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BLACK & COMPANY
August 7, 1997
Mr. Taylor Devine, President & CEO
Mr. Ken Ross, CFO
Coffee People, Inc.
15100 SW Koll Parkway, Suite J
Beaverton, OR 97006
CONFIDENTIAL
Dear Taylor and Ken:
Confirming our recent conversation, Black & Company, Inc. ("Black" or "the
Advisor") would be pleased to act as financial advisor to Coffee People, Inc.
("Coffee People" or the "Company") in connection with the evaluation of Coffee
People's strategic financing alternatives and acquisition strategy. Among the
financing alternatives that will be evaluated are financing in the public,
private and corporate markets and real estate financing vehicles. This financial
advisory assignment will have two stages: an Advisory Stage and an
Implementation Stage.
ADVISORY STAGE
During the Advisory Stage, Black will:
1. Study and evaluate the Company's business prospects as part of their
due diligence;
2. Assist the Company in evaluating its strategic financing
alternatives, including public, private and corporate financings
and real estate financing vehicles;
3. Advise the Company as to a range of values which might be
achieved for such strategic alternatives given today's market
environment, and the likely structure of a Transaction;
4. Review the Company's options for possible future public
offerings, with Black acting as a manager or co-manager;
5. Regarding mergers and acquisitions, we will develop the most
promising ideas from the list of companies we discussed with you
on June 12, 1997, as well as other opportunities that may arise;
and
6. If requested, make presentations to the Board of Directors of
Coffee People.
IMPLEMENTATION STAGE
If, based on the results of the Advisory Stage, the Board of Directors of Coffee
People should decide to pursue a Transaction, Black shall proceed to the
Implementation Stage. In this stage, Black will:
1. Advise Coffee People with regard to the structure and terms of
any Transaction which might be realized in the current market
environment;
2. Assist Coffee People in identifying and evaluating prospective
qualified private investors, corporate investors and prospective
candidates for merger or acquisition (the "List"). The Company
shall inform Black of all corporate opportunities including
prospective acquisitions, mergers and investment proposals for
equity or convertible securities of the Company, and these
opportunities will be placed on the List unless the Company gives
good and substantial reason for their exclusion. Black will not
unreasonably object to such exclusions. In the event of any
disagreement, the Company, in its sole discretion, shall determine
whether such opportunity shall be placed on the List.
3. Work with Coffee People to prepare any necessary material
concerning the Company to be given to prospective investors;
4. Assist in negotiations to obtain price and other material terms
for the proposed financing that are most favorable to the Company;
5. At the request of the Board of Directors of the Company, render
an opinion (an "Opinion") as to the fairness of the Transaction
from a financial point of view for the Company's shareholders.
It is understood that any opinion shall be in such a form as the
Advisors shall determine and that the Opinion will be prepared
solely for the confidential use of the Board of Directors of the
entity to which it is rendered and will not be reproduced,
summarized, described, referred to or given to any other person or
otherwise made public without the Advisor's prior written consent.
If any such Opinion is included in a proxy statement to be mailed
to the Company's stockholders in connection with the Transaction,
the Opinion will be reproduced in such proxy statement in full,
and any description of or reference to the Advisors or summary of
the Opinion in such proxy statement will be in a form acceptable
to the Advisors and their counsel.
6. Advise on such other terms and conditions and any other actions
necessary to consummate the Transaction.
If the Company decides to pursue a public offering in this stage, the
Advisors will:
1. Advise the Company with regard to the structure and terms of a
public offering which might be realized in the current market
environment;
2. Assist the Company in planning public equity offerings; and
3. Manage any public equity offerings, including preparation of
prospectus, filing documents, and roadshow materials, managing the
underwriting syndicate, organizing a roadshow to present the
Company to qualified investors, selling the stock, managing the
books and records concerning the public offering, making a market
in the stock, and providing in-depth research coverage.
If Coffee People decides to pursue a sale of all or part of the Company's stock
or assets, or acquire a third party in this stage, Black will:
1. Advise Coffee People with regard to the structure and terms of
any Transaction which might be realized in the current market
environment;
2. Assist in negotiations to obtain price and other material terms for
the proposed Transaction favorable to the Company;
3. Assist Coffee People in developing the List of parties which may
be interested in acquiring the Company or a portion of its assets;
4. Advise Coffee People on the reasonableness of the terms in any
Letter(s) of Intent for a Transaction and on any other terms which
should be included, and assist in negotiating such a Letter(s) of
Intent that is mutually satisfactory to the Company and the
potential acquirer and/or merger partner or acquisition candidate;
and
5. Work with Coffee People and its corporate counsel to negotiate a
definitive agreement and other related documentation to fairly and
favorably reflect the agreed material terms and, at the request of
the Board of Directors of Coffee People, render an opinion as the
fairness of the Transaction from a financial point of view for its
shareholders.
COMPENSATION
During both the Advisory Stage and the Implementation Stage, Coffee People will
reimburse Black for all reasonable out-of-pocket expenses, not to exceed $500 in
any month without written approval of the Company, including fees of counsel if
approved in writing in advance by the Company. These out-of-pocket expenses will
be payable to Black upon request. There will be no additional fee for services
provided by Black to the Company during the Advisory Stage of this assignment.
Should the Company raise funds by issuing securities to one or more third
parties in one or more private placement(s) or minority equity corporate
partnering Transactions during the term of this Agreement, or with entities
named on the List within six (6) months of the termination of this Agreement,
Black will receive a Transaction Fee equal to six percent (6%) of the first $10
million of Aggregate Consideration to Coffee People plus two percent (2%) of
Aggregate Consideration in excess of $10 million. In addition, the Advisor shall
receive a ten percent (10%) Warrant of the Aggregate Consideration at a price
equal to 120% of the price per share paid to the Company in the private
placement or corporate partner Transaction. The Warrant will be exercisable
beginning one year from the date of issuance and expire in ten (10) years. Such
Warrant will be callable by the Company at 140% of the strike price on terms
similar to the warrant issued in connection with the Company's initial public
offering.
Should Coffee People enter into a Transaction or Transactions approved by the
Board of Directors or not actively opposed by the Board of Directors which
result in more than fifty percent (50%) of the Company's stock or assets being
held by a third party, Black will receive a Transaction Fee equal to three
percent (3%) of the first $10 million of Aggregate Consideration received by the
Company and/or its shareholders, plus two percent (2%) of the next $10 million
of Aggregate Consideration, plus one and one-half percent (1.5%) of the
Aggregate Consideration in excess of $20 million.
Should the Company acquire the stock or assets of a third party, the Advisor
will receive a Transaction Fee of two and one-half percent (2.5%) of the first
$10 million of Aggregate Consideration in such a Transaction or Transactions,
plus two percent (2%) of the next $10 million of Aggregate Consideration, plus
one and one-half percent (1.5%) of the Aggregate Consideration in excess of $20
million.
The Advisor will be entitled to the Transaction Fees referred to above with
respect to any Transaction that occurs during the term of this Agreement, or
within six (6) months following the termination of this Agreement with any third
party identified by the Advisor and named on the List.
If Coffee People completes any public offerings of securities, Black will manage
or co-manage the public offering(s) receiving the usual and customary
underwriting fees, at least equal to those received by any co-manager of the
offering.
If an Opinion is rendered at the request of the Company's Board of Directors,
the Advisors will receive, in addition to the Transaction Fees indicated herein,
an additional fee of $100,000 for Transactions under $10 million, $200,000 for
Transactions in excess of $20 million involving a change of control and $150,000
for Transactions between $10 million and $20 million, which shall be due upon
delivery of such Opinion(s) and payable before or on the date of Closing of the
Transaction(s) described herein or immediately upon the Company's determination
that such closing is unlikely to occur.
Aggregate Consideration is defined as cash and/or securities received by or paid
by Coffee People and/or its shareholders. Consideration will include debt and
other non-operating liabilities assumed by the Company or a third party. If, and
to the extent that the consideration in a Transaction is cash or securities, any
Transaction Fees shall be paid as and when the cash and securities are received
or paid by the Company and/or its shareholders.
INDEMNIFICATION
Coffee People agrees to indemnify Black as set forth in a separate letter
agreement between Black and the Company.
TERM
Unless otherwise extended, the duration of this agreement is two (2) years. This
engagement may be terminated at any time upon thirty (30) days notice by either
the Company or the Advisor. No such termination will affect the Company's
obligation to pay expenses incurred prior to such termination or to indemnify as
herein provided. Black shall be entitled to the Transaction Fee referred to
above in respect to any private placement, corporate partnering Transaction or
Transactions with third party(ies) on the List which occurs within six (6)
months of such termination if the termination notice was made by Coffee People
or within six (6) months of the end of this Agreement.
The team assigned by Black for this assignment will include Bruce Alexander,
President and CEO; Laura Black, Managing Director, Corporate Finance; Fred
Roehm, Financial Analyst and Shawn Willard, Research Analyst. We look forward to
working with you on this assignment. Please confirm that the foregoing is in
accordance with Coffee People's understanding by signing and returning this
letter to me at your earliest convenience.
Best regards, Accepted & Agreed:
BLACK & COMPANY, INC. COFFEE PEOPLE, INC.
by: /s/ Laura Black by: : /s/ Taylor Devine
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Laura Black Taylor Devine
Managing Director President & CEO
Corporate Finance
Date: August 11, 1997 Date: 25 August 1997
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