MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding entered into this 24th day of October,
1996, contains the terms of the settlement (the "Settle ment") between Brothers
Gourmet Coffees, Inc. ("Brothers"), Xxxxxx Xxxxx, Xxxxxxx Xxxxxx, Xxxxx Xxxxx,
Xxxxxx X. Xxxxxx, X.X. Xxxxxx, Xxxxx X. Xxxxxxxxx, Xxx Xxxxxx, Xxxxx Xxxxxxxx,
Xxxxx Xxxxxxx, Xxx Xxxxx, X.X. Xxxxxxx & Co., Xxxxxxx 1990 Equity Fund, L.P.,
Xxxxxxx Subordinated Debt Fund, L.P., and Xxxxxxxxx, Xxxxxx & Xxxxxxxx
("Defendants"), and the named Plaintiffs in the class action currently pending
in the United States District Court for the Southern District of florida,
entitled IN RE BROTHERS GOURMET COFFEES, INC. SECURITIES LITIGATION,
Consolidated Case 95-8584-CIV-XXXXXXX; and a class action entitled GARUCKAS V.
THE CATTERON GROUP, INC., ET AL., Case No. CL 96-4200-AH, currently pending in
the Circuit Court for Palm Beach County (the "Class Actions").
1. The Settlement consideration is $8.5 million payable
$3,000,000 in cash and $5,500,000 in freely tradeable Brothers
common stock to be paid as follows:
a. The cash portion of the Settlement, $3,000,000,
shall be paid by the Defendants and/or their insurance carriers for
the benefit of all Defendants into an interest bearing escrow account maintained
by Plaintiffs' counsel (the "Escrow Account") within 40 days of this Memorandum
of Understanding. The date on which payment is made shall hereinafter be
referred to as the "Payment Date." If the cash portion is not paid into the
Escrow Account within 40 days of the date of this Memorandum, Plaintiffs
may terminate the Settlement and reinstate the action. Further, if
the Settlement does not receive final approval by the Court or is otherwise
terminated by its terms, or as provided in /Paragraph/ 9, no Stipulation of
Settlement is entered into, the cash portion of the Settlement, together with
any interest accrued thereon, shall be repaid to the Defendants within 10 days
of non-approval, termination of the Settlement or Brothers request under
/Paragraph/ 9.
b. The common stock portion of the Settlement shall be
delivered in accordance with instructions from Plaintiffs' counsel as Escrow
Agent for the Class upon the Settlement becoming effective. The number of shares
paid to the Escrow Agent for the Class shall be determined in accordance with
/Paragraphs/ 2 and 3 below.
2. Based on the average trading price of Brothers common stock (the
"Average Price") of $2.989 per share in the 10 trading days preceding the
execution of this Memorandum, the Class shall receive a minimum of 1,840,080
shares of freely tradeable Brothers common stock (the "Guaranteed Minimum
Shares"). In the event the Average Price of Brothers common stock on the 20
trading days immediately preceding the final hearing to approve the Settlement
of this action (the "Settlement Hearing") equals or exceeds $2.989, the Class
will receive the Guaranteed Minimum Shares. In the event the Average Price of
Brothers common stock on the 20 trading days preceding the Settlement Hearing
is below $2.989, Defendants shall cause an additional number of shares to be
issued so that the shares issued have an aggregate value of not less than
$5,500,000, subject to the limitation in /Paragraph/ 3 herein.
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3. The aggregate number of shares issued to members of the Class
pursuant to /Paragraph/ 2 herein based on the Average Price in the 20 trading
days preceding the Settlement Hearing shall not exceed 2,750,000 shares (the
"Guaranteed Maximum Shares").
4. All shares of common stock to be issued hereunder shall be freely
tradeable except for such restrictions, if any, that may apply as a result of
any recipient being deemed an "affiliate" of Brothers within the meaning of Rule
144, promulgated under the Securities Act of 1933.
5. Upon final Court approval of the Settlement, and subject
to an effective date, Plaintiffs will dismiss with prejudice all
claims asserted against all defendants named in the Class Actions and all
parties in the Class Actions shall release each other from all claims asserted,
or that could have been asserted, arising out of said litigation.
6. In addition to the claims asserted in the Class Actions, Plaintiffs
in that certain shareholder derivative action entitled KATT X. XXXXX, ET AL.,
Case No. CL 95-8275-AB (the "Derivative Action"), pending in the Circuit Court
in and for Palm Beach County, shall dismiss with prejudice all claims asserted
against all Defendants in the Derivative Action and all parties in the
Derivative Action shall release each other from all claims asserted or that
could have been asserted in said litigation.
7. Attorneys' fees and costs awarded to Plaintiffs' counsel in the
Class Actions and the Derivative Action shall be paid out of the Escrow Account
within 5 days of the Court's award of attorneys'
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fees and costs in the Class Actions, subject to the unconditional obligation of
Plaintiff's counsel to repay the Escrow Account any attorneys' fees and costs
received in excess of any amount finally approved by the Court in the event of
any appeal of such award.
8. Costs of Class Notice and Administration shall be paid out of the
Escrow account. A maximum of $100,000 shall be paid for Notice and
Administration Expenses out of the Escrow Account prior to Settlement approval,
and the amounts actually spent on such Notice and Administration Expenses shall
not be returned in the event the Settlement is not approved.
9. The parties shall immediately proceed in good faith to memorialize
this Settlement in a definitive Stipulation of Settlement acceptable to all
parties and will jointly seek Court approval of the Stipulation as soon as
possible. If the parties cannot in good faith execute a Stipulation of
Settlement within 60 days hereof, the cash portion of the settlement shall be
returned, upon the request of Brothers.
10. This Settlement is conditioned upon execution of a definitive
Stipulation of Settlement and final judicial approval in accordance with Rule
23(e) of the Federal Rules of Civil Procedure after Notice to the Class. Dated:
October 24, 1996
SIGNATURES FOLLOW
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October 22, 1996
VIA TELECOPY AND U.S. MAIL
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx X. Xxxxxx, P.A.
000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxx 00000
RE: XXXXXX X. XXXX, DERIVATIVELY ON BEHALF OF NOMINAL
DEFENDANT, BROTHERS GOURMET COFFEE, INC., A DELAWARE
CORPORATION X. XXXXXX X. XXXXX, X.X. XXXXXX, XXXXX X.
XXXXXXXXX, XXX X. XXXXXX, III, XXXXX X. XXXXXXXX,
XXXXXX X. XXXXXX, XXXXXX X. XXXXXXXXX, XXXXXX X. XXXXX,
XXXXX XXXXXXX, XXX XXXXX, XXXXXXX XXXXXX, XXXXX X.
XXXXX, AND XXXXXX X. XXXXXXXX V. BROTHERS GOURMET
COFFEES, INC., CIRCUIT COURT OF PALM BEACH COUNTY,
FLORIDA, CASE NO. CL 95-8275 AB
-------------------------------
Dear Xx. Xxxxxx:
This letter is being delivered to you in connection with the
settlement of the above-referenced derivative action. This will confirm that
Brothers Gourmet Coffees, Inc. ("Brothers") has agreed to use its reasonable
efforts (i) to appoint a new non-employee member to its Board of Directors not
later than April 30, 1997 and (ii) to continuously maintain thereafter at least
a majority of non-employee members on its Board of Directors and on its Audit,
Finance and Compensation Committees. In addition, Brothers agrees that, unless
approved by unanimous action of the Board of Directors, it will neither enter
into any new employment or consulting agreement with any person who prior to the
date of this letter was a former employee Board member, nor renew or extend the
term of any existing consulting arrangement with any such former employee Board
member beyond its stated termination date. Schedule 1 sets forth each currently
outstanding consulting
arrangement with any such former employee Board members. Each of the foregoing
agreements and undertakings shall remain in effect until the earlier of (i) the
date upon which Brothers no longer has any class of its securities registered
under the Securities and Exchange Act of 1934 or (ii) five years from the date
hereof.
The foregoing agreements and undertakings are subject to our
understanding that the settlement of this action will be included within the
Memorandum of Understanding and subsequent definitive Stipulation of Settlement
involving Brothers with respect to the settlement of the class action lawsuits
currently pending in the United States District Court for the Southern District
of Florida, entitled IN RE BROTHERS GOURMET COFFEES, INC. SECURITIES LITIGATION,
Consolidated Case No. 95-8584-CIV-XXXXXXX, and in the Fifteenth Judicial Circuit
in and for Palm Beach County, Florida, entitled GARUCKAS V. THE XXXXXXXXX GROUP,
INC., ET AL., Case No. CL 96-4200-AH, and that such definitive Stipulation will
receive appropriate Court approval.
Please acknowledge this agreement by signing where indicated
below and returning the original executed letter to me as soon as possible.
Sincerely,
Xxxxxx X. Xxxxxx, Xx.
HKC,JR:md
Enclosure
cc: Xxxxxxx X. Xxxxxxx, Esq.
______________________________ Date:________________________
Xxxxxx X. Xxxxxx
Schedule 1
Xxxxxx X. Xxxxx provides consulting services to Brothers under that certain
First Amendment to Amended and Restated Executive Employment Agreement dated as
of April 17, 1995. Such arrangement expires December 31, 1997.
bcc: Xxx Xxxxx
