SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 19, 1998
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Coffee People, Inc.
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(Exact name of registrant as specified in its charter)
Oregon 0-21397 93-1073218
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(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
11480 Commercial Parkway Castroville, California 95012
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(408) 633-4001
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Item 2. Acquisition or Disposition of Assets.
On May 19, 1998, Coffee People, Inc. (the "Company") acquired
100% of the outstanding capital stock of Gloria Jean's Inc. ("Gloria Jean's")
from Second Cup USA Holdings Inc., an Ontario corporation and wholly-owned
subsidiary of The Second Cup Ltd., an Ontario corporation (The Second Cup Ltd.,
together with its subsidiaries, is hereinafter referred to collectively as
"Second Cup"), pursuant to an Agreement and Plan of Merger between the Company
and Second Cup dated as of February 19, 1998 (the "Merger Agreement"). In
accordance with the terms of the Merger Agreement, Gloria Jean's Merger Corp., a
Delaware corporation and wholly-owned subsidiary of the Company ("Merger Sub")
merged into Gloria Jean's, with Gloria Jean's as the surviving corporation (the
"Merger").
At the effective time of the Merger on May 19, 1998, (the
"Effective Time"), the Company issued 7,460,679 shares of common stock, no par
value (the "Common Shares") to Second Cup in exchange for all the outstanding
shares of Gloria Jean's, which shares represent 69.5% of the issued and
outstanding Common Shares of the Company at the closing date, after giving
effect to the issuance of such shares (the "Issuance"). Therefore, immediately
following the Merger, Second Cup owned 69.5% of the issued and outstanding
Common Shares of the Company. Second Cup, headquartered in Ontario, Canada, is
the second largest specialty coffee retail company in North America dedicated to
the sale of specialty coffee and related products through 550 franchised and 52
company-owned stores. The Merger is treated for accounting purposes as a
"reverse merger," in that the historical financial statements of Gloria Jean's
become the historical financial statements of the Company. The terms of the
Merger were determined through arms'-length negotiations between representatives
of the Company and representatives of Second Cup.
The Company's shareholders approved the issuance of Common
Shares to Second Cup at the Company's annual meeting held on May 19, 1998. The
Company and its subsidiary Gloria Jean's together operate 318 retail coffee
stores, of which 246 are franchised stores and 72 are company-owned stores, as
well as a roasting facility at Gloria Jean's headquarters in Castroville,
California.
Immediately following the Merger, Alton McEwen, Chief
Executive Officer of Gloria Jean's, was appointed President and Chief Executive
Officer of the Company. In addition, Mark Archer, Chief Financial Officer of
Gloria Jean's, will serve as Executive Vice President and Chief Financial
Officer of the Company. Taylor Devine and Kenneth Ross, former Chief Executive
Officer and Chief Financial Officer, respectively, of the Company, entered into
employment agreements with the Company, effective at the Effective Time,
providing for base salaries and
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bonuses payable upon successful consummation of the Merger and at specified
intervals following the Merger (contingent upon continued employment with the
Company). Pursuant to such agreements, Mr. Devine will serve as President and
Chief Operating Officer of the Coffee People Oregon division of the Company and
Mr. Ross will serve as Vice President, Finance of the Company.
At the Company's annual meeting, the shareholders also elected
a new Board of Directors which, in accordance with the Merger Agreement,
consists of four nominees of Second Cup and two nominees of the Company. The six
directors are Douglas L. Ayer, a previous director of Coffee People, Inc. and
president and managing partner of International Capital Partners, Inc.; Michael
Bregman, chairman and chief executive officer of The Second Cup Ltd.; Robert M.
Haft, founder and managing partner of Vitamin Superstores; Alton McEwen,
president and chief executive officer of the Company; Gary G. Talboy, a previous
director of Coffee People, Inc. and owner of Specialty Coffee Consultants; and
Kathy A. Welsh, executive vice president and chief financial officer of The
Second Cup Ltd.
Although the Company will maintain a regional office in the
Portland area to oversee operations in Oregon, the Company's headquarters will
be moved to Castroville, California.
In connection with the Merger, the Company entered into a loan
agreement with Second Cup pursuant to which the Company may borrow up to an
aggregate principal amount of $4,000,000 under a revolving credit facility,
bearing interest at 11.5% per annum (the "Credit Facility"). The Credit Facility
is subordinate in right of payment to the Company's existing indebtedness to its
primary bank. The Company is obligated to pay a standby fee equal to 0.25% per
annum of the average daily difference between the total outstanding amount under
the Credit Facility and the borrowing limit. The Credit Facility matures on May
19, 2003, but may be canceled prior to that time if the borrowings have been
paid in full. However, if the amounts drawn down by the Company have not been
repaid in full or the Credit Facility has not been canceled by November 19,
2000, the Company will pay to Second Cup an arrangement fee of $80,000. Amounts
borrowed under the Credit Facility will be used by the Company for working
capital purposes. As of the date of this Current Report, the Company has not
borrowed any funds under the Credit Facility.
The foregoing is a summary of certain terms of the Merger
Agreement and the Credit Facility and should not be considered a complete
description. The foregoing description of the Merger and the Credit Facility is
subject to and qualified in its entirety by the Merger Agreement, a copy of
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which was included as Exhibit 10.23 to the Company's Annual Report on Form
10-KSB for the period ended December 31, 1997, and the agreement relating to the
Credit Facility, a copy of which is included as Exhibit 10.24 to this Current
Report on Form 8-K.
Item 5. Other Events
In conjunction with the Merger, James Roberts, Chairman of the Board of
Directors, Taylor Devine, President and Chief Executive Officer, Kenneth B.
Ross, Chief Financial Officer and Jeff Ferguson, Vice President, Coffee of the
Company, tendered their resignations as to such positions. Mr. Devine will
continue as President and Chief Operating Officer of the Coffee People Oregon
division and Mr. Ross will continue as Vice President, Finance of the Company.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
Gloria Jean's financial statements are hereby incorporated by reference
to pages F-21 to F-68 of the Company's Registration Statement on Form S-4
(File No. 333-50905) filed with the Securities and Exchange Commission on April
23, 1998.
(b) Pro Forma Financial Information
The pro forma financial information required by this Item 7(b,) giving
effect to the acquisition of Gloria Jean's, is hereby incorporated by reference
to pages 96 to 105 of the Company's Registration Statement on Form S-4 (File
No. 333-50905) filed with the Securities and Exchange Commission on April 23,
1998.
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(c) Exhibits
2.1 Agreement and Plan of Merger between Registrant and
The Second Cup Ltd., dated as of February 19, 1998
(incorporated by reference from Exhibit 10.23 to the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1997)
10.24 Agreement dated May 19, 1998 between the Registrant
and Second Cup relating to the Credit Facility
10.25 Promissory Note executed by the Registrant, in the
amount of $4,000,000, dated May 19, 1998
99.1 Press Release
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
COFFEE PEOPLE, INC.
(Registrant)
Date: June 3, 1998 By: /s/ Mark J. Archer
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Mark J. Archer
Executive Vice President
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Name Page
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10.24 Agreement dated May 19, 1998 between 8
the Registrant and Second Cup relating
to the Credit Facility
10.25 Promissory Note executed by the Registrant, 28
in the amount of $4,000,000, dated
May 19, 1998
99.1 Press Release 30