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Advisory Engagement Letter - Peet's Coffe & Tea Inc. and HWJesse&Co

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                  [LETTERHEAD OF HWJESSE & CO. APPEARS HERE]

09 December 1996

Mr. Gerald Baldwin, Chairman
Peet's Coffee & Tea
1310 - 65th Street
Emeryville, California 94608

Dear Jerry:

     This letter (the "Advisory Engagement Letter") will confirm that Peet's
Coffee & Tea ("PCT" or the "Company") has engaged HWJesse&Co ("HWJ&C") to be the
Company's on-going financial advisor.  We look forward to working with you to
develop and execute financial and business strategies to enhance shareholder
value at Peet's Coffee & Tea.

HWJ&C Activities

     In this Engagement, HWJ&C win, on an on-going basis:

     .    Act as the exclusive long-term financial advisor to the Company;

     .    Periodically meet with the Company's management and board to discuss
              the Company's operating strategy, competitive position, business
              and financial prospects and growth opportunities;

     .    Assist the Company in formulating strategic and financial plans
              designed to create long-term shareholder value and liquefying such
              value when appropriate;

     .    Assist in the development of capitalization plans which provide the
              capital resources necessary to accomplish the operating and
              strategic plans; and

     .    Assist the Company in developing appropriate marketing strategies and
              tactics to achieve the Company's objectives.

HWJ&C Compensation

     In return for the services contemplated herein for the period commencing 09
December 1996, HWJ&C's compensation (the "Advisory Fees") from the Company will
include:

     .    A monthly retainer of $5,000 beginning 09 December 1996, and payable
              on the 1st day of each month thereafter; and

     .    100,000 warrants (the "Warrants"), each with the right to purchase 1
              share of Company common stock (with standard antidilution
              adjustments for stock splits
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              and stock dividends) at an exercise price of $15.00 and an
              expiration date of 31 December 2001; all Warrants will have a net
              exercise provision and will be exercisable upon execution of this
              Engagement Letter, subject to two repurchase rights (the
              "Rights"): i) the right to repurchase 25,000 Warrants, which
              amount will decline ratably over the 12 months beginning 09
              December 1996, and ii) the right to repurchase 50,000 Warrants,
              which amount will decline ratably over the 50 months beginning 09
              December 1996. The Rights will have a repurchase price of $0.01
              per Warrant, and will be exercisable in the event of a Termination
              of this Engagement.

     .    The Company will reimburse HWJ&C for its reasonable out-of-pocket
              expenses (including reasonable fees and expenses of its legal
              counsel, if any) incurred in connection with this engagement. Such
              expenses shall not exceed $5,000 without prior approval from the
              Company. HWJ&-C will invoice the Company monthly for out-of-pocket
              expenses incurred.

Confidentiality

     In connection with this engagement HWJ&-C recognizes that certain
nonpublic, confidential, proprietary information (the "Confidential
Information") may be furnished to HWJ&C.

     HWJ&C agrees not to disclose any Confidential Information to any person who
is not a partner, officer or employee of HWJ&-C or counsel to HWJ&-C, or, except
for performance of services hereunder, use such Confidential Information, except
with the consent of PCT or pursuant to a subpoena or order issued by a court of
competent jurisdiction or by a judicial or administrative or legislative body or
committee.  HWJ&C represents that each of its partners, officers and employees
is formally apprised of his or her obligations concerning the confidentiality of
all client affairs and information.  In the event of any breach of
confidentiality by any partner, officer or employee of HWJ&-C, HWJ&C will assume
responsibility for such breach (indemnify and hold PCT harmless from any loss
(including the loss of the Proposed Transaction), damages, or claim related to
or resulting from such breach of confidentiality).

     In the event that HWJ&C receives a request to disclose any Confidential
Information under such subpoena or order we will (a) promptly notify PCT
thereof, (b) consult with PCT on its willingness and the advisability of taking
steps to resist or narrow such request, and (c) if disclosure is required or
deemed advisable by PCT, cooperate with PCT in any attempt that it may make to
obtain an order or other reliable assurance that confidential treatment win be
accorded to designated portions of the Confidential Information.  HWJ&C shall be
entitled to reimbursement for its expenses, including the fees and expenses of
its counsel, in connection with action taken pursuant to this paragraph.

     Information will not be deemed Confidential Information that (i) is
information in the possession of HWJ&C prior to 01 September 1996, (ii) becomes
available in the public domain other than as a result of disclosure by HWJ&C or
its partners, officers, employees or advisors, or (iii) is not acquired from PCT
or persons known by HWJ&C to be in breach of an obligation of
<PAGE>

secrecy to PCT. Any and all information related to PCT, whenever disclosed,
shall be Confidential Information unless such information falls within either
clause (ii) or (iii) above.

     All written information supplied by PCT to HWJ&C in connection with this
engagement and designated by PCT as confidential, and all copies or translations
thereof, or documents incorporating any such information, made by HWJ&C, shall
upon request be returned by HWJ&C to PCT or to independent counsel for PCT at
the election of HWJ&C.

     PCT agrees not to disclose any nonpublic, confidential, or proprietary
information furnished to it by HNVJ&C, including, but not limited to, the terms
and conditions of this and any other agreements between PCT and HWJ&C, to any
person who is not an officer or director of PCT or counsel to PCT except with
the consent of HWJ&C or as required by law.  PCT represents that it has
exercised all reasonable measures to ensure that each of its officers and
directors is formally apprised of his or her obligations concerning the
confidentiality of all HWJ&C affairs and information.

Indemnification

     Since HWJ&C will be acting on behalf of PCT, PCT agrees to indemnify HWJ&C
and other related persons and entities according to the form of agreement
attached hereto as Exhibit A which is hereby incorporated into and made part of
this agreement.

Termination

     HWJ&C's engagement hereunder may be terminated at any time with or without
cause, by either PCT upon 30 days written notice to HWJ&C, or by HWJ&C, upon 30
days written notice to PCT; provided, however, that in the event of any
termination by PCT, HWJ&C will be entitled to the fees provided for herein prior
to effective date of termination and, provided further, any termination of HWJ&-
C's engagement hereunder shall not affect Pct's obligation to indemnify HWJ&C
and certain related persons and entities as provided in the paragraph above.

No Agency Relationship

     It is understood that HWJ&-C, in performing its services, is not the agent
for the Company and does not have the actual or implied authority to enter into
any contracts which bind the Company, without the prior written consent of the
Company.

Disagreements

     PCT and HWJ&-C shall negotiate in good faith to resolve any disputes
between themselves in connection with this engagement.  In the event of a
failure to resolve the dispute, the dispute shall be resolved through binding
arbitration conducted by the American Arbitration Association.

     If a dispute arises between HWJ&C and PCT, HWJ&C agrees to use a law firm
other than Cooley Godward.
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Conclusion

     We look forward to the opportunity to advise Peet's Coffee & Tea in
connection with this engagement.

     Please confirm that the foregoing is in accordance with your understanding
by signing and returning the enclosed duplicate of this letter.

Very truly yours,

HWJesse&Co, by
         -

/s/ H. William Jesse Jr.
------------------------
H. William Jesse Jr., its
President

Accepted and agreed to as of the date first written above:

Peet's Coffee & Tea, by

/s/ Gerald Baldwin
------------------
Gerald Baldwin, its
Chairman
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                                                                          Page 5
                                   EXHIBIT A
                           Indemnification Agreement

     In connection with HWJesse&Co's ("`HWJ&C") engagement to provide advisory
services as described in the Advisory Engagement Letter attached hereto dated 09
December 1996, Peet's Coffee & Tea ("PCT" or the "Company") hereby agrees to
indemnify and hold harmless HWJ&C and its affiliates, the respective directors,
officers, partners, agents and employees of HWJ&C and its affiliates and each
other person, if any, controlling HWJ&C or any of its affiliates, to the full
extent lawful, from and against all losses, claims, damages, liabilities and
expenses incurred by them (including reasonable fees and disbursements of
counsel) which (A) are related to or arise out of (i) actions taken or omitted
to be taken (including any untrue statements made or any statements omitted to
be made) by the Company or (ii) actions taken or omitted to be taken by an
indemnified person with PCT's prior consent or in conformity with PCT's actions
or omissions or (B) are otherwise related to or arise out of HWJ&-C's activities
on PCT's behalf under HWJ&C's engagement, and PCT will reimburse HWJ&C and any
other person indemnified hereunder for all reasonable expenses (including
reasonable fees and disbursements of counsel) incurred by HWJ&C or such other
indemnified person in connection with investigating, preparing or defending any
such action or claim, whether such action or claim is in connection with pending
or threatened litigation or any investigation, proceeding or hearing conducted
by a governmental or quasi-governmental agency or any regulatory entity.  PCT
will not be responsible, however, for any losses, claims, damages, liabilities
or expenses pursuant to clause (B) of the preceding sentence to the extent that
such loss, claim, damage, liability or expense is the result of the bad faith or
negligence of the person seeking indemnification hereunder.  PCT also agrees
that neither HWJ&-C, nor any affiliates, nor any director, officer, partner,
agent or employee of HWJ&-C or any of its affiliates, nor any person controlling
HWJ&C or any of its affiliates (hereinafter collectively referred to as "HWJ&C's
Related Parties"), shall have any liability to PCT for or in connection with
such engagement except for such liability for losses, claims, damages,
liabilities or expenses incurred by PCT to the extent that they result from the
bad faith or negligence of HWJ&C or HWJ&C's Related Parties.  PCT further agrees
that PCT will not, without the prior written consent of HWJ&C, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not HWJ&C or any indemnified person is an actual or
potential party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of HWJ&C and
each other indemnified person hereunder from all liability arising out of such
claim, action, suit or proceeding.

     Promptly after receipt by an indemnified person of notice of any complaint
or the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such person will notify PCT in
writing of such complaint or of the commencement of such action or proceeding,
but failure to so notify PCT will not relieve PCT from any liability which PCT
may have hereunder or otherwise, except to the extent that such failure
prejudices PCT's rights.  If PCT so elects or is requested by such indemnified
person, PCT will assume the defense of such action or proceeding, including the
employment of counsel reasonably satisfactory to HWJ&C and the payment of the
fees and disbursements of such counsel.  In the event, however, such indemnified
person reasonably determines in its judgment that having common counsel would
present such counsel with a conflict of interest or if PCT
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                                                                          Page 6

fails to assume the defense of the action or proceeding in a timely manner, then
such indemnified person may employ separate counsel to represent or defend it in
any such action or proceeding and PCT will pay the reasonable fees and
disbursements of such counsel, provided, however, that PCT will not be required
to pay the fees and disbursements of more than one separate counsel for all
indemnified persons in any jurisdiction in any single action or proceeding. In
any action or proceeding the defense of which PCT assumes, the indemnified
person will have the right to participate in such litigation and to retain its
own counsel at such indemnified person's own expense.

     PCT agrees that if any indemnification sought by an indemnified person
pursuant to this letter agreement is held by a court to be unavailable for any
reason other than as specified in the second sentence of the first paragraph of
this indemnification agreement, then (whether or not - HWJ&C is the indemnified
person), PCT and HWJ&C will contribute to the losses, claims, damages,
liabilities and expenses for which such indemnification is held unavailable in
such proportion as is appropriate to reflect the relative benefits to PCT, on
the one hand, and HWJ&C, on the other hand, in connection with HWJ&C's
engagement referred to above, subject to the limitation that in any event
HWJ&C's aggregate contribution to all losses, claims, damages, liabilities and
expenses with respect to which contribution is available hereunder will not
exceed the amount of fees actually received by HWJ&C from PCT pursuant to
HWJ&C's engagement referred to above.  It is hereby agreed that the relative
benefits to PCT, on the one hand, and HWJ&C, on the other hand, with respect to
HWJ&C's engagement shall be deemed to be in the same proportion as (i) the total
value paid or proposed to be paid or received by PCT, as the case may be,
pursuant to the transaction, whether or not consummated, for which HWJ&C is
engaged to render financial advisory services bears to (ii) the fee paid or
proposed to be paid to HWJ&C in connection with such engagement PCT's indemnity,
reimbursement and contribution obligations under this letter agreement shall be
in addition to any rights that HWJ&C or any indemnified person may have at
common law or otherwise.

     PCT hereby consents to personal jurisdiction and service and venue in any
court in which any claim which is subject to this letter agreement is brought
against HWJ&-C or any other indemnified person, provided that HWJ&C or the
indemnified person is subject to personal jurisdiction and service and venue in
such court.

     It is understood that, in connection with HWJ&-C's above-mentioned
engagement, HWJ&C may also be engaged to act in one or more additional
capacities, and that the terms of the original engagement or any such additional
engagement may be embodied in one or more separate written agreements.  The
provisions of this letter agreement shall apply to the original engagement, and
any such additional engagement and any modification of the original engagement
or such additional engagement, if so stated in such additional engagement, and
shall remain in full force and effect following the completion or termination of
HWJ&C's engagement(s), but only to the extent such provisions relate to the
engagement which is subject to this letter agreement or any modification
thereof.