EXHIBIT 10.1

 

 

 

STOCK PURCHASE AGREEMENT

by and between

Diedrich Coffee, Inc.

and

Praise International North America, Inc.

Dated as of March 27, 2009

 

 

 

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STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “Agreement”) is entered into as of March 27,
2009, by and between Praise International North America, Inc., a Delaware
corporation (“Buyer”), and Diedrich Coffee, Inc., a Delaware corporation
(“Seller”). Buyer and Seller are referred to collectively herein as the
“Parties,” and each as a “Party.”

RECITALS

A. Seller owns all of the issued and outstanding shares (the “Shares”) of common
stock, par value $0.01 per share (“Common Stock”), of Coffee People Worldwide,
Inc., a Delaware corporation (the “Company”).

B. The Company and its Subsidiaries are in the business of operating a chain of
franchised Gloria Jean’s retail specialty coffee stores in the United States and
Puerto Rico.

C. This Agreement contemplates a transaction in which Buyer will purchase from
Seller, and Seller will sell to Buyer, all of the Shares (as defined below), on
the terms and subject to the conditions of this Agreement.

AGREEMENT

Now, therefore, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows.

ARTICLE I

DEFINITIONS

“Affiliate” means any Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Person referred to. In this definition, “control” means the possession, direct
or indirect, of the power to direct or cause the direction of the actions,
activities, management and/or policies of a Person, whether through ownership of
securities, by agreement or contract or otherwise.

“Agreement” has the meaning set forth in the preface above.

“Amended and Restated Brand Management Agreement” has the meaning set forth in
Section 7.8 below.

“Amended and Restated Trademark License Agreement” has the meaning set forth in
Section 7.6 below.

“Assignments” has the meaning set forth in Section 7.7 below.

“Basket Amount” has the meaning set forth in Section 9.5(b) below.

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“Business” means the Gloria Jean’s retail specialty coffee store business,
including both franchised and Company-owned stores, in the United States and
Puerto Rico as presently conducted by the Company and its Subsidiaries,
including its retail specialty coffee store franchise rights.

“Business Day” means a day other than Saturday, Sunday or any day on which banks
located in Orange County, California are closed.

“Buyer” has the meaning set forth in the preface above.

“Buyer Indemnified Parties” has the meaning set forth in Section 9.1 below.

“Claim” means and includes (i) all Liabilities, (ii) all losses, damages,
judgments, awards, penalties and settlements, (iii) all demands, claims, suits,
actions, causes of action, proceedings and assessments, whether or not
ultimately determined to be valid and (iv) all costs and expenses (including
prejudgment interest in any litigated or arbitrated matter and other interest),
court costs and reasonable fees and expenses of attorneys, consultants and
expert witnesses) of investigating, defending or asserting any of the foregoing
or of enforcing this Agreement. Notwithstanding the foregoing, “Claim” excludes
incidental, consequential, punitive and special damages for any Claim other than
a Third Party Claim.

“Closing” has the meaning set forth in Section 2.3 below.

“Closing Cash Payment” has the meaning set forth in Section 2.2(a) below.

“Closing Date” has the meaning set forth in Section 2.3 below.

“Code” means the United States Internal Revenue Code of 1986, as amended,
modified, or supplemented from time to time (or any corresponding provisions of
succeeding law).

“Common Stock” has the meaning set forth in the Recitals.

“Company” has the meaning set forth in the Recitals.

“Confidential Information” means all information regarding a Party’s business or
affairs, including, without limitation, business concepts, processes, methods,
Trade Secrets, systems, know-how, devices, formulas, product specifications,
marketing methods, prices, customer lists, supplier lists, methods of operation,
or other information, whether in oral, written, or electronic form, that is
either: (a) designated as confidential; (b) is of a nature such that a
reasonable person would know that it is confidential; or (c) is disclosed under
circumstances such that a reasonable person would know it is confidential. The
terms and conditions of this Agreement are confidential, but its existence is
not. The following information will not be considered Confidential Information:
(i) information that is or becomes publicly available through no fault of the
Party obligated to keep it confidential; (ii) information with regard to the
other Party that was rightfully known by a Party prior to commencement of
discussions regarding the subject matter of this Agreement; (iii) information
that was independently developed by a Party without use of the Confidential
Information; and (iv) information rightfully disclosed to a Party by a third
party without continuing restrictions on its use or disclosure. Notwithstanding
the foregoing, any information that constitutes Confidential Information
immediately prior to Closing shall remain Confidential Information
notwithstanding the Closing.

 

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“D&O Indemnified Liabilities” has the meaning set forth in Section 6.8 below.

“D&O Indemnified Parties” has the meaning set forth in Section 6.8 below.

“Disclosing Party” has the meaning set forth in Section 6.3 below.

“Disclosure Schedule” has the meaning set forth in Article IV below.

“Employee Benefit Plan” means any “employee benefit plan” (as such term is
defined in ERISA Section 3(3)) and any other material employee benefit plan,
program or arrangement.

“Employee Plan” has the meaning set forth in Section 4.15(b) below.

“Employees” has the meaning set forth in Section 4.15(a) below.

“Environmental, Health, and Safety Requirements” means all applicable federal,
state, local, and foreign statutes, regulations, and ordinances concerning
public health and safety, worker health and safety, pollution, or protection of
the environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances, or wastes.

“ERISA” means the United States Employee Retirement Income Security Act of 1974,
as amended.

“Franchise Agreement” has the meaning set forth in Section 4.17(a) below.

“Franchisee” means a franchisee of the Company and its Subsidiaries.

“Franchise Laws” has the meaning set forth in Section 4.17(a) below.

“FTC Rule” means the Trade Regulation Rule on Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures adopted by
the Federal Trade Commission, 16 CFR Parts 436 and 427, March 2007.

“GJ 2008 Circular” has the meaning set forth in Section 4.17(a).

“GJ Circular” has the meaning set forth in Section 4.17(g).

“Governmental Entity” or “Governmental Entities” means any court, arbitrator,
department, commission, board, bureau, agency, authority, instrumentality or
other body, whether federal, state, municipal, county, local, foreign or other.

“Income Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to any federal, state, local, or
foreign income tax measured by or imposed on net income, including any interest,
penalty, or addition thereto, whether disputed or not, including any schedule or
attachment thereto.

 

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“Indemnified Party” has the meaning set forth in Section 9.3(a) below.

“Indemnifying Party” has the meaning set forth in Section 9.3(a) below.

“Indemnity Cap” has the meaning set forth in Section 9.5(c) below.

“Intellectual Property” means all intellectual property rights used exclusively
in connection with the ownership, conduct or operation of the Business by the
Company and its Subsidiaries arising from or associated with the following,
whether protected, created or arising under the laws of the United States or any
other jurisdiction: (a) trade names, trademarks and service marks (registered
and unregistered), domain names, and other Internet addresses or identifiers,
and trade dress and applications (including intent to use applications) to
register any of the foregoing and registrations therefor (collectively,
“Marks”), including all goodwill associated with each of the foregoing,
(b) copyrights, works of authorship and registrations and applications therefor,
and (c) Trade Secrets. “Intellectual Property” specifically excludes any and all
intellectual property rights used in the conduct or operation of the business of
any and all Franchisees, which rights are not owned by the Company and its
Subsidiaries.

“IRS” means the United States Internal Revenue Service.

“Knowledge of Seller” means, and shall be limited to, the actual knowledge of J.
Russell Phillips (Chief Executive Officer of Diedrich) and Sean McCarthy (Chief
Financial Officer and Secretary of Diedrich), without the duty of inquiry.

“Laws” means, collectively, any federal, state, municipal, county, local,
foreign or other statute, law, ordinance, rule or regulation arising or enacted
prior to the Closing.

“Lease Documents” shall mean all leases, subleases, guarantees of leases and
subleases, assignments of leases and subleases and amendments to any or all of
the foregoing relating, directly or indirectly, to a Leased Location.

“Leased Location” has the meaning set forth in Section 4.10(b).

“Liability” or “Liabilities” means any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, fixed or unfixed, known or unknown, asserted or
unasserted, liquidated or unliquidated, secured or unsecured.

“Lien” means any mortgage, pledge, lien, encumbrance, charge, or other security
interest, other than (a) liens for Taxes not yet due and payable or which may
thereafter be paid without penalty or for Taxes that the taxpayer is contesting
in good faith through appropriate proceedings, (b) purchase money liens and
liens securing rental payments under capital lease arrangements, (c) mechanics’,
carriers’, workmen’s, repairmen’s, or other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money, and
(d) other imperfections of title, restrictions or encumbrances, if any, which
imperfections of title,

 

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restrictions, or encumbrances do not, individually or in the aggregate,
materially impair the continued use and operations of the assets to which they
relate in the operation of the Business as currently conducted.

“Litigation” means any complaint, action, suit, proceeding, arbitration or other
alternative dispute resolution procedure, demand, claim, investigation or
inquiry, whether civil, criminal or administrative.

“Marks” has the meaning set forth in definition of “Intellectual Property.”

“Material Adverse Effect” means, with respect to a Person, any effect or change
that is materially adverse to (i) the financial condition, results of
operations, assets, Liabilities, properties or business of such Person (provided
that, for purposes of this definition, the Company and its Subsidiaries shall be
taken as a whole) or (ii) the ability of such Person (in the case where the
“Person” is Buyer or Seller) to perform its obligations under this Agreement or
the Transaction Documents to which such Person will be a party or to consummate
the Transactions; provided, however, that none of the following shall be deemed
to constitute, and none of the following shall be taken into account in
determining whether there has been, a Material Adverse Effect: (a) any adverse
change, event, development, or effect arising from or relating to (1) general
business or economic conditions, including such conditions related to the
Business or the industry in which such Person operates or occurring in any
region in which such Person operates, (2) national or international political or
social conditions, including the engagement by the United States in hostilities,
whether or not pursuant to the declaration of a national emergency or war, or
the occurrence of any military or terrorist attack upon the United States, or
any of its territories, possessions, or diplomatic or consular offices or upon
any military installation, equipment or personnel of the United States,
(3) United States financial, banking, or securities markets (including any
disruption thereof and any decline in the price of any security or any market
index), (4) changes in United States generally accepted accounting principles as
in effect from time to time, consistently applied, (5) changes in laws, rules,
regulations, orders, or other binding directives issued by any Governmental
Entity, (6) the taking of any action contemplated by this Agreement and the
other Transaction Documents, (7) changes, effects, conditions, or circumstances
arising from riots, acts of God, insurrections, strikes, floods, fires,
explosions, or other catastrophes beyond the control and without the fault of
such Person (and which are not primarily limited in their effect to such
Person’s operations, assets, Liabilities, properties or business), (b) any
adverse change in or effect on the business of such Person that is cured by such
Person before the earlier of (I) the Closing Date and (II) the date on which
this Agreement is terminated pursuant to Article X hereof, and (c) any change,
effect, condition, event or circumstance arising out of or attributable to the
actions of Buyer (if the “Person” is either Seller or the Company) or Seller or
the Company (if the “Person” is Buyer), or its respective subsidiaries or
Affiliates or any of their respective representatives, who claims that a
Material Adverse Effect has occurred with respect to such Person which directly
leads to or precipitates any such change, effect, condition, event, or
circumstance, that would constitute a Material Adverse Effect except for this
clause (c), without regard to the time such actions, changes, effects,
conditions, events, or circumstances occur or transpire, and (d) any change,
effect, condition, event, or circumstance arising out of, relating to, or
attributable to any decrease or decline in the number of Franchisees and/or
Gloria Jean’s retail specialty coffee stores, kiosks, or carts.

 

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“Material Contracts” has the meaning set forth in Section 4.12 below.

“Non-Business Assets” means all assets owned by the Company or its Subsidiaries,
whether currently or in the past, which do not relate to the Business, including
all assets (tangible and intangible) relating to roasting and the roasting
operation (including all assets located at the Castroville, California roasting
facility as well as all roasting, blending, flavoring, and packaging recipes,
techniques, methodologies, and know how), all of which assets are or will become
the assets of Seller or its designee prior to the Closing.

“Note” has the meaning set forth in Section 2.2(b) below.

“Orders” means, collectively, any order, writ, injunction, judgment, plan or
decree arising or issued prior to the Closing of any Governmental Entity.

“Ordinary Course of Business” means the ordinary course of business consistent
with past custom and practice of the Business (including with respect to
quantity and frequency).

“Organizational Documents” means (a) the articles or certificate of
incorporation and the bylaws of a corporation, (b) the partnership agreement and
any statement of partnership of a general partnership, (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership, (d) the limited liability company agreement (or the operating
agreement) and the certificate of limited liability company of a limited
liability company, (e) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person, and
(f) any amendment to any of the foregoing.

“Owned Intellectual Property” has the meaning set forth in Section 4.11(a)
below.

“Parties” and “Party” have the meaning set forth in the preface above.

“Permits” means all licenses, permits, approvals, certifications, consents and
listings for the Business.

“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, any other business entity or a Governmental Entity.

“Pre-Closing Tax Period” has the meaning set forth in Section 6.2(a) below.

“Pro Forma Statement” has the meaning set forth in Section 4.6 below.

“Purchase Price” has the meaning set forth in Section 2.2 below.

“Recipe License Agreement” has the meaning set forth in Section 7.7 below.

“Recipient” has the meaning set forth in Section 6.3 below.

“Roasting Agreement” has the meaning set forth in Section 7.5 below.

“Seller Indemnified Parties” has the meaning set forth in Section 9.2 below.

 

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“Shares” has the meaning set forth in the Recitals.

“Straddle Period” has the meaning set forth in Section 6.2(b) below.

“Subsidiary” means, with respect to any Person, any other Person of which at
least 50% of the outstanding voting securities or other voting equity interests
are owned, directly or indirectly, by such first Person. For the avoidance of
doubt, the term “Subsidiary” shall include all Subsidiaries of such Subsidiary.

“Tax” or “Taxes” means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, documentary
stamp, employees’ income withholding, social security, unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.

“Tax Return” means any return, declaration, report, claim for refund, or
information return or statement filed or required to be filed relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.

“Third-Party Claim” has the meaning set forth in Section 9.3 below.

“Trade Secrets” shall have the meaning ascribed to such term in California Civil
Code Section 3426.1(d), as amended.

“Transaction Documents” means this Agreement, the Amended and Restated Brand
Management Agreement, the Amended and Restated Trademark License Agreement, the
Roasting Agreement, the Assignments, the documents delivered pursuant to
Articles VII and VIII, and all instruments executed, filed, or otherwise
prepared, exchanged, or delivered in accordance with this Agreement.

ARTICLE II

PURCHASE AND SALE OF SHARES

2.1. Purchase and Sale of the Shares. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, Seller shall sell,
convey, assign, transfer, and deliver to Buyer, and Buyer shall purchase and
acquire from Seller, the Shares.

2.2. Purchase Price. In consideration of the sale, transfer and delivery of the
Shares, Buyer agrees to pay to Seller the sum of USD $3,100,000 (the “Purchase
Price”) as follows:

(a) US $1,500,000 in cash, payable on the Closing Date, by wire transfer of
immediately available funds (the “Closing Cash Payment”); and

(b) a promissory note, substantially in the form of Exhibit A hereto (the
“Note”), issued by Buyer to Seller in the aggregate principal amount of
USD $1,600,000 and accruing interest at 7% per annum (as more specifically set
forth in the Note), of which

 

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(i) USD $800,000, together with all interest accrued on the aggregate principal
amount, shall be due and payable on the date that is six (6) months after the
Closing Date and (ii) the remainder of the principal amount, together with
interest accrued thereon, shall be due and payable on the date that is
twelve (12) months after the Closing Date.

2.3. Closing. The closing of the transactions contemplated hereby (the
“Closing”) shall take place at the offices of Gibson, Dunn & Crutcher LLP, in
Irvine, California commencing at 10:00 a.m. local time on the second
(2nd) Business Day following the satisfaction or waiver of all conditions set
forth in Articles VII and VIII or such other date as Buyer and Seller may
mutually determine (the “Closing Date”), and the Closing shall become effective
at 11:59 p.m. Pacific Time on the calendar day immediately preceding the Closing
Date. The Parties shall act in good faith so that the Closing will occur as soon
as reasonably practicable following the date hereof.

2.4. Deliveries at Closing. At the Closing, the following deliveries shall be
made:

(a) Seller Deliverables. Seller will deliver to Buyer:

(i) the certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank in proper form for transfer;

(ii) the stock books, stock ledgers, minute books, and corporate seals of the
Company and its Subsidiaries;

(iii) (A) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing of Seller in the State of Delaware and
(B) certificates from the relevant Secretary of State as to the legal existence
and good standing of each of the Company and its Subsidiaries in their
respective state of incorporation, each of which shall be dated no more than
five (5) Business Days prior to the Closing Date;

(iv) one or more incumbency certificates relating to each Person executing any
document executed and delivered to Buyer pursuant to the terms hereof, executed
by an officer of Seller (other than such Person executing such document); and

(v) all originals of the contracts and agreements relating to the Business and
copies of all related electronic data bases in transferable and working order,
in each case to the extent they are in the possession of Seller or its
Affiliates.

(b) Buyer Deliverables. Buyer will deliver to Seller:

(i) the Closing Cash Payment, by wire transfer of immediately available funds;

(ii) the Note;

(iii) a certificate of the Secretary of State of the State of Delaware as to the
legal existence and good standing of Buyer in the State of Delaware, which shall
be dated no more than five (5) Business Days prior to the Closing Date; and

 

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(iv) one or more incumbency certificates relating to each Person executing any
document executed and delivered to Seller pursuant to the terms hereof, in form
and substance reasonably satisfactory to Seller, executed by an officer of Buyer
(other than such Person executing such document).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller that the statements contained in this
Article III are correct and complete as of the date of this Agreement, except as
set forth in Annex I attached hereto.

3.1. Organization. Buyer is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation.

3.2. Authorization of Transaction. Buyer has full power and authority (including
full corporate or other entity power and authority) to execute and deliver this
Agreement and the other Transaction Documents to which it is a party and to
perform its obligations hereunder and thereunder. This Agreement and the other
Transaction Documents to which it is a party constitute the valid and legally
binding obligation of Buyer, enforceable in accordance with its terms and
conditions, except as such enforcement may be limited by the application of
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors’ rights generally and as such enforcement may be limited by the
availability of specific performance and the application of equitable
principles, regardless of whether enforcement is sought in a proceeding at law
or in equity. The execution, delivery, and performance of this Agreement and all
of the other Transaction Documents to which it is a party have been duly
authorized by Buyer.

3.3. Non-contravention. Neither the execution and delivery of this Agreement or
any other Transaction Document, nor the consummation of the transactions
contemplated hereby and thereby, will (a) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any Governmental Entity to which Buyer is subject or any
provision of its Organizational Documents or (b) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Buyer is a party or by which it is bound or to which any of
its assets is subject, in each case (i) other than any such violations,
conflicts, breaches, defaults, acceleration, rights or notices that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Buyer and (ii) other than such consents,
authorizations or approvals that may be required solely by reason of Seller’s
participation in the transactions contemplated hereby or the failure of which to
obtain would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Buyer. Buyer is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any Governmental Entity in order to consummate the transactions
contemplated by this Agreement or any other Transaction Document.

 

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3.4. Brokers’ Fees. Buyer has no Liability to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement or any other Transaction Document.

3.5. Availability of Funds. Buyer has sufficient funds available to enable Buyer
to consummate on a timely basis the transactions contemplated hereby at the
Closing and to permit Buyer to timely perform all of its obligations at the
Closing under this Agreement.

3.6. Actions and Proceedings. There are no (a) outstanding Orders against Buyer
or any of its Affiliates, which have or could reasonably be expected to have a
Material Adverse Effect on Buyer or (b) Litigation pending or, to the knowledge
of Buyer, threatened against Buyer, which have or could reasonably be expected
to have a Material Adverse Effect on Buyer.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer that the statements contained in this
Article IV are correct and complete as of the date of this Agreement, except as
set forth in the disclosure schedule delivered by Seller to Buyer on the date
hereof (the “Disclosure Schedule”).

4.1. Organization, Qualification, and Corporate Power.

(a) Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation.

(b) Each of the Company and its Subsidiaries is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
their incorporation. Each of the Company and its Subsidiaries is duly qualified
to conduct business as a foreign corporation and is in good standing under the
laws of each jurisdiction where such qualification is required. Each of the
Company and its Subsidiaries has full corporate power and authority to carry on
the business in which it is engaged and to own and use the properties owned and
used by it. Section 4.1(b) of the Disclosure Schedule lists the directors and
officers of each of the Company and its Subsidiaries. Seller has caused to be
delivered or made (or offered to make) available to Buyer copies of the
Organizational Documents of each of the Company and its Subsidiaries, as
currently in effect.

4.2. Authorization of Transaction. Seller has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and the other Transaction Documents to which it is a party and to
perform its obligations hereunder and thereunder. This Agreement and the other
Transaction Documents to which it is a party constitute the valid and legally
binding obligation of Seller, enforceable in accordance with its terms and
conditions, except as such enforcement may be limited by the application of
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors’ rights generally and as such enforcement may be limited by the
availability of specific performance and the application of equitable
principles, regardless of whether enforcement is sought in a proceeding at law
or in equity. The execution, delivery, and performance of this Agreement and all
of the other Transaction Documents to which it is a party have been duly
authorized by Seller.

 

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4.3. Non-contravention. Neither the execution and delivery of this Agreement or
any other Transaction Document, nor the consummation of the transactions
contemplated hereby or thereby, will (a) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any Governmental Entity to which Seller, the Company or any of
the Company’s Subsidiaries is subject or any provision of the Organizational
Documents of Seller, the Company or any of the Company’s Subsidiaries or
(b) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any material agreement, contract,
lease, license, instrument, or other arrangement to which Seller, the Company or
any of the Company’s Subsidiaries is a party or by which Seller, the Company or
any of the Company’s Subsidiaries is bound or to which any of the assets of
Seller, the Company or any of the Company’s Subsidiaries is subject, in each
case (i) other than any such violations, conflicts, breaches, defaults,
acceleration, rights or notices that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on Seller or the
Company and (ii) other than such consents, authorizations or approvals that may
be required solely by reason of Buyer’s participation in the transactions
contemplated hereby or the failure of which to obtain would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Seller or the Company. None of Seller, the Company nor any of the Company’s
Subsidiaries is required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any Governmental Entity in order to
consummate the transactions contemplated by this Agreement or any other
Transaction Document.

4.4. Brokers’ Fees. None of Seller, the Company nor any of the Company’s
Subsidiaries has any Liability to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
or any other Transaction Document.

4.5. Shares; Capitalization.

(a) Seller is the record and beneficial owner of the Shares, free and clear of
any Liens. Seller has the right, authority and power to sell, assign and
transfer the Shares to Buyer. Upon delivery to Buyer of certificates for the
Shares at the Closing, Buyer’s payment of the Purchase Price and registration of
the Shares in the name of Buyer in the stock records of the Company, Buyer,
assuming it shall have purchased the Shares for value in good faith and without
notice of any adverse claim, shall acquire good, valid and marketable title to
the Shares, free and clear of any Liens other than Liens created by Buyer.

(b) The authorized capital stock of the Company consists of 1,000 shares of
Common Stock, of which 1,000 shares of Common Stock, constituting the Shares,
are issued and outstanding. Section 4.5(b) of the Disclosure Schedule sets
forth, for each Subsidiary of the Company, the amount of its authorized capital
stock, the amount of its outstanding capital stock and the record and beneficial
owners of its outstanding capital stock. Except for the Shares and as set forth
in Section 4.5(b) of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries has issued or agreed to issue any: (i) share of capital stock or
other equity or ownership interest; (ii) option, warrant or interest convertible
into or exchangeable or exercisable for the purchase of shares of capital stock
or other equity or ownership interests; (iii) stock appreciation right, phantom
stock, interest in the ownership or earnings of the Company or any of its
Subsidiaries or other equity equivalent or equity-based award or right; or
(iv) bond,

 

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debenture or other indebtedness having the right to vote or convertible or
exchangeable for securities having the right to vote. Each outstanding share of
capital stock or other equity or ownership interest of the Company and each of
its Subsidiaries is duly authorized, validly issued, fully paid and
non-assessable, and in the case of the Company’s Subsidiaries, each such share
or other equity or ownership interest is owned by the Company or another
Subsidiary of the Company, free and clear of any Liens. Except for rights
granted to Buyer under this Agreement, there are no outstanding obligations of
the Company or any of its Subsidiaries to issue, sell or transfer or repurchase,
redeem or otherwise acquire, or that relate to the holding, voting or
disposition of or that restrict the transfer of, the issued or unissued capital
stock or other equity or ownership interests of the Company or any of its
Subsidiaries.

4.6. Pro Forma Statement of Assets and Liabilities. Section 4.6 of the
Disclosure Schedule contains a pro forma statement of assets and liabilities of
the Company and its Subsidiaries as of December 10, 2008 (the “Pro Forma
Statement”). The Pro Forma Statement has been prepared from Seller’s balance
sheet, is true and correct in all material respects and presents fairly in all
material respects the combined assets and liabilities of the Company and its
Subsidiaries as of such date; provided, however, that the Pro Forma Statement
(a) lacks notes and other presentation items and (b) is subject to year-end
adjustments. In its conduct of the Business, the Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations and (ii) transactions are
recorded as necessary to maintain asset accountability.

4.7. Absence of Certain Changes. Since the date of the Pro Forma Statement,
there has not been:

(a) No Adverse Effect. Any Material Adverse Effect on the Company and its
Subsidiaries.

(b) No Disposition of Property. Any sale, lease, grant or other transfer or
disposition of any material properties or assets of the Company and its
Subsidiaries, taken as a whole, except for the sale of inventory items in the
Ordinary Course of Business.

(c) No Liens. Any Lien made on any material properties or assets of the Company
and its Subsidiaries, taken as a whole.

(d) Credit. Any grant of credit by the Company or any of its Subsidiaries to any
customer (including any Franchisee) of the Business, which grants of credit
directly relate to the Business, on terms or in amounts more favorable than
those that have been extended to such customer or similar customers in the past
directly relating to the Business, any other materially adverse change made by
the Company or any of its Subsidiaries in the terms of any credit heretofore
extended directly in connection with the Business or any other material change
of the policies or practices of the Company or any of its Subsidiaries with
respect to the granting of credit directly in connection with the Business.

 

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(e) Discharge of Obligations. Any discharge, satisfaction or agreement to
satisfy or discharge any material Liability directly relating to or affecting
the Business, other than the discharge or satisfaction in the Ordinary Course of
Business of current Liabilities.

(f) Accounting Principles. Any material change in the financial or Tax
accounting principles or methods of the Company or any of its Subsidiaries,
except to the extent required by United States generally accepted accounting
principles as in effect from time to time, consistently applied, directly
relating to or affecting the Business.

Notwithstanding anything to the contrary herein (including this Section 4.7 and
Sections 4.12 and 5.3 below) or in the other Transaction Documents, at the
election of Seller, (i) some or all of the Non-Business Assets have been or will
be, prior to the Closing, transferred, conveyed and assigned to Seller or its
designee and (ii) certain assets and rights relating to the Business have been
or will be, prior to the Closing, transferred, conveyed and assigned by Seller
to the Company or its Subsidiaries, and such transfer, conveyance and assignment
(in case of both clause (i) and clause (ii)) shall not constitute a breach of
any representation, warranty, covenant or agreement on the part of Seller. In
the case of any transfer, conveyance and assignment described in
clause (ii)above between the date hereof and the Closing Date, Seller shall
notify Buyer by updating Section 4.7 of the Disclosure Schedule with a
description of such transfer, conveyance and assignment.

4.8. Legal Compliance.

(a) Except for past violations for which neither the Company nor any of its
Subsidiaries is subject to any current material Liability and cannot become
subject to any future material Liability, in respect of the operations,
practices, properties and assets of the Business, each of the Company and its
Subsidiaries is and has been in material compliance with all applicable Laws and
Orders. Neither the Company nor its Subsidiaries has received notice of any
violation or alleged violation of any Laws or Orders with respect to the
Business. All reports, filings and returns associated with or related to the
Business required to be filed by or on behalf of any of the Company or its
Subsidiaries with any Governmental Entity have been filed and, when filed, were
true, correct and complete in all material respects.

(b) Each of the Company and its Subsidiaries has all Permits of all Governmental
Entities and of all certification organizations required, and all exemptions
from requirements to obtain or apply for any of the foregoing, for the conduct
of the Business (as the Business is currently conducted) and the operation of
the Leased Locations. All such Permits of all Governmental Entities are in full
force and effect in accordance with the terms hereof. Except for past violations
for which neither the Company nor any of its Subsidiaries is subject to any
current Liability and cannot become subject to any future material Liability
and, each of the Company and its Subsidiaries (including its operations,
practices, properties and assets) is and has been in material compliance with
all such Permits.

4.9. Tax Matters. Each of the Company and its Subsidiaries has timely filed all
Income Tax Returns and all other material Tax Returns that they were required to
file, and all such Tax Returns are accurate and complete in all material
respects. All Taxes shown thereon as owing have been paid or shall be paid by
the Company and its Subsidiaries or, if not yet payable,

 

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such Taxes have been adequately accrued and shown on the books and records of
the Company and its Subsidiaries. No deficiency or proposed adjustment which has
not been paid or resolved for any material amount of Tax has been asserted or
assessed by any taxing authority against the Company or any of its Subsidiaries.
There are no Tax audits in progress, pending, or, to the Knowledge of Seller,
threatened against the Company or any of its Subsidiaries. Neither the Company
nor any of its Subsidiaries has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.

4.10. Real Property.

(a) Neither the Company nor any of its Subsidiaries owns any real property.

(b) Section 4.10(b) of the Disclosure Schedule includes a list of all leased and
subleased locations for the locations leased or subleased by any of the Company
or its Subsidiaries from which all franchised and Company-owned Gloria Jean’s
retail outlets are operated, including any such leased locations for a currently
closed Gloria Jean’s retail outlet or a to-be-opened retail outlet
(collectively, the “Leased Locations”). For clarification, the term “Leased
Locations” is not intended to include those leases directly leased from the
respective landlord by a Franchisee and to which neither the Company nor any of
its Subsidiaries is a party. There are no Leased Locations other than as set
forth in Section 4.10(b) of the Disclosure Schedule.

(c) The leases for all Leased Locations are valid, legally binding, and
enforceable against the Company or its Subsidiary that is a party to such
leases, enforceable against the other parties to such leases to the Knowledge of
Seller, and in full force and effect, subject to proper authorization and
execution of such leases by the other party thereto and except as such
enforcement may be limited by the application of bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors’ rights generally
and as such enforcement may be limited by the availability of specific
performance and the application of equitable principles, regardless of whether
enforcement is sought in a proceeding at law or in equity.

(d) Seller has made available to Buyer complete and accurate copies of each of
the leases listed on Section 4.10(b) of the Disclosure Schedule, and (i) each of
the leases listed on Section 4.10(b) of the Disclosure Schedule constitutes the
entire agreement to which any of the Company or its Subsidiaries is a party with
respect to such leased premises; (ii) since January 1, 2008, neither the Company
nor any of its Subsidiaries has received any written, or to the Knowledge of
Seller, verbal notice of breach default, or non-compliance or any written, or to
the Knowledge of Seller, verbal notice of cancellation or termination by any
other party under any of such leases or other Lease Documents; (iii) neither the
Company nor any of its Subsidiaries is in default under the material terms of
such leases; and (iv) all rents and other sums due by any of the Company or its
Subsidiaries under such leases, as of the date of this Agreement, have been paid
in full.

(e) The interest of the Company or its Subsidiary, as the case may be, in the
lease for each Leased Location is free and clear of all Liens.

 

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(f) Through the date hereof, to the Knowledge of Seller, there are no lease
relationships with respect to the Business to which any of the Company or its
Subsidiaries is a party, either existing, expired or terminated, that have given
rise to any currently unresolved claims or disputes.

(g) There is not now in existence any claim for any of the Company or its
Subsidiaries to offset, deduct or decrease any payments due under any lease for
a Leased Location.

(h) To the Knowledge of Seller, all Franchisees are, in all material respects,
in compliance with all Lease Documents.

(i) To the Knowledge of Seller, each Franchisee, which is a party to a lease or
sublease with respect to any leased or subleased location (other than a Leased
Location) from which a franchised Gloria Jean’s retail outlet is operated,
including any such leased location for a currently closed Gloria Jean’s retail
outlet or a to-be-opened retail outlet, is, in all material respects, in
compliance with such lease or sublease.

4.11. Intellectual Property.

(a) The Intellectual Property listed on Section 4.11(a) of the Disclosure
Schedule (the “Owned Intellectual Property”) represents all of the Intellectual
Property owned by the Company and its Subsidiaries that is used in, and
necessary for the conduct of, the Business as currently conducted. This
Section 4.11 does not relate to, and this Section 4.11 and the term “Owned
Intellectual Property” expressly exclude, any Intellectual Property, or
interests or rights with respect thereto, related to the Non-Business Assets.

(b) The Intellectual Property listed on Section 4.11(b) of the Disclosure
Schedule (the “Licensed Intellectual Property”) represents all of the
Intellectual Property owned by Seller that is used in the Business as currently
conducted and will be licensed to Buyer or its Affiliates pursuant to the
Amended and Restated Trademark License Agreement.

(c) Except for licenses for commercial off-the-shelf software, Section 4.11(c)
of the Disclosure Schedule lists the Intellectual Property licensed-in by any of
the Company or its Subsidiaries that is necessary for the Business as currently
conducted. Neither the Company nor any of its Subsidiaries pays, or is obligated
to pay, any royalties or other consideration for the right to use the
Intellectual Property of others; provided, however, that the preceding clause
expressly excludes any Intellectual Property related to Non-Business Assets. The
Owned Intellectual Property and the Licensed Intellectual Property are only
licensed out by the Company and its Subsidiaries pursuant to (i) the Franchise
Agreements entered into between one or more Subsidiaries of the Company, on the
one hand, and a Franchisee thereof, on the other hand, (ii) the Trademark
License Agreement dated February 10, 2005 by and between certain Subsidiaries of
the Company and certain Affiliates of Buyer, and (iii) the License Agreement
dated as of November 21, 2002 between the Subsidiaries of the Company.

(d) All of the Marks listed on Section 4.11(a) and (b) of the Disclosure
Schedule have been properly registered in all material respects or are the
subject of pending applications; all pending registrations and applications have
been properly made and filed in all material respects; and all annuity,
maintenance, renewal and other fees relating to registrations or applications
are current.

 

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(e) All Owned Intellectual Property and Licensed Intellectual Property is valid,
enforceable, and subsisting and, to the Knowledge of Seller, does not infringe
any other Intellectual Property rights owned by third parties. As of the date
hereof, there is not pending nor, to the Knowledge of Seller, threatened any
claim (i) challenging the ownership of the Owned Intellectual Property or
Licensed Intellectual Property or asserting that any other Person has any claim
of legal or beneficial ownership with respect thereto or (ii) challenging or
questioning the validity or enforceability of any of the Owned Intellectual
Property or Licensed Intellectual Property or indicating an intention on the
part of any Person to bring a claim that any of the Owned Intellectual Property
or Licensed Intellectual Property is invalid or unenforceable or has been
misused. To the Knowledge of Seller, no third party is misappropriating,
infringing, diluting, or violating in any material respect any of the Owned
Intellectual Property or Licensed Intellectual Property.

(f) Neither the Company nor any of its Subsidiaries is a party to any agreement
with its employees and consultants in which it waives the right to claim
ownership and title to the Intellectual Property rights and Confidential
Information generated by those persons in the course of, or in connection with,
the Business.

(g) The Owned Intellectual Property and the Licensed Intellectual Property are
not subject to any pending or, to the Knowledge of Seller, threatened litigation
that would restrict the use thereof by any of the Company or its Subsidiaries or
any outstanding order, judgment, decree or stipulation restricting the use
thereof by such Persons.

4.12. Contracts. Section 4.12 of the Disclosure Schedule sets forth a list as of
the date of this Agreement of each of the following types of written contracts
to which the Company or any of its Subsidiaries is a party:

(a) Any employment agreement or employment contract with any officer or employee
of the Company or its Subsidiaries, which officer or employee performs services
primarily for the benefit of the Business, that has compensation in excess of
USD $75,000 per annum and is not terminable by notice of not more than sixty
(60) calendar days for a cost of less than USD $75,000; provided, however, the
Parties acknowledge and agree that this provision is not intended to apply to
officers of Seller nor any officer or employee of any non-Business operations
regardless of whether or not the services rendered by such officer or employee
benefits the Business;

(b) Any employee collective bargaining agreement;

(c) Any covenant not to compete granted by the Company or any of its
Subsidiaries in favor of a third party (other than Buyer or any of its
Affiliates) that materially impairs the Business;

(d) Any lease or similar agreement with respect to the Business under which
(i) the Company or any of its Subsidiaries is lessee of, or holds or uses, any
machinery, equipment, vehicle, or other tangible personal property owned by a
third party or (ii) the

 

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Company or any of its Subsidiaries is a lessor or sublessor of, or makes
available for use by any third party, any tangible personal property owned or
leased by the Company or any of its Subsidiaries; in any case which has payments
to be made or received in excess of USD $50,000 per annum and is not terminable
by notice of not more than sixty (60) calendar days for a cost of less than
USD $50,000;

(e) Any agreement or contract with respect to the Business under which the
Company or any of its Subsidiaries has borrowed or loaned any money or issued
any note, indenture, or other evidence of indebtedness or guaranteed
indebtedness or Liabilities of others (other than intercompany indebtedness,
endorsements for the purpose of collection, loans made to employees for
relocation, travel or other employment-related purposes, or purchases of
equipment or materials made under conditional sales contracts, in each case in
the Ordinary Course of Business), in each case having an outstanding principal
amount in excess of USD $50,000;

(f) Any agreement or contract with respect to the Business under which any other
Person has guaranteed indebtedness, Liabilities, or obligations of the Company
or any of its Subsidiaries (other than intercompany guarantees and endorsements
for the purpose of collection in the Ordinary Course of Business), in each case
having an outstanding principal amount or aggregate future liability in excess
of USD $50,000; or

(g) Any other agreement, contract, lease, license or instrument with respect to
the Business, in each case not included in clauses (a) through (f) above or set
forth on any of the other sections of the Disclosure Schedule, to which the
Company or any of its Subsidiaries is a party or by or to which any of their
assets are bound or subject which provides for payments to be made to such
Person in excess of USD $50,000 per annum and is not terminable by notice of not
more than sixty (60) calendar days for a cost of less than USD $50,000 (other
than purchase orders or warranty obligations in the Ordinary Course of
Business).

Seller has delivered to, or made (or offered to make) available for inspection
by, Buyer a copy of each contract, lease, license, instrument or other agreement
listed on Section 4.12 of the Disclosure Schedule (collectively, the “Material
Contracts”). Each of the Company and its Subsidiaries has performed all material
obligations required to be performed by it to date under the Material Contracts
and is not (with or without the lapse of time or the giving of notice, or both)
in breach or default thereunder, except for any such breach or default that
would not reasonably be expected to have a Material Adverse Effect on the
Company and its Subsidiaries, collectively. This Section 4.12 does not relate to
real property, intellectual property, employee benefits, and franchise matters,
it being the intent of the Parties that such matters are the subject of
Sections 4.10, 4.11, 4.15 and 4.17, respectively.

4.13. Powers of Attorney. There are no outstanding powers of attorney executed
on behalf of the Company or any of its Subsidiaries with respect to the
Business.

4.14. Actions and Proceedings; Litigation. There are no (a) outstanding Orders
against Seller or any of its Affiliates (other than the Company or its
Subsidiaries), which have or could reasonably be expected to have a Material
Adverse Effect on Seller or (b) Litigation pending or, to the Knowledge of
Seller, threatened against Seller, which have or could reasonably be

 

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expected to have a Material Adverse Effect on Seller. There is no Litigation
pending or, to the Knowledge of Seller, threatened against any of the Company or
its Subsidiaries that in any way involves the Business. Section 4.14 of the
Disclosure Schedule also identifies all Litigation to which any of the Company
or its Subsidiaries have been parties since January 1, 2007 that in any way
involves the Business. To the Knowledge of Seller, no aspect of the Business is
subject to any Order.

4.15. Employee Benefits.

(a) Section 4.15(a)(i) of the Disclosure Schedule contains, as of a recent date
specified therein, the following information for each employee of the Company or
its Subsidiaries who primarily renders services on behalf of or for the benefit
of the Company or its Subsidiaries with respect to the Business: name, job
title, hire date, current compensation paid or payable, and vacation accrued.
Section 4.15(a)(ii) of the Disclosure Schedule contains, as of a recent date
specified therein, similar information for each employee of Seller who primarily
renders services on behalf of or for the benefit of the Company or its
Subsidiaries with respect to the Business. The employees listed on Sections
4.15(a)(i) and (ii) of the Disclosure Schedule are, collectively, the
“Employees.”

(b) Section 4.15(b) of the Disclosure Schedule sets forth a list of all material
Employee Benefit Plans and all bonus, stock option, stock purchase, restricted
stock, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, that are maintained, contributed to or sponsored by the Company or
any of its Subsidiaries for the benefit of any current or former employee,
independent contractor, officer or director of the Company or any of its
Subsidiaries (collectively, the “Employee Plans”). Seller has made available to
Buyer a true and complete copy of each Employee Plan and the most recent
determination letter from the IRS with respect to any Employee Plan.

(c) (i) Each Employee Plan has been maintained in all material respects in
accordance with its terms and the requirements of ERISA and the Code, and
(ii) each of the Company and its Subsidiaries has performed all material
obligations required to be performed by it under any Employee Plan and, to the
Knowledge of the Seller, is not in any material respect in default under or in
violation of any Employee Plan.

(d) Each Employee Plan that is intended to be qualified under Section 401(a) of
the Code has received a determination or opinion letter from the IRS that it is
so qualified and each related trust that is intended to be exempt from federal
income taxation under Section 501(a) of the Code has received a determination or
opinion letter from the IRS that it is so exempt and, to the Knowledge of the
Seller, no fact or event has occurred since the date of such letter or letters
from the IRS that would reasonably be expected adversely to affect the qualified
status of any such Employee Plan or the exempt status of any such trust.

(e) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole, none of the Employee Plans is a multiemployer plan (within the
meaning of Section 3(37) or 4001(a)(3) of ERISA) or a single employer plan
(within the meaning of Section 4001(a)(15) of ERISA) for which the Company or
any of its Subsidiaries would reasonably be expected to incur liability under
Section 4063 or 4064 of ERISA.

 

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4.16. Environmental, Health, and Safety Matters. Except for past violations for
which none of the Company or its Subsidiaries is subject to any current
Liability and cannot reasonably become subject to any future Liability in
respect of the operations, practices, properties and assets of the Business,
each of the Company and its Subsidiaries is and has been in material compliance
with all Environmental, Health and Safety Requirements as they relate to the
Business. There is no Litigation nor any demand, claim, hearing, notice of
violation or demand letter pending or, to the Knowledge of Seller, threatened
against any of the Company or its Subsidiaries with respect to the Business
relating in any way to the Environmental, Health and Safety Requirements.

4.17. Franchise Matters.

(a) Copies of all Franchise Agreements have been made available to Buyer,
including (i) existing Franchisees listed in the Franchise Offering Circular for
Prospective Franchisees issued by a Subsidiary of the Company on November 13,
2008, as amended on February 12, 2009 (the “GJ 2008 Circular”) and (ii) the
franchises granted following the close of such Subsidiary’s fiscal year ending
June 25, 2008. All such copies are true, correct, complete and authentic
reproductions of the original Franchise Agreements they purport to represent.
The Franchise Agreements constitute all agreements between the Company or any of
its Subsidiaries, on the one hand, and the applicable Franchisee, on the other
hand, with respect to the franchising of a Gloria Jean’s franchise, and there
exist no other agreements, oral or written, between the Company or any of its
Subsidiaries, on the one hand, and the Franchisees, on the other hand, with
respect to the franchising of a Gloria Jean’s franchise. Neither of the Company
nor any of its Subsidiaries is a party to any other Franchise Agreement with a
Person that would be defined as a “franchisee” under the FTC Rule or any other
federal, state, local or foreign constitution, statute, law, ordinance, rule,
authorization or regulation promulgated or issued by a Governmental Entity that
governs, regulates or otherwise regulates the offer or sale of Franchises
(“Franchise Laws”). For purposes of this Agreement, a “Franchise Agreement”
shall mean all franchise agreements, area development agreements, master
franchise agreements and any other agreements between the Company or any of its
Subsidiaries, on the one hand, and a Franchisee, on the other hand, which
directly or indirectly grants the right to develop, establish or operate a
Gloria Jean’s retail outlet, respectively, and any agreements ancillary, except
the Lease Documents relating to the Leased Locations identified in
Section 4.10(b), above, between the Company or any of its Subsidiaries and a
Franchisee thereto, including any rights of first refusal and options.

(b) All of the Franchise Agreements are in full force and effect and are valid
and binding obligations of the Company or its applicable Subsidiaries and
enforceable against the Company or such Subsidiaries and, to the Knowledge of
Seller, the other parties thereto in accordance with their respective terms,
except as such enforcement may be limited by the application of bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors’
rights generally and as such enforcement may be limited by the availability of
specific performance and the application of equitable principles, regardless of
whether enforcement is sought in a proceeding at law or in equity.

 

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(c) With respect to all expirations, terminations and non-renewals of
Franchisees and/or Franchise Agreements since January 1, 2006, the Company and
its Subsidiaries have complied in all material respects with all applicable
franchise termination, non-renewal, unfair practices, and/or relationship laws.

(d) Neither the Company nor any of its Subsidiaries operates a Gloria Jean’s
retail outlet within any protected territory, exclusive territory, or reserved
area granted to any Franchisee in violation of the Franchise Agreement with such
Franchisee.

(e) Any offer or sale of a franchise after July 1, 2008 was done so in
compliance in all material respects with the revised Trade Regulation Rule on
Disclosure Requirements and Prohibitions Concerning Franchising by the Federal
Trade Commission, effective July 1, 2007, 16 CFR Part 436, and all corresponding
state laws, if any, applicable to the transaction.

(f) The GJ 2008 Circular and all franchise offering circulars used in connection
with the offer and sale of a franchise since January 1, 2006, (collectively with
the GJ 2008 Circular, the “GJ Circulars” and in the singular ,a “GJ Circular”)
(i) were prepared in compliance in all material respects with the Uniform
Franchise Offering Circular Guidelines and related federal and state
regulations; provided that the GJ 2008 Circular was prepared and disseminated in
compliance in all material respects with the revised Trade Regulation Rule on
Disclosure Requirements and Prohibitions Concerning Franchising by the Federal
Trade Commission, effective July 1, 2007, 16 CFR Part 436; and (ii) were, true,
accurate and complete in all material respects during the entire period any of
such GJ Circulars were used in connection with the offer or sale of a franchise
to operate a Gloria Jean’s retail outlet.

(g) To the extent required by applicable Law, the Company and its Subsidiaries
have timely delivered to all prospective and existing Franchisees a complete and
accurate copy of the appropriate GJ Circular in accordance with applicable law
and has obtained executed receipts thereof from all existing Franchisees.

(h) To the Knowledge of Seller, neither the Company nor any of its Subsidiaries
has ever used franchise brokers in connection with the offer or sale of
Franchises.

(i) The Company and its Subsidiaries are, in all material respects, in
compliance with all Franchise Agreements to which they are a party as well as
all obligations and duties owing with respect to all advertising and marketing
funds and other funds and cooperatives under which the Company and its
Subsidiaries administer or collect monies on behalf of Franchisees, and, since
January 1, 2006, neither the Company nor any of its Subsidiaries has received
any unresolved written notice of noncompliance from any Franchisee with respect
to any such Franchise Agreement or a breach of any obligations or duties with
respect to such funds.

(j) To the Knowledge of Seller, there is no unresolved material non-compliance
with any Franchise Agreement by the respective Franchisee. For the purposes of
this Section 4.18(j) only, for any non-compliance consisting of a failure to pay
monies owed, “material non-compliance” shall mean any non-compliance that could
result in damage to, or

 

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Liability to or of, the Company or its Subsidiaries in excess of USD $25,000, or
for any other non-compliance, “material non-compliance” shall mean any other
type of non-compliance with respect to which the Company or its Subsidiaries
have in past practice typically delivered written Notice of Default to the
appropriate Franchisee.

(k) Neither the Company nor any of its Subsidiaries is currently a guarantor or
is otherwise party to an agreement pursuant to which it agreed to become
directly or contingently liable (as a co-signor or otherwise) for the
obligations of any Franchisee or Franchisee Affiliate. All guarantees of Lease
Documents are fully and completely described on Section 4.17(k) of the
Disclosure Schedule.

(l) Neither the Company nor any of its Subsidiaries has any currently
outstanding offer regarding, or is currently a party to, any financing
arrangement with any Franchisee.

(m) To the Knowledge of Seller, no Franchise Agreement is subject to any right
of rescission or termination (excluding only the express grant of termination
rights contained in the Franchise Agreements or by Law). Since January 1, 2008,
no Franchisee has asserted in writing such a right of rescission or termination,
or has asserted in writing an intention to cease operating its franchised outlet
or not renew its franchise, which assertion has not yet been resolved.

(n) Neither the Company nor any of its Subsidiaries has sold, assigned,
transferred, conveyed, pledged, granted a security interest in, or otherwise
disposed of any interest in any of the Franchise Agreements or its rights
thereunder.

(o) The Company and its Subsidiaries have, in all material respects, fully
accounted for and administered in accordance with applicable Law and all
applicable agreements all advertising funds and other marketing moneys
contributed by Franchisees. Prior to the date hereof, since January 1, 2006, no
Franchisee has asserted a written claim with respect to the expenditure or
management of any such advertising funds or marketing monies by any of the
Company or its Subsidiaries and, to the Knowledge of Seller, there exists no
legal or factual basis for any such claim

(p) Neither the Company nor any of its Subsidiaries has refused to consent to
the renewal of any Franchise Agreement since January 1, 2006.

(q) There are no outstanding applications for a purchase of a franchise for a
Gloria Jean’s retail outlet nor are any applications pending for the purchase of
a Gloria Jean’s retail outlet.

4.18. Insurance.

(a) Section 4.18(a) of the Disclosure Schedule sets forth a true, correct and
complete list of all current policies of fire, liability, product liability,
workers’ compensation, health, product recall and other forms of insurance
currently in effect with respect to the Business. Neither the Company nor any of
its Subsidiaries has received any notice of cancellation or termination with
respect to any such policies, and to the Knowledge of Seller, no

 

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event or condition exists or has occurred that could result in cancellation of
any such policies prior to its scheduled expiration date. To the Knowledge of
Seller, each of the Company and its Subsidiaries has duly and timely made all
claims that it has been entitled to make under each such policy.

(b) Since January 1, 2007, all products liability and general liability policies
maintained by or for the benefit of the Company or its Subsidiaries relating to
the operations of the Business have been “occurrence” policies and not “claims
made” policies. There is no claim by any of the Company or its Subsidiaries
pending under any of the policies described in Section 4.18(a) or (b) as to
which coverage has been denied by the underwriters of such policies, and no
aggregate limit under any of such policies has been reduced, or can reasonably
be expected to be reduced, by more than fifty percent (50%) by the payment of
any past or currently pending claims under such policy. Neither the Company nor
any of its Subsidiaries has been refused any insurance with respect to the
operations of the Business.

ARTICLE V

PRE-CLOSING COVENANTS

The Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing.

5.1. General. Each of the Parties will use its commercially reasonable efforts
to take all actions and to do all things necessary, proper, or advisable in
order to consummate and make effective the Transactions (including satisfaction,
but not waiver, of the Closing conditions set forth in Articles VII and VIII,
below).

5.2. Notices, Consents and Estoppels. Seller shall give any notices to third
parties, and use its commercially reasonable efforts to obtain any third party
consents, referred to in Section 4.3 above (or in any schedule thereto). Each of
the Parties will give any notices to, make any filings with, and use its
commercially reasonable efforts to obtain any authorizations, consents, and
approvals of Governmental Entities in connection with the matters referred to in
Sections 3.3 and 4.3 above (or in any schedule thereto).

5.3. Operation of Business. Except as contemplated by the terms of this
Agreement, from the date hereof until the Closing, Seller shall cause the
Company and its Subsidiaries to conduct the Business in the Ordinary Course of
Business. Except as contemplated by the terms of this Agreement, from the date
hereof until the Closing, Seller shall not allow any of the Company or its
Subsidiaries to do any of the following without the prior written consent of
Buyer (which consent shall not be unreasonably withheld or delayed):

(a) Amend its Organizational Documents;

(b) Sell, lease, license or otherwise dispose of, or agree to sell, lease,
license, or otherwise dispose of, any material assets held by the Company or its
Subsidiaries, except for sales of inventory in the Ordinary Course of Business;

 

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(c) Permit, allow, or subject any of the material assets held by the Company or
its Subsidiaries to any material Lien;

(d) Enter into any new agreement to assume, incur or guarantee any indebtedness
for borrowed money; or

(e) Except in the Ordinary Course of Business, enter into a new agreement
directly relating to or affecting the Business and that would be included within
the definition of Material Contracts if it had been entered into as of the date
of this Agreement or amend in a material manner any of the Material Contracts.

5.4. Full Access. Seller will permit representatives of Buyer (including legal
counsel and accountants) to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of Seller and
its Subsidiaries, to all premises, properties, personnel, books, records
(including tax records), contracts, and documents of or pertaining to the
Company, its Subsidiaries and the Business; provided that, to the extent that
such premises, properties, personnel, books, records (including tax records),
contracts, and documents also contain information that is not related to the
Company, its Subsidiaries or the Business, Seller shall be entitled to redact,
remove, or otherwise restrict such information from the premises, properties,
personnel, books, records (including tax records), contracts, and documents so
provided to Buyer. Buyer will treat and hold as such any Confidential
Information it receives from Seller in the course of the reviews contemplated by
this Section 5.4, will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, will return to Seller all tangible embodiments (and all
copies) of the Confidential Information that are in its possession.

ARTICLE VI

POST-CLOSING COVENANTS

The Parties agree as follows with respect to the period following the Closing.

6.1. General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article X below)
(including providing to the requesting party any information that a Party has in
its possession, which information is required to be provided to any third party
pursuant to the terms of any Franchise Agreement).

6.2. Taxes. The following provisions shall govern the allocation of
responsibility as between Buyer and Seller for certain tax matters following the
Closing Date:

(a) Tax Indemnification. Seller shall indemnify the Company, its Subsidiaries
and Buyer and hold them harmless from and against, without duplication, any
loss, claim, liability, expense or other damage attributable to all Taxes (or
the non-payment thereof) of the Company and its Subsidiaries for all taxable
periods ending on or before the Closing Date and the portion through the end of
the Closing Date for any taxable period that includes (but does not end on) the
Closing Date (the “Pre-Closing Tax Period”).

 

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(b) Straddle Period. In the case of any taxable period that includes (but does
not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes
based on or measured by income or receipts of the Company and its Subsidiaries
for the Pre-Closing Tax Period shall be determined based on an interim closing
of the books as of the close of business on the day immediately preceding the
Closing Date, and the amount of other Taxes of the Company and its Subsidiaries
for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed
to be the amount of such Tax for the entire taxable period multiplied by a
fraction the numerator of which is the number of days in the taxable period
ending on the day immediately preceding the Closing Date and the denominator of
which is the number of days in such Straddle Period.

(c) Responsibility for Filing Tax Returns.

(i) Buyer shall prepare, or cause to be prepared, and file, or cause to be
filed, all Tax Returns for the Company and its Subsidiaries that are filed after
the Closing Date, other than Income Tax Returns with respect to periods for
which a consolidated, unitary or combined Income Tax Return of Seller will
include the operations of the Company and its Subsidiaries. Buyer shall permit
Seller to review and comment on each such Tax Return described in the preceding
sentence prior to filing.

(ii) Seller shall include the income of the Company and its Subsidiaries
(including any deferred items triggered into income by Reg. §1.1502-13 and any
excess loss account taken into income under Reg. §1.1502-19) on Seller’s
consolidated federal Income Tax Returns for all periods through the end of the
day immediately preceding the Closing Date and pay any federal Income Taxes
attributable to such income. The Company and its Subsidiaries shall furnish Tax
information to Seller for inclusion in Seller’s federal consolidated Income Tax
Return for the period that includes the Closing Date in accordance with the
Company’s past custom and practice. The income of the Company and its
Subsidiaries shall be apportioned to (A) the period up to and including the day
immediately preceding the Closing Date and (B) the period after the Closing
Date, by closing the books of Target and its Subsidiaries as of the end of the
day immediately preceding the Closing Date. Buyer and Seller agree to report all
transactions occurring on the Closing Date on Buyer’s (or, if applicable, the
Company’s) federal Income Tax Return to the extent permitted by Reg.
§1.1502-76(b)(1)(ii)(B). Buyer agrees to indemnify Seller for any additional Tax
owed by Seller (including Tax owed by Seller due to this indemnification
payment) resulting from any transaction engaged in by the Company or its
Subsidiaries occurring on the Closing Date.

(d) Refunds and Tax Benefits. Any Tax refunds that are received by Buyer or the
Company and its Subsidiaries, and any amounts credited against Tax to which
Buyer or the Company and its Subsidiaries become entitled, that relate to the
Pre-Closing Tax Period shall be for the account of Seller, and Buyer shall pay
over to Sellers any such refund or the amount of any such credit within 15 days
after receipt or entitlement thereto.

 

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(e) Cooperation on Tax Matters.

(i) Buyer, the Company and its Subsidiaries, and Seller shall cooperate fully,
as and to the extent reasonably requested by the other Party, in connection with
the filing of Tax Returns pursuant to this Section 6.2 and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other Party’s request) the provision of records and
information that are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Buyer agrees to cause the Company and its Subsidiaries to, and Seller
agree to, (A) retain all books and records with respect to Tax matters pertinent
to the Company and its Subsidiaries relating to any taxable period beginning
before the Closing Date until the expiration of the statute of limitations (and,
to the extent notified by Buyer or Seller, any extensions thereof) of the
respective taxable periods, and abide by all record retention agreements entered
into with any taxing authority, and (B) give the other Party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other Party so requests, Buyer or Seller, as the case may
be, shall allow the other Party to take possession of such books and records.

(ii) Buyer and Sellers further agree, upon request, to use their commercially
reasonable efforts to obtain any certificate or other document from any
Governmental Entity or any other Person as may be necessary to mitigate, reduce
or eliminate any Tax that could be imposed (including with respect to the
transactions contemplated by this Agreement and the other Transaction
Documents).

(f) Tax-Sharing Agreements. All Tax-sharing agreements or similar agreements
with respect to or involving the Company and its Subsidiaries shall be
terminated as of the Closing Date and, after the Closing Date, the Company and
its Subsidiaries shall not be bound thereby or have any liability thereunder.

(g) Certain Taxes and Fees. All transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred in
connection with consummation of the transactions contemplated by this Agreement
shall be paid by Buyer when due, and Buyer shall, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such Taxes,
fees and charges, and, if required by applicable law, Seller shall join in the
execution of any such Tax Returns and other documentation.

(h) Tax Relating to Intercompany Transfers. In the event that Buyer, the Company
or any of the Company’s Subsidiaries incur any Taxes as a result of any
Intercompany Asset Transfer, Seller shall be responsible for the payment of such
Tax. “Intercompany Asset Transfer” means any transfer of assets (whether
tangible or intangible) or Liabilities among Seller, the Company and the
Company’s Subsidiaries, as contemplated by this Agreement, including any
transfer of (i) Non-Business Assets or Liabilities from the Company or any of
its Subsidiaries to Seller or its designee, (ii) assets or Liabilities related
to the Business from Seller to the Company or any of its Subsidiaries, and
(iii) assets or Liabilities related to the Business among the Company and its
Subsidiaries.

 

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6.3. Confidentiality. From and after the Closing Date, Seller shall hold in
confidence, and shall cause its respective Affiliates, directors, officers,
employees and agents to hold in confidence, all Confidential Information of the
Business. From and after the Closing Date, Buyer shall hold in confidence, and
shall cause their respective Affiliates, directors, officers, employees and
agents to hold in confidence, all Confidential Information of Seller not
otherwise transferred to Buyer as a part of the transactions contemplated by
this Agreement and the other Transaction Documents. Notwithstanding the
foregoing, the Party receiving Confidential Information (the “Recipient”) from
the other Party (the “Disclosing Party”) may disclose such Confidential
Information: (a) to the extent that such disclosure was previously authorized in
writing by the Disclosing Party; (b) to any Governmental Entity, with valid and
competent jurisdiction thereof, if the Recipient is directed to disclose such
Confidential Information to and by such Governmental Entity, provided that the
Recipient shall provide written notice of such disclosure to the Disclosing
Party; (c) to the Recipient’s legal, accounting, and financial advisors who have
a need to know such information solely for purposes of assisting in regard to
this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby, and who are subject to confidentiality
obligations to the Recipient; (d) by Seller or its Affiliate to financiers,
strategic partners, joint venturers, or acquirers, merging companies, and
successors to all or substantially all of the assets or stock of Seller or its
Affiliate, so long as such party is subject to written confidentiality
obligations to the Disclosing Party; (e) to the extent that disclosure is
required under applicable laws or the rules of any national securities exchange
or quotation system on which such Party’s stock is traded or quoted. Except as
otherwise set forth herein, no Party shall disclose or make use of, and each
Party shall cause its respective Affiliates, directors, officers, employees and
agents not to disclose or make use of, another Party’s Confidential Information
without the prior written consent of such other Party.

6.4. Non-Solicitation.

(a) From and after the Closing Date until the second (2nd) anniversary thereof,
Buyer and Buyer’s Affiliates shall not, directly or indirectly, solicit, entice,
induce or influence, or seek to solicit, entice, induce or influence, any person
who is engaged as an Employee to terminate his or her employment with Seller. In
the event of a material breach by Buyer or Buyer’s Affiliates of this
Section 6.4(a), the term of the non-solicitation obligation shall be extended
with respect to such covenant by the amount of time during which such breach
continues.

(b) Buyer hereby agrees that the covenants contained in Section 6.4(a) are
necessary to protect the legitimate business interests of Seller. Therefore,
Buyer acknowledges and agrees that its breach of any provision of Section 6.4(a)
is likely to cause irrevocable harm to Seller, for which there may be an
inadequate remedy at law and for which the ascertainment of damages would be
difficult. Accordingly, in the event of a breach of any term of Section 6.4(a)
by Buyer, Seller shall be entitled, in addition to, and without having to prove
the inadequacy of other remedies at law (including, without limitation, damages
for prior breaches hereof), to specific performance of the provision that is
being breached, as well as injunctive relief, and Buyer consents to the issuance
of such injunction and agree not to assert in any proceeding that

 

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money damages would be a sufficient remedy. Buyer hereby waives any requirement
that Seller must post any bond or other security in connection with such
injunctive relief. In addition, Buyer expressly agrees that if the scope of any
provision contained in Section 6.4(a) is too broad to permit the enforcement of
such restriction to its fullest extent, then such provision shall be enforced to
the maximum extent permitted by law, and the parties hereto hereby consent and
agree that such scope may be judicially limited or modified accordingly in any
proceeding brought to enforce such restriction. The rights and remedies provided
by this Section 6.4(b) are cumulative and in addition to any other rights or
remedies which Seller may have hereunder or at law or in equity.

6.5. No Additional Representations; Disclaimer. Buyer acknowledges that neither
Seller nor any Person acting on behalf of Seller (a) has made any representation
or warranty, express or implied, including any implied representation or
warranty as to the condition, merchantability, suitability or fitness for a
particular purpose of the Shares or (b) has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Company or its Subsidiaries, the Shares or the Business, in each
case except as expressly set forth in this Agreement or as and to the extent
required by this Agreement to be set forth in the Annexes and Disclosure
Schedule. Except as specifically set forth in this Agreement, Buyer further
agrees that neither Seller nor any other Person will have or be subject to any
liability of Buyer or any other Person resulting from the distribution to Buyer
or Buyer’s use of any such information, including any information, document or
material made (or offered to be made) available to Buyer or its Affiliates in
certain “data rooms” or otherwise, management presentations or any other form in
expectation of the transactions contemplated by this Agreement and the other
Transaction Documents. In connection with Buyer’s investigation of the Company,
its Subsidiaries and the Business, Buyer has received from or on behalf of
Seller certain projections, including plans, interim financial statements, and
projected statements of operating revenues and income from operations of Seller
for the fiscal year ending June 25, 2008 and for subsequent fiscal years and
certain business plan information for such fiscal year and succeeding fiscal
years. Buyer acknowledges that there are uncertainties inherent in attempting to
make such estimates, projections and other forecasts and plans, that Buyer is
familiar with such uncertainties, that Buyer is taking full responsibility for
making its own evaluation of the adequacy and accuracy of all estimates,
projections and other forecasts and plans so furnished to it (including the
reasonableness of the assumptions underlying such estimates, projections and
forecasts), and that Buyer shall have no claim against Seller with respect
thereto. Accordingly, Seller make no representations or warranties whatsoever
with respect to such estimates, projections and other forecasts and plans
(including the reasonableness of the assumptions underlying such estimates,
projections, and forecasts).

6.6. Sandbagging. Notwithstanding anything to the contrary contained in this
Agreement (including Seller’s failure to disclose any matter required to be
disclosed on any Disclosure Schedule hereto), Buyer agrees that no
representation or warranty of Seller in this Agreement or in any other
Transaction Document shall be deemed to be untrue or incorrect, and Seller shall
not be deemed to be in breach thereof, if Buyer has knowledge on the date of
this Agreement or the Closing Date, as applicable, of any such undisclosed
matter or that any such representation or warranty was untrue or incorrect. For
the purpose of this Section 6.6 only, “Buyer has knowledge” shall mean and be
limited to, those matters of which Robert McCullough, Nabi Saleh and Steve Leach
have actual knowledge, without duty of inquiry.

 

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6.7. General Release from Franchisee. Buyer shall use commercially reasonable
efforts to obtain a general release from each Franchisee of all claims against
Seller as a condition precedent to approving a renewal or transfer of such
Franchisee’s franchise or Franchise Agreement; provided, however, that
notwithstanding the foregoing, Buyer shall not be required to expend any funds
in connection with attempting to obtain such releases.

6.8. Directors’ and Officers’ Indemnification.

(a) Buyer shall, and shall cause the Company and its Subsidiaries to, indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date hereof or who becomes prior to the Closing Date, an officer or
director of the Company or any of its Subsidiaries (the “D&O Indemnified
Parties”) against any and all losses, damages, liabilities, deficiencies,
claims, interest, awards, judgments, penalties, costs and expenses (including
reasonable attorneys’ fees, costs and other out-of-pocket expenses incurred in
investigating, preparing or defending the foregoing) arising out of or relating
to any threatened or actual Litigation based in whole or in part on or arising
out of or relating in whole or in part to the fact that such person is or was a
director or officer of the Company or any of its Subsidiaries whether pertaining
to any matter existing or occurring at or prior to the Closing Date and whether
asserted or claimed prior to, or at or after, the Closing Date (the “D&O
Indemnified Liabilities”), in each case to the full extent a corporation is
permitted under applicable Law to indemnify its own directors or officers (and
Buyer shall, or shall cause the Company and its Subsidiaries to, pay expenses in
advance of the final disposition of any such Litigation to each D&O Indemnified
Party). Without limiting the foregoing, in the event any such Litigation is
brought against any D&O Indemnified Party (whether arising before or after the
Closing Date), (i) the D&O Indemnified Party may retain counsel satisfactory to
it and reasonably satisfactory to Buyer and its insurer, and Buyer shall, or
shall cause the Company and its Subsidiaries to, pay all fees and expenses of
such counsel for the D&O Indemnified Party promptly as statements therefor are
received and (ii) Buyer, the Company, its Subsidiaries and each D&O Indemnified
Party will use all reasonable efforts to assist in the vigorous defense of any
such matter; provided, however, that neither the Company, any of its
Subsidiaries nor Buyer shall be liable for any settlement effected without its
prior written consent, which consent shall not be unreasonably withheld. Any D&O
Indemnified Party wishing to claim indemnification under this Section 6.8 shall
notify Buyer upon learning of any such Litigation (but the failure so to notify
shall not relieve a party from any liability which it may have under this
Section 6.8 except to the extent such failure prejudices such party). The
parties hereto agree that all rights to indemnification hereunder, including
provisions relating to advances of expenses incurred in defense of any such
action or suit, existing in favor of the D&O Indemnified Parties with respect to
matters occurring through the Closing Date shall continue in full force and
effect for a period of not less than six years from the Closing Date; provided,
however, that all rights to indemnification in respect of any D&O Indemnified
Liabilities asserted or made within such period shall continue until the
disposition of such D&O Indemnified Liabilities.

(b) For six (6) years from the Closing Date, Buyer shall cause the Company and
its Subsidiaries to maintain, if available, officers’ and directors’ liability
insurance covering the persons who are presently covered by their officers’ and
directors’ liability insurance policies (copies of which have heretofore been
delivered to Buyer) with respect to actions and omissions occurring prior to the
Closing Date, providing coverage not less favorable than provided by such
insurance in effect on the date hereof. Buyer shall, or shall cause the Company
or its Subsidiaries, to pay such premiums.

 

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(c) Buyer shall cause the Company and its Subsidiaries not to take any action
directly or indirectly to disaffirm or adversely affect the provisions of the
Organizational Documents and any other written agreements of the Company and its
Subsidiaries that provide indemnification of and expense reimbursement to D&O
Indemnified Parties.

6.9. Post-Closing Transfer of Non-Business Assets. In the event that it is
determined after the Closing that any Non-Business Assets are still held by the
Company or its Subsidiaries (or their Affiliates or successors, as a result of
transfer, conveyance or assignment after the Closing), Buyer shall, or shall
cause the Company or its Subsidiaries (or their Affiliates or successors, as the
case may be) to, transfer, convey and assign such Non-Business Assets to Seller
or its designee as soon as practicable without further consideration therefor.

ARTICLE VII

CONDITIONS TO BUYER’S OBLIGATION TO CLOSE

Buyer’s obligation to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:

7.1. Accuracy of Representations and Warranties. The representations and
warranties set forth in Article IV above shall be true and correct in all
material respects at and as of the Closing Date, except to the extent that such
representations and warranties are qualified by the term “material,” or contain
terms such as “Material Adverse Effect,” in which case such representations and
warranties (as so written, including the term “material” or “Material”), shall
be true and correct in all respects at and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time (which
need only be true and correct in all material respects as of such date or time).

7.2. Performance of Covenants. Seller shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing, except
to the extent that such covenants are qualified by the term “material,” or
contain terms such as “Material Adverse Effect,” in which case Seller shall have
performed and complied with all of such covenants (as so written, including the
term “material” or “Material”) in all respects through the Closing.

7.3. No Injunctions. There shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement or the other Transaction Documents.

7.4. Delivery of Certificate. Seller shall have delivered to Buyer a certificate
to the effect that each of the conditions specified above in Sections 7.1, 7.2,
and 7.3 is satisfied in all respects.

7.5. Roasting Agreement. Buyer shall have received a counterpart of the Roasting
Agreement (in substantially the form attached hereto as Exhibit B (the “Roasting
Agreement”)) executed by Seller together with all exhibits, annexes and
schedules thereto.

 

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7.6. Amended and Restated Trademark License Agreement. Buyer shall have received
a counterpart of the Amended and Restated Trademark License Agreement (in
substantially the form attached hereto as Exhibit C (the “Amended and Restated
Trademark License Agreement”)) executed by Seller together with all exhibits,
annexes and schedules thereto.

7.7. Assignments. Buyer shall have received (a) a counterpart of the Assignment
and Consent to Assignment (in substantially the form attached hereto as
Exhibit D-1) relating to the Consulting Agreement dated as of February 10, 2005
by and between Gloria Jean’s Gourmet Coffees Corp. and Jireh International Pty.
Ltd. and (b) a counterpart of the Assignment and Consent to Assignment (in
substantially the form attached hereto as Exhibit D-2) relating to the Roasting
License Agreement dated as of February 10, 2005 by and between Gloria Jean’s
Gourmet Coffees Corp. and Gloria Jean’s Gourmet Coffees Franchising Corp., on
the one hand, and Gloria Jean’s Coffees International Pty. Ltd., Gloria Jean’s
Coffees Holdings Pty. Ltd., Jireh International Pty. Ltd. and Jireh Group Pty.
Ltd., on the other hand (collectively, the “Assignments”), each executed by
Seller together with all exhibits, annexes and schedules thereto.

7.8. Amended and Restated Brand Management Agreement. Buyer shall have received
a counterpart of the Amended and Restated Brand Management Agreement (in
substantially the form attached hereto as Exhibit E (the “Amended and Restated
Brand Management Agreement”)) executed by Seller together with all exhibits,
annexes and schedules thereto.

7.9. Resignations. All directors and officers of the Company and its
Subsidiaries shall have resigned from their respective directorships and/or
offices.

Buyer may waive any condition specified in this Article VII if it executes a
writing so stating at or prior to the Closing, and all conditions specified in
this Article VII shall be deemed to have been satisfied or waived from and after
the Closing.

ARTICLE VIII

CONDITIONS TO SELLER’S OBLIGATION TO CLOSE

Seller’s obligation to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:

8.1. Accuracy of Representations and Warranties. The representations and
warranties set forth in Article III above shall be true and correct in all
material respects at and as of the Closing Date, except to the extent that such
representations and warranties are qualified by the term “material,” or contains
terms such as “Material Adverse Effect,” in which case such representations and
warranties (as so written, including the term “material” or “Material”) shall be
true and correct in all respects at and as of the Closing Date, except for
representations and warranties that speak as of a specific date or time (which
need only be true and correct in all material respects as of such date or time).

 

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8.2. Performance of Covenants. Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing, except
to the extent that such covenants are qualified by the term “material,” or
contains terms such as “Material Adverse Effect,” in which case Buyer shall have
performed and complied with all of such covenants (as so written, including the
term “material” or “Material”) in all respects through the Closing.

8.3. No Injunctions. There shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement or the other Transaction Documents.

8.4. Delivery of Certificate. Buyer shall have delivered to Seller a certificate
to the effect that each of the conditions specified above in Sections 8.1, 8.2,
and 8.3 is satisfied in all respects.

8.5. Roasting Agreement. Seller shall have received a counterpart of the
Roasting Agreement executed by Buyer or its Affiliates, together with all
exhibits, annexes, and schedules thereto.

8.6. Amended and Restated Trademark License Agreement. Seller shall have
received a counterpart of the Amended and Restated Trademark License Agreement
executed by Buyer or its Affiliates, together with all exhibits, annexes, and
schedules thereto.

8.7. Assignments. Seller shall have received counterparts of the Assignments,
each executed by Buyer or its Affiliates, together with all exhibits, annexes,
and schedules thereto.

8.8. Amended and Restated Brand Management Agreement. Seller shall have received
a counterpart of the Amended and Restated Brand Management Agreement executed by
Buyer or its Affiliates, together with all exhibits, annexes, and schedules
thereto.

Seller may waive any condition specified in this Article VIII on behalf of
Seller if it executes a writing so stating at or prior to the Closing, and all
conditions specified in this Article VIII shall be deemed to have been satisfied
or waived from and after the Closing.

ARTICLE IX

REMEDIES FOR BREACHES OF THIS AGREEMENT

9.1. Indemnification by Seller. From and after the Closing Date and upon the
terms and subject to the conditions set forth in this Agreement, Seller shall
indemnify, defend and hold harmless each Buyer and its officers, managers,
directors, Affiliates, and successors and permitted assigns (collectively, the
“Buyer Indemnified Parties”), from and against all Claims asserted against,
resulting from, imposed upon or incurred by any Buyer Indemnified Party by
reason of, arising out of or resulting from: (a) except as set forth in the
Disclosure Schedule, any breach of any representation or warranty of Seller
contained in or made pursuant to this Agreement, including in the certificate
delivered pursuant to Section 7.4; (b) any breach of any covenant of Seller
contained in or made pursuant to this Agreement or any other Transaction
Document; or (c) notwithstanding clause (a) above, any Liability arising from
the matters disclosed on Schedule 4.14 of the Disclosure Schedule. Without
limiting the foregoing, in the

 

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event that Seller or any of the Buyer Indemnified Parties receives or recovers
any damages, costs, expenses, fees or similar amounts from the opposing party or
parties (whether in connection with a claim, counterclaim or otherwise) in the
course of, or upon the conclusion of, defending, prosecuting or otherwise
litigating the matters disclosed on Schedule 4.14 of the Disclosure Schedule,
Seller shall be entitled to such damages, costs, expenses, fees or amounts.

9.2. Indemnification by Buyer. From and after the Closing Date and upon the
terms and subject to the conditions set forth in this Agreement, Buyer shall
indemnify, defend and hold harmless Seller and its respective officers,
directors, Affiliates, and successors and permitted assigns (collectively, the
“Seller Indemnified Parties”), from and against all Claims asserted against,
resulting to, imposed upon or incurred by any Seller Indemnified Party, directly
or indirectly, by reason of or resulting from: (a) any breach of any
representation or warranty of any Buyer contained in or made pursuant to this
Agreement, including in the certificate delivered pursuant to Section 8.4;
(b) any breach of any covenant of any Buyer contained in or made pursuant to
this Agreement or any other Transaction Document; or (c) the conduct of the
Business by Buyer subsequent to the Closing.

9.3. Indemnification of Third Party Claims. The following provisions shall apply
to any Claim subject to indemnification that is Litigation filed or instituted
by, or the making of any Claim or demand by, any third party, including any
Governmental Entity (a “Third Party Claim”):

(a) Notice and Defense. The Party or Parties seeking to be indemnified
(collectively, the “Indemnified Party”) shall give the Party or Parties from
whom indemnification is sought (collectively, the “Indemnifying Party”) prompt
written notice (and in any event written notice delivered within ten
(10) Business Days after the receipt of service or other notice of the
commencement of any Litigation) of the Third Party Claim, together with a copy
of all papers served, if any. The Indemnifying Party may undertake and control
the defense and/or settlement of the Third Party Claim, by representatives
chosen by it. Failure to give notice of the Third Party Claim shall not affect
the Indemnifying Party’s duties or obligations under this Article IX, except to
the extent the Indemnifying Party is prejudiced thereby. So long as the
Indemnifying Party assumes the defense of the Third Party Claim actively and in
good faith, the Indemnified Party shall have no right to settle or otherwise
compromise the Third Party Claim and the Indemnifying Party shall not be
responsible hereunder for fees of other counsel or any other expenses with
respect to the defense of such Third Party Claim, except to the extent a
conflict of interest exists between the Indemnified Party and the Indemnifying
Party, in which case the Indemnifying Party shall be responsible for all
reasonable expenses (including attorneys’ fees) incurred by the Indemnified
Party therefor. The Indemnified Party shall make available to the Indemnifying
Party or its representatives all records and other materials reasonably
requested by them and in the possession or under the control of the Indemnified
Party, for the use of the Indemnifying Party and its representatives in
defending any Third Party Claim, and shall in other respects give reasonable
cooperation in such defense. The Indemnified Party shall be entitled to
participate, at its own expense, in the defense of the Third Party Claim.

(b) Failure to Defend. If the Indemnifying Party, within a reasonable time after
notice of the Third Party Claim, fails to defend the Third Party Claim actively
and in good faith, then the Indemnified Party shall have the right to undertake
the control and defense,

 

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compromise or settlement of the Third Party Claim on behalf of and for the
account and risk of the Indemnifying Party; provided, however, that the
Indemnifying Party shall have no obligation hereunder for any compromise or
settlement entered into without its prior written consent, which consent shall
not be unreasonably withheld, delayed or conditioned.

9.4. Non-Third Party Claims. In the event any Indemnified Party should have a
Claim against any Indemnifying Party that is not a Third Party Claim, the
Indemnified Party shall deliver written notice with reasonably promptness to the
Indemnifying Party specifying the nature of and specific basis for the Claim;
provided, however, that the failure to give such timely notice of such Claim
shall not impair such Indemnified Party’s rights hereunder except to the extent
the Indemnifying Party is prejudiced thereby.

9.5. Limitations on Indemnification.

Except for any willful or knowing breach or misrepresentation and except for any
breach of the representations and warranties made in or pursuant to Section 4.5,
as to which Claims may be brought without limitation as to time or amount:

(a) Time Limitation. No Claim shall be brought under this Article IX for, and
the Indemnifying Party shall have no Liability under this Article IX with
respect to, any breach of any representation or warranty after the lapse of
eighteen (18) months after the Closing Date; provided, however, that:

(i) Any Claim brought for breach of any representation or warranty made in or
pursuant to Sections 3.2, 4.2 or 4.9 may be brought at any time until the date
which is thirty-six (36) months following the Closing Date.

(ii) Any Claim for indemnification under this Article IX made by an Indemnified
Party by delivering written notice to the Indemnifying Party relating to a
breach of a representation or warranty prior to the termination of the survival
period for such Claim shall be preserved despite the subsequent termination of
such survival period.

(iii) If any act, omission, disclosure or failure to disclose shall form the
basis for a Claim for breach of more than one representation or warranty, and
such Claims have different periods of survival hereunder, then the termination
of the survival period of one Claim shall not affect an Indemnified Party’s
right to make a Claim based on the breach of representation or warranty still
surviving.

(b) Basket. No Indemnified Party shall be entitled to indemnification or
recovery under this Article IX unless the aggregate of the Indemnifying Party’s
indemnification obligations under this Article IX exceeds USD $50,000 (the
“Basket Amount”), and then only to the extent that such indemnification
obligations exceed the Basket Amount; provided, however, that the preceding
clause relating to the Basket Amount shall not apply to any Claim for any breach
of any representation or warranty made in or pursuant to Sections 4.5 or 4.9 or
any Claim for indemnification pursuant to Section 9.1(c).

(c) Indemnity Cap. In no event shall the aggregate Liability of Seller to
indemnify the Buyer Indemnified Parties exceed an amount equal to USD $500,000
(the

 

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“Indemnity Cap”); provided, however, that the Indemnity Cap with respect to any
Claim for any breach of any representation or warranty made in or pursuant to
Sections 4.5 or 4.9 shall be the Purchase Price; provided, further, that this
Section 9.5(c) shall not limit in any way the amount of Liability of Seller with
respect to its indemnification obligation under Section 9.1(c).

(d) General. The indemnification provisions of this Article IX shall be each
Party’s exclusive and sole source of remedy for monetary damages in the event of
a breach of this Agreement by the other Party or any other Claim relating to the
transactions contemplated hereby. The liability of the Indemnifying Party under
this Article IX shall be measured by the Indemnified Party’s out-of-pocket
payments, net of any insurance proceeds or payments by other responsible
parties. The limitations set forth in this Section 9.5(d) do not in any way
limit the obligation of any Party to indemnify the other Party or Parties from
and against any Claim arising from any breach of a covenant not subject to a
limitation in this Section 9.5, even if such breach also constitutes a breach of
a representation or warranty. In the event of payment under this Agreement, the
Indemnifying Party shall be subrogated to the extent of such payment to all of
the rights of recovery of the Indemnified Party, who shall execute all papers
reasonably required and shall undertake its commercially reasonable efforts to
secure such rights, including the execution of such documents necessary or
reasonably appropriate to enable the Indemnifying Party to bring suit to enforce
such rights. Notwithstanding any term herein to the contrary, (i) Seller shall
not have any Liability to any of the Buyer Indemnified Parties for any Claims by
reason of, arising out of or resulting from any increase in the price of any
product offered by the Company or its Subsidiaries, which increase was made at
the request of Buyer; and (ii) to the extent Seller shall have any Liability
under this Article IX which directly relates to any action or omission by or at
the direction of Buyer or its Affiliates, the Parties shall be comparatively
liable for such Liability, as determined in accordance with Section 11.10
herein.

ARTICLE X

TERMINATION

10.1. Termination Without Breach. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, without any further Liability
of any Party at any time prior to the Closing:

(a) by mutual written agreement of Buyer and Seller; or

(b) by either Buyer or Seller in the event the Closing shall not have occurred
on or before May 31, 2009, or such other date as Buyer and Seller shall agree
upon in writing; provided, however, that if a Party seeking termination pursuant
to this clause (b) is in breach in any material respect of any of its
representations, warranties, covenants or agreements contained in this
Agreement, then that Party may not terminate this Agreement pursuant to this
clause (b); or

(c) by either Buyer or Seller in the event any Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any Law or Order, or refused
to grant any required consent or approval, that has the effect of making the
consummation of the transactions contemplated hereby illegal or that otherwise
prohibits the consummation of such transactions.

 

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10.2. Termination for Breach.

(a) Termination by Buyer. If (i) there has been a material violation or breach
by Seller of any of its representations, warranties, covenants or agreements
that has not been waived in writing by Buyer, (ii) an event has occurred (other
than a breach of this Agreement by Buyer) such that a condition to the
obligations of Buyer cannot be satisfied, or (iii) Seller shall have attempted
to terminate this Agreement under this Article X or otherwise without grounds to
do so, then Buyer may, upon written notice to Seller at any time prior to the
Closing during the period that such violation, breach, failure or wrongful
termination attempt is continuing, terminate this Agreement with the effect set
forth in Section 10.2(c).

(b) Termination by Seller. If (i) there has been a material violation or breach
by Buyer of any of its representations, warranties, covenants or agreements that
has not been waived in writing by Seller, (ii) an event has occurred (other than
a breach of this Agreement by Seller) such that a condition to the obligations
of Seller cannot be satisfied, or (iii) Buyer shall have attempted to terminate
this Agreement under this Article X or otherwise without grounds to do so, then
Seller may, upon written notice to Buyer at any time prior to the Closing during
the period that such violation, breach, failure or wrongful termination attempt
is continuing, terminate this Agreement with the effect set forth in
Section 10.2(c).

(c) Effect of Termination. Termination of this Agreement pursuant to this
Section 10.2 shall not in any way terminate, limit or restrict the rights and
remedies of any Party against any other Party that has violated, breached or
failed to satisfy any of the representations, warranties, covenants, agreements,
conditions or other provisions of this Agreement prior to termination hereof.

ARTICLE XI

MISCELLANEOUS

11.1. Press Releases and Public Announcements; Required Filings. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of Buyer and Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities.

11.2. No Third-Party Beneficiaries. Except as provided in Section 6.8 and
Article IX above, this Agreement shall not confer any rights or remedies upon
any Person other than the Parties and their respective successors and permitted
assigns.

11.3. Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior and contemporaneous understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they relate in any way to the
subject matter hereof.

11.4. Succession and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder

 

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without the prior written approval of the other Party; provided, however, that
Buyer may assign its rights and obligations under this Agreement to any one or
more of its Affiliates, provided that Buyer shall remain liable for all such
obligations hereunder.

11.5. Counterparts. This Agreement may be executed in one or more counterparts
(including by means of facsimile or portable document format), each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.

11.6. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

11.7. Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given (a) when delivered personally
to the recipient or delivered by facsimile transmission or electronic mail, in
each case with confirmation of receipt, (b) two (2) Business Days after being
sent to the recipient by reputable international overnight courier service
(charges prepaid), or (c) five (5) Business Days after being mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, and addressed to the intended recipient as set forth below:

 

If to Seller, to:      Diedrich Coffee, Inc.      28 Executive Park, Suite 200
     Irvine, California 92614      Attn: Chief Executive Officer      Facsimile:
(949) 260-6726

With a copy to (which copy shall not constitute notice):

 

     Gibson, Dunn & Crutcher LLP      3161 Michelson Drive, Suite 1200     
Irvine, California 92612      Attn: John M. Williams      Facsimile: (949)
451-4220 If to Buyer, to:      Praise International Pty. Ltd.      11 Hoyle
Avenue      Castle Hill, NSW 2154      Australia      Attn: Nabi Saleh     
Facsimile: +61 2 9894 2210

 

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With a copy to (which copy shall not constitute notice):

 

     Foley & Lardner LLP      555 S. Flower Street, 35th Floor      Los Angeles,
California 90071      Attn: Richard W. Lasater II      Facsimile: (213) 486-0065

Any Party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.

11.8. Governing Law. This Agreement and its validity, construction,
interpretation, and legal effect shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.

11.9. Submission to Jurisdiction. Subject to Section 11.10, each of the Parties
hereto irrevocably and unconditionally submits to the exclusive personal
jurisdiction of either the Courts of the City and County of Los Angeles for the
State of California or the United States District Court for the Central District
of California, in connection with any dispute, claim or controversy arising out
of or related to this Agreement and the other agreements and documents
contemplated hereby (including seeking an equitable remedy). In any such
dispute, claim or controversy, each of the Parties hereto irrevocably and
unconditionally waives and agrees not to assert by way of motion, as a defense
or otherwise any claims that it is not subject to the jurisdiction of the above
courts, that such action is brought in an inconvenient forum or that the venue
of such action, suit or other proceeding is improper. Subject to Section 11.10,
each of the Parties hereto also agrees that any final and non-appealable
judgment against a Party hereto in connection with any action, suit or other
proceeding shall be conclusive and binding on such Party and that such award or
judgment may be enforced in any court of competent jurisdiction, either within
or outside the United States. A certified or exemplified copy of such award or
judgment shall be conclusive evidence of the fact and amount of such award or
judgment. Without limiting the foregoing, each Party agrees that service of
process on such Party as provided in Section 11.7 shall be deemed effective
service of process on such Party.

11.10. JAMS Arbitration. Any dispute, claim or controversy arising out of or
relating to this Agreement or the other agreements and documents contemplated
hereby or the breach, termination, enforcement, interpretation or validity
thereof, including the determination of the scope or applicability of this
agreement to arbitrate, shall be determined by arbitration in Los Angeles,
California, before one (1) arbitrator who shall be a retired judge admitted to
practice law in the State of California. The arbitration shall be administered
by JAMS (or any like organization successor thereto) pursuant to its Streamlined
Arbitration Rules and Procedures. The arbitrator shall follow any applicable
federal law and California state law in rendering an award. Judgment on the
award may be entered in any court having jurisdiction. This clause shall not
preclude the Parties from seeking provisional remedies in aid of arbitration
from a court

 

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of appropriate jurisdiction. The Parties further understand and agree that the
arbitrator’s decision shall be final and binding to the fullest extent permitted
by law and enforceable by any court having jurisdiction thereof.

11.11. Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Parties. No
waiver by any Party of any provision of this Agreement or any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be valid unless the same shall be in writing and
signed by the Party making such waiver, nor shall such waiver be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.

11.12. 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. Further, any such invalid or unenforceable term will
be re-construed so as to be enforceable to the maximum extent permitted by law,
so as to achieve the effect intended by the Parties.

11.13. Expenses; Attorneys’ Fees.

(a) Each Party will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.

(b) If Buyer or any of its Affiliates, successors or assigns brings any
Litigation against Seller or any of its Affiliates, successors or assigns, or if
Seller or any of its Affiliates, successors or assigns brings any Litigation
against Buyer or any of its Affiliates, successors or assigns, in addition to
any damages and costs which the prevailing party otherwise would be entitled,
the non-prevailing party shall pay to the prevailing party its actual attorneys’
fees and costs incurred in bringing, prosecuting or defending such Litigation
and/or enforcing any Order granted therein, all of which shall be deemed to have
accrued on the commencement of such Litigation and shall be paid whether or not
such Litigation is prosecuted to an Order. Any Order entered in such Litigation
shall contain a specific provision providing for the recovery of attorneys’ fees
and costs incurred in enforcing such Order. For the purposes of this
Section 11.13(b), attorneys’ fees shall include fees incurred in the following:
(i) post-judgment motions and collection actions; (ii) contempt proceedings;
(iii) garnishment, levy and debtor and third party examinations; (iv) discovery;
and (v) bankruptcy litigation.

11.14. Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word “including” (and grammatical variations thereof) shall mean “including
without limitation” (or the applicable grammatical variation thereof).

 

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11.15. Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes,
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.

11.16. Governing Language. This Agreement has been negotiated and executed by
the Parties in English. In the event any translation of this Agreement is
prepared for convenience or any other purpose, the provisions of the English
version shall prevail.

11.17. Schedules. The disclosures in the Disclosure Schedule are to be taken as
relating to the representations and warranties of Seller as a whole. The
inclusion of information therein shall not be construed as an admission that
such information is material to Seller, its Subsidiaries or the Business. In
addition, matters reflected in the Disclosure Schedule are not necessarily
limited to matters required by this Agreement to be reflected therein. Such
additional matters are set forth for informational purposes only and do not
necessarily include other matters of a similar nature.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.

 

SELLER: Diedrich Coffee, Inc. By:  

/s/ Paul C. Heeschen

Name:  

Paul C. Heeschen

Title:   Chairman of the Board BUYER: Praise International North America, Inc.
By:  

/s/ Nabi Saleh

Name:   Nabi Saleh Title:   Executive Chairman

SIGNATURE PAGE

TO

STOCK PURCHASE AGREEMENT