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Diedrich Has a $6-Million Infusion Brewing

Coffee: The ailing Irvine firm will sell new shares to an investment group and seek a reverse stock split.

March 16, 2001|From Dow Jones Newswires

Diedrich Coffee Inc., the struggling coffeehouse chain, said Thursday that several investment funds have agreed to invest a total of $6 million for new shares of the company's stock.

The Irvine company, in an effort to prevent its shares from being delisted, also said it plans to ask shareholders to approve a 1-for-3 reverse stock split.

The infusion comes from an investment group led by Westcliff Capital Management and that includes a fund managed by Diedrich Chairman Paul C. Heeschen, which contributed $3 million.

The company said it will sell 8 million shares at 75 cents a share and agreed to issue warrants, exercisable over 10 years, for an additional 2 million shares at $1.20 a share.

Diedrich plans to use the net proceeds to reduce bank debt and for working capital.

The transaction is subject to receipt of a fairness opinion and shareholder approval.

In addition to the proposed equity investment and reverse stock split, Diedrich plans to ask shareholders to approve an increase of 10 million shares in authorized common stock.

The coffee company expects the moves will allow it to regain compliance with Nasdaq listing standards for the National Market.

Diedrich announced in late November that it expected to be delisted because of its low stock price. In January, the company was formally notified by Nasdaq about failing to meet the net tangible assets requirement.

The combination of the equity investment and cash from operations is expected to meet currently projected obligations.

Diedrich's stock, which has lost more than 80% of its value over the last year, closed Thursday at 66 cents a share, up 9 cents.

If the shares trade below 50 cents for 10 consecutive days before the equity investment closes, the fund group is entitled to terminate the deal.

The company stock hit a 52-week low of 25 cents Nov. 29. It traded as high as $3.88 on March 24.

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