been validly terminated.
The foregoing conditions are for the sole benefit of Parent and Acquisition Sub and may be waived by Parent, in whole or in
part at any time and from time to time, in the sole discretion of Parent.
Section 3. Miscellaneous
3.1. No Further Amendment.
Except as otherwise expressly provided in this Amendment, all of the terms and
conditions of the Merger Agreement remain unchanged and continue in full force and effect.
3.2. Effect of
Amendment.
This Amendment shall form a part of the Merger Agreement for all purposes, and each party hereto and thereto shall be bound hereby. This Amendment shall be deemed to be in full force and effect from and after the execution of this
Amendment by the parties hereto.
3.3. Applicable Law; Jurisdiction.
This Amendment shall be governed
by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. In any action between any of the parties arising out of or relating
to the Merger Agreement or this Amendment or any of the Contemplated Transactions: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of
Delaware; and (b) each of the parties irrevocably waives the right to trial by jury.
3.4. Entire
Agreement; Counterparts.
Without limiting
Section 8.2
of the Merger Agreement, the Merger Agreement (as amended by this Amendment) and the other agreements referred to in the Merger Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject matter hereof and thereof;
A-2-3
provided, however
, that the provisions of the Confidentiality Agreement shall not be superseded and shall remain in full force and effect. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument.
I
N
W
ITNESS
W
HEREOF
, the parties have caused this Amendment to be executed as of the date first above written.
|
|
|
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
|
|
|
By:
|
|
/s/ Tom Cawley
|
Name:
|
|
Thomas P. Cawley
|
Title:
|
|
CFO
|
|
M
ARTY
A
CQUISITION
S
UB
, I
NC
.
|
|
|
By:
|
|
/s/ Tom Cawley
|
Name:
|
|
Thomas P. Cawley
|
Title:
|
|
CFO
|
|
D
IEDRICH
C
OFFEE
, I
NC
.
|
|
|
By:
|
|
/s/ Sean M. McCarthy
|
Name:
|
|
Sean M. McCarthy
|
Title:
|
|
CFO
|
A-2-4
Annex B-1
STOCKHOLDER AGREEMENT
T
HIS
S
TOCKHOLDER
A
GREEMENT
(
this
Agreement
) is entered into as of November 2, 2009, by and between
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
, a
Washington corporation (
Parent
), and the stockholder identified on the signature page hereto (
Stockholder
).
R
ECITALS
A.
Stockholder is a holder of record and
the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of certain shares of common stock of Diedrich Coffee, Inc., a Delaware corporation (the
Company
).
B.
Parent, Marty Acquisition Sub, Inc., a Delaware corporation (
Acquisition Sub
), and the Company are entering
into an Agreement and Plan of Merger of even date herewith (the
Merger Agreement
) which provides (on the terms and subject to the conditions set forth therein) for Parent to acquire the Company by (i) causing Acquisition Sub
to make an exchange offer as contemplated by the Merger Agreement (the
Offer
) for all of the issued and outstanding common stock of the Company for the Per Share Consideration (as defined in the Merger Agreement) and (ii) as
promptly as practicable after the closing of the Offer, causing Acquisition Sub to merge with and into the Company (the
Merger
).
C.
In the Merger, each outstanding share of common stock of the Company will be converted into the right to receive the same consideration payable pursuant to the Offer.
D.
Stockholder is entering into this Agreement in order to induce Parent to enter into the Merger Agreement.
A
GREEMENT
The parties to this Agreement, intending to be legally bound, agree as follows:
SECTION 1.
C
ERTAIN
D
EFINITIONS
For purposes of this Agreement:
(a)
Company Common Stock
shall mean the common stock, par value $0.01 per share, of the Company.
(b)
Stockholder shall be deemed to
Own
or to have acquired
Ownership
of a security if Stockholder: (i) is the record owner of such security; or (ii) is the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of such security.
(c)
Subject Shares
shall mean: 1,832,580 shares of Company Common Stock Owned by
Stockholder as of the date of this Agreement.
(d)
Termination Date
shall mean the
earlier of (i) the date upon which the Merger Agreement is terminated in accordance with its terms and (ii) the Effective Time of the Merger.
(e)
A Person shall be deemed to have a effected a
Transfer
of a security if such Person directly or indirectly: (i) sells, pledges, encumbers, grants an option with respect
to, transfers or disposes of such security or any interest in such security to any Person other than Parent or Acquisition Sub; or (ii) enters into an agreement or commitment contemplating the possible sale of, pledge of, encumbrance of, grant
of an option with respect to, transfer of or disposition of such security or any interest therein to any Person other than Parent or Acquisition Sub.
B-1-1
(f)
Capitalized terms used but not otherwise defined in this
Agreement have the meanings assigned to such terms in the Merger Agreement.
SECTION 2. T
RANSFER
OF
S
UBJECT
S
HARES
AND
V
OTING
R
IGHTS
2.1
Restriction on Transfer of Subject Shares
.
Subject to Section 2.3, during the period from the date of this Agreement through the Termination Date, Stockholder shall not cause or permit any Transfer if such Transfer would result in
Stockholders failure to Own the Subject Shares or inability to comply with Stockholders obligations hereunder.
2.2 Restriction on Transfer of Voting or Disposition Rights
. During the period from the date of this Agreement through the Termination Date, Stockholder shall ensure that: (a) none of the Subject Shares is deposited into a
voting trust; (b) no proxy is granted, and no voting agreement or similar agreement is entered into, with respect to any of the Subject Shares; and (c) no Person other than Stockholder (or any other Person that is the record or beneficial
owner of any of the Subject Shares as of the date of this Agreement) is granted dispositive power with respect to any of the Subject Shares.
2.3 Permitted Transfers
. Section 2.1 shall not prohibit a Transfer of Subject Securities by Stockholder (a) if Stockholder is an individual (i) to any member of Stockholders
immediate family, or to a trust for the benefit of Stockholder or any member of Stockholders immediate family, or (ii) upon the death of Stockholder, or (b) if Stockholder is a corporation, partnership or limited liability company,
to one or more stockholders, partners or members of Stockholder or to an affiliated entity under common control with Stockholder;
provided, however,
that a Transfer referred to in this sentence shall be permitted only if, as a precondition to
such Transfer, the transferee agrees in a writing, reasonably satisfactory in form and substance to Parent, to be bound by all of the terms of this Agreement.
SECTION 3. A
GREEMENT
TO
T
ENDER
3.1 Tender of Subject Shares
.
Prior to the Termination Date, Stockholder agrees to promptly (and, in any event, not later than five business days after receipt by Stockholder of all documents and instruments enabling
Stockholder to do so) validly tender or cause to be validly tendered in the Offer, pursuant to and in accordance with the terms of the Offer and Rule 14d-2 under the Securities Exchange Act of 1934, all of the Subject Shares (free and clear of any
encumbrances or restrictions).
3.2 No Withdrawal
.
Prior to the Termination Date, Stockholder agrees not to
withdraw or cause to be withdrawn any of the Subject Shares from the Offer unless and until the Offer expires without Acquisition Sub having accepted for exchange shares of Company Common Stock validly tendered in the Offer.
3.3 Conditional Obligation
.
Stockholder acknowledges and agrees that Acquisition Subs obligation to accept for exchange
shares of Company Common Stock in the Offer, including any Subject Shares tendered by Stockholder, is subject to the terms and conditions of the Merger Agreement and the Offer.
SECTION 4. V
OTING
OF
S
HARES
Stockholder hereby agrees that, prior to the Termination Date, at any meeting of the stockholders of the Company, however called, and in any action by written consent of stockholders of the Company, unless otherwise directed in writing by
Parent, Stockholder shall cause any Subject Shares not acquired pursuant to the Offer to be voted:
(a)
in favor of the Merger and the adoption of the Merger Agreement and the terms thereof, in favor of each of the other actions contemplated by the Merger Agreement and in favor of any action in furtherance of any of the foregoing;
(b)
against any action or agreement that would result in a breach of any representation, warranty, covenant or
obligation of the Company in the Merger Agreement; and
B-1-2
(c)
against any action that is intended, or that could reasonably be
expected, to impede, interfere with, delay, postpone, discourage or adversely affect the Offer or the Merger or any of the other Contemplated Transactions or this Agreement.
Prior to the Termination Date, Stockholder shall not enter into any agreement or understanding with any Person to vote or give instructions in any manner inconsistent with clause (a), clause
(b) or clause (c) of the preceding sentence. For the avoidance of doubt, nothing in this Agreement shall in any way limit Stockholders right to vote the Subject Shares in Stockholders sole discretion on any
matters other than the foregoing matters that may be submitted to a stockholder vote, consent or other approval.
Notwithstanding the foregoing or any contrary provision hereof, no covenant or agreement herein of Stockholder, and no action taken or omitted to be taken by Stockholder pursuant to the terms of this Agreement or the Merger Agreement, is
intended, nor shall it be deemed or construed, to constitute the consent or approval of Stockholder (whether in Stockholders capacity as a stockholder, director or officer of the Company or otherwise) for any purpose under any employment,
severance, change-in-control or similar agreement or arrangement to which Stockholder may be party.
SECTION 5. W
AIVER
OF
A
PPRAISAL
R
IGHTS
Subject to the acceptance of the Subject Shares by
Acquisition Sub in the Offer pursuant to the Merger Agreement, Stockholder hereby irrevocably and unconditionally waives, and agrees to cause to be waived and to prevent the exercise of, any rights of appraisal or dissenters rights relating to
the Merger with respect to the Subject Shares.
SECTION 6. R
EPRESENTATIONS
AND
W
ARRANTIES
OF
S
TOCKHOLDER
Stockholder hereby represents and warrants to Parent as follows:
6.1 Authorization, etc
.
Stockholder has the absolute and unrestricted right, power, authority and capacity to execute and
deliver this Agreement and to perform Stockholders obligations hereunder. This Agreement has been duly executed and delivered by Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder
in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
6.2 Company Warrants
. Stockholder hereby covenants and agrees that until the Termination Date, Stockholder will not
exercise or cause or permit to be exercised any Company Warrants owned of record or beneficially by Stockholder, and agrees and understands that any attempted or purported exercise of any such Company Warrants shall, unless such exercise shall have
been consented to in advance by Parent in writing (which consent Parent may grant or withhold in its sole and absolute discretion), be null and void, and no shares of Company Common Stock shall be issued in connection therewith. Stockholder has
reviewed and consents to the treatment of Company Warrants owned of record or beneficially by Stockholder as provided in the Merger Agreement.
6.3 No Conflicts or Consents
.
(a)
The execution and
delivery of this Agreement by Stockholder do not, and the performance of this Agreement by Stockholder will not: (i) conflict with or violate any Legal Requirements applicable to Stockholder; or (ii) result in or constitute a breach of, or
give to any Person any right of termination, amendment, acceleration or cancellation of, or result in the creation of any encumbrance or restriction on any of the Subject Shares pursuant to any Contract to which Stockholder is a party.
(b)
The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by
Stockholder will not, require any consent or approval of any Person.
B-1-3
6.4 Title to Securities
. As of the date of this Agreement, Stockholder holds of
record (free and clear of any encumbrances or restrictions) the Subject Shares.
SECTION 7. A
DDITIONAL
C
OVENANTS
OF
S
TOCKHOLDER
7.1 Stockholder Information
. Stockholder
hereby agrees to permit Parent and Acquisition Sub to publish and disclose in the Schedule TO, the Form S-4 Registration Statement or other publicly-filed documents relating to the Offer and, if adoption of the Merger Agreement by the stockholders
of the Company is required under the terms of the DGCL or other applicable law, the Proxy Statement, Stockholders identity and ownership of shares of Company Common Stock and the nature of Stockholders obligations under this Agreement.
7.2 Further Assurances
. From time to time and without additional consideration, Stockholder shall execute and deliver,
or cause to be executed and delivered, such additional transfers, assignments, endorsements, proxies, consents and other instruments, and shall take such further actions, as Parent may reasonably request for the purpose of carrying out and
fulfilling the obligations of Stockholder under this Agreement.
SECTION 8. M
ISCELLANEOUS
8.1 Notices
. Any notice or other communication required or permitted to be delivered to either party under this Agreement shall be in
writing and shall be deemed properly delivered, given and received when received at the address or facsimile telephone number set forth beneath the name of such party below (or at such other address or facsimile telephone number as such party shall
have specified in a written notice given to the other party):
if to Stockholder:
at the address set forth on the signature page hereof
with a copy (which shall not constitute notice) to:
Gibson Dunn &
Crutcher LLP
3161 Michelson Drive, 12th Floor
Irvine, California 92612
Attention: John M. Williams
Facsimile: (949) 451-4220
if to Parent:
Peets Coffee & Tea, Inc.
1400 Park Avenue
Emeryville, CA 94608
Attention: Chief Financial Officer
Facsimile: 510-594-2180
8.2 Severability
. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the
parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in
the prior sentence, the parties hereto shall replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid
or unenforceable term.
B-1-4
8.3 Entire Agreement
. This Agreement and any other documents delivered by the parties
in connection herewith constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon either party unless made in writing and signed by both parties.
8.4 Assignment; Binding Effect; Etc
. Except as provided herein, neither this Agreement nor any of the interests or obligations hereunder may be assigned or delegated by either party, and any attempted or purported assignment or
delegation of any of such interests or obligations shall be void. Without limiting any of the restrictions set forth in Section 2 or elsewhere in this Agreement, this Agreement shall be binding upon any Person to whom any Subject Shares are
transferred. Nothing in this Agreement, express or implied, is intended to or shall confer any right, benefit or remedy of any nature whatsoever upon any Person other than the parties hereto, provided that Acquisition Sub shall be a third party
beneficiary with respect to all of Stockholders obligations under this Agreement.
8.5 Specific Performance
.
The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Stockholder agrees that, in the event of any
breach or threatened breach by Stockholder of any covenant or obligation contained in this Agreement, Parent shall be entitled (in addition to any other remedy that may be available to it, including monetary damages) to seek and obtain (a) a
decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b) an injunction restraining such breach or threatened breach.
8.6 Applicable Law; Jurisdiction
. This Agreement shall be governed by, and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. In any action between any of the parties arising out of or relating to this Agreement: (a) each of the parties irrevocably
and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware; and (b) each of the parties irrevocably waives the right to trial by jury.
8.7 Counterparts
.
This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same instrument.
8.8 Captions
. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
8.9 Expenses
. All costs and expenses incurred in connection with this Agreement shall be paid by or on behalf of the party incurring
such cost or expense, whether or not the transactions contemplated by this Agreement are consummated.
8.10 Waiver
. A
party shall not be deemed to have waived any claim available to such party arising out of this Agreement, or any power, right, privilege or remedy of such party under this Agreement, unless the waiver of such claim, power, right, privilege or remedy
is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.
8.11 Not Binding in Other Capacities
. Notwithstanding anything in this Agreement to the contrary, the parties acknowledge and agree
that Stockholder is entering into this Agreement solely in his capacity as a stockholder of the Company and nothing in this Agreement shall be construed to prohibit or restrict Stockholder from taking any action in his capacity as an officer or
member of the Board of Directors of the Company or, subject to the limitations (and consequences of such actions) set forth in the Merger Agreement, from taking any action with respect to any Acquisition Proposal as an officer or member
of the Board of Directors of the Company to the extent permitted by the Merger Agreement.
B-1-5
8.12 Termination
. This Agreement shall automatically terminate and become void and of
no further force or effect on the Termination Date.
[Remainder of page intentionally left blank.]
B-1-6
I
N
W
ITNESS
W
HEREOF
,
Parent and
Stockholder have caused this Agreement to be executed as of the date first written above.
|
|
|
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
|
|
/s/ Patrick ODea
|
By
|
President and CEO
|
Title
|
|
S
TOCKHOLDER
|
|
/s/ Paul C. Heeschen
|
Signature
|
Paul C. Heeschen
|
Printed Name
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facsimile:
|
|
|
Signature Page to Stockholder Agreement
B-1-7
Annex B-2
STOCKHOLDER AGREEMENT
T
HIS
S
TOCKHOLDER
A
GREEMENT
(
this
Agreement
) is entered into as of November 2, 2009, by and between
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
, a
Washington corporation (
Parent
), and the stockholder identified on the signature page hereto (
Stockholder
).
R
ECITALS
A.
Stockholder is a holder of record and
the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of certain shares of common stock of Diedrich Coffee, Inc., a Delaware corporation (the
Company
).
B.
Parent, Marty Acquisition Sub, Inc., a Delaware corporation (
Acquisition Sub
), and the Company are entering
into an Agreement and Plan of Merger of even date herewith (the
Merger Agreement
) which provides (on the terms and subject to the conditions set forth therein) for Parent to acquire the Company by (i) causing Acquisition Sub
to make an exchange offer as contemplated by the Merger Agreement (the
Offer
) for all of the issued and outstanding common stock of the Company for the Per Share Consideration (as defined in the Merger Agreement) and (ii) as
promptly as practicable after the closing of the Offer, causing Acquisition Sub to merge with and into the Company (the
Merger
).
C.
In the Merger, each outstanding share of common stock of the Company will be converted into the right to receive the same consideration payable pursuant to the Offer.
D.
Stockholder is entering into this Agreement in order to induce Parent to enter into the Merger Agreement.
A
GREEMENT
The parties to this Agreement, intending to be legally bound, agree as follows:
SECTION 1.
C
ERTAIN
D
EFINITIONS
For purposes of this Agreement:
(a)
Company Common Stock
shall mean the common stock, par value $0.01 per share, of the Company.
(b)
Stockholder shall be deemed to
Own
or to have acquired
Ownership
of a security if Stockholder: (i) is the record owner of such security; or (ii) is the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of such security.
(c)
Subject Securities
shall mean: (i) all equity securities of the Company
(including all shares of Company Common Stock and all options, warrants and other rights to acquire shares of Company Common Stock) Owned by Stockholder as of the date of this Agreement; and (ii) all additional equity securities of the Company
(including all additional shares of Company Common Stock and all additional options, warrants and other rights to acquire shares of Company Common Stock) of which Stockholder acquires Ownership during the period from the date of this Agreement
through the Termination Date.
(d)
Subject Shares
shall mean: (i) all shares of
Company Common Stock Owned by Stockholder as of the date of this Agreement; and (ii) all additional shares of Company Common Stock of which Stockholder acquires Ownership during the period from the date of this Agreement through the Termination
Date.
B-2-1
(e)
Termination Date
shall mean the earlier of
(i) the date upon which the Merger Agreement is terminated in accordance with its terms and (ii) the Effective Time of the Merger.
(f)
A Person shall be deemed to have a effected a
Transfer
of a security if such Person directly or indirectly: (i) sells, pledges, encumbers, grants an option with respect
to, transfers or disposes of such security or any interest in such security to any Person other than Parent or Acquisition Sub; or (ii) enters into an agreement or commitment contemplating the possible sale of, pledge of, encumbrance of, grant
of an option with respect to, transfer of or disposition of such security or any interest therein to any Person other than Parent or Acquisition Sub.
(g)
Capitalized terms used but not otherwise defined in this Agreement have the meanings assigned to such terms in the Merger Agreement.
SECTION 2. T
RANSFER
OF
S
UBJECT
S
ECURITIES
AND
V
OTING
R
IGHTS
2.1 Restriction on Transfer of Subject Securities
.
Subject to Section 2.3, during
the period from the date of this Agreement through the Termination Date, Stockholder shall not cause or permit any Transfer of any of the Subject Securities.
2.2 Restriction on Transfer of Voting or Disposition Rights
. During the period from the date of this Agreement through the Termination Date, Stockholder shall ensure that: (a) none of the
Subject Securities is deposited into a voting trust; (b) no proxy is granted, and no voting agreement or similar agreement is entered into, with respect to any of the Subject Securities; and (c) no Person other than Stockholder (or any
other Person that is the record or beneficial owner of any of the Subject Securities as of the date of this Agreement, but only with respect to such Subject Securities) is granted dispositive power with respect to any of the Subject Securities.
2.3 Permitted Transfers
.
Section 2.1 shall not prohibit a Transfer of Subject Securities by Stockholder
(a) if Stockholder is an individual (i) to any member of Stockholders immediate family, or to a trust for the benefit of Stockholder or any member of Stockholders immediate family, or (ii) upon the death of Stockholder, or
(b) if Stockholder is a corporation, partnership or limited liability company, to one or more stockholders, partners or members of Stockholder or to an affiliated entity under common control with Stockholder;
provided, however,
that a
Transfer referred to in this sentence shall be permitted only if, as a precondition to such Transfer, the transferee agrees in a writing, reasonably satisfactory in form and substance to Parent, to be bound by all of the terms of this Agreement.
SECTION 3. A
GREEMENT
TO
T
ENDER
3.1 Tender of Subject Shares
.
Prior to the Termination Date, Stockholder agrees to promptly (and, in any event, not later than
five business days after receipt by Stockholder of all documents and instruments enabling Stockholder to do so) validly tender or cause to be validly tendered in the Offer, pursuant to and in accordance with the terms of the Offer and Rule 14d-2
under the Securities Exchange Act of 1934, all of the Subject Shares Owned by Stockholder as of the date of this Agreement (free and clear of any encumbrances or restrictions), and if Stockholder acquires Ownership of any additional Subject Shares
after the date of this Agreement, to promptly (and, in any event, not later than the later of (x) two business days after Stockholder acquires Ownership of such additional Subject Shares and (y) receipt by Stockholder of all documents and
instruments enabling Stockholder to do so) validly tender or cause to be validly tendered in the Offer, pursuant to and in accordance with the terms of the Offer, all of such additional Subject Shares (free and clear of any encumbrances or
restrictions).
3.2 No Withdrawal
.
Prior to the Termination Date, Stockholder agrees not to withdraw or cause to
be withdrawn any of the Subject Shares from the Offer unless and until the Offer expires without Acquisition Sub having accepted for exchange shares of Company Common Stock validly tendered in the Offer.
3.3 Conditional Obligation
.
Stockholder acknowledges and agrees that Acquisition Subs obligation to accept for exchange
shares of Company Common Stock in the Offer, including any Subject Shares tendered by Stockholder, is subject to the terms and conditions of the Merger Agreement and the Offer.
B-2-2
SECTION 4. V
OTING
OF
S
HARES
Stockholder hereby agrees that, prior to the Termination Date, at any meeting of the stockholders of the Company, however called, and in any
action by written consent of stockholders of the Company, unless otherwise directed in writing by Parent, Stockholder shall cause any Subject Shares not acquired pursuant to the Offer to be voted:
(a)
in favor of the Merger and the adoption of the Merger Agreement and the terms thereof, in favor of each of the
other actions contemplated by the Merger Agreement and in favor of any action in furtherance of any of the foregoing;
(b)
against any action or agreement that would result in a breach of any representation, warranty, covenant or obligation of the Company in the Merger Agreement; and
(c)
against any action that is intended, or that could reasonably be expected, to impede, interfere with, delay,
postpone, discourage or adversely affect the Offer or the Merger or any of the other Contemplated Transactions or this Agreement.
Prior to
the Termination Date, Stockholder shall not enter into any agreement or understanding with any Person to vote or give instructions in any manner inconsistent with clause (a), clause (b) or clause (c) of the
preceding sentence. For the avoidance of doubt, nothing in this Agreement shall in any way limit Stockholders right to vote the Subject Shares in Stockholders sole discretion on any matters other than the foregoing matters that may be
submitted to a stockholder vote, consent or other approval.
Notwithstanding the foregoing or any contrary provision hereof,
no covenant or agreement herein of Stockholder, and no action taken or omitted to be taken by Stockholder pursuant to the terms of this Agreement or the Merger Agreement, is intended, nor shall it be deemed or construed, to constitute the consent or
approval of Stockholder (whether in Stockholders capacity as a stockholder, director or officer of the Company or otherwise) for any purpose under any employment, severance, change-in-control or similar agreement or arrangement to which
Stockholder may be party.
SECTION 5. W
AIVER
OF
A
PPRAISAL
R
IGHTS
Subject to the acceptance of the Subject Shares by Acquisition Sub in the Offer pursuant to the Merger Agreement,
Stockholder hereby irrevocably and unconditionally waives, and agrees to cause to be waived and to prevent the exercise of, any rights of appraisal or dissenters rights relating to the Merger with respect to any shares of Company Common Stock
Owned by Stockholder.
SECTION 6. R
EPRESENTATIONS
AND
W
ARRANTIES
OF
S
TOCKHOLDER
Stockholder hereby represents and warrants to Parent as follows:
6.1 Authorization, etc
.
Stockholder has the absolute and unrestricted right, power, authority and capacity to execute and
deliver this Agreement and to perform Stockholders obligations hereunder. This Agreement has been duly executed and delivered by Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder
in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
6.2 No Conflicts or Consents
.
(a)
The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by
Stockholder will not: (i) conflict with or violate any Legal Requirements applicable to Stockholder; or (ii) result in or constitute a breach of, or give to any Person any right of termination, amendment, acceleration or cancellation of,
or result in the creation of any encumbrance or restriction on any of the Subject Securities pursuant to any Contract to which Stockholder is a party.
B-2-3
(b)
The execution and delivery of this Agreement by Stockholder do
not, and the performance of this Agreement by Stockholder will not, require any consent or approval of any Person.
6.3
Title to Securities
. As of the date of this Agreement: (a) Stockholder holds of record (free and clear of any encumbrances or restrictions) the number of outstanding shares of Company Common Stock set forth under the heading Shares
Held of Record on the signature page hereof; (b) Stockholder holds (free and clear of any encumbrances or restrictions) the options, warrants and other rights to acquire shares of Company Common Stock set forth under the heading
Options and Other Rights on the signature page hereof; (c) Stockholder Owns the additional equity securities of the Company set forth under the heading Additional Securities Beneficially Owned on the signature page
hereof; and (d) Stockholder does not directly or indirectly Own any shares of capital stock or other equity securities of the Company, or any option, warrant or other right to acquire (by purchase, conversion or otherwise) any shares of capital
stock or other equity securities of the Company, other than the shares and options, warrants and other rights set forth on the signature page hereof.
SECTION 7. A
DDITIONAL
C
OVENANTS
OF
S
TOCKHOLDER
7.1 Stockholder Information
. Stockholder hereby agrees to permit Parent and Acquisition Sub to publish and disclose in the Schedule TO, the Form S-4 Registration Statement or other publicly-filed documents relating to the Offer and,
if adoption of the Merger Agreement by the stockholders of the Company is required under the terms of the DGCL or other applicable law, the Proxy Statement, Stockholders identity and ownership of shares of Company Common Stock and the nature
of Stockholders obligations under this Agreement.
7.2 Further Assurances
. From time to time and without
additional consideration, Stockholder shall execute and deliver, or cause to be executed and delivered, such additional transfers, assignments, endorsements, proxies, consents and other instruments, and shall take such further actions, as Parent may
reasonably request for the purpose of carrying out and fulfilling the obligations of Stockholder under this Agreement.
SECTION 8.
M
ISCELLANEOUS
8.1 Notices
. Any notice or other communication required or permitted to be delivered
to either party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when received at the address or facsimile telephone number set forth beneath the name of such party below (or at such other address
or facsimile telephone number as such party shall have specified in a written notice given to the other party):
if to
Stockholder:
at the address set forth on the signature page hereof
with a copy (which shall not constitute notice) to:
Gibson Dunn & Crutcher LLP
3161 Michelson Drive, 12th Floor
Irvine, California 92612
Attention: John M. Williams
Facsimile: (949) 451-4220
if to Parent:
Peets Coffee & Tea, Inc.
1400 Park Avenue
Emeryville, CA 94608
Attention: Chief Financial Officer
Facsimile: 510-594-2180
B-2-4
8.2 Severability
. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any
other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit
the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto shall replace such invalid or unenforceable term or
provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.
8.3 Entire Agreement
. This Agreement and any other documents delivered by the parties in connection herewith constitute the entire
agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with respect thereto. No addition to or modification of any provision of this Agreement
shall be binding upon either party unless made in writing and signed by both parties.
8.4 Assignment; Binding Effect;
Etc
. Except as provided herein, neither this Agreement nor any of the interests or obligations hereunder may be assigned or delegated by either party, and any attempted or purported assignment or delegation of any of such interests or
obligations shall be void. Without limiting any of the restrictions set forth in Section 2 or elsewhere in this Agreement, this Agreement shall be binding upon any Person to whom any Subject Securities are transferred. Nothing in this
Agreement, express or implied, is intended to or shall confer any right, benefit or remedy of any nature whatsoever upon any Person other than the parties hereto, provided that Acquisition Sub shall be a third party beneficiary with respect to all
of Stockholders obligations under this Agreement.
8.5 Specific Performance
.
The parties agree that
irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Stockholder agrees that, in the event of any breach or threatened breach by
Stockholder of any covenant or obligation contained in this Agreement, Parent shall be entitled (in addition to any other remedy that may be available to it, including monetary damages) to seek and obtain (a) a decree or order of specific
performance to enforce the observance and performance of such covenant or obligation, and (b) an injunction restraining such breach or threatened breach.
8.6 Applicable Law; Jurisdiction
. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof. In any action between any of the parties arising out of or relating to this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive
jurisdiction and venue of the Court of Chancery of the State of Delaware; and (b) each of the parties irrevocably waives the right to trial by jury.
8.7 Counterparts.
This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument.
8.8 Captions
. The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of
this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
8.9
Expenses
. All costs and expenses incurred in connection with this Agreement shall be paid by or on behalf of the party incurring such cost or expense, whether or not the transactions contemplated by this Agreement are consummated.
B-2-5
8.10 Waiver
. A party shall not be deemed to have waived any claim available to such
party arising out of this Agreement, or any power, right, privilege or remedy of such party under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.
8.11 Not Binding in Other Capacities
. Notwithstanding anything in this Agreement to the contrary, the parties acknowledge and agree that Stockholder is entering into this Agreement solely in his
capacity as a stockholder of the Company and nothing in this Agreement shall be construed to prohibit or restrict Stockholder from taking any action in his capacity as an officer or member of the Board of Directors of the Company or,
subject to the limitations (and consequences of such actions) set forth in the Merger Agreement, from taking any action with respect to any Acquisition Proposal as an officer or member of the Board of Directors of the Company to the extent
permitted by the Merger Agreement.
8.12 Termination
. This Agreement shall automatically terminate and become void and
of no further force or effect on the Termination Date.
[Remainder of page intentionally left blank.]
B-2-6
I
N
W
ITNESS
W
HEREOF
,
Parent and
Stockholder have caused this Agreement to be executed as of the date first written above.
|
|
|
P
EET
S
C
OFFEE
& T
EA
, I
NC
.
|
|
|
|
|
|
By
|
|
|
|
|
|
Title
|
|
S
TOCKHOLDER
|
|
|
|
|
|
Signature
|
|
|
|
|
|
Printed Name
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facsimile:
|
|
|
|
|
|
|
|
Shares Held of Record
|
|
Options and Other Rights
|
|
Additional Securities
Beneficially Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-2-7
Annex C
§ 262. DELAWARE GENERAL CORPORATION LAW
Appraisal
rights
.
(a)
Any stockholder of a corporation of this State who holds shares of stock on the date of
the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of
this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the
stockholders shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word stockholder means a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words stock and share mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words
depository receipt mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b)
Appraisal rights shall be available for the shares of any class or series of stock of a constituent
corporation in a merger or consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title), § 252, § 254, § 257, § 258, § 263 or § 264 of this title:
(1)
Provided, however, that no appraisal rights under this section shall be available for the shares
of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders
of the surviving corporation as provided in subsection (f) of § 251 of this title.
(2)
Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an
agreement of merger or consolidation pursuant to §§ 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a
. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b
. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c
. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or
d
. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph.
C-1
(3)
In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(c)
Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable.
(d)
Appraisal rights shall be perfected as follows:
(1)
If a proposed merger or consolidation for which appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholders shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2)
If the merger or consolidation was approved pursuant to § 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holders shares. Such demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holders shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence
C-2
of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e
) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the
effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of
the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholders
written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later.
(f)
Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving
or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation
and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g)
At the hearing on such petition, the Court shall determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h)
After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
C-3
appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholders certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder
is not entitled to appraisal rights under this section.
(i)
The Court shall direct the payment of the
fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder,
in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Courts decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j)
The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order
all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys fees and the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k)
From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholders demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just.
(l)
The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the
status of authorized and unissued shares of the surviving or resulting corporation. (8 Del. C. 1953, § 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, § 24; 57 Del. Laws, c. 148,§§ 27-29; 59 Del. Laws, c. 106, § 12; 60 Del.
Laws, c. 371, §§ 3-12; 63 Del. Laws, c. 25, § 14; 63 Del. Laws, c. 152, §§ 1, 2; 64 Del. Laws, c. 112, §§ 46-54; 66 Del. Laws, c. 136, §§ 30-32; 66 Del. Laws, c. 352, § 9; 67 Del. Laws, c. 376,
§§ 19, 20; 68 Del. Laws, c. 337, §§ 3, 4; 69 Del. Laws, c. 61, § 10; 69 Del. Laws, c. 262, §§ 1-9; 70 Del. Laws, c. 79, § 16; 70 Del. Laws, c. 186, §1; 70 Del. Laws, c. 299, §§ 2, 3; 70 Del.
Laws, c. 349, § 22; 71 Del. Laws, c. 120, § 15; 71 Del. Laws, c. 339, §§ 49-52; 73 Del. Laws, c. 82, § 21.)
C-4
Complete and correct copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for shares of Diedrich Coffee, Inc. common stock and any other required documents should be sent or delivered by each stockholder of Diedrich Coffee, Inc. or his broker, dealer,
commercial bank, trust company or other nominee to the Depositary, at the address set forth below:
The Depositary for the
Offer is:
Continental Stock Transfer & Trust Company
By mail or hand delivery:
Continental Stock
Transfer & Trust Company
Attn: Reorganization Dept.
17 Battery Place, 8
th
Floor
New York, NY 10004
By facsimile transmission:
(for eligible institutions only)
(212) 616-7610
Confirm facsimile transmission:
(212) 509-4000 (ext. 536)
Questions and requests for assistance or additional
copies of this prospectus/offer to purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification on Substitute Form W-9 may be directed to the Information Agent at the
locations and telephone numbers set forth below. Stockholders may also contact their broker, dealer, commercial bank or trust company or other nominee for assistance concerning the offer.
The Information Agent for the Offer is:
Laurel Hill
Advisory Group, LLC
100 Wall Street, 22nd Floor
New York, NY 10005
Banks and Brokers Call Collect: (917) 338-3181
All Others Call Toll Free: (888) 742-1305
Until the expiration of the offer or any subsequent offering period, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a
prospectus.
Schedule I
DIRECTORS AND EXECUTIVE OFFICERS OF
PEETS COFFEE & TEA,
INC. AND THE PURCHASER
The names of the directors and executive officers of Peets Coffee & Tea, Inc.
(Peets) and Marty Acquisition Sub, Inc. and their present principal occupations or employment and material employment history for the past five years are set forth below. Unless otherwise indicated, each director and executive
officer has been so employed or held such position for a period in excess of five years. The business address of each of the directors and executive officers of Peets is 1400 Park Avenue, Emeryville, CA 94608. The business address of each of
the directors and executive officers of Marty Acquisition Sub, Inc. is c/o Peets Coffee & Tea, Inc., 1400 Park Avenue, Emeryville, CA 94608.
Peets Coffee & Tea, Inc.
|
|
|
|
|
Name
|
|
Country of
Citizenship
|
|
Position
|
Gerald Baldwin
|
|
United States
|
|
Director
|
Hilary Billings
|
|
United States
|
|
Director
|
Elizabeth Sartain
|
|
United States
|
|
Director
|
David Deno
|
|
United States
|
|
Director
|
Michael Linton
|
|
United States
|
|
Director
|
Jean-Michel Valette
|
|
United States
|
|
Chairman of the Board and Director
|
Patrick J. ODea
|
|
United States
|
|
Chief Executive Officer, President and Director
|
Ted W. Hall
|
|
United States
|
|
Director
|
Thomas P. Cawley
|
|
United States
|
|
Secretary, Treasurer and Chief Financial Officer
|
P. Christine Lansing
|
|
United States
|
|
Vice President, General Manager Consumer Business
|
Kay L. Bogeajis
|
|
United States
|
|
Vice President, Retail Operations
|
Gerald Baldwin
, 67, has served as a director of Peets since 1971 and
served as Chairman of the Board from 1994 through January 2001. From 1971 until 1994, Mr. Baldwin was President and Chief Executive Officer of Peets. Since 2000, he has also served as a director of TechnoServe, Inc., a non-profit
organization operating in Africa and Latin America. Mr. Baldwin served as a director of Association Scientifique Internationale du Café from 1999 through March 2005 and its President from 2001 to December 2004.
Hilary Billings
, 46, has served as a director of Peets since January 2002. Since 2004, Ms. Billings has been an
independent brand strategy consultant. From May 1999 to March 2004, Ms. Billings was Chairman of the Board and Chief Marketing Officer of RedEnvelope, a multi-channel gift company.
Elizabeth Sartain
, 55, has served as director of Peets since October 2007. Ms. Sartain currently serves as an independent
Human Resource Advisor and Consultant. She previously served as an executive vice president and chief people Yahoo at Yahoo! Inc. from 2001 to 2008. Before joining Yahoo!, Ms. Sartain held executive and officer positions at Southwest Airlines,
where she led all human resources functions. Ms. Sartain is the co-author of three widely-read books on successful employment strategies and contributes regularly to industry and business publications on human resource management issues.
David Deno
, 52, joined the Board of Directors in August 2006. Mr. Deno is currently a Managing Director with
Obelysk Capital in Toronto, a position he assumed in May 2009. Mr. Deno was not employed in March and April of 2009. From January 2008 to February 2009, Mr. Deno was the President and then CEO of Quiznos LLC. From August 2006 to December
2007, he was a Managing Director with the private equity firm CCMP Capital Advisors, LLC. Prior to this, he had a 15-year career with YUM! Brands, Inc. where he served as Chief Operating Officer from October 2004 to February 2006 and as Chief
Financial Officer from November 1999 to October 2004. Mr. Deno was not employed between March 2006 and July 2006. Mr. Deno currently serves as a director of NXT Nutritional Holdings, Inc.
I-1
Michael Linton
, 52, joined the Board of Directors in March 2005. Mr. Linton has
been a consultant, advisor and columnist for Forbes.com since March 2009. Mr. Linton held executive positions at eBay from December 2006 to March 2009, including Chief Marketing Officer and Senior Vice President for eBay Motors, eBay Canada,
Half.com, eBay Stores and ProStores. Prior to this, Mr. Linton was Executive Vice President and Chief Marketing Officer for Best Buy Co., Inc., a specialty retailer of consumer-electronics and related products and services, from January 1999
through August 2006. Mr. Linton was not employed between September 2006 and November 2006.
Jean-Michel Valette
,
49, has served as Chairman of the Board of Directors since January 2004 and a director of Peets since July 2001. Mr. Valette has been an independent advisor to branded consumer companies since May 2000. Mr. Valette also served as
Chairman of The Robert Mondavi Winery, from April 2005 to October 2006 and as its President and Managing Director from October 2004 to April 2005. From August 1998 to May 2000, Mr. Valette was President and Chief Executive Officer of Franciscan
Estates, a premium wine company. Mr. Valette currently serves as a director of Select Comfort Corporation and the Boston Beer Company.
Patrick J. ODea
, 48, has served as Chief Executive Officer, President and as a director of Peets since May 2002. From April 1997 to March 2001, he was Chief Executive Officer of
Archway/Mothers Cookies and Mothers Cake and Cookie Company. From 1995 to 1997, Mr. ODea was the Vice President and General Manager of the Specialty Cheese Division of Stella Foods. From 1984 to 1995, he was with
Procter & Gamble, where he marketed several of the companys snack and beverage brands.
Ted W. Hall
, 61,
joined the Board of Directors in October 2008. Mr. Hall has been General Partner of Long Meadow Ranch and President of the associated Long Meadow Ranch Winery in Napa Valley since 1994. He has been the Managing Director of Mayacamas Associates,
his own consulting firm, since 2000. From 2003 to 2005, Mr. Hall was the Chairman of the Board of The Robert Mondavi Corporation. From 1972 to 2000, Mr. Hall served in a variety of senior leadership roles at McKinsey & Company,
including as an elected member of the McKinsey shareholder committee, which is McKinseys board of directors. Mr. Hall also serves as a director of Dolby Laboratories, Inc. and Williams-Sonoma, Inc.
Thomas P. Cawley
has served as Chief Financial Officer since July 2003. From August 2000 to June 2003, he was at Gap, Inc. serving as
Chief Financial Officer, Gap Brand. From 1986 to August 2000, Mr. Cawley was at PepsiCo/Yum Brands (formerly Tricon Global Restaurants), holding various positions such as Director of Finance, Vice PresidentController, and Chief Financial
Officer of Pizza Hut. Previous to 1986, Mr. Cawley was with The Quaker Oats Company and General Foods.
P. Christine
Lansing
joined Peets as Vice President, Chief Marketing Officer in October 2005. She assumed additional responsibility for the management of the grocery channel in October 2007 and in November 2008 became the Vice President, General
Manager Consumer Business (grocery and home delivery), leading the strategic planning and implementation of Peets grocery expansion and innovation efforts. From May 2002 to October 2005, Ms. Lansing served as Vice President of Marketing,
Flagship Brands for The Hershey Company. From August 1989 to April 2002, she held a breadth of marketing positions with Procter & Gamble in the United States and Western Europe.
Kay L. Bogeajis
has served as Vice President, Retail Operations since she joined Peets in October 2007. From January
2003 to October 2007, Ms. Bogeajis served as Vice President, Western Operations for Taco Bell Corporation, a Yum Brand company, where she was responsible for more than 1,400 stores and approximately $1.4 billion in system-wide sales. From
October 2001 to January 2003, she was Vice President Systemwide Operations for Taco Bell. Previously, she held prominent retail operations and sales positions with Taco Bell, Frito-Lay, Inc., a PepsiCo company, and Burger King Corporation.
I-2
Marty Acquisition Sub, Inc.
|
|
|
|
|
Name
|
|
Country of
Citizenship
|
|
Position
|
Patrick J. ODea
|
|
United States
|
|
Chief Executive Officer, President and Director
|
Thomas P. Cawley
|
|
United States
|
|
Treasurer and Chief Financial Officer
|
Patrick J. ODea
currently serves as Chief Executive Officer, President
and as a director of Peets.
Thomas P. Cawley
currently serves as Chief Financial Officer of Peets.
I-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20.
|
Indemnification of Directors and Officers.
|
Sections 23B.8.500 through 23B.8.600 of the Washington Business Corporation Act (WBCA) authorize a court to award, or a corporations board of directors to grant, indemnification to
directors and officers on terms sufficiently broad to permit indemnification under certain circumstances for liabilities arising under the Securities Act of 1933, as amended (the Securities Act). The directors and officers of the
corporation also may be indemnified against liability they may incur for serving in that capacity pursuant to a liability insurance policy maintained by the registrant for this purpose. Section 23B.08.320 of the WBCA authorizes a corporation to
limit a directors liability to the corporation or its shareholders for monetary damages for acts or omissions as a director, except in certain circumstances involving intentional misconduct, knowing violations of law or illegal corporate loans
or distributions, or any transaction from which the director personally receives a benefit in money, property or services to which the director is not legally entitled. Article VI of Peets articles of incorporation provides for indemnification
of its directors, except for (i) acts or omissions that involve intentional misconduct or a knowing violation of law by the director, (ii) conduct violating WBCA 23B.08.310, or (iii) any transaction from which the director will
personally receive a benefit in money, property or services to which the director is not legally entitled. Peets articles of incorporation further provide that if the WBCA is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of Peets directors shall be deemed eliminated or limited to the fullest extent permitted by the WBCA, as so amended. Article XI of Peets bylaws provide for indemnification
of its directors and executive officers, under specified circumstances, except for (i) in connection with a proceeding by or in the right of Peets in which a director or executive officer is adjudged liable to Peets, or (ii) in
connection with any other proceeding charging improper personal benefit to the director or executive officer in which the director or executive officer is adjudged liable on the basis on the basis that they received an improper personal benefit.
Peets has also entered into indemnity agreements with certain officers and directors, which, among other things,
provide for indemnification of Peets directors and executive officers for expenses, judgments, fines and settlement amounts incurred by any such person in any action or proceeding arising out of such persons services as a director or
executive officer or at Peets request to the full extent permitted by Washington law. In addition, Peets maintains directors and officers liability insurance for the benefit of its officers and directors.
The merger agreement (Exhibits 2.1 and 2.2 hereto) provides that, if the offer is completed, all rights to indemnification (including
advancement of expenses and payment of litigation expenses) of current or former directors and officers of Diedrich arising from actions taken before the completion of the merger, under Delaware law, in Diedrichs certificate of incorporation
and bylaws and in certain agreements between Diedrich and its directors and officers will be assumed by the registrant, continue in full force and effect for six years from the completion of the merger, and that Peets will cause the registrant
to comply with its obligations thereunder.
The above discussion of the Washington law and of Peets articles of
incorporation, bylaws, and indemnity agreements and the merger agreement is not intended to be exhaustive and is qualified in its entirety by such statutes, articles of incorporation, bylaws and indemnity agreements and the merger agreement.
II-1
Item 21.
|
Exhibits and Financial Statement Schedules
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of November 2, 2009, among Peets Coffee & Tea, Inc., Marty Acquisition Sub, Inc. and Diedrich Coffee, Inc. (included as Annex A-1 to
prospectus/offer to purchase).
|
|
|
2.2
|
|
Amendment No. 1 to Agreement and Plan of Merger, dated as of November 17, 2009, by and among Peets Coffee & Tea, Inc., Marty Acquisition Sub, Inc. and Diedrich Coffee,
Inc. (included as Annex A-2 to prospectus/offer to purchase).
|
|
|
2.3
|
|
Stockholder Agreement dated as of November 2, 2009, between Peets Coffee & Tea, Inc. and Paul C. Heeschen (included as Annex B-1 to prospectus/offer to
purchase).
|
|
|
2.4
|
|
Form of Stockholder Agreement dated as of November 2, 2009, between Peets Coffee & Tea, Inc. and certain directors and executive officers of Diedrich Coffee, Inc.
(included as Annex B-2 to prospectus/offer to purchase).
|
|
|
3.1
|
|
Amended and Restated Articles of Incorporation of Peets Coffee & Tea, Inc. (incorporated by reference to Exhibit 3.6 from Peets Registration Statement on Form S-1/A
(File No. 333-47957) filed on December 1, 2000, as subsequently amended).
|
|
|
3.2
|
|
Amended and Restated Bylaws of Peets Coffee & Tea, Inc. (incorporated by reference to Exhibit 3.8 from Peets Information Statement on Form S-1/A (File
No. 333-47957) filed on December 1, 2000, as subsequently amended).
|
|
|
4.1
|
|
Form of Registrants Common Stock certificate (incorporated by reference to Exhibit 4.1 from Peets Information Statement on Form S-1/A (File No. 333-47957) filed on
December 22, 2000, as subsequently amended).
|
|
|
5.1
|
|
Opinion of Cooley Godward Kronish LLP as to the issuance of shares of Peets common stock in connection with the offer and the merger.
|
|
|
10.1
|
|
Commitment Letter with Wells Fargo, N.A. and Wells Fargo Securities LLC, dated as of November 2, 2009 (incorporated by reference to Exhibit 10.1 from Peets Current Report on
Form 8-K as filed on November 4, 2009).
|
|
|
21.1
|
|
Subsidiaries (incorporated by reference to Exhibit 21.1 from Peets Annual Report on Form 10-K for the fiscal year ended December 28, 2008).
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP, independent registered public accounting firm, with respect to Peets Coffee & Tea, Inc.
|
|
|
23.2
|
|
Consent of BDO Seidman LLP, independent registered public accounting firm, with respect to Diedrich Coffee, Inc.
|
|
|
23.3
|
|
Consent of Cooley Godward Kronish LLP (set forth in Exhibit 5.1)
|
|
|
24.1
|
|
Power of Attorney (see signature page to this Form S-4)
|
|
|
99.1
|
|
Form of Letter of Transmittal.
|
|
|
99.2
|
|
Form of Notice of Guaranteed Delivery.
|
|
|
99.3
|
|
Form of Letter from the Information Agent to Brokers, Dealers, Banks, Trust Companies and Other Nominees.
|
|
|
99.4
|
|
Form of Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees.
|
|
|
99.5
|
|
Instructions for Certification of Taxpayer Identification Number on Substitute Form W-9.
|
II-2
The
undersigned registrant hereby undertakes:
(a) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrants annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof;
(b) to respond to
requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request;
(c) to supply by means of post-effective amendment all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the registration statement when it became effective.
(d) that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form;
(e) The registrant undertakes that every prospectus
(i) that is filed pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(f) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
II-3
dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee
table in the effective registration statement.
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(g) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(h) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(i) that, for the purposes of determining liability under the Securities Act of 1933 to any purchaser: each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(j) that, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the
initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or
referred to by the undersigned registrant;
(iii) the portion of any other free writing prospectus relating to
the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders
that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Emeryville, State of California, on November 17, 2009.
|
|
|
PEETS COFFEE & TEA, INC.
|
|
|
By:
|
|
/
S
/ P
ATRICK
J.
OD
EA
|
|
|
Patrick J. ODea
|
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Patrick J. ODea and Thomas
P. Cawley, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with the full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that are to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/
S
/ P
ATRICK
J.
OD
EA
Patrick J. ODea
|
|
President, Chief Executive Officer and Director (Principal Executive Officer)
|
|
November 17, 2009
|
|
|
|
/
S
/ T
HOMAS
P.
C
AWLEY
Thomas P. Cawley
|
|
Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)
|
|
November 17, 2009
|
|
|
|
/
S
/ J
EAN
-M
ICHEL
V
ALETTE
Jean-Michel Valette
|
|
Chairman
|
|
November 17, 2009
|
|
|
|
/
S
/ G
ERALD
B
ALDWIN
Gerald Baldwin
|
|
Director
|
|
November 17, 2009
|
|
|
|
/
S
/ H
ILARY
B
ILLINGS
Hilary Billings
|
|
Director
|
|
November 17, 2009
|
|
|
|
/
S
/ D
AVID
D
ENO
David Deno
|
|
Director
|
|
November 17, 2009
|
II-5
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/
S
/ T
ED
W.
H
ALL
Ted W. Hall
|
|
Director
|
|
November 17, 2009
|
|
|
|
/
S
/ M
ICHAEL
L
INTON
Michael Linton
|
|
Director
|
|
November 17, 2009
|
|
|
|
/
S
/ E
LIZABETH
S
ARTAIN
Elizabeth Sartain
|
|
Director
|
|
November 17, 2009
|
II-6
Peets Coffee & Tea, Inc. (MM) (NASDAQ:PEET)
Graphique Historique de l'Action
De Juin 2024 à Juil 2024
Peets Coffee & Tea, Inc. (MM) (NASDAQ:PEET)
Graphique Historique de l'Action
De Juil 2023 à Juil 2024