EINSTEIN NOAH BAGEL CORP, 424B3, 1996-09-30

EINSTEIN NOAH BAGEL CORP
424B3, 1996-09-30
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<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-12395

PROSPECTUS

9,908,327 SHARES

LOGO

COMMON STOCK

---------------

This Prospectus covers 9,908,327 shares (the "Shares") of common stock, par
value $.01 (the "Common Stock"), of Einstein/Noah Bagel Corp. (the "Company")
which may be offered and sold from time to time for the account of the persons
who are identified herein under the heading "Registering Stockholders" and any
other person who obtains the right to sell the Shares hereunder (the
"Registering Stockholders"). Only 1,380,175 of such Shares will be immediately
available for resale upon effectiveness of the Registration Statement of which
this Prospectus forms a part and the remainder of such Shares are subject to
contractual lock-up arrangements of various durations. Such remaining Shares
will become available for sale hereunder upon expiration, termination, waiver
or amendment of such lock-up arrangements. See "Shares Eligible for Future
Sale." The Shares are being registered hereunder to simplify resale thereof if
and when a Registering Stockholder determines to sell Shares from time to time
and not because of any expressed intent to immediately sell such Shares. See
"Registering Stockholders" and "Plan of Distribution." THE COMPANY WILL
RECEIVE NO PART OF THE PROCEEDS OF ANY SALES OF THE SHARES.

The distribution of the Shares by the Registering Stockholders may be
effected from time to time in one or more transactions on the Nasdaq National
Market (which may involve block transactions), in special offerings, in
negotiated transactions, or otherwise, and at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, or at
negotiated prices. See "Plan of Distribution." The Registering Stockholders
may engage one or more brokers to act as principal or agent in making sales,
who may receive discounts or commissions from the Registering Stockholders in
amounts to be negotiated. The Registering Stockholders and any such brokers
may be deemed "underwriters" under the Securities Act of 1933, as amended (the
"Securities Act"), of the Shares sold.

The Common Stock is traded on the Nasdaq National Market under the symbol
"ENBX". On September 25, 1996, the closing sale price of the Common Stock, as
reported in The Wall Street Journal (Western Edition), was $29 3/4 per share.
See "Price Range of Common Stock."

---------------

SEE "RISK FACTORS" AT PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON
STOCK.

---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

---------------

The date of this Prospectus is September 27, 1996.
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Special Note Regarding Forward-Looking Statements......................... 7
The Company............................................................... 7
Risk Factors.............................................................. 9
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Selected Historical and Pro Forma Consolidated Financial and Store Data... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 22
Management................................................................ 35
Certain Transactions...................................................... 39
Principal Stockholders and Securities Ownership of Management............. 49
Relationship with Boston Chicken.......................................... 51
Description of Capital Stock.............................................. 57
Shares Eligible for Future Sale........................................... 58
Registering Stockholders.................................................. 60
Plan of Distribution...................................................... 66
Experts................................................................... 66
Index to Financial Statements............................................. F-1
</TABLE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549.

The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to
the Common Stock registered hereunder. As used herein, the term "Registration
Statement" means the initial Registration Statement and any and all amendments
thereto. This Prospectus omits certain information contained in said
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock registered hereunder, reference is made to the Registration Statement,
including the exhibits thereto. Statements herein concerning the contents of
any contract or other document are not necessarily complete and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement, or otherwise, each
such statement being qualified by and subject to such reference in all
respects.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus
gives effect to a 225-for-1 stock split effected by the Company in July 1996.
Unless the context suggests otherwise, references in this Prospectus to the
"Company" mean Einstein/Noah Bagel Corp., its predecessors, and its and their
subsidiaries. Einstein Bros.(TM), Noah's Bagels(R) and Noah's New York
Bagels(R) are trademarks owned by the Company.

THE COMPANY

The Company operates and franchises specialty retail stores that feature
fresh-baked bagels, cream cheeses, coffee and other related products, primarily
under the Einstein Bros. Bagels and Noah's New York Bagels brand names. As of
September 4, 1996, there were 218 stores in operation systemwide, of which 18
were Company-operated and 200 were operated by area developers financed in part
by the Company. Such financing generally permits the Company in certain
circumstances to convert its loan into a majority equity interest in the area
developer. As of September 4, 1996, the Company had entered into area
development agreements that provide for the development of 1,001 additional
stores, the majority of which are scheduled to open over the next three years.
The Company estimates that there will be between 275 and 300 stores in
operation systemwide by the end of 1996. SEE "SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS" ON PAGE 7.

The Company's principal business objective is to become the leading specialty
retailer of fresh-baked bagels and related products in the United States and to
ultimately support and extend its consumer brands through alternate
distribution channels, such as wholesale and contract food service. The Company
believes that there is an opportunity to develop a significant multi-unit
specialty retail business based on fresh-baked bagels because of the growth in
per capita consumption of bagels and the fragmented state of the current retail
bagel market. To achieve its specialty retail objectives, the Company and its
area developers employ a concentrated market development strategy that is
designed to create strong local brand awareness. The Company believes this
strategy will allow it and its area developers to more efficiently leverage
marketing, development and operations resources, while establishing a strong
competitive position in each targeted market. The Company initially plans to
segregate development of its Einstein Bros. Bagels and Noah's New York Bagels
stores on a geographic basis; however, the Company intends to test the
development and operation of both brands within the same trade area.

Einstein Bros. Bagels stores feature both traditional and creative bagels
baked fresh throughout the day and offered to customers in an inviting store
environment that combines the authentic tastes of a bagel bakery with the
comfortable setting of a neighborhood meeting place. Each Einstein Bros. Bagels
store blends function, style and customer comfort with simple, contemporary
colors and furnishings in a relaxed social atmosphere. In addition to a
distinctive variety of fresh-baked bagels, Einstein Bros. Bagels stores offer a
broad selection of specialty cream cheeses, premium coffee products and an
array of creative soups, salads and sandwiches. The stores' atmosphere and
products are enhanced by a service philosophy designed to develop customer
loyalty, so that visiting an Einstein Bros. Bagels store becomes part of the
customer's daily or weekly routine. The first Einstein Bros. Bagels store
opened in June 1995 in Ogden, Utah and as of September 4, 1996, there were 119
stores operating under the brand in 18 states. The Company currently expects
that it and its area developers will develop Einstein Bros. Bagels stores
primarily outside of the West Coast area.

Noah's New York Bagels stores are authentic kosher bagel bakeries featuring
bagels baked fresh throughout the day, cream cheese "shmears", kosher dairy
deli items, including fish salads and four varieties of lox, and selected New
York deli-style beverages. Noah's New York Bagels stores recreate the mood and
feeling of a turn-of-the-century New York bakery. A key element of the Noah's
New York Bagels brand is involvement on a store-by-store basis as a committed
and conscientious member of the community. The first Noah's New York Bagels
store opened in Berkeley, California in 1989 and as of September 4, 1996, there
were 63 stores operating under the brand in three states. The Company currently
expects that it and its area developers will develop Noah's New York Bagels
stores primarily on the West Coast.

3
<PAGE>

The Company was established in early 1995 as Progressive Bagel Concepts, Inc.
and launched its business through the acquisition of three regional bagel
retailers. The Company's formation was facilitated by Boston Chicken, which, in
addition to providing convertible and non-convertible loan financing, has
supported, and continues to support, the Company's growth with multi-unit
retail infrastructure and systems pursuant to fee service agreements.
Subsequently, the Company changed its name to Einstein Bros. Bagels, Inc.,
developed the Einstein Bros. Bagels brand and acquired two West Coast bagel
retailers, including Noah's New York Bagels, Inc. ("Noah's"). In June 1996, the
Company changed its name to Einstein/Noah Bagel Corp. to reflect its dual brand
development strategy. The Company and its area developers intend to convert
stores currently operating under all other brand names to either Einstein Bros.
Bagels stores or Noah's New York Bagels stores by early 1998.

In August 1996, the Company completed (i) an initial public offering of
3,105,000 shares of its common stock, par value $.01 per share (the "Common
Stock"), at a price of $17.00 per share (the "Initial Public Offering"), (ii) a
concurrent public offering of 425,000 shares of Common Stock at a price of
$15.81 per share (the "Concurrent Public Offering") and (iii) a concurrent
private placement of 2,000,000 shares of Common Stock to Boston Chicken, Inc.
("Boston Chicken") at a price of $15.81 per share (the "Concurrent Private
Placement"). The net proceeds to the Company from the Initial Public Offering,
the Concurrent Public Offering and the Concurrent Private Placement were
approximately $86.0 million after deduction of underwriting discount and other
offering expenses. Of such net proceeds, approximately $69.3 million was used
to repay indebtedness.

The Company's executive offices are located at 14123 Denver West Parkway,
Golden, Colorado 80401 and its telephone number is (303) 215-9300.

SHARES BEING REGISTERED HEREUNDER

This Prospectus covers 9,908,327 shares of Common Stock which may be offered
and sold from time to time for the account of the Registering Stockholders or
their pledgees, donees, transferees or other successors in interest of the
Registering Stockholders. Only 1,380,175 of such Shares will be immediately
available for resale upon effectiveness of the Registration Statement of which
this Prospectus forms a part and the remainder of such Shares are subject to
contractual lock-up arrangements of various durations. Such remaining Shares
will become available for resale hereby upon expiration, termination, waiver or
amendment of such lock-up arrangements. See "Shares Eligible for Future Sale."
The Shares are being registered hereunder to simplify resale thereof if and
when a Registering Stockholder determines to sell Shares from time to time and
not because of any expressed intent to immediately sell such Shares.

RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS."

4
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND STORE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF STORES)

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PERIOD FROM
PERIOD FROM PERIOD FROM MARCH 24, 1995
MARCH 24, 1995 DECEMBER 26, (INCEPTION) TWO QUARTERS
(INCEPTION) THROUGH 1994 THROUGH THROUGH ENDED JULY 14,
DECEMBER 31, 1995 DECEMBER 31, 1995 JULY 9, 1995 1996(1)
------------------- ----------------- -------------- -----------------
PRO
ACTUAL PRO FORMA(2) ACTUAL FORMA(3)
------------------- ----------------- ------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenue........... $ 26,423 $ 70,388 $ 7,715 $40,585 $43,889
Income (loss) from
operations(4)(5)....... (43,152) (46,369) (1,964) 1,033 (150)
Net income (loss)(4)(5). $(43,716) $(54,802) $(2,184) $(3,022) $ (459)
======== ======== ======= ======= =======
Net income (loss) per
common and equivalent
share(6)............. $ (4.54) $ (2.20) $ (0.23) $ (0.23) $ (0.02)
======== ======== ======= ======= =======
Weighted average
number of common and
equivalent shares
outstanding during
the period........... 9,659 24,986 9,626 14,261 29,568
======== ======== ======= ======= =======
STORE DATA (UNAUDITED):
Systemwide revenue(7)... $ 26,986 $ 71,263 $ 7,900 $60,470 $63,774
======== ======== ======= ======= =======
Number of stores in
operation at period
end:
Company-operated...... 47 84 29 49 49
Area developers....... 13 13 -- 139 139
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Total................. 60 97 29 188 188
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</TABLE>

<TABLE>
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JULY 14, 1996(1)
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AS
ACTUAL ADJUSTED(8)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ (4,210) $ 25,140
Notes receivable.......................................... 65,322 65,322
Total assets.............................................. 206,720 236,070
Long-term debt(9)......................................... 77,011 --
Stockholders' equity...................................... 110,714 217,075
</TABLE>
- --------
(1) The Company's fiscal year is the 52/53-week period ending on the last
Sunday in December and normally consists of 13 four-week periods. The first
quarter consists of four periods, and each of the remaining three quarters
consists of three periods, with the first, second and third quarters ending
16 weeks, 28 weeks and 40 weeks, respectively, into the fiscal year.
(2) Giving pro forma effect to the acquisition of Brackman Brothers, Inc.,
Bagel & Bagel, Inc., Offerdahl's Bagel Gourmet, Inc., Baltimore Bagel Co.
and Noah's and conversion of the Company's $120.0 million convertible loan
from Boston Chicken into 15,307,421 shares of Common Stock (which occurred
on June 17, 1996) (the "Loan Conversion") as though all transactions
occurred as of December 26, 1994 (deemed to be the beginning of the
Company's 1995 fiscal year). See the Company's Unaudited Pro Forma
Consolidated Financial Statements and Notes thereto contained elsewhere
herein.

5
<PAGE>

(3) Giving pro forma effect to the acquisition of Noah's and the Loan
Conversion as of the beginning of the Company's 1996 fiscal year. See the
Company's Unaudited Pro Forma Consolidated Financial Statements and Notes
thereto contained elsewhere herein.
(4) Includes for the pro forma two quarters ended July 14, 1996 approximately
$954,000 of stock option expense attributable to the acceleration of the
vesting of compensatory stock options issued by Noah's for such period. The
vesting acceleration occurred immediately prior to the acquisition of
Noah's by the Company. See Note 5 of Notes to the Company's Unaudited Pro
Forma Consolidated Financial Statements included elsewhere herein.
(5) Includes a $26,575,000 write-off of intangible assets for the period from
March 24, 1995 (inception) through December 31, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
March 24, 1995 (inception) to December 31, 1995--Results of Operations" and
Note 13 of Notes to the Company's Audited Consolidated Financial Statements
included elsewhere herein.
(6) As of July 14, 1996, the Company had approximately $56.7 million of debt
outstanding under the Company's revolving credit facilities. In August
1996, the Company utilized a portion of the proceeds from the Initial
Public Offering, Concurrent Public Offering and the Concurrent Private
Placement to repay such indebtedness. For the two quarters ended July 14,
1996, assuming such debt had been repaid utilizing the proceeds from the
sale of 3,583,175 shares of Common Stock ($15.81 per share) and giving
effect to the Loan Conversion as of the beginning of the fiscal year, the
net income per common and equivalent share would have been $0.09. For the
period from March 24, 1995 (inception) through December 31, 1995, giving
effect to the Loan Conversion as of the beginning of the period, the net
loss per common and equivalent share would have been $1.70.
(7) Includes gross revenue for all stores operated by the Company and its area
developers. Gross revenue excludes sales taxes.
(8) Adjusted to give effect to the approximately $86.0 million raised in August
1996 from the Initial Public Offering, Concurrent Public Offering and the
Concurrent Private Placement and the application of the net proceeds
therefrom and the reclassification of the repurchase common stock shares
and Series A preferred shares from long-term debt to stockholders' equity.
See Note 12 of Notes to the Company's Audited Consolidated Financial
Statements included elsewhere herein.
(9) Includes at July 14, 1996, $12,548,000 attributable to the repurchase
common stock shares and $7,813,000 attributable to the Series A preferred
shares. See Note 12 of Notes to the Company's Audited Consolidated
Financial Statements included elsewhere herein.

6
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY," "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS" CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY, ITS AREA DEVELOPERS AND FRANCHISEES, AND EINSTEIN
BROS. BAGELS AND NOAH'S NEW YORK BAGELS STORES TO BE MATERIALLY DIFFERENT FROM
ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:
COMPETITION; SUCCESS OF OPERATING INITIATIVES; AREA DEVELOPERS' ADHERENCE TO
DEVELOPMENT SCHEDULES; ADVERTISING AND PROMOTIONAL EFFORTS; ADVERSE PUBLICITY;
ACCEPTANCE OF NEW PRODUCT OFFERINGS; THE COMPANY'S RELATIONSHIPS WITH BOSTON
CHICKEN; AVAILABILITY, LOCATIONS AND TERMS OF SITES FOR STORE DEVELOPMENT;
CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS; AVAILABILITY AND TERMS OF
CAPITAL; FOOD, LABOR AND EMPLOYEE BENEFITS COSTS; CHANGES IN GOVERNMENT
REGULATIONS; REGIONAL WEATHER CONDITIONS; AND OTHER FACTORS REFERENCED IN THIS
PROSPECTUS. THE SUCCESS OF THE COMPANY IS DEPENDENT ON ITS AREA DEVELOPERS AND
FRANCHISEES AND THE MANNER IN WHICH THEY OPERATE AND DEVELOP EINSTEIN BROS.
BAGELS AND NOAH'S NEW YORK BAGELS STORES.

THE COMPANY

The Company operates and franchises specialty retail stores that feature
fresh-baked bagels, cream cheeses, coffee and other related products,
primarily under the Einstein Bros. Bagels and Noah's New York Bagels brand
names. As of September 4, 1996, there were 218 stores in operation systemwide,
of which 18 were Company-operated and 200 were operated by area developers
financed in part by the Company. Such financing generally permits the Company
in certain circumstances to convert its loan into a majority equity interest
in the area developer. As of September 4, 1996, the Company had entered into
area development agreements that provide for the development of 1,001
additional stores, the majority of which are scheduled to open over the next
three years. The Company estimates that there will be between 275 and 300
stores in operation systemwide by the end of 1996. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ABOVE.

The Company was incorporated in Delaware in February 1995 under the name
Progressive Bagel Concepts, Inc. In March 1995, the Company launched its
business through the acquisition of three regional bagel retailers, Brackman
Brothers, Inc. of Salt Lake City ("Brackman"), Bagel & Bagel, Inc. of Kansas
City ("Bagel & Bagel"), and Offerdahl's Bagel Gourmet, Inc. of Fort Lauderdale
("Offerdahl's"), and in August 1995, acquired Baltimore Bagel Co. of San Diego
("Baltimore Bagel") (collectively the "Founding Companies"). The Company
issued 1,959,152 shares of Common Stock and 6,250 shares of Series A preferred
stock (the "Preferred Shares") to the owners of the Founding Companies in such
transactions. Also in March 1995, the Company raised approximately $20.8
million in a private placement of Common Stock to investors and entered into a
series of agreements with Boston Chicken, including a convertible secured loan
agreement pursuant to which Boston Chicken agreed to loan to the Company up to
$80.0 million (subsequently increased to $120.0 million). On June 17, 1996,
this loan was converted into 15,307,421 shares of Common Stock. Boston Chicken
also provided the Company with a non-convertible revolving credit facility of
$14.0 million, which was subsequently increased to $50.0 million. Boston
Chicken further facilitated the Company's formation and continues to
facilitate the Company's growth by providing multi-unit retail infrastructure
and systems pursuant to fee service agreements. The relationship between the
Company and Boston Chicken, including the terms of the loan agreements, is
described more fully under "Relationship with Boston Chicken." See also
"Certain Transactions."

After formation, the Company assembled a management team comprised of
individuals from the Founding Companies and Boston Chicken, as well as other
professionals experienced in rapid multi-unit retail growth. The Company also
launched a project that resulted in the development of the Einstein Bros.
Bagels brand and store.

7
<PAGE>

As part of the development project, management analyzed (i) the Founding
Companies' stores, including brand positionings, product offerings,
operational service systems and atmosphere, (ii) the competitive environment
and (iii) the preferences of consumers across the United States. The Einstein
Bros. Bagels brand and store were first tested in Ogden, Utah in June 1995
and, based on extensive consumer research, were revised throughout the summer
of 1995, resulting in the Einstein Bros. Bagels brand positioning, product
offering and store design.

In the fall of 1995, the Company developed and launched its area developer
program, which incorporates aspects of the area developer program utilized by
Boston Chicken. The Company believes that having a relatively small group of
area developers, each led by a management group with substantial multi-unit
retail food service experience and short- and long-term incentives tied to
performance, is a superior means to achieve market leadership than either
direct Company ownership of all stores or more traditional franchising
approaches which utilize a larger number of franchisees. As of September 4,
1996, the Company had entered into area development agreements with ten
entities that provide for the development of 1,201 stores, 200 of which were
open as of such date. See "Business--Expansion Strategy" and "Business--
Development Agreements." The Company expects to enter into similar agreements
with at least one additional entity during 1996 and, in connection with such
transactions, expects to sell to such entity Company-operated stores, if any,
in the territories covered by such agreements.

In the fall of 1995, after the development of the Einstein Bros. Bagels
brand, the Company decided to convert its existing stores operating under the
Brackman Bros., Bagel & Bagel, Offerdahl's Bagel Gourmet and Baltimore Bagel
brand names to the Einstein Bros. Bagels brand. The Company and its area
developer for the Salt Lake City market completed conversion of nine Brackman
Bros. stores located in the Salt Lake City area to Einstein Bros. Bagels
stores in March 1996. The Company and its area developers intend to convert
stores currently operating under all other brand names to either Einstein
Bros. Bagels stores or Noah's New York Bagels stores by early 1998.

The Company acquired Noah's, the leading West Coast bagel retailer, in
February 1996, enabling the Company to achieve a strong base of operations on
the West Coast and to add a second premier consumer brand, Noah's New York
Bagels. In connection with the transaction, certain stockholders of Noah's,
including Noah Alper, the founder of Noah's, and members of Noah's management,
acquired 855,225 shares of Common Stock, and Mr. Alper became Vice Chairman of
the Board.

In August 1996, the Company raised an aggregate of approximately $86.0
million from the Initial Public Offering, the Concurrent Public Offering and
the Concurrent Private Placement, after deduction of underwriting discount and
other offering expenses. Of such net proceeds, approximately $69.3 million was
used to repay indebtedness.

8
<PAGE>

RISK FACTORS

Prospective purchasers of the shares of Common Stock offered hereby should
consider carefully the specific factors set forth below as well as the other
information contained in this Prospectus in evaluating an investment in the
Common Stock.

LIMITED OPERATING HISTORY AND RECENT LOSSES

The Company commenced operations in March 1995 and has a limited operating
history upon which investors may evaluate the Company's performance. As of
September 4, 1996, the Company and its area developers operated 218 stores, 36
of which were operating under brands other than Einstein Bros. Bagels or
Noah's New York Bagels. Approximately 145 of the stores operated by the
Company and its area developers have been open for less than one year and an
additional 29 of such stores have been open for less than two years.
Consequently, operating results achieved to date may not be indicative of the
results that may be achieved in the future by any new or existing store. The
Company achieved its first quarter of profitable operations in the second
quarter of fiscal 1996 and previously incurred significant operating losses.
There can be no assurance that the Company's recent results of operations are
indicative of its future results of operations or that any profitability will
continue in the near future or on a sustained basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Consolidated Financial Statements and the Notes thereto. SEE ALSO
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

COMPETITION; EASE OF ENTRY INTO BUSINESS

The food service industry is intensely competitive with respect to food
quality, concept, convenience, location, customer service and value. In
addition, there are many well-established food service competitors with
substantially greater financial and other resources than the Company and with
substantially longer operating histories than the Company. Many of such
competitors are less dependent than the Company on a single, primary product.
The Company believes that it competes with other bagel retailers and bakeries,
specialty coffee retailers, doughnut shops, fast-food restaurants,
delicatessens, take-out food service companies, supermarkets and convenience
stores. The Company believes that competition in the retail bagel market will
increase as large retail bagel companies attract additional capital, new
competitors enter the market and bagel retailers compete for market share. In
addition, the Company believes that the start-up costs associated with retail
bagel and similar food service establishments are not a significant impediment
to entry into the retail bagel business. See "Business--Competition."

RAPID EXPANSION

The Company intends to expand primarily by developing additional bagel
stores through its area developer network, although the Company and its area
developers may also acquire existing bagel stores or other properties. As of
September 4, 1996, the Company had entered into area development agreements
with ten entities that provide for the opening of 1,201 stores, 200 of which
were open as of such date. By the end of 1996, the Company expects to have
between 275 and 300 stores in operation systemwide. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7. Such expansion will require
the addition of management, facilities, systems and personnel. Failure to
acquire necessary resources on a cost-effective basis could have a material
adverse effect on the results of operations and financial condition of the
Company and its area developers. There can be no assurance that the Company
and its area developers will be able to achieve their development and
operating goals, manage expanding operations effectively, or maintain or
accelerate growth. In addition, there can be no assurance of the viability of
any of the Company's brands in a particular geographic region or locale. See
"Business--Expansion Strategy."

9
<PAGE>

AVAILABILITY OF CAPITAL

The Company anticipates that it and its area developers will have a
continuing need for additional financing for the development of stores and for
bagel and cream cheese production capacity, the amount of which is dependent
primarily on the number of stores opened, the cost of such stores, store
operating results and production capacity requirements. The Company's capital
requirements will also depend on the amount and timing of borrowings under the
loan agreements between the Company and its existing and future area
developers. The Company and its area developers may seek funds from public or
private offerings of debt or equity securities or other types of financing.
There can be no assurance that the Company and its area developers will be
able to raise such funds on satisfactory terms when needed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Business--Expansion Strategy" and
"Business--Area Developer Financing."

DEPENDENCE ON AREA DEVELOPERS

The Company's success is dependent to a significant extent upon its area
developers and the manner in which they operate and develop their stores. The
opening and success of stores are dependent on a number of factors, including
the availability of suitable sites, the negotiation of acceptable lease or
purchase terms for such sites, permitting and regulatory compliance, the
ability to meet construction schedules, the ability to hire and train
qualified personnel, the financial and other capabilities of the Company and
its area developers, and general economic and business conditions. Not all of
the foregoing factors are within the control of the Company or its area
developers. There can be no assurance that area developers will have access to
financial resources necessary to open the stores required by their development
schedules or that such area developers will successfully develop or operate
stores in their development areas in a manner consistent with the Company's
concepts and standards. See "Business--Area Developer Financing."

The Company has extended secured debt financing to its area developers
pursuant to which the Company has agreed to lend an aggregate of approximately
$184.8 million, of which approximately $95.8 million had been advanced as of
September 4, 1996. These loans subject the Company to the risks of being a
secured lender. As a result of executing the rapid expansion strategy required
by the Company, the Company's area developers incurred net losses of $1.3
million in 1995, and the Company anticipates that its area developers will
continue to incur substantial net losses during their expansion phase. The
Company believes that such losses will be recovered as expansion moderates and
development costs correspondingly diminish, store investment costs decrease,
operational efficiencies increase as a result of overall system maturity and
operational experience, advertising efficiencies commence and average weekly
store revenue increases. However, there can be no assurance that such events
will occur or that such losses will be recovered. The failure of an area
developer to achieve a sufficient level of profitability subsequent to the
completion of its expansion phase could have a material adverse impact on the
Company's financial position and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Expansion Strategy" and Note 11 of Notes to the Company's Audited
Consolidated Financial Statements. SEE ALSO "SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS" ON PAGE 7.

DEPENDENCE ON BOSTON CHICKEN

The Company's success is highly dependent on its continued relationship with
Boston Chicken. The Company and Boston Chicken are parties to various
agreements, pursuant to which Boston Chicken has agreed to provide to the
Company certain accounting and administration, and computer and communications
services. In addition, Boston Chicken has agreed to make available to the
Company a non-convertible loan facility of up to $50.0 million. The
termination of any of these agreements, the loss of any of these services or a
material adverse change in Boston Chicken's business or financial condition
could have a material adverse effect on the Company. See "Relationship with
Boston Chicken."

10
<PAGE>

CONTROL BY AND CONFLICTS OF INTEREST WITH BOSTON CHICKEN

Boston Chicken beneficially owns approximately 60% of the outstanding shares
of Common Stock of the Company. In addition, in connection with the Concurrent
Private Placement, the Company granted to Boston Chicken an option that
permits it to maintain ownership of shares of Common Stock having up to 52% of
the voting power of all of the outstanding shares of capital stock of the
Company having the power generally to vote in the election of directors. By
reason of its holdings and such option, Boston Chicken will be able to control
the affairs and policies of the Company, elect the Company's board of
directors and approve or disapprove any matter submitted to a vote of the
stockholders, including certain fundamental corporate transactions requiring
stockholder approval. In addition, concentrated ownership of the Company could
affect the potential applicability to the Company of personal holding company
tax in certain circumstances. See "Certain Transactions," "Principal
Stockholders and Securities Ownership of Management" and "Relationship with
Boston Chicken."

The Concurrent Private Placement Agreement entered into between the Company
and Boston Chicken prohibits the Company from taking certain actions without
the consent of Boston Chicken as long as such option to Boston Chicken
discussed above has not terminated, including altering any rights attaching to
the Common Stock, offering or issuing any equity securities or debt securities
convertible into equity securities, in either case other than Common Stock,
distributing assets or securities of the Company having a fair market value in
excess of 10% of the Company's consolidated gross assets or consolidated gross
revenues measured as of the immediately preceding fiscal year end, and filing
a petition in bankruptcy.

In addition to existing agreements between the Company and Boston Chicken,
the Company may enter into additional or modified agreements, arrangements and
transactions with Boston Chicken. While the Company expects that any such
future arrangements and transactions will be determined through negotiation
between the two companies, there can be no assurance that conflicts of
interest will not occur with respect to such future business dealings and
similar corporate matters. Conflicts may arise in connection with product
offerings, consumer and market positioning, recruiting, site selection and
issuances of additional securities by the Company. There can be no assurance
that any such conflicts will be resolved in a manner favorable to the Company
or its minority stockholders.

LIMITED SOURCES OF BAGEL DOUGH AND CREAM CHEESE SUPPLY

The Company's development plans require that the Company rapidly develop
significant bagel dough production capacity from internal or external sources.
To date, the Company has met its bagel dough production requirements through a
combination of local fresh dough commissaries owned and operated by the
Company or its area developers, two frozen dough production facilities leased
by the Company and subleased to and operated by area developers of the
Company, and a frozen dough production facility owned and operated by a third-
party baking company that has committed certain capacity to the Company
pursuant to a long-term supply agreement. Any interruption of existing or
planned production capacity at any plant or commissary could have a material
adverse effect on the ability of the Company or its area developers to supply
bagels to their stores. In addition, stores in certain markets are currently
dependent for frozen bagel dough on a single production facility owned and
controlled by the third-party baking company.

The Company also purchases from a single supplier certain proprietary cream
cheeses and spreads sold in Einstein Bros. Bagels stores. Any interruption of
such supply or the inability of the Company to obtain sufficient additional
capacity to meet its requirements could have a material adverse effect on the
Company's ability to supply its proprietary cream cheese to certain bagel
stores. See "Business--Vendors."

RISKS ASSOCIATED WITH THE FOOD SERVICE INDUSTRY

11
<PAGE>

chains such as the Company can also be substantially adversely affected by
publicity resulting from food quality, illness, injury or other health
concerns (including food-borne illness claims) or operating issues stemming
from one store or a limited number of stores, whether or not the Company is
liable. Claims relating to foreign objects, food-borne illness or operating
issues are common in the food service industry and a number of such claims may
exist at any given time. In addition, factors such as increased costs of
goods, labor and employee benefits costs, regional weather conditions and the
potential scarcity of experienced management and hourly employees may also
adversely affect the food service industry in general and the results of
operations and financial condition of the Company and its area developers in
particular.

GOVERNMENT REGULATION

The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale
of food and building and zoning requirements. The Company and its area
developers are also subject to laws governing their relationship with
employees, including minimum wage requirements, overtime, working and safety
conditions and citizenship requirements. In addition, the Company is subject
to regulation by the Federal Trade Commission and must comply with certain
state laws which govern the offer, sale and termination of franchises and the
refusal to renew franchises. The failure to obtain or retain food licenses or
approvals to sell franchises, or increases in employee benefits costs or other
costs associated with employees, could adversely affect the Company and its
area developers. See "Business--Government Regulation."

POTENTIAL VOLATILITY OF STOCK PRICE

The market price of the Common Stock could be subject to significant
fluctuations in response to the Company's operating results and other factors.

ANTI-TAKEOVER EFFECT OF CHARTER AND STATUTORY PROVISIONS

Boston Chicken's ownership interest in the Company and the terms of certain
provisions in the Company's Restated Certificate of Incorporation and Amended
and Restated Bylaws may have the effect of discouraging a change in control of
the Company. Such provisions include the requirement that all stockholder
action must be effected at a duly-called annual or special meeting of
stockholders and the requirement that stockholders follow an advance
notification procedure for stockholder nominations of candidates for the board
of directors and to present other stockholder business to be considered at any
meeting of stockholders. In addition, the board of directors has the
authority, without further action by the stockholders, to issue up to 20
million shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, and to issue authorized but
unissued shares of Common Stock up to a maximum of 200 million shares. The
issuance of preferred stock or additional shares of Common Stock could have
the effect of delaying, deferring or preventing a change in control of the
Company, even if such change in control would be beneficial to the Company's
stockholders. See "Principal Stockholders and Securities Ownership of
Management," "Relationship with Boston Chicken" and "Description of Capital
Stock."

SHARES ELIGIBLE FOR FUTURE SALE

12
<PAGE>

the Shares covered hereby have agreed that they will not sell any of such
Shares prior to January 28, 1997, subject to certain exceptions, without the
consent of Merrill Lynch, the holders of 167,197 of the Shares covered hereby
have agreed that they will not sell any of such Shares prior to 180 days from
the date of this Prospectus, the holders of 17,000 of the Shares covered
hereby have agreed that they will not sell any of such Shares prior to August
1, 1997 and the holders of 1,372,135 of the Shares covered hereby (consisting
of all officers and directors of the Company, who hold an aggregate of 550,460
of such Shares, and area developers of the Company holding an aggregate of
821,675 of such Shares) have agreed that they will not sell any of such Shares
prior to August 1, 1998. The Company has registered under the Securities Act
5,295,195 shares of Common Stock issuable under its stock option plans, fewer
than 10% of which will be vested and exercisable within 180 days of the date
of this Prospectus. See "Management--Stock Option Plans." In connection with
the Concurrent Private Placement, the Company has entered into a registration
agreement with Boston Chicken, pursuant to which the Company granted to Boston
Chicken certain demand and piggyback registration rights under the Securities
Act with respect to an aggregate of 16,797,175 shares owned by Boston Chicken.
Boston Chicken has agreed with the Representatives not to sell the 2,000,000
shares of Common Stock purchased by it in the Concurrent Private Placement
prior to August 1, 1997 and not to sell other shares owned by it prior to
January 28, 1997, subject to certain exceptions, without the consent of
Merrill Lynch. In addition, the Company may file a registration statement
covering shares of Common Stock for issuance from time to time in connection
with potential future acquisitions and resales of such shares by the
recipients thereof, although no such acquisitions are currently pending.
Shares so registered could not be sold in the public market prior to January
28, 1997, subject to certain exceptions, without the consent of Merrill Lynch.
No predictions can be made as to the effect, if any, that market sales of such
shares or the availability of such shares for sale will have on the market
price for shares of Common Stock prevailing from time to time. Sales of
substantial amounts of shares of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of equity
securities or securities convertible into equity securities. See "Certain
Transactions--Registration Rights," "Relationship with Boston Chicken--
Concurrent Private Placement Agreement and Registration Agreement" and "Shares
Eligible for Future Sale."

TRADEMARKS

The Company owns a number of federal trademark and service mark
registrations and the Company has federal trademark applications pending for
additional trademarks and service marks. However, the Company has not yet
obtained federal registrations for certain of the trademarks or service marks
used in its business, certain of the Company's applications have been the
subject of oppositions to such marks, and there can be no assurance that any
such registrations for the Company's trademarks and service marks will be
obtained. In addition, the Company is aware of the use by other persons in
certain geographic areas of names and marks which may be deemed to be similar
to the Einstein Bros. or Noah's New York Bagels brands. There can be no
assurance that such marks will be available for use by the Company and its
area developers in all locations or that the Company will be able to assure
the exclusive use of such marks by the Company and its area developers. See
"Business--Trademarks and Other Proprietary Rights."

ABSENCE OF DIVIDENDS OR DISTRIBUTIONS

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. In addition,
the Company's secured revolving credit facility contains a prohibition on the
payment of cash dividends. See "Dividend Policy."

RECOVERABILITY OF INTANGIBLE ASSETS

The Company has recorded significant intangible assets in connection with
the Company's acquisitions of Brackman, Bagel & Bagel, Offerdahl's, Baltimore
Bagel and Noah's. Applicable accounting standards require the Company to
review long-lived assets (such as goodwill and other identifiable intangible
assets) to be held and used by the Company for impairment whenever events or
changes in circumstances indicate that the carrying values of those assets may
not be recoverable. In the event that the Company determines that the carrying
value of such intangible assets is impaired, it would write-down such carrying
value, which would result in a charge to

13
<PAGE>

earnings. Any such charge could have a material adverse effect on the
Company's financial results. See Notes 2, 4 and 13 of Notes to the Company's
Audited Consolidated Financial Statements and Note 2 of Notes to the Company's
Unaudited Consolidated Financial Statements contained elsewhere herein.

PRICE RANGE OF COMMON STOCK

The Common Stock began trading on the Nasdaq National Market on August 2,
1996. The range of the per share high and low sale prices of the Common Stock
as quoted on the Nasdaq National Market for the period from August 2, 1996 to
September 25, 1996 was $31 3/8 to $19.00, as reported by The Wall Street
Journal (Western Edition). On September 25, 1996, the last reported sale price
of the Common Stock on the Nasdaq National Market was $29 3/4 per share. At
September 4, 1996, there were approximately 540 record holders of the Common
Stock.

DIVIDEND POLICY

The Company has not paid dividends on its Common Stock and the board of
directors intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes. In addition, the Company's secured
revolving credit facility contains a prohibition on payment of any cash
dividends, and the Company does not anticipate paying any such dividends in
the foreseeable future.

14
<PAGE>

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND STORE DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF STORES)

EINSTEIN/NOAH BAGEL CORP.

The following table sets forth selected historical and pro forma
consolidated financial and store data for the Company. These data should be
read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the historical and pro forma
consolidated financial statements and related notes thereto of the Company.
The historical financial statements of the Company for the period from March
24, 1995 (inception) through December 31, 1995 have been audited by Arthur
Andersen LLP, independent accountants, whose report thereon appears elsewhere
herein. The financial data for the two quarters ended July 14, 1996 and for
the period from March 24, 1995 (inception) through July 9, 1995 is unaudited,
but in the opinion of management, include all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position and results of operations. Interim results are
not necessarily indicative of results for subsequent periods or the full year.

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM MARCH
MARCH 24, 1995 DECEMBER 26, 24, 1995
(INCEPTION) THROUGH 1994 THROUGH (INCEPTION) THROUGH TWO QUARTERS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995 JULY 9, 1995 JULY 14, 1996(1)
------------------- ----------------- ------------------- ---------------------
ACTUAL PRO FORMA(2) ACTUAL PRO FORMA(3)
------------------- ----------------- ------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenue:
Company-operated
stores............... $ 25,685 $ 69,650 $ 7,715 $31,489 $34,793
Royalties and
franchise related
fees................. 738 738 -- 9,096 9,096
-------- -------- ------- ------- -------
Total revenue....... 26,423 70,388 7,715 40,585 43,889
Cost of products sold... 8,239 25,085 2,356 10,078 11,196
Salaries and
benefits(4)............ 13,531 29,547 3,636 14,444 16,805
General and
administrative
expenses............... 21,230 35,550 3,687 15,030 16,038
Write-off of intangible
assets(5).............. 26,575 26,575 -- -- --
-------- -------- ------- ------- -------
Income (loss) from
operations............. (43,152) (46,369) (1,964) 1,033 (150)
Other income (expenses),
net.................... (564) (8,433) (220) (4,055) (309)
-------- -------- ------- ------- -------
Net income (loss)....... $(43,716) $(54,802) $(2,184) $(3,022) $ (459)
======== ======== ======= ======= =======
Net income (loss) per
common and equivalent
share(6)............. $(4.54) $ (2.20) $ (.023) $ (0.23) $(0.02)
======== ======== ======= ======= =======
Weighted average
number of common and
equivalent shares
outstanding during
the period........... 9,659 24,986 9,626 14,261 29,568
======== ======== ======= ======= =======
STORE DATA (UNAUDITED):
Systemwide revenue(7)... $ 26,986 $ 71,263 $ 7,900 $60,470 $63,774
======== ======== ======= ======= =======
Number of stores in
operation at period
end:
Company-operated...... 47 84 29 49 49
Area developers....... 13 13 -- 139 139
-------- -------- ------- ------- -------
Total............... 60 97 29 188 188
======== ======== ======= ======= =======
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
JULY 14, 1996(1)
---------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(8)
------------ -------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................. $ 41 $ (4,210) $ 25,140
Notes receivable............................. 7,267 65,322 65,322
Total assets................................. 50,299 206,720 236,070
Long-term debt(9)............................ 58,875 77,011 --
Stockholders' equity......................... (20,994) 110,714 217,075
</TABLE>
- --------
(1) The Company's fiscal year is the 52/53-week period ending on the last
Sunday in December and normally consists of 13 four-week periods. The
first quarter consists of four periods, and each of the remaining three
quarters consists of three periods, with the first, second and third
quarters ending 16 weeks, 28 weeks and 40 weeks, respectively, into the
fiscal year.
(2) Giving pro forma effect to the acquisition of Brackman, Bagel & Bagel,
Offerdahl's, Baltimore Bagel and Noah's and the Loan Conversion as though
all transactions occurred as of December 26, 1994 (deemed to be the
beginning of the Company's 1995 fiscal year). See the Company's Unaudited
Pro Forma Consolidated Financial Statements and Notes thereto contained
elsewhere herein.
(3) Giving pro forma effect to the acquisition of Noah's and the Loan
Conversion as of the beginning of the Company's 1996 fiscal year. See the
Company's Unaudited Pro Forma Consolidated Financial Statements and Notes
thereto contained elsewhere herein.
(4) Includes for the pro forma two quarters ended July 14, 1996 approximately
$954,000 of stock option expense attributable to the acceleration of the
vesting of compensatory stock options issued by Noah's for such period.
The vesting acceleration occurred immediately prior to the acquisition of
Noah's by the Company. See Note 5 of Notes to the Company's Unaudited Pro
Forma Consolidated Financial Statements included elsewhere herein.
(5) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--March 24, 1995 (inception) to December 31, 1995--
Results of Operations" and Note 13 of Notes to the Company's Audited
Consolidated Financial Statements included elsewhere herein.
(6) As of July 14, 1996, the Company had approximately $56.7 million of debt
outstanding under the Company's revolving credit facilities. In August
1996, the Company utilized a portion of the proceeds from the Initial
Public Offering, Concurrent Public Offering and the Concurrent Private
Placement to repay such indebtedness. For the two quarters ended July 14,
1996, assuming such debt had been repaid utilizing the proceeds from the
sale of 3,583,175 shares of Common Stock ($15.81 per share) and giving
effect to the Loan Conversion as of the beginning of the fiscal year, the
net income per common and equivalent share would have been $0.09. For the
period from March 24, 1995 (inception) through December 31, 1995, giving
effect to the Loan Conversion as of the beginning of the period, the net
loss per common and equivalent share would have been $1.70.
(7) Includes gross revenue for all stores operated by the Company and its area
developers. Gross revenue excludes sales taxes.
(8) Adjusted to give effect to the approximately $86.0 million raised in
August 1996 from the Initial Public Offering, Concurrent Public Offering
and the Concurrent Private Placement and the application of the net
proceeds therefrom and the reclassification of the repurchase common stock
shares and the Preferred Shares from long-term debt to stockholders'
equity. See Note 12 of Notes to the Company's Audited Consolidated
Financial Statements included elsewhere herein.
(9) Includes at July 14, 1996, $12,548,000 attributable to the repurchase
common stock shares and $7,813,000 attributable to the Preferred Shares.
See Note 12 of Notes to the Company's Audited Consolidated Financial
Statements included elsewhere herein.

16
<PAGE>

PREDECESSOR COMPANIES

The summary historical combined financial data shown below represent the
financial data of the Company's predecessors: Brackman, Bagel & Bagel and
Offerdahl's. The financial data for the year ended December 31, 1995 include
the results of operations of the predecessors through their respective dates
of acquisition which were March 24, 1995 for Brackman and Bagel & Bagel and
March 31, 1995 for Offerdahl's. The financial information is presented on the
historic cost basis of each of the predecessors. The net income (loss) per
common and equivalent share and the weighted average number of common and
equivalent shares outstanding during the period have not been presented for
these periods because the Company believes this information is not meaningful.
Subsequent to the acquisition of these predecessors, the Company sold
substantially all of their assets. See Note 13 of Notes to the Company's
Audited Consolidated Financial Statements included elsewhere herein.
Accordingly, the Company does not believe that such operating results are
meaningful or are indicative of future operating results of the Company.

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
--------------------------------------------------- JANUARY 1, 1995
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, THROUGH
1991 1992 1993 1994 MARCH 31, 1995
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF
OPERATIONS DATA:
Total revenue........... $4,134 $7,880 $12,048 $19,158 $5,882
Income from operations.. 400 565 449 1,452 39
Net income (loss)....... 351 501 389 696 (158)
COMBINED BALANCE SHEET
DATA:
Total assets............ $1,708 $2,580 $ 4,770 $ 9,511
Long-term debt.......... 532 591 1,011 2,822
</TABLE>

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company commenced operations in March 1995 through the acquisition of
three regional bagel retailers, with subsequent acquisitions in August 1995
and February 1996. The Company sold certain acquired stores in 1995 and 1996
to area developers financed in part by the Company. To date, the predominant
source of the Company's revenue has been derived from sales at Company-
operated stores. However, because the Company has sold, and intends to
continue to sell, substantially all of the Company-operated stores to its area
developers and also intends to continue to expand its business primarily
through such area developers, the Company anticipates that its future revenue
will be increasingly derived from royalties, franchise-related fees and
interest income from its area developers. Consequently, comparisons of
operating results to date may not be meaningful.

The Company currently estimates that there will be between 275 and 300
stores in operation systemwide by the end of 1996. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 7. This rapid expansion significantly
affects the comparability of results of operations from period to period in a
number of ways. Store revenue is not as high in the first periods following
opening as it is in later periods and revenue for any new store is also highly
dependent on the proximity of other Company-operated or franchised stores and
those of competitors, the size of the store and its visibility. Further, the
cost of products sold is generally higher as a percentage of revenue for newly
opened stores than for more mature stores because of inefficiencies caused by
less experienced employees and a lack of store-specific operating history from
which to predict daily food production needs. Moreover, in order to support
its expansion program, the Company is continuing to develop its corporate
support center, and accordingly, certain related expenditures will be higher
as a percentage of revenue in earlier periods than in later comparable
periods. In addition, the Company's rapid expansion significantly affects its
liquidity and capital requirements.

The Company's success is highly dependent on its continued relationship with
Boston Chicken, which, as of September 4, 1996, beneficially owned
approximately 60% of the outstanding shares of Common Stock of the Company. In
addition, in connection with the Concurrent Private Placement, the Company
granted to Boston Chicken an option that would permit it to maintain ownership
of shares of Common Stock having up to 52% of the voting power of all of the
outstanding shares of capital stock of the Company having the power generally
to vote in the election of directors. The Company and Boston Chicken are
parties to various agreements, pursuant to which Boston Chicken has agreed to
provide to the Company certain accounting and administration and computer and
communications services. In addition, Boston Chicken has agreed to make
available to the Company a non-convertible loan facility of up to $50.0
million. See "Relationship with Boston Chicken."

Store activity for both Company-operated and franchised stores for the
quarter ended July 14, 1996, was as follows:

<TABLE>
<CAPTION>
STORES AT STORES OPENED STORES CLOSED STORES AT
BEGINNING IN THE IN THE END OF
OF QUARTER QUARTER QUARTER QUARTER
---------- ------------- ------------- ---------
<S> <C> <C> <C>
138 51 (1) 188
</TABLE>

Gross systemwide revenue for all stores was $30.7 million for the quarter
ended July 14, 1996 compared to $6.4 million for the comparable quarter in
1995.

MARCH 24, 1995 (INCEPTION) TO DECEMBER 31, 1995

Results of Operations

Revenue. Total revenue for the period ended December 31, 1995 was $26.4
million, consisting of $25.7 million from sales at Company-operated stores and
$0.7 million from royalties and franchise-related fees. At December 31, 1995,
the Company had 47 Company-operated stores compared to 13 stores owned by area
developers.

18
<PAGE>

Costs and Expenses. Cost of products sold (which consists of food and paper
costs at stores and commissary expenses) were $8.2 million for the period
ended December 31, 1995. Salaries and benefits (which includes salaries and
benefits for both store employees and support center employees) were $13.5
million and general and administrative expenses (which includes both store
expenses and support center expenses) were $21.2 million for the period ended
December 31, 1995. Such expenses resulted from the operations of Company-
operated stores and the development and operation of the Company's support
center.

In addition, after the acquisition of the Founding Companies, the Company
launched a development project, pursuant to which management analyzed (i) the
Founding Companies' stores, including brand positionings, product offerings,
operational service systems and atmosphere, (ii) the competitive environment
and (iii) the preferences of consumers across the United States. The project
resulted in the development of the Einstein Bros. Bagels brand and store. In
connection with, and as a result of, the development of the Einstein Bros.
Bagels brand and store, management determined to discontinue the use of the
identifiable intangible assets acquired in the acquisitions of the Founding
Companies, including trademarks and recipes. Consequently, during the period
ended December 31, 1995, the Company wrote-off $26.6 million of such assets.
The write-off resulted from the discontinuation of the use of these assets and
management's evaluation of the lack of recoverability of the costs thereof.
Goodwill of $14.0 million resulting from these acquisitions continues to be
amortized over its estimated useful life of 35 years. The Company will
continue to evaluate whether events and circumstances occur which may warrant
revising the estimated useful life or writing down all or part of the balance.
See Note 2 of Notes to the Company's Audited Consolidated Financial Statements
included elsewhere herein.

Other Expense. The Company incurred other expense of $0.6 million for the
period ended December 31, 1995, consisting principally of interest expense of
$1.3 million on the Company's loan agreement with Boston Chicken, offset by
other income of $0.7 million resulting from gains recognized on the sale of
marketable equity securities.

QUARTER ENDED JULY 14, 1996 COMPARED TO THE QUARTER ENDED JULY 9, 1995

Results of Operations

Revenue. Total revenue increased $11.9 million to $18.2 million for the
quarter ended July 14, 1996 from $6.3 million for the quarter ended July 9,
1995. For the two quarters ended July 14, 1996, total revenue increased $32.9
million to $40.6 million from $7.7 million for the prior period. Revenue from
Company-operated stores increased $6.8 million to $13.1 million for the
quarter ended July 14, 1996 from $6.3 million for the quarter ended July 9,
1995. For the two quarters ended July 14, 1996, revenue from Company-operated
stores increased $23.8 million to $31.5 million from $7.7 million for the
prior period. The increase in revenue from Company-operated stores for the
current quarter was due to a higher average number of Company-operated stores
open. The increase in revenue from Company-operated stores for the two
quarters ended July 14, 1996 was due to the short operating period in the
first quarter of the Company's first fiscal year of operations resulting in a
combination of a higher average number of Company-operated stores open and a
higher number of operating weeks in the two quarters ended July 14, 1996.

Royalty and franchise-related fees were $5.1 million for the quarter ended
July 14, 1996 and $9.1 million for the two quarters ended July 14, 1996. There
were no such fees in the comparable periods last year. There were 139 stores
operated by area developers as of July 14, 1996.

Cost of Products Sold. Cost of products sold increased $2.7 million to $4.6
million for the quarter ended July 14, 1996, compared with $1.9 million for
the prior period. Cost of products sold increased $7.7 million to $10.1
million for the two quarters ended July 14, 1996, compared with $2.4 million
for the prior period. The increase in cost of products sold for the current
quarter was due to a higher average number of Company-operated stores open.
The increase in cost of products sold for the two quarters ended July 14, 1996
was due to the short operating period in the first quarter of the Company's
first fiscal year of operations resulting in a combination of a higher average
number of Company-operated stores open and a higher number of operating weeks
in the two quarters ended July 14, 1996.

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<PAGE>

Salaries and Benefits. Salaries and benefits increased $2.3 million to $5.3
million for the quarter ended July 14, 1996, compared with $3.0 million for
the prior period. Salaries and benefits increased $10.8 million to $14.4
million for the two quarters ended July 14, 1996, compared with $3.6 million
for the prior period. The increase in salaries and benefits for the current
quarter was due to a higher average number of stores open and an increase in
the number of employees at the Company's support center necessary to support
systemwide expansion. The increase in salaries and benefits for the two
quarters ended July 14, 1996 was due to the short operating period in the
first quarter of the Company's first fiscal year of operations resulting in an
increase in the number of employees at Company-operated stores due to a higher
average number of stores open during the current period, an increase in the
number of employees at the Company's support center necessary to support
systemwide expansion, and a higher number of operating weeks in the two
quarters ended July 14, 1996.

General and Administrative. General and administrative expenses increased
$2.8 million to $6.0 million for the quarter ended July 14, 1996, compared
with $3.2 million for the prior period. General and administrative expenses
increased $11.3 million to $15.0 million for the two quarters ended July 14,
1996, compared with $3.7 million for the prior period. The increase in general
and administrative expenses for the current quarter was due to an increase in
the number of stores open and an increase in expenses at the Company's support
center necessary to support systemwide expansion. The increase in general and
administrative expenses for the two quarters ended July 14, 1996 was due to
the short operating period in the first quarter of the Company's first fiscal
year of operations resulting in an increase in the number of Company-operated
stores due to a higher average number of stores open during the current
period, an increase in expenses at the Company's support center necessary to
support systemwide expansion, and a higher number of operating weeks in the
two quarters ended July 14, 1996.

Included in general and administrative expenses are depreciation and
amortization charges of $1.2 million for the quarter ended July 14, 1996 and
$3.1 million for the two quarters ended July 14, 1996. These depreciation and
amortization charges include amortization on $98.3 million of goodwill and
intangible assets. These assets are being amortized over their estimated
useful lives ranging from 10 to 35 years. The Company will continue to
evaluate in the ordinary course whether events and circumstances occur which
may warrant revising the estimated useful lives or writing down all or part of
the balance.

Other Expense. The Company incurred other expense of $2.0 million for the
quarter ended July 14, 1996, compared to other expense of $0.1 million for the
prior period. The Company incurred other expense of $4.1 million for the two
quarters ended July 14, 1996, compared to other expense of $0.2 million for
the prior period. The increases reflect higher interest expense attributable
to the borrowings under the Company's loan agreements, offset by gains
recognized on the sale of marketable equity securities.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity. The Company's primary capital requirements relate to the
development of stores, principally in the form of partial financing for its
area developers. The remainder of the Company's capital requirements relate
primarily to investments in bagel and cream cheese production facilities and
investments in, and operation of, its corporate support center necessary to
support the increase in the number of stores in operation systemwide. In
addition, in February 1996, the Company acquired all of the outstanding
capital stock of Noah's New York Bagels, Inc. for $100.9 million in cash.

The Company has entered into convertible secured loan agreements with its
area developers whereby the area developer may draw on a revolving line of
credit, with certain limitations, in order to provide partial funding for
store development and working capital. As of December 31, 1995 and July 14,
1996, the Company had secured loan commitments aggregating approximately $16.0
million and $162.5 million respectively, of which approximately $3.5 million
and $59.3 million, respectively, had been advanced. As a result of executing
the rapid expansion strategy required by the Company, the Company's area
developers incurred net losses of $1.3 million in 1995, and the Company
anticipates its area developers will continue to incur substantial net losses
during their

20
<PAGE>

expansion stage. The Company believes that such losses will be recovered as
expansion moderates and development costs correspondingly diminish, store
investment costs decrease, operational efficiencies increase as a result of
overall system maturity and operational experience, advertising efficiencies
commence and average weekly store revenue increases. However, there can be no
assurance that such events will occur or that such losses will be recovered.
The failure of an area developer to achieve a sufficient level of
profitability subsequent to completion of its expansion phase could have a
material adverse impact on the Company's financial position and results of
operations. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

In connection with entering into new area development agreements, the
Company has sold, and intends to continue to sell, Company-operated stores
located in areas covered by such area development agreements to the respective
area developer. In 1995, the Company sold 13 Company-operated stores to BCE
West Bagels, L.L.C., one of its area developers, and during the two quarters
ended July 14, 1996, the Company sold an aggregate of 68 Company-operated
stores and related assets to Finest Bagels, L.L.C., Gulfstream Bagels, L.P.
(formerly Einstein Bros. America, L.P.), Noah's Pacific, L.L.C., Liberty
Foods, L.L.C., Colonial Bagels, L.P. and Mayfair Bagels, L.L.C., each of which
is an area developer of the Company. The aggregate proceeds from the sale of
these stores and related assets were approximately $5.5 million in 1995 and
$42.2 million for the two quarters ended July 14, 1996. There were no material
gains or losses recognized as a result of these sales.

Capital Resources. For the period ended December 31, 1995, the Company's
primary sources of capital included $20.8 million from the sale of shares of
Common Stock and $40.0 million from borrowings under its loan agreement with
Boston Chicken. For the two quarters ended July 14, 1996, the Company's
primary sources of capital included $16.2 million from the sale of shares of
Common Stock and $136.7 million of net borrowings under its revolving credit
facilities. The Company had two credit facilities with Boston Chicken,
consisting of a $120.0 million convertible loan facility and a $50.0 million
non-convertible loan facility. In addition, the Company has a $45.0 million
credit facility with Bank of America Illinois, as agent for the lenders. On
June 17, 1996, the outstanding balance of $120.0 million under the Company's
convertible loan facility from Boston Chicken was converted into 15,307,421
shares of Common Stock. As of July 14, 1996, an aggregate of $56.7 million was
outstanding under the two remaining facilities.

In August 1996, the Company completed an underwritten initial offering of
3,105,000 shares of its Common Stock to the public, a concurrent non-
underwritten public offering of 425,000 shares of its Common Stock to certain
individuals and entities and a concurrent private placement of 2,000,000
shares of its Common Stock to Boston Chicken. The aggregate net proceeds of
these offerings were approximately $86.0 million, $69.3 million of which was
utilized to repay the outstanding balances under its revolving credit
facilities.

The Company anticipates it will have a continuing need for additional
financing to continue systemwide expansion. The timing of the Company's
capital requirements will be affected by the number of Company-operated and
area developer stores opened, operational results of the stores and the amount
and timing of borrowings under the loan agreements between the Company and its
existing and future area developers. As the Company's capital requirements
increase, the Company will seek additional funds from public or private
offerings of debt or equity securities. There can be no assurance that the
Company will be able to raise such capital on satisfactory terms when needed.
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

21
<PAGE>

BUSINESS

GENERAL

The Company operates and franchises specialty retail stores that feature
fresh-baked bagels, cream cheeses, coffee and other related products,
primarily under the Einstein Bros. Bagels and Noah's New York Bagels brand
names. As of September 4, 1996, there were 218 stores in operation systemwide,
of which 18 were Company-operated and 200 were operated by area developers
financed in part by the Company. Such financing generally permits the Company
in certain circumstances to convert its loan into a majority equity interest
in the area developer. As of September 4, 1996, the Company had entered into
area development agreements that provide for the development of 1,001
additional stores, the majority of which are scheduled to open over the next
three years. The Company estimates that there will be between 275 and 300
stores in operation systemwide by the end of 1996. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 7.

BUSINESS STRATEGY

Distinctive Consumer Brands. The Company believes that its Einstein Bros.
Bagels and Noah's New York Bagels brands are distinct within the retail bagel
market and have their own respective competitive advantages in key areas,
including store design and atmosphere, products and customer and community
service. The Company intends to build initial brand awareness by developing
stores that foster customer loyalty and are an integral part of the local
community. Marketing methods, including the use of broadcast media, will be
used to further enhance brand awareness and facilitate extension of the brands
into new geographic areas and ultimately into alternate distribution channels.

Local Market Focus. The Company believes that a concentrated, rapid
development of stores into select markets is the best strategy for
establishing a competitive position as the preferred provider of fresh-baked
bagels. By focusing on select markets, the Company and its area developers
intend to leverage marketing, development and operations resources and
accelerate attainment of the critical mass necessary to achieve media spending
efficiency.

Area Developer Organization. The Company's strategy of concentrated
development in local markets is supported by area developers financed in part
by the Company. The Company believes that having a relatively small group of
area developers, each led by a management group with substantial multi-unit
retail food service experience and short- and long-term incentives tied to
performance, is a superior means to achieve market leadership than either
direct Company ownership of all stores or more traditional franchising
approaches which utilize a larger number of franchisees. As a result of
providing convertible financing to its area developers, the Company generally
will have, after a moratorium period (typically two years) and after the area
developer has completed not less than 80% of its area development commitment
(or in the event of certain defaults), the right to acquire a majority equity
interest in such area developers. See "--Expansion Strategy" and "--Area
Developer Financing."

Relationship with Boston Chicken. The Company's formation and growth have
been significantly advanced by its relationship with Boston Chicken. Boston
Chicken has provided (i) significant capital financing, (ii) multi-unit retail
infrastructure and systems, including accounting and administration, real
estate and computer and communications services and systems, pursuant to fee
service agreements, and (iii) assistance in recruiting experienced area
developer candidates. The Company believes that the multi-unit retail
infrastructure and services provided to date and to be provided in the future
by Boston Chicken allow the Company to focus its

22
<PAGE>

energy and resources on brand and store development. See "Relationship with
Boston Chicken." In addition, the Company is implementing certain key business
strategies that it believes have been important to Boston Chicken's
development of the Boston Market(R) brand.

Production Efficiencies. The Company believes that its use of proprietary
frozen bagel dough products for both the Einstein Bros. Bagels and Noah's New
York Bagels brands provides significant operational and developmental
advantages. Products for both brands have been developed so that they can be
produced in large, centrally located plants and efficiently packaged and
shipped to stores, where they are baked fresh. The Company believes that its
centralized production allows for a more consistent, superior bagel product
and permits more rapid development, production and deployment of a variety of
new products into stores systemwide. Similarly, the Company believes that its
long-term supply agreement with, and option to acquire, Doc's Cheese Company,
L.L.C. ("Doc's"), in Logan, Utah, provides additional product quality and cost
advantages. See "--Vendors." Doc's has developed a proprietary process that
blends fresh, natural ingredients directly into the cream cheese as it is
being produced, unlike flavored cream cheeses created by adding flavors to
already processed plain cream cheese. In addition, the Doc's product has an
extended refrigerated shelf life enabling the Company to gain centralized
production efficiencies. While the Company currently intends to retain
proprietary product recipes for each of the Einstein Bros. Bagels and Noah's
New York Bagels brands' bagel and cream cheese products, the Company believes
that the use of common production facilities for the two brands could offer
certain additional manufacturing and distribution efficiencies. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

Community Involvement. The Company believes that a key component in
developing both the Einstein Bros. Bagels and Noah's New York Bagels brands is
a strong local and community-based effort that encourages a close relationship
between each store and its community. The Company and its area developers
utilize community involvement as a means of providing charitable service, as
well as building brand awareness and loyalty. Stores are typically designed to
complement their respective communities by adapting to the surrounding
neighborhood and architecture, incorporating local motifs and themes.

EXPANSION STRATEGY

Geographic and Brand Focus. The Company's current expansion strategy for
Einstein Bros. Bagels and Noah's New York Bagels is based on geographic
segregation of the brands. Noah's New York Bagels is the leading West Coast
bagel retailer, and the Company currently intends to continue expansion of
this brand primarily on the West Coast. The Company and its area developers
have moved aggressively to penetrate targeted designated market areas ("DMAs")
throughout the rest of the United States with the Einstein Bros. Bagels brand,
and the Company currently intends to continue the expansion of this brand
primarily outside of the West Coast. However, the Company intends to test the
development and operation of both brands within the same trade area, and the
Company has granted rights for the development of both brands to separate area
developers for the Las Vegas DMA. The Company estimates that there will be
between 275 and 300 stores in operation systemwide by the end of 1996. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

As of September 4, 1996, in addition to 182 Einstein Bros. Bagels and Noah's
New York Bagels stores, the Company and its area developers were operating 36
bagel stores under the Bagel & Bagel, Offerdahl's Bagel Gourmet and Baltimore
Bagel brands. As part of the Company's expansion strategy, it and its area
developers intend to convert all such stores to either Einstein Bros. Bagels
stores or Noah's New York Bagels stores by early 1998. The Company and its
area developer for the Salt Lake City market completed conversion of nine
Brackman Bros. stores to Einstein Bros. Bagels stores in March 1996.

Area Developer Organizations. The Company's strategy of concentrated
development of local markets is supported by area developers financed in part
by the Company. The Company currently expects that by the end of 1996 all
stores within the system will be owned and operated by area developers. The
Company believes that having a relatively small group of area developers, each
led by a management group with substantial multi-unit

23
<PAGE>

retail food service experience and short- and long-term incentives tied to
performance, is a superior means to achieve market leadership than either
direct Company ownership of all stores or more traditional franchising
approaches which utilize a larger number of franchisees. As a result of
providing convertible financing to its area developers, the Company generally
will have, after a moratorium period (typically two years) and after the area
developer has completed not less than 80% of its area development commitment
(or in the event of certain defaults), the right to acquire a majority equity
interest in such area developers. See "--Area Developer Financing."

As of September 4, 1996, the Company had entered into area development
agreements with ten entities for the development and operation of an aggregate
of 897 Einstein Bros. Bagels stores and an aggregate of 304 Noah's New York
Bagels stores over the next six years (as summarized below). One hundred
sixteen of such Einstein Bros. Bagels stores and 63 of such Noah's New York
Bagels stores were open as of September 4, 1996 and a majority of the
additional stores committed are scheduled to open over the next three years.
The Company expects to enter into similar agreements with at least one
additional entity during 1996 for the development of Einstein Bros. Bagels or
Noah's New York Bagels stores. The Company and its area developers currently
operate stores in 31 territories, and expect to have stores in all of the
territories currently covered by area developer agreements by the end of 1996.
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 7.

<TABLE>
<CAPTION>
CURRENT ADDITIONAL
STORES STORES
AREA DEVELOPER PRIMARY DEVELOPMENT TERRITORIES OPEN(1) COMMITTED
- -------------- ------------------------------- ------- ----------
<S> <C> <C> <C>
Einstein Bros. Bagels:
BCE West Bagels, Denver, Salt Lake City, Phoenix, Tucson,
L.L.C................ Albuquerque, Las Vegas, Colorado Springs 37 74
Colonial Bagels, L.P.. Boston, Cleveland, Pittsburgh, Providence/
New Bedford, Springfield, MA 4 118
Finest Bagels, L.L.C.. Kansas City, St. Louis, Minneapolis 21 47
Great Lakes Bagels,
L.L.C................ Milwaukee, Chicago, Detroit, Madison 30 167
Gulfstream Bagels, Miami, Fort Lauderdale, West Palm Beach,
L.P.................. Orlando, Tampa 30 65
Liberty Foods, L.L.C.. New York City metropolitan area 7 143
Mayfair Bagels,
L.L.C................ Washington, D.C., Baltimore 4 65
Philly Rose, L.P...... Philadelphia 4 81
Noah's New York Bagels:
Noah's Bay Area Sacramento, San Francisco/Oakland/
Bagels, L.L.C........ San Jose 34 61
Noah's Pacific,
L.L.C................ Los Angeles, Portland, Seattle/Tacoma 29 180
--- -----
Total.......................................................... 200(2) 1,001
=== =====
</TABLE>
- --------
(1) Includes 11 stores operated under the Bagel & Bagel brand, and 10 stores
operated under the Offerdahl's Bagel Gourmet brand.
(2) In addition, at September 4, 1996, the Company operated 18 stores, three
of which were operated under the Einstein Bros. Bagels brand and 15 of
which were operated under the Baltimore Bagel brand.

The Company believes that rapid penetration of selected DMAs is superior to
more limited penetration of many DMAs for several reasons. Concentrations of
stores allow both area developers and Company personnel to gain greater
expertise concerning the trade areas within the DMA, thus improving their
ability to locate and approve sites on a more informed and efficient basis as
part of a market-wide strategy. In addition, store concentrations can permit
more efficient operations, in terms of multi-unit management, convenient
employee training, and sharing of employees, expertise and other resources
within a DMA. Concentrated DMA penetration also permits cost-efficient media
advertising to commence sooner than would be the case with a more scattered
nationwide expansion. The Company believes that media advertising increases
aggregate store revenue (which,

24
<PAGE>

in turn, can promote certain in-store operating efficiencies) and is valuable
in assisting the Company's area developers to secure real estate for future
sites on acceptable terms and assists in the efficient recruiting of both
management and hourly employees.

Site Selection. The Company has an extensive site selection process,
commencing with an overall market plan for each DMA that is compiled by the
Company and the relevant area developer. This market plan divides the DMA into
trade areas based on an aerial review, an extensive vehicle tour and
demographic analysis, and takes into account traffic counts, patterns and
drive times, natural and other boundaries and day-time populations. Once the
market plan is established, local real estate managers of the Company or area
developer and local real estate brokers focus on the most desirable sites in
each trade area, taking into account such factors as visibility, ready
accessibility (particularly for morning drive-time traffic), parking, signage
and adaptability of any current structure, and determine the availability of
the site and the costs relating thereto. A thorough analysis of each site,
including the foregoing types of information, photographs of the site and
neighboring area, and a proposed layout and site elevations, as well as other
materials, must be submitted to the Company for approval. Company personnel
visit each site in connection with the site approval process. In addition,
leases must contain certain terms and provisions and be approved by the
Company. The Company emphasizes neighborhood locations, including end-cap and
in-line locations with easy morning-time access from high traffic roads.

The Company estimates that the initial investment for a Company-operated or
franchised Einstein Bros. Bagels or Noah's New York Bagels store currently
ranges from approximately $269,000 to $592,000. This estimate includes
development and franchise fees (where applicable), professional fees,
deposits, leasehold improvements, furniture, fixtures, equipment, opening
inventory and supplies, architectural and engineering fees, permit and impact
fees, grand opening expenses, computer and software expenses and initial
working capital. This estimate does not include any additional costs which may
be associated with the purchase of the site or underlying real estate. The
actual cost depends on, among other factors, the size and location of the
store, the level of pre-opening expenditures and the amount of improvements,
less any applicable construction allowance.

The Company believes that its ability to achieve rapid development growth is
dependent on (i) its ability to secure area development agreements with
qualified area developers for specific geographic regions, (ii) its and its
area developers' ability to secure suitable sites, which includes negotiating
acceptable lease terms, securing required permitting, complying with other
regulatory requirements and meeting construction schedules, (iii) the
operational and other capabilities of the Company's area developers, (iv) the
availability of capital to its area developers, (v) the ability of the Company
to manage anticipated expansion and recruit and train personnel, and (vi) the
general economic and business environment. There can be no assurance that the
Company or its area developers will be able to achieve their goals.

The standard forms of area development agreement and franchise agreement,
and the terms of the Company's secured convertible financing to area
developers, are discussed more fully below under
"--Development Agreements," "--Franchise Agreements" and "--Area Developer
Financing."

THE EINSTEIN BROS. BAGELS BRAND

The Company developed the Einstein Bros. Bagels brand primarily during the
three-month period following the Company's formation and opened a test store
in Ogden, Utah in June 1995. The Company continued to develop and refine the
Einstein Bros. Bagels brand and concept store during the summer and early fall
of 1995 based on extensive consumer and competitor research. The Company
intends to continue to refine the Einstein Bros. Bagels brand, store design
and products to reflect consumers' tastes and preferences. As of September 4,
1996, the Company and its area developers had opened a total of 119 Einstein
Bros. Bagels stores in 18 states.

Products. The key component of the Einstein Bros. Bagels product strategy is
the Einstein Bros. bagel, which is produced utilizing a proprietary process
that allows for maximum inclusion of high quality ingredients, such as whole
blueberries, raisins and nuts. Bagels are offered in a wide variety of both
traditional and creative flavors, including Plain, Cinnamon Raisin Swirl,
Chopped Onion, Chopped Garlic, Honey Wheat, Spinach Herb,

25
<PAGE>

Nutty Banana, Wild Blueberry, Dark Pumpernickel, Chocolate Chip and Vegetable.
Bagels are baked fresh throughout the day in each store using a steamed-baking
process that produces a moist and dense interior wrapped in a firm, shiny
crust.

The exclusive line of Einstein Bros. Bagels cream cheeses includes Wildberry
Lite, Cheddar & Peppers, Veggie Lite, Smoked Salmon, Mendocino Sun-Dried
Tomato and Spinach Dill Lite, in addition to traditional cream cheese flavors.
Unlike flavored cream cheeses created by adding flavors to already processed
plain cream cheese, Einstein Bros. Bagels cream cheeses are created by
blending quality flavors and ingredients (such as fresh fruits and vegetables)
directly into the cream cheese during initial production. This process is
specifically designed to yield a more consistently flavored and more
spreadable cream cheese than traditional grocery store products.

The Einstein Bros. Bagels stores also offer consumers an extensive line of
beverages featuring branded coffee products. In addition to several blends of
premium drip coffee, customers can choose from a traditional offering of
espresso-based drinks, including Lattes, Cappuccinos and Americanos, that can
be augmented with gourmet syrup flavorings. High quality herbal, green and
black teas complete the hot beverage offerings. Cold beverages featured by
Einstein Bros. Bagels stores include Cool Cat(TM) iced cappuccino drinks,
fruit teas, bottled sodas, juices and waters, and a full line of fountain
sodas.

The Einstein Bros. Bagels menu of creative soups, salads and bagel
sandwiches offers customers a variety of lunch alternatives. Sandwiches
include signature offerings such as the Tasty Turkey, Veg-Out and Salmon-And-
The-Works, in addition to made-to-order deli sandwiches. Salads include spicy
Tabouli, Caesar, Greek and a Pasta-of-the-Week, as well as distinctive chicken
and tuna salads. The stores also offer a wide variety of soups that are
rotated and offered on a daily basis. In addition, stores feature branded
retail products that support the major menu categories, including ground and
whole bean coffee, teas, bagel chips, coffee mugs and other items.

Store Design and Atmosphere. The Einstein Bros. Bagels store is designed to
combine the authentic tastes of a bagel bakery with the comfortable setting of
a neighborhood meeting place. Each Einstein Bros. Bagels store blends
function, style and customer comfort with simple, contemporary colors and
furnishings in a relaxed social atmosphere. The look of the Einstein Bros.
Bagels store incorporates stained concrete or wood floors and eggplant-,
spruce- and mustard-colored aniline-dyed woods. Menu boards are black with
white lettering and designed to resemble chalkboards. The seating area
features cafe-style tables and wooden chairs with mismatched colors. Walls are
covered with whimsical drawings and sayings that relate to the Einstein Bros.
Bagels products. Other characteristic decorative items include a community
events calendar board that is customized to the store's neighborhood, a
bulletin board for community notices, painted Einstein Bros. Bagels logos and
a chalkboard for children.

A key component of the brand's "neighborhood feel" is its ability to blend
with local architecture by utilizing existing buildings and adapting the
Einstein Bros. Bagels trade dress to such locations. Einstein Bros. Bagels
stores are typically in leased locations of approximately 2,200 square feet
with ample parking, indoor seating for 30 to 40 customers, and, when
practical, additional outdoor seating. The Company and its area developers
generally seek sites located in neighborhood areas with seven-day-a-week
trade.

THE NOAH'S NEW YORK BAGELS BRAND

The Noah's New York Bagels brand was created in 1989 in Berkeley, California
and has evolved into the leading specialty retailer of fresh-baked bagels on
the West Coast. As of September 4, 1996, two of the Company's area developers
operated 63 Noah's New York Bagels stores in the San Francisco Bay Area,
Sacramento, Southern California, Portland and Seattle markets.

Products. The Noah's New York Bagels store is an authentic kosher bagel
bakery featuring 16 varieties of fresh-baked bagels, including Super Onion,
New York Rye, Whole Wheat Sesame, Egg, Garlic and Everything bagels, as well
as hand-made bialys and knishes. Noah's bagels are made from proprietary
recipes and are baked fresh throughout the day using a steamed-baking process
to create a light, moist and flavorful product.

26
<PAGE>

Noah's New York Bagels stores offer 12 flavors of Noah's Shmears(R), which
are also made from proprietary recipes utilizing a process that results in a
cream cheese product that is light and smooth while still having a rich taste.
Regular and low fat Noah's Shmears flavors include Plain, Lox, Sun-Dried
Tomato, Basil, Chive, Garlic Herb, Veggie, Walnut Raisin and Strawberry.

The Noah's New York Bagels kosher dairy deli menu includes four varieties of
lox (New York Nova, Oregon, Norwegian and Nova lox trim), and salads and
specialty items, including Seven Herb Salmon, Smoked Whitefish, Albacore Tuna
and Hummus. Beverages include premium branded coffees and traditional New York
deli-style beverages.

Store Design and Atmosphere. Noah's New York Bagels stores recreate the mood
and feeling of a turn-of-the-century New York bakery. Mosaic tilework
incorporating the Noah's New York Bagels logo is reminiscent of the tile in
many New York landmarks and subway stations. Signage, menus and literature
incorporate Yiddish words and phrases, old photos and various New York
memorabilia. The lighting, marble counters and tables, and cherry woodwork
contribute to a feeling of old-fashioned comfort.

Particularly on weekends, the Noah's New York Bagels stores are a community
meeting place. The upbeat attitude of each Noah's New York Bagels store crew
helps set the store's atmosphere. Store crew members are encouraged to deliver
warm, personal service, as well as to participate in the Noah's New York
Bagels commitment to the community. Noah's New York Bagels stores are
typically in leased locations ranging in size from 900 to 2,500 square feet,
with newer stores being approximately 1,800 square feet. Stores include
approximately 16 seats, with additional outdoor seating in most locations.

MARKETING

The Company believes that a key component in developing both the Einstein
Bros. Bagels and Noah's New York Bagels brands is a strong local and
community-based effort that encourages a close relationship between each store
and its community. The Company and its area developers intend to utilize
community involvement as a means of providing charitable service, as well as
building brand awareness and loyalty. The Company also utilizes traditional
marketing and advertising methods including television, radio, newspapers and
other print media (including use of free-standing inserts and promotional
coupons), signage, direct mail and in-store point-of-purchase displays to
promote its brands. Both the Company-operated and area developer stores
contribute to a national advertising fund and a local advertising fund to pay
for the development of advertising material and for advertising in their
respective DMAs. See "--Franchise Agreements" and Note 9 of the Notes to the
Company's Audited Consolidated Financial Statements.

VENDORS

In May 1996, the Company entered into a project and approved supplier
agreement (the "Harlan Supply Agreement") with Harlan Bagel Supply Company,
LLC ("Harlan") and the equity owners of Harlan. Harlan recently completed the
construction of a new production facility in Avon, Indiana (the "New
Facility"), which is designed to produce frozen dough for approximately 1.4
million dozen bagels per month, expected to be sufficient to supply
approximately 200 Einstein Bros. Bagels stores. Under the Harlan Supply
Agreement, Harlan has agreed to sell to the Company, its area developers and
their food service distributors up to 1.4 million dozen bagels per month
through June 1, 2003, for which such purchasers will be charged a price equal
to the cost of ingredients and packaging, will absorb an agreed upon allowance
for product losses, and will pay a fixed toll charge (which is subject to
adjustment for inflation, changes in formulations, specifications or
procedures required by the Company or failure of the Company, its area
developers and their food service distributors to purchase certain minimum
numbers of bagels). Under certain circumstances, contract purchase amounts may
be increased, which would permit Harlan to double the New Facility's capacity.
Harlan has granted to the Company an option, exercisable at any time from
December 15, 1999 through June 1, 2002, to acquire all of the assets of Harlan
at a formula price equal to a multiple of Harlan's profits from sales of
products under the Harlan Supply Agreement. Approximately $7.5 million of
equipment used in the New Facility is owned by the Company and leased to
Harlan pursuant to an operating lease.

27
<PAGE>

The Company is also a party to a cream cheese supply agreement and certain
related agreements with Doc's (the "Doc's Agreements"). Under the Doc's
Agreements, Doc's has agreed to supply the Company, its area developers and
other authorized purchasers with up to 160,000 pounds of cream cheese per week
(which the Company believes is sufficient to supply at least 350 bagel stores)
through October 2, 2000, and the Company has agreed, subject to certain
exceptions and limitations, that it, its area developers and other authorized
purchasers will purchase the lesser of such amount or 60% of their
requirements for cream cheese. Prices for Doc's products are based on Doc's
cost, adjusted as necessary to provide Doc's with sufficient cash flow to fund
principal payments on certain outstanding indebtedness. The Company has
provided certain debt financing to Doc's, primarily to fund the purchase of
cream cheese production equipment and for Doc's working capital needs. The
Doc's Agreements also grant the Company an option, exercisable at any time on
or before October 2, 2000, to acquire all of the assets of Doc's at a formula
price based on cream cheese production volumes and production cost.

The Company has a national account relationship with Sysco Corporation
("Sysco"), which provides for deliveries of food, paper and smallware products
to participating stores several times a week at a negotiated standardized
mark-up above cost. The Company and its area developers currently purchase in
excess of 10% of their products and supplies from Sysco. The Company is
currently negotiating the terms of a distribution agreement with another
national food distribution company.

The Company and its area developers may be subject to shortages or
interruptions in supply caused by transportation strikes, adverse weather or
other conditions which could adversely affect the quality, availability and
cost of ingredients.

The Harlan Supply Agreement and the Doc's Agreements are exhibits to the
Registration Statement of which this Prospectus is a part.

COMPETITION

The food service industry is intensely competitive with respect to food
quality, concept, convenience, location, customer service and value. In
addition, there are many well-established food service competitors with
substantially greater financial and other resources than the Company and with
substantially longer operating histories. Many of such competitors are less
dependent than the Company on a single, primary product. The Company believes
that it competes with other bagel retailers and bakeries, including, among
others, Bruegger's Bagel Bakery, Manhattan Bagel, Big Apple Bagel and
Chesapeake Bagel Bakery, specialty coffee retailers, doughnut shops, fast-food
restaurants, delicatessens, take-out food service companies, supermarkets and
convenience stores. The Company believes that competition in the retail bagel
market will increase as large retail bagel companies attract additional
capital, new competitors enter the market and bagel retailers compete for
market share. In addition, the Company believes that the start-up costs
associated with retail bagel and similar food service establishments are not a
significant impediment to entry into the retail bagel business. The Company
believes that its Einstein Bros. Bagels and Noah's New York Bagels brands
compete favorably in the important factors of taste, food quality,
convenience, customer service and value.

Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns, the cost and availability of labor, purchasing power, availability
of product and the type, number and location of competing restaurants. Multi-
unit food service chains such as the Company can also be substantially
adversely affected by publicity resulting from food quality, illness, injury
or other health concerns (including food-borne illness claims) or operating
issues stemming from one store or a limited number of stores, whether or not
the Company is liable. Claims relating to foreign objects, food-borne illness
or operating issues are common in the food service industry and a number of
such claims may exist at any given time. In addition, factors such as
increased costs of goods, labor and employee benefit costs, regional weather
conditions and potential scarcity of experienced management and hourly
employees may also adversely affect the food service industry in general and
the results of operations and financial condition of the Company and its area
developers in particular. The Company attempts to manage or adapt to these
factors, but some or all of these factors could cause the Company and some or
all of its area developers to be adversely affected.

28
<PAGE>

DEVELOPMENT AGREEMENTS

The Company's form of area development agreement currently provides for the
development of a specified number of bagel stores of a specified brand within
a defined geographic territory in accordance with a development schedule of
store opening dates. The development schedule generally covers two to five
years and contains store opening benchmarks for the number of stores to be
opened and in operation at quarterly or semi-annual intervals. An area
developer's development schedule typically requires concurrent store
development by the area developer in multiple DMA's. Area developers initially
pay a non-refundable development fee of $5,000 per store to be developed and a
non-refundable real estate services fee of $5,000 per store to be developed.
Such fees are not recognized as income by the Company until the store is
opened. The area development agreements generally provide that the area
developer has the right to open a specified number of stores within each DMA
during the term of the development schedule applicable to that DMA and
generally preclude the Company from operating or franchising bagel stores of
the brand for which rights have been granted within such territory, except
that the Company reserves the right to engage in certain special distribution
arrangements and, in the event the area developer chooses not to develop them,
to develop target sites and conversion sites within the specified territory.
Target sites are sites which the Company believes should be developed for
competitive or market reasons regardless of the applicable development
schedule or the location of pre-existing sites. Conversion sites are sites
obtained from other companies which are suitable for conversion to bagel
stores.

Breaches of the area development agreement, including failure to meet
development schedules, may lead to termination of the limited exclusivity
provided by the agreement, renegotiation of development and franchise
provisions or termination of the right to build future stores, although such
termination will not generally affect existing franchise agreements for
developed locations unless such breaches independently constitute defaults of
the franchise agreements. Any such termination could be contested by the area
developer.

The form of area development agreement between the Company and its area
developers is an exhibit to the Registration Statement of which this
Prospectus is a part.

FRANCHISE AGREEMENTS

Once an acceptable lease for an approved store site has been executed or
real estate for a new site has been acquired, the Company and the area
developer enter into a franchise agreement under which the area developer
becomes the franchisee for the specific store to be developed at the site.
Franchise agreements typically provide for a non-refundable franchise fee of
$35,000 per store, a 5% royalty on "Royalty Base Revenue," which is defined as
gross revenue less customer refunds and coupons, the portion of employee meals
not charged to the employee and monies received by the store from other stores
directly attributable to an approved commissary operated in the store, a
national advertising fund contribution of 2% on Royalty Base Revenue, a local
advertising fund contribution of 4% on Royalty Base Revenue and a $10,000
minimum grand opening expenditure. The national and local advertising fund
contributions may each be increased by .25% per calendar year over the prior
year at the discretion of the Company. The Company's franchise and area
development agreements with respect to markets where the Company has already
commenced store development generally provide for 6% royalties.

The Company's form of franchise agreement provides that the Company may
specify computer hardware and software for use in stores, including licensed
software designated or created by or for Boston Chicken and used by the
Company and its area developers. The cost of designated computer hardware is
approximately $15,000 to $30,000 per store. The Company currently specifies
off-the-shelf computer hardware for use in stores and charges fees aggregating
$16,000 for licensed software for store systems, which fee is paid to Boston
Chicken (including $1,000 for third-party proprietary software which the area
developer is required to use) under an existing computer and communications
systems services agreement (the "Computer Services Agreement"). See
"Relationship with Boston Chicken--Computer and Communications Systems
Services Agreement." The Company's form of franchise agreement also provides
for a periodic maintenance and support fee for modifications and enhancements
made to the licensed software and certain other maintenance and support

29
<PAGE>

services. The Company and its area developers pay $323 to Boston Chicken and
such area developers pay $77 to the Company per four-week accounting period
per store for these services. The Company believes that the integrated
hardware and licensed software systems used by its area developers will
facilitate the movement of knowledge, including financial, customer and
employee performance data, allowing the Company and its area developers to
react more quickly in a competitive environment.

The Company's form of franchise agreement provides for an area of limited
exclusivity surrounding the bagel store in which the Company may neither
develop nor grant to others the right to develop additional bagel stores
(generally limited to bagel stores of the brand that has been licensed to the
franchisee), except that the Company reserves the right to engage in certain
special distribution arrangements and, in the event that the franchisee
chooses not to develop them, to develop conversion sites within the
franchisee's designated territory. Designated territories in suburban
locations are generally a one-mile radius surrounding the store, while urban
locations occasionally have a smaller (e.g., one-half mile) radius or a trade-
area-specific designated territory.

The Company's form of franchise agreement requires that each store be
operated in accordance with the operating procedures and menu, and meet the
applicable quality, service and cleanliness standards, established by the
Company. The Company may work with a franchisee to improve substandard
performance or any items of non-compliance and may terminate any franchise
agreement if the franchisee does not comply with such standards. The Company
is specifically authorized to take accelerated action in the event that the
operations of any franchised store present a health risk. The Company believes
that maintaining superior food quality, a clean and pleasing environment and
excellent customer service are critical to the reputation and success of the
Company's brands and, therefore, intends to strictly enforce applicable
contractual requirements. Upon any termination of a franchise agreement, the
Company has the right to purchase the assets of the franchisee at the net
tangible book value of such assets.

The form of franchise agreement between the Company and its area developers
is an exhibit to the Registration Statement of which this Prospectus is a
part.

AREA DEVELOPER FINANCING

Secured Loan Agreements. The Company's area developers are generally funded
in part by a senior secured loan made by the Company that is typically
convertible into a majority equity interest in the area developer. The Company
believes that the development and operation of stores in a DMA is improved
when management is permitted to focus primarily on store development and
operations, rather than on raising capital. Accordingly, to facilitate the
development of its brands, the Company has made, and currently intends to
make, loans to area developers to provide partial financing for store
development and working capital. The maximum amount of such a loan is based on
the amount of equity investments (excluding promissory notes) made by the
members of the area developer's management, one or more equity investments
made by Bagel Store Development Funding, L.L.C., a Delaware limited liability
company, formerly Einstein Bros. Equity Funding, L.L.C. ("Bagel Funding"), and
equity investments made by any other investors.

The area developer financing program requires the area developer to expend
at least 75% of its equity capital contributed in cash toward developing
stores and funding working capital prior to drawing on its revolving loan,
with advances permitted during a two- or three-year draw period in a pre-
determined maximum amount generally equal to four times the amount of the area
developer's equity capital contributions (excluding promissory notes). Upon
expiration of the draw period under the loan agreement, the loan generally
converts to an amortizing term loan payable over five years in periodic
installments, with a final balloon payment. Interest is set at 1% over the
applicable reference rate of Bank of America Illinois as established from time
to time and is payable currently. The loan is secured by a pledge of
substantially all of the assets of the area developer.

Each loan agreement contains customary representations, warranties, terms
and covenants. The Company's loans to its area developers subject the Company
to the risks of being a secured lender. The Company considers each area
developer's use of loan proceeds, adherence to its store development schedule,
store performance

30
<PAGE>

trends, type and amount of collateral securing the loan, prevailing economic
conditions and other factors it deems relevant at the time in evaluating
whether to establish an allowance for potential loan losses. See Note 11 of
Notes to the Company's Audited Consolidated Financial Statements.

The Company may convert all or any portion of the loan amount at its
election into equity in the area developer at a conversion price that is
generally set at a 12% premium over the per unit price paid by the investors
in the area developer for their equity investment made concurrently with the
execution of the loan agreement. To the extent such loan is not fully drawn or
has been drawn and repaid, the Company has a corresponding option to acquire
at the loan conversion price the amount of additional equity it could have
acquired by conversion of the loan had the loan been fully drawn. The
Company's conversion and option rights are only exercisable after a moratorium
period (typically two years) and after the area developer has completed not
less than 80% of its store development commitment. In addition, the Company
may exercise its conversion and option rights upon the occurrence of certain
specified defaults under the area developer loan agreement. An area
developer's default of its development schedule is a default under the loan
agreement (so as to permit the Company to exercise its conversion and option
rights) only if during the 180-day period immediately preceding the event
giving rise to the default, the area developer had access to debt or equity
capital, either directly or through Company sources, on commercially
reasonable terms for similarly situated restaurant businesses, or income from
operations, sufficient in either case to complete its development obligations.
The Company also has certain rights regarding future financings of the area
developer that allow the Company, if it so desires, to maintain the potential
for a majority interest in the area developer upon conversion of the loan and
any corresponding option exercise. There can be no assurance, however, that
the Company will exercise its future rights to acquire an equity interest in
any area developer or that such exercise will result in a majority interest in
the area developer. Any determination to convert any area developer loan would
involve a variety of economic and operational considerations, including the
status of the area developer's market penetration, the performance of the area
developer's stores, the Company's desire to own such stores, the Company's
ability to manage such stores if necessary, and the financial impact of
converting the loan. In addition, any loan conversion or other acquisition of
an equity interest in an area developer by the Company would not be indicative
of whether the Company intended to, or would, convert or otherwise acquire an
equity interest in any other area developer.

The form of secured loan agreement between the Company and its area
developers is an exhibit to the Registration Statement of which this
Prospectus is a part.

Area Developer Equity. Members of management of each of the Company's area
developers generally make an equity investment in the area developer entity.
The amount and type of such investments vary among the area developers. At
September 4, 1996, the aggregate amount of investments by management of the
Company's ten area developers was approximately $0.8 million in cash and
approximately $4.5 million in full recourse, secured, interest-bearing
promissory notes. Future investments by management or others could include
contributions of assets.

In addition to equity investments provided by an area developer's
management, Bagel Funding may make one or more equity investments in the
Company's area developers. Bagel Funding was formed in December 1995 to invest
in area developers of the Company. Bagel Funding has received total capital
commitments from its members aggregating $90.0 million, $45.8 million of which
has been contributed to Bagel Funding and the balance of which is payable from
such members to Bagel Funding at such times on or after October 1, 1996 and on
or before December 31, 1998 as Bagel Funding's manager or managers make one or
more capital calls. The Company, in its capacity as manager of Bagel Funding,
has made a capital call for an aggregate of $30.0 million on or before October
5, 1996. As of September 4, 1996, Bagel Funding had invested a total of
approximately $45.8 million in area developers.

Bagel Funding has the right to require each area developer to redeem Bagel
Funding's equity interest in the area developer (the "Bagel Funding Put") at a
pre-determined formula purchase price based on the store level cash flow of
the area developer in the event (i) the Company acquires a majority interest
in the area developer pursuant to the exercise of its conversion or option
rights under the area developer's secured loan agreement, (ii) the Company's
conversion and option rights expire unexercised and the Company has not
consented to a public

31
<PAGE>

offering of the area developer, or (iii) the Company does not acquire a
majority interest in an area developer pursuant to the exercise of the
Company's conversion or option rights, such rights have expired under the
secured loan agreement and the Company has not consented to a request by the
area developer to terminate its area development and franchise agreements with
the Company. In the event the area developer does not redeem Bagel Funding's
equity interest when required to do so, the Company will be obligated to
purchase from Bagel Funding its equity interest in the area developer at the
same price applicable to the area developer.

The form of Fourth Amended and Restated Limited Liability Company Agreement
of Bagel Funding and the form of agreement between the Company and Bagel
Funding relating to the contingent repurchase obligation of the Company with
respect to the Bagel Funding Put (including the terms of the formula purchase
price for the Bagel Funding Put) are exhibits to the Registration Statement of
which this Prospectus is a part.

The Company is currently the manager of Bagel Funding. Certain directors and
executive officers of each of the Company and Boston Chicken have made, or
have committed to make, equity investments in Bagel Funding aggregating
approximately $21.7 million. See "Certain Transactions--Bagel Store
Development Funding."

TRADEMARKS AND OTHER PROPRIETARY RIGHTS

The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including
Noah's New York Bagels(R), Noah's Bagels(R), A Taste of Old New York(R),
Noah's Shmears(R), Shmear 'Em(R) and Protect Your Bagels, Put Lox on Them(R).
In addition, the Company has federal trademark applications pending for a
number of trademarks and service marks, including Just Say Noah's(TM),
Einstein Bros.(TM), Einstein's(TM), Poppies(TM), The Coffee Table(TM),
Bubbler(TM), Cool Cat(TM), Little Monsters(TM), Fresh & Holesome(TM), Veggie
Confetti(TM), The Veg-Out(TM), Bagelmeister(TM) and Boomerang(TM), as well as
certain logos used by the Company. The Company has applied to register Noah's
New York Bagels(R) in more than 30 foreign countries and to register each of
Einstein Bros.(TM) and Einstein's(TM) in approximately 20 foreign countries.
Most of such pending applications in the United States and foreign countries
were filed in 1995 and 1996. The Company has not yet obtained federal
registrations for any of the trademarks or service marks used in connection
with the Einstein Bros. Bagels stores and products and there can be no
assurance that any such registrations will be obtained.

After the Company filed an application for the service mark Einstein's for
restaurant services in May 1995, Peach State Restaurants, Inc. ("Peach
State"), which owns a restaurant in Atlanta that uses the name Einstein's,
filed a federal trademark application for the name Einstein's for restaurant
services and filed an opposition to the Company's application for Einstein's.
In July 1996 the Company entered into an agreement with Peach State in which
Peach State agreed to withdraw such application, to abandon such opposition
and to not object to, or interfere with, any of the Company's trademark and
service mark applications that include the name Einstein's. Peach State has
also agreed not to use any mark incorporating the name Einstein's for
restaurant services outside of the Atlanta metropolitan area, and the Company
has agreed not to use any mark incorporating the name Einstein's for
restaurant services in the State of Georgia (except for permitted national
advertising and promotion and similar uses).

Hebrew University of Jerusalem ("Hebrew University"), which claims certain
rights to the name Albert Einstein, has obtained an extension of time to file
an opposition to certain of the Company's U.S. applications for Einstein's and
has filed oppositions to the Company's trademark applications in three foreign
countries, although the Company does not use (and does not intend to use,
absent a licensing agreement or other consent of Hebrew University) Albert
Einstein's first name, likeness or scientific formulae or theories in
connection with the Einstein Bros. Bagels brand. The Company is currently
seeking to enter into an agreement with Hebrew University pursuant to which
Hebrew University would grant to the Company rights to use certain indicia of
Albert Einstein and Hebrew University would abandon its trademark oppositions.
There can be no assurance, however, that the Company and Hebrew University
will enter into such an agreement, or that Hebrew University will not oppose
the registration or challenge the use of certain of the Company's trademarks
under laws governing trademarks or publicity rights.

32
<PAGE>

The Company is aware of the use by other persons or entities in certain
geographic areas of names and marks which may be deemed to be similar to
certain of the Company's marks. Some of these persons or entities may have
prior rights to such marks in their respective localities. While the Company
is not aware of any prior uses that would prevent the use of the Company's
marks in any DMA for which it has granted development rights, there can be no
assurance that the Company's marks will be available for use by the Company
and its area developers in all locations.

The Company considers its intellectual property rights to be important to
its business and its policy is to actively defend and enforce such rights.

GOVERNMENT REGULATION

Stores, commissaries and other production facilities operated by the Company
and its area developers are required to comply with federal, state and local
government laws and regulations applicable to food production and consumer
food service businesses generally, including those relating to the preparation
and sale of food, minimum wage requirements, overtime, working and safety
conditions and citizenship requirements, as well as regulations relating to
zoning, construction, health, business licensing and employment. An increase
in employee benefit costs or other costs associated with employees, such as
minimum wage requirements, could adversely affect the Company.

Certain states and the Federal Trade Commission require a franchisor to
transmit specified disclosure statements to potential franchisees before
granting a franchise. Additionally, some states require the franchisor to
register its franchise with the state or qualify for certain statutory or
discretionary exemptions from registration before it may offer a franchise.
The Company believes that its Uniform Franchise Offering Circular (together
with any applicable state versions or supplements) complies with both the
Federal Trade Commission guidelines and all applicable state laws regulating
franchising in those states in which it has offered franchises. The Company's
Uniform Franchise Offering Circular, which contains the base forms of the
Company's current area development, franchise and area developer financing
agreements, is an exhibit to the Registration Statement of which this
Prospectus is a part.

PROPERTIES/LEASING

The Company leases its support center facility, which consists of
approximately 38,000 square feet of office space (and certain common areas,
including parking areas), from Boston Chicken. See "Relationship With Boston
Chicken--Other Relationships Between Boston Chicken and the Company." The
Company also leases office space in San Diego and Los Angeles, California for
use as a support center for the operations of the Company in such location.

The Company and its wholly owned subsidiaries lease the land and buildings
for all Company-operated stores. In addition, the Company and its subsidiaries
may lease land or buildings that they sublease or assign to area developers.
While the Company expects its area developers primarily to continue to lease
sites in the future, the Company or its area developers may also purchase land
and/or buildings for stores to the extent acceptable terms are available. The
majority of the Company's stores are located in retail community shopping
centers, community business districts or freestanding locations.

Stores leased by the Company are typically leased under "triple net" leases
that require the Company to pay its proportionate share of real estate taxes,
maintenance costs and insurance premiums. In some cases, in addition to base
rent, the Company pays percentage rent based on sales in excess of specified
amounts. Generally, the Company's store leases have initial terms of five
years with options to renew for three additional five-year periods at market
rates.

33
<PAGE>

The Company owns commissaries in or near Salt Lake City, Utah and San Diego,
California. The facility in Salt Lake City also contains office space for the
use of operational personnel of the Company's area developer in the Salt Lake
City area and is presently the subject of an environmental remediation program
to correct soil and groundwater contamination resulting from the closure of an
underground storage tank by a prior owner. A groundwater remediation system
has been installed at the site, which is subject to the oversight of the State
of Utah, Division of Environmental Response and Remediation. All of the costs
of the remediation are being paid by certain of the former shareholders of
Brackman pursuant to an indemnification agreement with the Company entered
into by them at the time Brackman was acquired. The remaining costs of the
remediation are not expected to exceed the amount such former shareholders are
obligated to pay under the indemnification agreement.

The Company leases dough production facilities in San Leandro and Whittier,
California, which are subleased to one of its area developers. The Company
leases facilities used as commissaries in or near Fort Lauderdale, Florida and
Kansas City, Kansas. The Company also leases a facility in Parker, Colorado
which it currently uses as a test commissary. The Company may lease or
sublease its commissaries and related office space to area developers.

EMPLOYEES

At September 4, 1996, the Company had approximately 350 employees, including
approximately 110 employed at its support center offices in Golden, Colorado,
approximately 10 employed at zone offices or commissaries and approximately
230 employed at bagel stores operated by the Company. None of the Company's
employees are represented by a labor union or covered by a collective
bargaining contract. The Company believes that its relationships with its
employees are generally good.

LEGAL PROCEEDINGS

The Company, like others in the food service business, is from time to time
the subject of complaints, threat letters or litigation from customers
alleging illness, injury or other food quality, health (including food-borne
illness claims) or operational concerns. Claims relating to foreign objects,
food-borne illness or operating issues are common in the food service industry
and a number of such claims may exist at any given time. Adverse publicity
resulting from such allegations may materially adversely affect the Company
and one or more of its brands, regardless of whether such allegations are
valid or whether the Company is liable. In addition, the Company also
encounters complaints and allegations from former or prospective employees or
others from time to time, as well as other matters which are common for
businesses similar to the Company's. The Company does not believe that any
such matters of which it is aware are material to the Company individually or
in the aggregate, but matters may arise which could adversely affect the
Company or its business operations. See "--Trademarks and Other Proprietary
Rights."

In the course of enforcing its rights under existing area development and
franchise agreements, the Company may also be the subject from time to time of
complaints, threat letters or litigation concerning the proper interpretation
and application of these agreements, particularly in the event of a default or
termination of area development or franchise rights. No such matters are
currently pending.

INSURANCE

The Company currently has the types and amounts of insurance coverage that
it considers appropriate for a company in its business. While management
believes that its insurance coverage is adequate, if the Company was held
liable for amounts exceeding the limits of its insurance coverage or for
claims outside the scope of its insurance coverage, the Company's business,
results of operations and financial condition could be materially adversely
affected.

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<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott A. Beck(3) 38 Chairman of the Board
Noah C. Alper 49 Vice Chairman of the Board
Mark R. Goldston 41 President, Chief Executive Officer and Director
Michael J. Beau-
doin 34 Senior Vice President--Supply Chain
W. Eric Carlborg 32 Senior Vice President--Finance
David G. Stanchak 38 Vice President, Chief Development Officer and Director
Jeffrey L. Butler 35 President of Einstein Bros. Bagels Concept
Joel M. Alam 38 Vice President and Secretary
Paul A. Strasen 40 Vice President and General Counsel
Kyle T. Craig 49 Director
M. Laird
Koldyke(1)(2)(3) 35 Director
Gail A. Lozoff 46 Director and Vice President
John H.
Muehlstein,
Jr.(3) 41 Director
John A.
Offerdahl(1) 32 Director
Lloyd D.
Ruth(1)(2)(3) 49 Director
</TABLE>
- --------
(1) Member of the Audit Committee of the board of directors.
(2) Member of the Reporting Person Stock Option Committee of the board of
directors.
(3) Member of the Compensation and Stock Option Committees of the board of
directors.

Messrs. Craig, Stanchak and Beck were elected to the board of directors as
designees of Boston Chicken, Messrs. Koldyke, Muehlstein and Ruth were elected
to the board of directors as designees of investors in the Company's March
1995 private placement and Messrs. Offerdahl and Daniel V. Colangelo (the
Company's former President and Chief Executive Officer and formerly a
director) and Ms. Lozoff were elected to the board of directors as designees
of Offerdahl's, Brackman and Bagel & Bagel, respectively. Boston Chicken and
Brackman did not designate nominees for the 1996 election of directors and the
private placement investors designated Messrs. Koldyke, Muehlstein and Ruth
for such election. All such contractual designation rights have expired. See
"Risk Factors--Control by and Conflicts of Interest with Boston Chicken."

All directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
serve at the pleasure of the board of directors.

Mr. Beck became Chairman of the Board of the Company in July 1996. Mr. Beck
has served as a director of the Company since March 1995. He has been Chief
Executive Officer and a director of Boston Chicken since June 1992 and served
as Chairman of Boston Chicken from such time until December 1995 when he
became Co-Chairman. He was Vice Chairman of the Board of Blockbuster
Entertainment Corporation ("Blockbuster") in Fort Lauderdale, Florida from
September 1989 until January 1992, and Chief Operating Officer of Blockbuster
from September 1989 to January 1991. Since 1980, Mr. Beck also has been
President of Pace Affiliates, Inc., an investment banking firm he founded.

Mr. Alper became the Company's Vice Chairman of the Board in March 1996. Mr.
Alper founded Noah's in 1989 and served as its Chairman of the Board until
March 1996.

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<PAGE>

Mr. Goldston became President and Chief Executive Officer and a director of
the Company in April 1996. Since January 17, 1996, Mr. Goldston has also been
employed by Boston Chicken to undertake various special projects for Boston
Chicken. From July 1994 to April 1996, Mr. Goldston was the Chairman and Chief
Executive Officer of The Goldston Group, a strategic advisory firm which
advises high-growth companies on improving performance and creating operating
leverage and efficiencies. From October 1991 to June 1994, Mr. Goldston served
as President and Chief Operating Officer of L.A. Gear, Inc. From September
1989 to October 1991, Mr. Goldston was a principal of Odyssey Partners, L.P.,
an investment firm, and from September 1988 to September 1989 served as Chief
Marketing Officer of Reebok Inc.

Mr. Beaudoin became the Company's Senior Vice President--Supply Chain in
July 1996. Prior thereto, he served as Vice President and Chief Financial
Officer of the Company from July 1995 to July 1996, after serving as Assistant
to the Chairman of Boston Chicken from February 1995. From December 1992 to
February 1995, he held several positions with NewLeaf Entertainment (a joint
venture between Blockbuster and IBM), including Vice President of Finance,
Marketing and Operations. From June 1990 through November 1992, Mr. Beaudoin
was an Associate and Limited Partner of Pfingsten Partners, L.P., a private
equity investment firm in Deerfield, Illinois.

Mr. Carlborg became Senior Vice President--Finance of the Company in July
1996. From October 1995 through June 1996, he was Vice President of Alignment
and Planning of Boston Chicken. Prior thereto, Mr. Carlborg served as Vice
President--Corporate Finance of Merrill Lynch from January 1994 to October
1995 and served as an Associate of Merrill Lynch from August 1989 through
December 1993.

Mr. Stanchak became a director and Vice President and Chief Development
Officer of the Company in March 1995. From June 1992 until March 1995, he
served as a Senior Vice President of Boston Chicken, and from August 1989
until June 1992, Mr. Stanchak was the National Director of Real Estate and
Real Estate Legal Counsel for Blockbuster.

Mr. Butler became President of Einstein Bros. Bagels Concept in May 1996.
From January 1996 until May 1996, Mr. Butler served as Chief Operating Officer
of the Company. Prior thereto, he was employed by BC Great Lakes, L.L.C., an
area developer of Boston Chicken ("BC Great Lakes"), since June of 1995, and
also served as President of the managing member of BC Heartland, L.L.C., also
a Boston Chicken area developer, since August 1995. From June 1993 until June
1995, Mr. Butler served as President and Chief Executive Officer of the
general partner of BC Detroit L.P., a predecessor of BC Great Lakes. From
January 1992 to June 1993, Mr. Butler served as Vice President--Human
Resources of Boston Chicken. Prior thereto, Mr. Butler was an independent
consultant from July 1991 until January 1992 and was Regional Director of
Operations for Blockbuster in San Diego and Orange County, California from
April 1990 until June 1991.

Mr. Alam became Vice President and Secretary in April 1995. From January
1994 to April 1995, he was Vice President and Associate General Counsel of
Boston Chicken and from May 1993 to January 1994 he was Assistant General
Counsel of Boston Chicken. Prior thereto, Mr. Alam was an associate at the
Chicago law firm of Bell, Boyd & Lloyd from 1986 to May 1993.

Mr. Strasen became Vice President and General Counsel of the Company in
April 1995. Prior thereto, he was a partner at the Chicago law firm of Bell,
Boyd & Lloyd from 1988 to April 1995.

Mr. Craig has been a director of the Company from the date the Company was
incorporated in February 1995. Mr. Craig was Chairman of the Board of the
Company from June 1995 until he resigned in July 1996. From February 1995
until being appointed as Chairman in June 1995, Mr. Craig served as Vice
President of the Company. Mr. Craig also served as the Chief Concept Officer
of Boston Chicken from April 1994 through June 1995. From November 1993 until
April 1994, he was President of KFC-Brand Development, a unit of KFC Corp. in
Louisville, Kentucky, and from April 1990 until November 1993, he was
President of KFC-USA, also a unit of KFC Corp. in Louisville, Kentucky. KFC
Corp. is a wholly owned subsidiary of PepsiCo, Inc.

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<PAGE>

Mr. Koldyke became a director of the Company in March 1995. Mr. Koldyke has
served as a general partner of the Frontenac Company ("Frontenac"), a venture
capital company, in Chicago, Illinois since 1989.

Ms. Lozoff became a director and a Vice President of the Company in April
1995, after working with Bagel & Bagel, which she founded in June 1988. From
April 1995 until September 1996, Ms. Lozoff served as Vice President--Design
and Merchandising of the Company. Ms. Lozoff also served as President and
Chief Executive Officer of Bagel & Bagel from May 1992 to April 1995.

Mr. Muehlstein became a director of the Company in March 1995. Since 1986,
he has been a partner at the Chicago law firm of Pedersen & Houpt.

Mr. Offerdahl became a director in March 1995 and served as Vice President--
Operations, Southeast Zone of the Company from March 1995 through August 1996.
Mr. Offerdahl served as the Chairman and Chief Executive Officer of
Offerdahl's, which he founded in 1989, from December 1989 until March 1995.
From May 1986 until September 1994, Mr. Offerdahl played professional football
for the Miami Dolphins in the National Football League.

Mr. Ruth became a director of the Company in March 1995. Since January 1987,
he has been a general partner at Marquette Management Partners, a venture
capital company, in Deerfield, Illinois.

MANAGEMENT COMPENSATION

The Company was incorporated in February 1995 and did not conduct any
operations prior to that time. The only executive officer of the Company who
earned more than $100,000 in salary and bonus during fiscal year 1995 was
Daniel V. Colangelo, the Company's former President and Chief Executive
Officer who served in that capacity during fiscal year 1995 (the "named
executive officer"). Mr. Colangelo's total cash compensation during fiscal
year 1995 consisted of $103,462 in salary and $47,375 in bonus.

On March 24, 1995, the Company entered into a three-year employment
agreement with Mr. Colangelo, pursuant to which he became the President of the
Company's Rocky Mountain Division and a director of the Company. Mr. Colangelo
was later promoted to President and Chief Executive Officer of the Company.
Under the employment agreement, Mr. Colangelo was entitled to receive an
annual salary of $125,000 and reimbursement for reasonable business expenses.
In addition, during 1995, Mr. Colangelo was granted options to purchase 50,979
shares of Common Stock under the Plan (defined herein) at an exercise price of
$5.88 per share. See "--Option Grants in Last Fiscal Year."

In March 1996, Mr. Colangelo's employment agreement was terminated and the
Company entered into a consulting agreement with him in connection with his
resignation as President and Chief Executive Officer and a director of the
Company. Pursuant to the consulting agreement, Mr. Colangelo will, upon the
Company's request, provide information, advice and assistance to the Company
concerning matters that were within the scope of his knowledge and expertise
during the course of his employment by the Company. The consulting agreement
has a term of one year and is automatically renewed for successive one-year
periods unless terminated by either party upon 30 days' prior written notice.
Under the consulting agreement, Mr. Colangelo receives $100,000 per year and
is entitled to reimbursement for his related reasonable business expenses. In
addition, the options granted during 1995 to Mr. Colangelo under the Plan were
deemed vested and were exercised by him in January 1996. Mr. Colangelo also
retained options granted in January 1996 under the Plan to purchase an
aggregate of 37,931 shares of Common Stock at an exercise price of $6.59 per
share, which options were granted in January 1996 and vest in accordance with
the Plan's vesting schedule during the term of his consulting agreement.

The Company has also entered into employment and consulting agreements with
certain of its other current executive officers and others. See "Certain
Transactions--Employment and Consulting Agreements."

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<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth individual grants of stock options made to
the named executive officer during the fiscal year ended December 31, 1995.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE
APPRECIATION
PERCENT OF TOTAL FOR OPTION
OPTIONS GRANTED EXERCISE TERM(2)
DATE OF OPTIONS TO EMPLOYEES OR BASE EXPIRATION ----------------
NAME GRANT GRANTED(1) IN FISCAL YEAR PRICE FATE 5% 10%
---- ------- ---------- ---------------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel V. Colangelo..... 3/24/95 25,491 1.2% $5.88 3/24/05 $94,337 $239,068
5/16/95 16,992 0.8 5.88 5/16/05 62,886 159,428
7/25/95 8,496 0.4 5.88 7/25/05 31,443 79,746
</TABLE>
- --------
(1) Options granted to Mr. Colangelo in 1995 were deemed fully vested in
January 1996 in connection with his resignation as President and Chief
Executive Officer of the Company. See "--Management Compensation."
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future
performance of the Common Stock. There can be no assurance that the
amounts reflected in this table will be achieved.

DIRECTOR COMPENSATION

In addition to annual grants under the Directors Plan (as defined herein),
directors who are not officers or employees of, or consultants to, the Company
receive $500 cash compensation for each board of directors meeting at which
they are present and for each committee meeting at which they are present not
held in conjunction with a meeting of the board of directors. Outside
directors are also reimbursed for their expenses for each board and committee
meeting attended.

The Company has also entered into employment and consulting agreements with
certain of its directors who are also current executive or other officers of
the Company. See "Certain Transactions--Employment and Consulting Agreements."

STOCK OPTION PLANS

The Company has adopted an Amended and Restated 1995 Stock Option Plan,
effective August 15, 1996. The purpose of the Plan is to benefit the Company
by offering certain present and future employees, officers and consultants of
the Company and its subsidiaries, if any, a favorable opportunity to become
holders of Common Stock over a period of years, thereby giving them a long-
term stake in the growth and prosperity of the Company and encouraging the
continuance of their involvement with the Company. Under the Plan, eligible
persons may be granted options to purchase an aggregate of not more than
5,500,000 shares of Common Stock. An aggregate of approximately 1,540,000
shares of Common Stock are currently available for option grants under the
Plan. Such options are not intended to be treated as incentive stock options
as defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").

The Plan is administered, with respect to persons subject to Section 16 of
the Exchange Act and the rules promulgated thereunder ("Reporting Persons"),
by the Reporting Person Stock Option Committee (the "Reporting Person
Committee"), consisting of two members of the board of directors, each of whom
is a "non-employee director" (as such term is defined under Rule 16b-3 of the
Exchange Act) and, with respect to all other persons receiving options under
the Amended Plan, by the Stock Option Committee (the "Stock Option
Committee").

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<PAGE>

Options granted under the Plan have a term of 10 years, subject to earlier
expiration if the optionee's service terminates, and no options under the Plan
may be granted after February 1, 2005. Options become exercisable with respect
to 10% of the total number of shares subject to the option on the first
anniversary of the date of grant, an additional 20% on the second anniversary
of the date of grant, an additional 30% on the third anniversary of the date
of grant and the balance on the fourth anniversary of the date of grant. The
Plan provides that, unless otherwise determined by the relevant Committee in
its sole discretion, options granted prior to May 7, 1996 shall be governed by
the Plan as it was in effect prior to such date and options granted from May
7, 1996 through August 14, 1996 shall be governed by the Plan as it was in
effect during such period.

On May 28, 1996, the board of directors of the Company adopted the 1996
Stock Option Plan for Non-Employee Directors (the "Directors Plan"), which was
subsequently approved by the stockholders of the Company. On May 28, 1996,
options to purchase an aggregate of 4,318 shares of Common Stock were granted
under the Directors Plan to each of Messrs. Koldyke, Muehlstein and Ruth at an
exercise price of $11.58 per share. The Directors Plan is administered by the
board of directors.

Options under the Directors Plan may only be granted to directors of the
Company who are not officers or employees of the Company. Options may be
granted with respect to a total of not more than 100,000 shares of Common
Stock under the Directors Plan, subject to antidilution and other adjustments.
Such options are not intended to be treated as incentive stock options as
defined in Section 422 of the Code. Each option granted under the Directors
Plan is for a term of ten years, subject to earlier termination if the
optionee's service as a director terminates. Options which have been granted
become exercisable after the end of one year from the date of grant.

Pursuant to the Directors Plan, options for shares having a fair market
value of $50,000 at the date of grant, as determined in good faith by the
board of directors on such date, are granted at the time of each election or
re-election of eligible directors to the Board, except that the initial grants
of options under the Directors Plan were made on the date of adoption of the
Directors Plan by the board of directors.

Copies of the Plan and the Directors Plan are exhibits to the Registration
Statement of which this Prospectus forms a part.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The board of directors has approved the terms of compensation paid and to be
paid to the Company's executive officers for fiscal years 1995 and 1996.
During the year ended December 31, 1995, the following persons served as
members of the Stock Option Committee of the board of directors: Scott Beck,
Kyle Craig and John Muehlstein.

Currently, no executive officer of the Company, except for Scott Beck, who
is Chairman of the Board of the Company and a member of the Compensation
Committee of the board of directors, and Mark R. Goldston, who is President
and Chief Executive Officer of the Company, serves as a member of the
compensation committee or as a director of any other entity, one of whose
executive officers serves on the compensation committee or is a director of
the Company. Mr. Beck is Co-Chairman of the Board and Chief Executive Officer
of Boston Chicken and Mr. Goldston is a director of Boston Chicken. Neither
Mr. Beck nor Mr. Goldston serves on the compensation committee of Boston
Chicken's board of directors.

CERTAIN TRANSACTIONS

FORMATION OF THE COMPANY AND SUBSEQUENT ACQUISITIONS

In March 1995, the Company acquired the operations of Brackman, Bagel &
Bagel and Offerdahl's, and in connection with such acquisitions, issued
1,959,152 shares of Common Stock valued at $5.88 per share to the owners of
such companies. Concurrently with the acquisitions, the Company also raised
approximately $20.8 million in a private placement of its Common Stock to
investors (including approximately $5.2 million of such

39
<PAGE>

amount that was purchased, directly or indirectly, by officers and directors
of each of the Company and Boston Chicken). The terms of each of these
transactions resulted from arms-length negotiations between the Company and
unrelated third parties. In addition, the Company believes that such arms-
length negotiations established the fair market value of the Common Stock as
of the date such transactions were entered into by the Company. These
transactions are separately described below.

On March 24, 1995, pursuant to an agreement to contribute shares, the
Company acquired all of the outstanding capital stock of Brackman, of which
Daniel V. Colangelo, the Company's former President and Chief Executive
Officer, was a shareholder (the "Brackman Acquisition"). The consideration
paid by the Company consisted of 573,750 shares of Common Stock and 488,236
shares of Boston Chicken common stock, which shares of Boston Chicken common
stock were purchased by the Company for a cash purchase price of $17.00 per
share, pursuant to a stock purchase agreement between the Company and Boston
Chicken dated as of March 24, 1995. See "Relationship with Boston Chicken--
Other Relationships Between Boston Chicken and the Company." Following the
Brackman Acquisition, Mr. Colangelo entered into an employment agreement with
the Company, pursuant to which he became President--Rocky Mountain Zone and a
director of the Company. See "Management--Management Compensation."

On March 24, 1995, pursuant to an agreement to contribute assets, the
Company acquired all of the assets, properties and business of Bagel & Bagel,
of which Richard Lozoff, Gail Lozoff's spouse, was the sole shareholder (the
"Bagel & Bagel Acquisition"). The consideration paid by the Company consisted
of 573,750 shares of Common Stock and 323,530 shares of Boston Chicken common
stock, which shares of Boston Chicken common stock were purchased by the
Company for a cash purchase price of $17.00 per share, pursuant to a stock
purchase agreement between the Company and Boston Chicken dated as of March
24, 1995. See "Relationship with Boston Chicken--Other Relationships between
Boston Chicken and the Company." Following the Bagel & Bagel Acquisition, Ms.
Lozoff entered into an employment agreement with the Company, pursuant to
which she became Vice President--Design and Merchandising and a director of
the Company. See "--Employment and Consulting Agreements."

On March 31, 1995, pursuant to an agreement to contribute assets, the
Company acquired substantially all of the assets, properties and business of
Offerdahl's, of which John Offerdahl was a majority shareholder (the
"Offerdahl's Acquisition"). The consideration paid by the Company consisted of
811,652 shares of Common Stock and 331,852 shares of Boston Chicken common
stock, which shares of Boston Chicken common stock were purchased by the
Company for a cash purchase price of $16.875 per share, pursuant to a stock
purchase agreement between the Company and Boston Chicken dated as of March
31, 1995. See "Relationship with Boston Chicken--Other Relationships between
Boston Chicken and the Company." Following the Offerdahl's Acquisition, Mr.
Offerdahl entered into an employment agreement with the Company, pursuant to
which he became Vice President--Operations, Southeast Zone and a director of
the Company. In addition, Mr. Offerdahl's spouse, Lynnora Offerdahl, entered
into a consulting agreement with the Company. See "--Employment and Consulting
Agreements."

On March 24, 1995, the Company entered into Subscription Agreements pursuant
to which certain investors, including Messrs. Craig, Stanchak, Beaudoin,
Butler and Beck, Mr. Alam and his spouse, PJS Bagel Investing, L.L.C., an
entity controlled by Mr. Strasen and his spouse ("PJS"), OBG Holdings, Inc.
(formerly Offerdahl's), of which Mr. Offerdahl and his spouse are majority
stockholders ("OBG"), Frontenac VI, Limited Partnership ("Frontenac"), of
which Mr. Koldyke is a general partner, Marquette Venture Partners II, L.P.
("Marquette") and MVP II Affiliates Fund, L.P. ("MVP II"), the general partner
of each of which is an entity of which Mr. Ruth is a general partner, and
Pedersen Bagel Investments Joint Venture ("Pedersen Bagel"), of which Mr.
Muehlstein is a general partner, purchased 1,618,972 shares of Common Stock at
$5.88 per share.

In February 1996, the Company acquired all of the outstanding stock of
Noah's for an aggregate purchase price of $100.9 million in cash. In
connection with the transaction, certain former shareholders of Noah's,
including Noah Alper, Vice Chairman of the Board, and other members of Noah's
management purchased 855,225 shares of Common Stock at a purchase price of
$10.52 per share.

40
<PAGE>

REGISTRATION RIGHTS

The Company is a party to an amended and restated registration rights
agreement dated as of February 1, 1996 (the "Stockholder Registration
Agreement") with certain stockholders of the Company, including Messrs. Craig,
Alper, Stanchak, Beaudoin, Butler, Beck and Colangelo, as well as Mr. Alam and
his spouse, PJS, OBG, Frontenac, Marquette, MVP II and B&B Holdings, Inc.
(formerly Bagel & Bagel), of which Ms. Lozoff's spouse is the sole stockholder
("B&B"), and with Boston Chicken (with respect to the shares of Common Stock
issued pursuant to the Loan Conversion). Pursuant to such agreement, the
Company granted to such stockholders and Boston Chicken certain piggyback
registration rights under the Securities Act with respect to shares of Common
Stock owned by them (the "Registrable Securities"). The Company has filed the
Registration Statement of which this Prospectus forms a part covering the
Registrable Securities held by such stockholders, which will permit them to
make public resales of the Registrable Securities. Such stockholders have
agreed not to sell their Registrable Securities prior to January 28, 1997. See
"Shares Eligible for Future Sale." The Company entered into the Boston Chicken
Registration Agreement (defined below) that superseded the rights of Boston
Chicken under the Stockholder Registration Agreement. In connection therewith,
the Company has obtained from the parties to the Stockholder Registration
Agreement a waiver of the provision of such agreement prohibiting the Company
from granting registration rights superior to those granted under the
agreement, and a consent to the grant by the Company to Boston Chicken of
registration rights pursuant to the Boston Chicken Registration Agreement. See
"--Concurrent Public Offering," "Relationship with Boston Chicken--Concurrent
Private Placement Agreement and Registration Agreement" and "Shares Eligible
for Future Sale."

CONCURRENT PUBLIC OFFERING

In the Concurrent Public Offering, the Company sold to certain persons or
entities, consisting primarily of officers, directors and employees of each of
the Company and Boston Chicken, an aggregate of 425,000 shares of Common Stock
at a price equal to the initial public offering price per share, net of
underwriting discount. In the Concurrent Public Offering, executive officers
and directors of the Company (none of whom were members of the committee of
the Company's board of directors who negotiated the initial public offering
price with the representatives of the underwriters of the Initial Public
Offering) purchased an aggregate of 45,360 of such shares of Common Stock as
follows: Mr. Scott Beck--8,612; Mr. Alper--3,498; Mr. Goldston--3,750; Mr.
Carlborg--3,750; Mr. Stanchak--3,750; Mr. Beaudoin--3,750; Mr. Butler--3,750;
Mr. Alam--4,500; Mr. Strasen--2,500; Mr. Muehlstein--3,750; and Mr. Ruth--
3,750. Certain executive officers and directors of Boston Chicken (other than
Scott Beck and Mark Goldston) purchased in the Initial Public Offering and the
Concurrent Public Offering an aggregate of 39,850 shares of Common Stock.

BAGEL STORE DEVELOPMENT FUNDING

In December 1995, Bagel Funding was formed under the name Einstein Bros.
Equity Funding, L.L.C. with the objective of raising $90.0 million to invest
in existing and proposed area developers of the Company. Bagel Funding has
received total capital commitments from its members aggregating such amount,
$45.8 million of which has been contributed to Bagel Funding and the balance
of which is payable by such members to Bagel Funding at such times on or after
October 1, 1996 and on or before December 31, 1998 as the manager or managers
of Bagel Funding make one or more capital calls. The Company, in its capacity
as manager of Bagel Funding, has made a capital call for an aggregate of $30.0
million payable on or before October 5, 1996. In the event a member fails to
make its capital contribution within three days of the date it is due, or such
longer period as the manager or managers determine (but in no event longer
than 45 days), Bagel Funding is required to treat such defaulting member's
interest in future profits as terminated, so that such defaulting member is
entitled to receive from Bagel Funding only the amount of such member's
capital account at the time of such default, reduced by any future allocation
of losses to such member, payable without interest thereon at the expiration
of the term of Bagel Funding.

Through September 4, 1996, Bagel Funding had invested a total of
approximately $45.8 million in area developers of the Company. See "Business--
Area Developer Financing." No fees were paid to the Company in

41
<PAGE>

its capacity as manager in 1995. The Company will be entitled to receive fees
of $500,000 and $50,000 for serving as manager of Bagel Funding during 1996
and the first quarter of 1997, respectively.

Bagel Funding has the right to require each area developer to redeem Bagel
Funding's equity interest in the area developer (the "Bagel Funding Put") at a
predetermined formula purchase price based on the store level cash flow of the
area developer in the event (i) the Company acquires a majority interest in
the area developer pursuant to the exercise of its conversion or option rights
under the area developer's secured loan agreement, (ii) the Company's
conversion and option rights expire unexercised and the Company has not
consented to a public offering of the area developer, or (iii) the Company
does not acquire a majority interest in an area developer pursuant to the
exercise of the Company's conversion or option rights, such rights have
expired under the secured loan agreement and the Company has not consented to
a request by the area developer to terminate its area development and
franchise agreements with the Company. In the event the area developer does
not redeem Bagel Funding's equity interest when required to do so, the Company
will be obligated to purchase from Bagel Funding its equity interest in the
area developer at the same price applicable to the area developer.

The Company's term as manager of Bagel Funding expires on April 20, 1997,
although the Company may be removed prior to such time for cause by action of
more than two-thirds in interest of Bagel Funding's members and may be removed
for any reason at fiscal year-end by action of more than four-fifths in
interest of Bagel Funding's members. Prior to the expiration of the Company's
term as manager, Bagel Funding also has a three-person advisory committee, the
members of which were nominated by the Company and approved by a majority in
interest of Bagel Funding's members. None of the members of the advisory
committee are officers, directors or employees of the Company. The advisory
committee is required to approve any sale by Bagel Funding of an interest in
an area developer and to determine the manner in which Bagel Funding's
interests in an area developer should be voted on any merger, consolidation,
sale of all or substantially all of the assets of the area developer or
amendment of its governing documents. The advisory committee is also available
to consult with the manager with respect to any matters requested by the
manager concerning Bagel Funding's investments and has the power to resolve
any questions with respect to potential conflicts of interest between Bagel
Funding and the manager that may be presented to it by the manager. Bagel
Funding's limited liability company agreement contains no specific provisions
with respect to the resolution of potential conflicts of interest between
Bagel Funding and its manager; however, resolution of such potential conflicts
of interest will be governed by applicable Delaware law. The advisory
committee has the authority to adopt rules and procedures not inconsistent
with Bagel Funding's limited liability company agreement, relating to the
conduct of the advisory committee's affairs. Actions taken by the advisory
committee must be authorized by a majority of the persons then serving as
advisory committee members. Each member of the advisory committee may
designate from time to time an alternate and such alternate may attend any and
all meetings of the advisory committee and otherwise may act in place of the
member selecting such alternate.

Effective April 21, 1997, or at such earlier time as the Company ceases to
be the manager of Bagel Funding, each of the members of the advisory committee
will become a manager of Bagel Funding and collectively will constitute the
three-person board of managers. At such time the advisory committee of Bagel
Funding will disband and all authority previously vested in the advisory
committee will be vested in the board of managers. In addition, when the
Company ceases to be the manager of Bagel Funding, the equity interests of
Bagel Funding in the Company's area developers will automatically be converted
from nonvoting equity interests to voting equity interests, which will have
the power to select the manager or general partner, as applicable, of each of
the Company's area developers.

Bagel Funding has also acquired from the Company, for an aggregate purchase
price of $45,000, warrants to acquire 1,012,500 shares of Common Stock of the
Company having an exercise price of $6.47 per share (the "Bagel Funding
Warrants"), or 11,250 shares of Common Stock for every $1.0 million of capital
committed to Bagel Funding. The Bagel Funding Warrants have a term of five
years. In the event the total capital ultimately contributed to Bagel Funding
is less than $90.0 million or Bagel Funding is dissolved prior to the time all
remaining capital commitments have been called, the number of shares
purchasable upon exercise of the Bagel Funding Warrants will be adjusted based
on the total amount of capital contributed or committed to be

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<PAGE>

contributed to Bagel Funding less the amount of cash to be distributed to the
members of Bagel Funding upon such dissolution. In the event of such a
dissolution, the amount of capital committed to be contributed to Bagel
Funding shall be deemed to be zero. Such adjustments to the number of shares
covered by the Bagel Funding Warrants, if any, will be made by the Company (i)
at the time that Bagel Funding may no longer accept additional capital
subscriptions, (ii) at such time, if any, as any member of Bagel Funding fails
to honor its commitment to contribute capital and (iii) immediately prior to
any dissolution of Bagel Funding that occurs prior to the time all committed
capital has been contributed to Bagel Funding, but only if the Warrants have
not been distributed by Bagel Funding.

Bagel Funding is required to distribute the Bagel Funding Warrants to its
members on the later of (i) six months after the date of the closing of an
underwritten initial public offering of the Company or (ii) four months after
all committed capital has been contributed to Bagel Funding, but in no event
later than the date that is six months prior to the expiration date of the
Bagel Funding Warrants. Bagel Funding has informed its members that it intends
to distribute Bagel Funding Warrants covering an aggregate of 506,273 shares
of Common Stock upon the effectiveness of the Registration Statement of which
this Prospectus forms a part.

Messrs. Scott Beck, Butler, Carlborg, Muehlstein, Ruth and Stanchak each own
a direct equity interest in Bagel Funding. Such interests aggregate
approximately 8.1% of the outstanding equity interest in Bagel Funding.
Certain executive officers and directors of Boston Chicken own direct equity
interests in Bagel Funding. Such interests, excluding interests owned by Scott
Beck, aggregate approximately 16.3% of the outstanding equity interest in
Bagel Funding.

INTERESTS IN AREA DEVELOPERS BY CERTAIN PERSONS

BCE West Bagels, L.L.C. Effective November 26, 1995, the Company entered
into a convertible secured loan agreement and an area development agreement
with BCE West Bagels, L.L.C. ("Old BCE West") for the development of the
following DMAs: Phoenix (excluding portions of California included in the
Phoenix DMA); Tucson; Albuquerque/Santa Fe; Denver (excluding portions of
South Dakota included in the Denver DMA); Colorado Springs; Las Vegas; and El
Paso. Also effective November 26, 1995, the Company entered into a convertible
secured loan agreement and an area development agreement with BCE SLC Bagels,
L.L.C. ("BCE SLC") for the development of the Salt Lake City DMA. At the time
of the consummation of such transactions, Lawrence Beck, Scott Beck's father,
was the majority equity owner of Old BCE West and BCE SLC. In connection with
the execution of such agreements, the Company sold to Old BCE West and BCE SLC
the Company-operated stores and other assets located in certain of such DMAs
at net book value for an aggregate purchase price of $1,432,519 and
$3,719,625, respectively, pursuant to asset sale agreements, and entered into
a franchise agreement for each such store. The Company realized no significant
gain or loss on such sales. The Company believes that the terms of the
agreements entered into with Old BCE West and BCE SLC are as favorable to the
Company as the terms that could be negotiated with unrelated third parties.

On December 29, 1995, Lawrence Beck sold to Bagel Funding 1,750,000 units of
membership interest in each of Old BCE West and BCE SLC for an aggregate
purchase price of approximately $3.5 million. The Company understands that
Lawrence Beck did not realize any significant gain or loss on such sales.
Lawrence Beck retained a minority equity interest in each of Old BCE West and
BCE SLC, and an entity controlled by him remained the manager of each such
entity.

Effective January 29, 1996, BCE SLC acquired the assets of Old BCE West, BCE
SLC was renamed BCE West Bagels, L.L.C. ("BCE West") and Old BCE West was
dissolved.

For the Company's 1995 fiscal year and the two quarters ended July 14, 1996,
BCE West (together with its predecessor, Old BCE West) paid to the Company an
aggregate of $2,308,714 and $1,594,320, respectively, in development,
franchise, royalty, real estate, software license, software maintenance,
miscellaneous and accounting fees and deposits. For the two quarters ended
July 14, 1996, BCE West (together with Old BCE West) paid $172,339 in national
and $317,868 in local advertising fund contributions. In addition, for such
period, BCE West (together with Old BCE West) paid to the Company $415,817 in
interest on its loan from the Company.

43
<PAGE>

Finest Bagels, L.L.C. Effective January 1, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Finest Bagels, L.L.C. ("Finest") for the development of the following DMAs:
St. Louis; Kansas City; and Minneapolis/St. Paul. Bagel Funding is the
majority equity owner of Finest. In connection with the execution of such
agreements, the Company sold to Finest the Company-operated stores and other
assets located in certain of those DMAs at net book value for an aggregate
purchase price of $6,216,545, pursuant to an asset sale agreement, and entered
into a franchise agreement with Finest for each such store. The Company
realized no significant gain or loss on such sale. For the Company's two
quarters ended July 14, 1996, Finest paid to the Company an aggregate of
$2,514,421 in development, franchise, royalty, real estate, software license,
software maintenance, miscellaneous and accounting fees and deposits. For the
two quarters ended July 14, 1996, Finest paid $123,298 in national and
$246,597 in local advertising fund contributions. In addition, for such
periods, Finest paid to the Company $203,807 in interest on its loan from the
Company. The Company believes that the terms of the agreements entered into
with Finest are as favorable to the Company as terms of agreements that could
be negotiated by the Company with unrelated third parties.

Einstein Bros. America, L.P. Effective March 25, 1996, the Company entered
into a convertible secured loan agreement and an area development agreement
with Einstein Bros. America, L.P. ("EBA") for the development of the following
DMAs: Milwaukee; Chicago; Detroit; Madison; Tampa/St. Petersburg/Sarasota;
Orlando/Daytona Beach/Melbourne; Ft. Myers/Naples; Miami/Ft. Lauderdale; and
West Palm Beach/Ft. Pierce. Bagel Funding is the majority equity owner of EBA.
In connection with the execution of such agreements, the Company sold to EBA
the Company-operated stores and other assets located in certain of those DMAs
at net book value for an aggregate purchase price of $18,622,026, pursuant to
an asset sale agreement, and entered into a franchise agreement with EBA for
each such store. The Company realized no significant gain or loss on such
sale.

Effective June 17, 1996, EBA contributed to Great Lakes Bagels, L.L.C.
("Great Lakes") its assets located in the following DMAs: Milwaukee; Chicago;
Detroit; and Madison (the "Great Lakes DMAs"). Upon such contribution, the
equity interests in Great Lakes were distributed in redemption of a portion of
the equity interests in EBA and EBA's name was changed to Gulfstream Bagels,
L.P. ("Gulfstream"). At the same time, the Company entered into a convertible
secured loan agreement and an area development agreement with Great Lakes for
the development of the Great Lakes DMAs, and it modified the agreements it had
previously entered into with Gulfstream to exclude the Great Lakes DMAs from
such agreements. For the Company's two quarters ended July 14, 1996,
Gulfstream (together with its predecessor, EBA) paid to the Company an
aggregate of $7,249,552 in development, franchise, royalty, real estate,
software license, software maintenance, miscellaneous and accounting fees and
deposits. For the two quarters ended July 14, 1996, Gulfstream (together with
EBA) paid $125,381 in national and $300,174 in local advertising fund
contributions. In addition, for such periods, Gulfstream (together with EBA)
paid to the Company $380,467 in interest on its loan from the Company.

The Company believes that the terms of the agreements entered into with
Gulfstream and Great Lakes are as favorable to the Company as terms of
agreements that could be negotiated by the Company with unrelated third
parties.

Mayfair Bagels, L.L.C. On April 1, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Mayfair Bagels, L.L.C. ("Mayfair") for the development of a portion of the
Baltimore and Washington, D.C. DMAs. Bagel Funding is the majority equity
owner of Mayfair. In connection with the execution of such agreements, the
Company sold to Mayfair certain assets located in certain of those DMAs at net
book value for an aggregate purchase price of $249,084, pursuant to an asset
sale agreement. The Company realized no significant gain or loss on such sale.
For the Company's two quarters ended July 14, 1996, Mayfair paid to the
Company an aggregate of $1,439,256 in development, franchise, royalty, real
estate, software license, software maintenance, miscellaneous and accounting
fees and deposits. For the two quarters ended July 14, 1996, Mayfair paid
$3,534 in national and $7,067 in local advertising fund contributions. In
addition, for such periods, Mayfair paid to the Company $149 in interest on
its loan from the Company. The Company believes that the terms of the
agreements entered into with Mayfair are as favorable to the Company as terms
of agreements that could be negotiated by the Company with unrelated third
parties.

44
<PAGE>

Liberty Foods, L.L.C. Effective May 6, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Liberty Foods, L.L.C. ("Liberty") for the development of the New York DMA.
Bagel Funding is the majority equity owner of Liberty. In connection with the
execution of such agreements, the Company sold to Liberty the Company-operated
store and certain assets located in the DMA at net book value for an aggregate
purchase price of $869,743, pursuant to an asset sale agreement, and entered
into a franchise agreement with Liberty for such store. The Company realized
no significant gain or loss on such sale. For the Company's second quarter
ended July 14, 1996, Liberty paid to the Company an aggregate of $2,429,576 in
development, franchise, royalty, real estate, software license, software
maintenance, miscellaneous and accounting fees and deposits. For the second
quarter ended July 14, 1996, Liberty paid $2,655 in national and $5,310 in
local advertising fund contributions. In addition, for such period, Liberty
paid to the Company $589 in interest on its loan from the Company. The Company
believes that the terms of agreements entered into with Liberty are as
favorable to the Company as terms of agreements that could be negotiated by
the Company with unrelated third parties.

Colonial Bagels, L.P. Effective June 17, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Colonial Bagels, L.L.C. ("Colonial") for the development of the following
DMAs: Boston; Burlington/Plattsburgh; Cleveland; Pittsburgh; Providence/New
Bedford; and Springfield, MA. Bagel Funding is the majority equity owner of
Colonial. Lawrence Beck owns a 50 percent interest in the general partner of
Colonial. In connection with the execution of such agreements, the Company
sold to Colonial certain assets located in certain of those DMAs at net book
value for an aggregate purchase price of $72,377, pursuant to an asset sale
agreement. The Company realized no significant gain or loss on such sale. For
the Company's second quarter ended July 14, 1996, Colonial paid to the Company
an aggregate of $2,009,690 in development, franchise and miscellaneous fees.
The Company believes that the terms of agreements entered into with Colonial
are as favorable to the Company as terms of agreements that could be
negotiated by the Company with unrelated third parties.

Noah's Pacific, L.L.C. Effective June 17, 1996, the Company entered into a
convertible secured loan agreement and an area development agreement with
Noah's Pacific, L.L.C. ("Noah's Pacific") for the development of the following
DMAs: Los Angeles; Portland; Seattle/Tacoma; and Las Vegas. Bagel Funding is
the majority equity owner of Noah's Pacific. Noah Alper owns a minority equity
interest in Noah's Pacific. In connection with the execution of such
agreements, the Company sold to Noah's Pacific the Company-owned stores and
certain assets located in certain of those DMAs at net book value for an
aggregate purchase price of approximately $10.5 million, pursuant to an asset
sale agreement, and entered into a franchise agreement with Noah's Pacific for
each such store. The Company realized no significant gain or loss on such
sale. For the Company's second quarter ended July 14, 1996, Noah's Pacific
paid to the Company an aggregate of $3,187,353 in development, franchise and
miscellaneous fees. The Company believes that the terms of agreements entered
into with Noah's Pacific are as favorable to the Company as terms of
agreements that could be negotiated by the Company with unrelated third
parties.

Noah's Bay Area Bagels, L.L.C. Effective July 15, 1996, the Company entered
into a convertible secured loan agreement and an area development agreement
with Noah's Bay Area Bagels, L.L.C. ("Noah's Bay Area") for the development of
the following DMAs: San Francisco/Oakland/San Jose and Sacramento/
Stockton/Modesto. Bagel Funding is the majority equity owner of Noah's Bay
Area. Noah Alper owns a minority equity interest in Noah's Bay Area. In
connection with the execution of such agreements, the Company sold to Noah's
Bay Area the Company-owned stores and certain assets located in those DMAs at
net book value for an aggregate purchase price of approximately $10.9 million,
pursuant to an asset sale agreement, and entered into a franchise agreement
with Noah's Bay Area for each such store. The Company realized no significant
gain or loss on such sale. The Company believes that the terms of the
agreements entered into with Noah's Bay Area are as favorable to the Company
as terms of agreements that could be negotiated by the Company with unrelated
third parties.

Philly Rose, L.P. On July 29, 1996, the Company entered into a convertible
secured loan agreement and an area development agreement with Philly Rose,
L.P. ("Philly Rose") for the development of the Philadelphia

45
<PAGE>

DMA. Bagel Funding is the majority equity owner of Philly Rose. In connection
with the execution of such agreements, the Company sold to Philly Rose the
Company-owned stores and certain assets located in such DMA at net book value
for an aggregate purchase price of $375,455, pursuant to an asset sale
agreement, and entered into a franchise agreement with Philly Rose for each
such store. The Company realized no significant gain or loss on such sale. The
Company believes that the terms of the agreements entered into with Philly
Rose are as favorable to the Company as terms of agreements that could be
negotiated by the Company with unrelated third parties.

BCE West, Finest, Gulfstream, Great Lakes, Mayfair, Colonial, Noah's Pacific
and Noah's Bay Area are each represented by Pedersen & Houpt, a law firm in
which John Muehlstein, Jr., a director of the Company, is a partner.

AREA DEVELOPER WARRANTS

On January 15, 1996, in connection with the formation of the Company's
prospective area developers, the Company issued to eleven such entities
warrants to acquire an aggregate of 1,237,050 shares of Common Stock of the
Company, each at an exercise price per share of $6.47. As of September 4,
1996, warrants to purchase an aggregate of 902,475 shares of Common Stock had
been exercised by area developers as follows: BCE West-- 85,050 shares;
Finest--77,175 shares; Great Lakes--108,225 shares; Liberty--100,350 shares;
Mayfair--77,175 shares; Noah's Pacific--168,750 shares; Colonial--100,350
shares; Philly Rose--92,700 shares; and Gulfstream--92,700 shares. See "--
Interests in Area Developers by Certain Persons." Lawrence Beck owns a
minority equity interest in Colonial.

EMPLOYMENT AND CONSULTING AGREEMENTS

The Company has entered into a consulting agreement with Mr. Colangelo in
connection with his resignation as President and Chief Executive Officer of
the Company. See "Management--Management Compensation."

On March 24, 1995, the Company entered into an employment agreement with Ms.
Lozoff, pursuant to which Ms. Lozoff became Vice President--Design and
Merchandising and a director of the Company. The employment agreement
terminates August 1, 1998. Ms. Lozoff receives an annual salary of $125,000
and reimbursement of reasonable business expenses. In addition, at the time
she entered into the employment agreement, Ms. Lozoff was granted options to
purchase 42,483 shares of Common Stock under the Plan with an exercise price
of $5.88 per share.

On March 31, 1995, the Company entered into an employment agreement with Mr.
Offerdahl, pursuant to which Mr. Offerdahl became Vice President of
Operations--Southeast Zone and a director of the Company. Mr. Offerdahl
resigned as an officer of the Company effective July 26, 1996 and the
employment agreement terminated effective on that date. At the time he entered
into the employment agreement, Mr. Offerdahl was granted options to purchase
42,483 shares of Common Stock under the Plan with an exercise price of $5.88
per share, the vesting of all of which options were accelerated in connection
with Mr. Offerdahl's resignation.

On March 31, 1995, the Company entered into a consulting agreement with
Lynnora Offerdahl, Mr. Offerdahl's spouse, pursuant to which she provides
information, advice and assistance concerning product development, restaurant
design and general projects for the Company. Ms. Offerdahl resigned as a
consultant to the Company effective August 11, 1996 and the consulting
agreement terminated effective on that date. At the time she entered into the
consulting agreement, Ms. Offerdahl was granted options to purchase 42,483
shares of Common Stock under the Plan with an exercise price of $5.88 per
share, the vesting of all of which options were accelerated in connection with
Ms. Offerdahl's resignation.

46
<PAGE>

On April 5, 1996, Mr. Goldston was elected President and Chief Executive
Officer and a director of the Company. The Company has agreed to pay to Mr.
Goldston a base salary of $360,000 per year, with a guaranteed bonus of
$400,000 for fiscal year 1996. For fiscal year 1997, Mr. Goldston will be
eligible for a $400,000 bonus, his receipt of which will be based upon the
achievement of mutually agreed upon reasonable performance goals. In addition,
the Company granted to Mr. Goldston options under the Plan to purchase 114,030
shares of Common Stock at an exercise price of $10.52 per share. Beginning in
fiscal year 1997, and for each year thereafter as long as he remains an
employee of the Company, Mr. Goldston will be eligible for an annual stock
option grant under the Amended Plan to purchase, at a minimum, that number of
shares of Common Stock that have an aggregate exercise price of $800,000. In
connection with his employment, Mr. Goldston also purchased 28,508 shares of
Common Stock at a price of $10.52 per share.

Effective January 17, 1996, Boston Chicken employed Mr. Goldston to
undertake various special projects for Boston Chicken. As an employee of
Boston Chicken, Mr. Goldston receives an annual salary of $40,000 and is
eligible to participate in Boston Chicken's employee stock option plan. Mr.
Goldston has been granted options under that plan to purchase 100,000 shares
of Boston Chicken common stock at an exercise price of $27.9375 per share.
Boston Chicken has agreed to structure Mr. Goldston's future projects so that
his employment with Boston Chicken will not interfere with his duties with the
Company.

In addition, in consideration for certain consulting services rendered to
Boston Chicken by Mr. Goldston and the consulting firm of which Mr. Goldston
was a principal, Boston Chicken has paid $1,818,086 for consulting services
rendered during fiscal years 1995 and 1996 and granted an option (outside of
the Boston Chicken employee option plan) to purchase 100,000 shares of Boston
Chicken common stock at an exercise price of $16.00 per share. Boston Chicken
has also granted to Mr. Goldston an option to purchase from Boston Chicken
344,673 shares of Common Stock at an exercise price of $6.38 per share.

On July 1, 1996, the Company entered into a transition and consulting
agreement with Mr. Craig in connection with his resignation as Chairman of the
Board of the Company, pursuant to which Mr. Craig will continue as a full-time
employee of the Company until June 30, 1997 and will provide consulting
services to the Company for a period of one year thereafter. As an employee of
the Company Mr. Craig will be paid approximately $3,600 bi-weekly through the
end of fiscal 1996 and approximately $7,900 bi-weekly during the first six
months of fiscal 1997. During the term of his employment, Mr. Craig will
continue to participate in the Company's employee benefit plans, except that
he will not be eligible to receive options under any of the Company's stock
option plans.

BOWANA AVIATION, INC.

During the 1995 fiscal year, the Company from time to time used airplanes
owned by a company controlled by Scott Beck and Lawrence Beck, for which the
Company incurred aggregate rental expense of $85,874 in such fiscal year. The
Company believes that the terms of its use of the planes were at least as
favorable to the Company as those it could have obtained from an unaffiliated
party. The Company has entered into two subleases with Boston Chicken,
pursuant to which the Company will be entitled to the non-exclusive use of
aircraft leased by Boston Chicken from unaffiliated leasing companies. See
"Relationship with Boston Chicken--Other Relationships Between Boston Chicken
and the Company."

LOANS TO EXECUTIVE OFFICERS

On August 9, 1995, the Company made a loan to Mr. Craig in the principal
amount of $400,000, the proceeds of which were used by Mr. Craig to pay off a
loan from Boston Chicken. Interest on the principal amount of the Company's
loan to Mr. Craig accrues at the reference rate announced by Bank of America
Illinois from time to time plus 1%. The principal balance of the loan and all
accrued but unpaid interest thereon are due and payable upon demand. Mr. Craig
repaid the loan and all interest accrued thereon in full on September 10,
1996.

47
<PAGE>

On March 31, 1995, in connection with the Company's acquisition of the
assets of Offerdahl's (now known as OBG) the Company made a non-recourse loan
to OBG in the principal amount of $437,497, the proceeds of which were used to
purchase an aggregate of 74,345 shares of Common Stock, which shares secure
the payment of principal and interest under such loan. Also on March 31, 1995,
the Company made a non-recourse loan to OBG in the principal amount of
$1,312,500, the proceeds of which were used to purchase an equity interest in
BC Equity Funding, L.L.C., a Delaware limited liability company which invests
in Boston Chicken area developers ("BCEF"), which equity interest secures the
payment of principal and interest under such loan. Each loan described above
accrues interest on the principal amount at the reference rate announced by
Bank of America Illinois from time to time plus 1%. The principal balance of
each loan and all accrued but unpaid interest thereon are due and payable on
April 15, 2001, but may be required to be repaid earlier under certain
circumstances.

Also in connection with the Company's acquisition of the assets of
Offerdahl's, on each of April 15, 1995, June 15, 1995, September 15, 1995 and
January 15, 1996, the Company made an interest-free loan to OBG in the
principal amount of $46,100, and on April 15, 1996, the Company made an
additional interest-free loan to OBG in the principal amount of $1,502,276.
The proceeds of each such loan were used to satisfy income tax obligations
arising from the acquisition. Each such loan is secured by units of membership
interest in BCEF owned by OBG. The principal balance of each loan and all
accrued but unpaid interest thereon are due and payable on April 15, 2001, but
may be required to be repaid in whole or in part under certain circumstances.

OTHER RELATIONSHIPS

Blind Faith, Inc., of which Ms. Lozoff and her spouse are the sole
shareholders, leases to the Company the land and building on which a store is
located. The Company subleases such land and building to one of its area
developers. The annual rental payments under the lease and sublease, each of
which terminates in May 2009, aggregate $72,000.

Quantum Media International, Inc. ("Quantum"), of which Mr. Goldston was a
director, performs advertising and marketing services for the Noah's New York
Bagels brand. During 1995, Noah's paid Quantum an aggregate of approximately
$188,000. Through May 1996, Noah's and the Company paid Quantum an aggregate
of approximately $61,000. The Company intends to retain the services of
Quantum for the Noah's New York Bagels brand during 1996.

CERTAIN TRANSACTIONS WITH BOSTON CHICKEN

See "Risk Factors--Dependence on Boston Chicken," "Risk Factors--Control by
and Conflicts of Interest with Boston Chicken" and "Relationship with Boston
Chicken."

48
<PAGE>

PRINCIPAL STOCKHOLDERS AND SECURITIES OWNERSHIP OF MANAGEMENT

OWNERSHIP OF COMPANY COMMON STOCK

The following table sets forth certain information regarding the beneficial
ownership of Common Stock by each person known by the Company to be the
beneficial owner of 5% or more of the outstanding Common Stock, by each of the
Company's directors and the named executive officer and by all directors and
executive officers of the Company as a group, as of September 4, 1996. The
beneficial ownership reflected in the following table is calculated in
accordance with Section 13(d) of the Exchange Act. Unless otherwise indicated,
ownership includes sole voting and investment power. As of such date, there
were approximately 540 record holders of Common Stock.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED(1)
------------------
NAMES(2) NUMBER PERCENT
-------- ---------- -------
<S> <C> <C>
Boston Chicken, Inc.(3)................................ 17,307,421 59.7%
Daniel V. Colangelo.................................... 351,354 1.2%
Scott A. Beck(4)....................................... 58,271 *
Noah C. Alper(5)....................................... 93,600 *
Mark R. Goldston(6).................................... 149,447 *
David G. Stanchak...................................... 29,242 *
Kyle T. Craig.......................................... 47,581 *
M. Laird Koldyke(7).................................... 424,827 1.5%
Gail A. Lozoff(8)...................................... 551,098 1.9%
John H. Muehlstein, Jr.(9)............................. 682,411 2.4%
John A. Offerdahl(10).................................. 970,963 3.3%
Lloyd D. Ruth(11)...................................... 216,164 *
All directors and executive officers as a group
(excluding Mr. Colangelo)(15 persons)................. 3,429,158 11.8%
</TABLE>
- --------
*Less than 1%.
(1) Includes shares subject to options granted by the Company which are
exercisable within 60 days of September 4, 1996 as follows: Mr. Craig--
5,098; Mr. Offerdahl--42,483; and all executive officers and directors as
a group--61,345.
(2) Unless otherwise indicated, the address of such person is c/o
Einstein/Noah Bagel Corp., 14123 Denver West Parkway, Golden, Colorado
80401-4086. The address for each of Boston Chicken and Scott Beck is
14123 Denver West Parkway, Golden, Colorado 80401-4086.
(3) Includes 701,177 shares of Common Stock on which Boston Chicken has
granted options to purchase such shares to certain individuals (including
Mr. Goldston), of which options to purchase 117,189 shares of Common
Stock are exercisable within 60 days of September 4, 1996. Includes
510,246 shares of Common Stock owned by BCEF, of which Boston Chicken is
the manager. See "Relationship with Boston Chicken--Loan Agreement."
(4) Excludes the aggregate number of shares of Common Stock shown above as
owned by Boston Chicken that may be deemed to be beneficially owned by
Scott Beck because he may be deemed to be an affiliate of Boston Chicken.
Mr. Beck disclaims any beneficial ownership of such shares.
(5) Represents 93,600 shares held by a trust, of which Mr. Alper is a trustee
and a beneficiary.
(6) Includes 117,189 shares of Common Stock subject to options from Boston
Chicken which were currently exercisable as of September 4, 1996.
(7) Represents 424,827 shares of Common Stock held by Frontenac, the general
partner of which is an entity of which Mr. Koldyke is a general partner.
Frontenac's address is 135 S. La Salle Street, Suite 3800, Chicago,
Illinois 60603.
(8) Includes 546,850 shares of Common Stock held by B&B (formerly Bagel &
Bagel), of which Ms. Lozoff's spouse is the sole stockholder.

49
<PAGE>

(9) Includes 678,661 shares of Common Stock held by Pedersen Bagel, of which
Mr. Muehlstein is a general partner. Pedersen Bagel's address is 161 N.
Clark St., Suite 3100, Chicago, Illinois 60601.
(10) Includes 885,997 shares of Common Stock held by OBG and 42,483 shares
beneficially owned by Mr. Offerdahl's spouse, which are subject to
options from the Company that were exercisable as of September 4, 1996.
OBG's address is 1801 Clint Moore Road, Suite 215, Boca Raton, Florida
33487.
(11) Includes 206,514 shares of Common Stock held by Marquette and 5,900
shares of Common Stock held by MVP II, the general partner of each of
which is an entity of which Mr. Ruth is a general partner. The address
for each of Marquette and MVP II is 520 Lake Cook Road, Suite 450,
Deerfield, Illinois 60015.

PERSONAL HOLDING COMPANY TAX

Under Section 541 of the Internal Revenue Code, a personal holding company
is subject to a 39.6% tax on its undistributed personal holding company income
(the "PHC Tax"). In order to be considered a personal holding company in any
taxable year, a corporation must satisfy two tests. First, at any time during
the last half of the taxable year more than 50% in value of its outstanding
stock must be owned, directly or indirectly, by or for not more than five
individuals (the "Stock Ownership Test"). Second, at least 60% of its adjusted
gross income for the taxable year must be personal holding company income,
which generally consists of passive forms of income such as dividends,
interest, rents and royalties, as defined for tax purposes, but not including
income from the provision of services (the "Income Test"). Although the
ownership of Boston Chicken is attributed to its stockholders for purposes of
such calculation, certain attribution rules that are included as part of the
Stock Ownership Test could result in the Stock Ownership Test being satisfied
in the case of the Company. The Company believes that the nature of its
activities and its expected sources of income during 1996 will be such that
the Income Test will not be satisfied and consequently that the PHC Tax will
not apply for its 1996 taxable year. Because the Company intends to utilize
area developers financed in part by the Company from which it will receive
interest and certain royalty income, there can be no assurance that the
Company will not meet the Income Test in future years.

OWNERSHIP OF BOSTON CHICKEN COMMON STOCK

The following table sets forth certain information regarding the beneficial
ownership of Boston Chicken's common stock as of September 4, 1996 by the
Company's directors and the named executive officer and all directors and
executive officers as a group. The beneficial ownership reflected in the
following table is calculated in accordance with Section 13(d) of the Exchange
Act. Unless otherwise indicated, ownership includes sole voting and investment
power.

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED(1)(2)
-----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------- -------
<S> <C> <C>
Daniel V. Colangelo.................................... 0 *
Scott A. Beck.......................................... 6,564,410 10.2%
Mark R. Goldston....................................... 50,000 *
David G. Stanchak...................................... 427,730 *
Noah C. Alper.......................................... 0 *
Kyle T. Craig.......................................... 75,173 *
M. Laird Koldyke....................................... 0 *
Gail A. Lozoff(3)...................................... 291,177 *
John H. Muehlstein, Jr................................. 5,000 *
John A. Offerdahl(4)................................... 77,589 *
Lloyd D. Ruth.......................................... 0 *
All directors and executive officers as a group
(excluding
Mr. Colangelo) (15 persons)........................... 8,278,394 12.8%
</TABLE>
- --------
*Less than 1%.

50
<PAGE>

(1) Includes shares subject to options which are exercisable within 60 days of
September 4, 1996 as follows: Mr. Scott Beck--543,025; Mr. Craig--48,025;
Mr. Goldston--50,000; Mr. Stanchak--108,423; and all executive officers
and directors as a group (including such individuals)--903,758. Options
granted to Messrs. Craig and Stanchak by Boston Chicken continue to vest
pursuant to their respective consulting agreements with Boston Chicken.
(2) Excludes an aggregate of 4,360,687 of the 6,711,350 shares of common stock
of Boston Chicken beneficially owned by BC Midwest Trust and certain
partnerships, which shares may be deemed to be beneficially owned by Scott
Beck by virtue of his ownership of shares of BC Midwest, Inc., the trustee
of BC Midwest Trust and the general partner of such partnerships. Mr. Beck
disclaims beneficial ownership with respect to all of such shares because
such shares exceed his pecuniary interest of 2,350,663 shares as a
beneficiary of BC Midwest Trust, as a limited partner of such partnerships
and as a stockholder of BC Midwest, Inc.
(3) Represents shares owned by B&B.
(4) Represents shares owned by OBG.

RELATIONSHIP WITH BOSTON CHICKEN

During 1994 and 1995 Boston Chicken spent substantial amounts of time and
resources investigating the potential of the bagel business. In March 1995,
Boston Chicken made an investment in the Company in the form of a convertible
secured loan and sold to the Company at net book value certain assets and
certain know-how and agreements. On June 17, 1996, Boston Chicken converted
the loan into shares of Common Stock, as more fully described below. Also in
March 1995, Boston Chicken and the Company entered into fee service agreements
pursuant to which Boston Chicken has provided the Company with certain multi-
unit retail infrastructure support, including accounting and administration
services, financial services, real estate services and computer and
communications services. Any of the foregoing fee service agreements which
remain in effect may be changed at any time, as may be agreed by Boston
Chicken and the Company. See "Risk
Factors--Control by and Conflicts of Interest with Boston Chicken."

The loan agreement between Boston Chicken and the Company, each of the other
agreements referred to above and other agreements between the Company and
Boston Chicken, are summarized below and are attached as exhibits to the
Registration Statement of which this Prospectus is a part.

LOAN AGREEMENT

On March 24, 1995, Boston Chicken made a senior secured convertible loan to
the Company, secured by substantially all of the Company's and its
subsidiaries' assets, pursuant to which the Company could draw on a line of
credit through March 1998, in order to provide partial funding for store
development and working capital. In February 1996, in connection with the
Noah's acquisition, Boston Chicken increased the amount available under the
loan from $80.0 million to $120.0 million. Also in February 1996, Boston
Chicken provided a $25.0 million bridge loan to the Company (later increased
to $40.0 million), which was repaid by the Company upon the closing of the
Company's secured revolving credit facility. On May 9, 1996, Boston Chicken
and the Company amended the convertible loan agreement to include a $14.0
million non-convertible facility, which was subsequently increased to $50.0
million. On June 17, 1996, pursuant to the terms of the convertible loan
agreement, Boston Chicken converted $80.0 million outstanding under the loan
into Common Stock at a conversion price of $6.38 per share, and converted the
remaining $40.0 million outstanding under the loan into Common Stock at a
conversion price of $14.42 per share. The Company issued an aggregate of
15,307,421 shares of Common Stock in the Loan Conversion, including 510,246
shares issued to BCEF pursuant to its participation interest in the
convertible loan, which interest is described below. As of September 4, 1996,
there were no amounts outstanding under the non-convertible loan facility.
Interest on the non-convertible loan is based on the reference rate of Bank of
America Illinois plus 0.5%. Any borrowings outstanding under the Company's
non-convertible loan facility from Boston Chicken are payable on June 15,
2003. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 7 of Notes to the Company's Audited
Consolidated Financial Statements.

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Boston Chicken may satisfy a portion of its funding obligations under the
loan agreement in cash or in shares of Boston Chicken common stock. Boston
Chicken has agreed to guarantee the price of any shares of Boston Chicken
common stock delivered to the Company in satisfaction of Boston Chicken's
obligations under the loan agreement and thereafter sold by the Company.
Boston Chicken's obligation to guarantee the selling price of the shares is
contingent upon the Company selling all of the shares of Boston Chicken common
stock received by it with respect to a particular advance within the first
seven trading days after the advance date in one or more bona fide broker's or
market maker transactions through or to Merrill Lynch to one or more persons
not affiliated with, related to, or associated with the Company. As of
September 4, 1996, Boston Chicken had issued to the Company, and the Company
had sold on the Nasdaq National Market, through Merrill Lynch acting as
broker, 2,701,615 shares of registered Boston Chicken common stock for
aggregate proceeds of approximately $88.0 million.

In April 1996, Boston Chicken sold a $4 million undivided interest in the
convertible loan to BCEF pursuant to a participation agreement. BCEF's
interest in the convertible loan included the pro rata participation by BCEF
in the principal, interest and security of the loan and the conversion and
option rights of Boston Chicken under such loan. In connection with the
conversion and option rights, two-thirds of BCEF's participation interest was
convertible into Common Stock at a conversion price of $6.38 per share and the
remaining one-third had a conversion price of $14.42 per share. BCEF had no
independent right to exercise any conversion or option rights with respect to
its participation interest, or to cause Boston Chicken to exercise such
conversion or option rights. Upon conversion of the convertible loan by Boston
Chicken, BCEF received 510,246 shares of Common Stock. The shares of Common
Stock acquired by BCEF upon Boston Chicken's conversion of the loan may not be
transferred by BCEF without providing Boston Chicken prior notice and the
opportunity to purchase such shares for, at the option of Boston Chicken, cash
or registered shares of Boston Chicken common stock. Certain executive
officers and directors of the Company own in the aggregate less than 10% of
the outstanding equity interests of BCEF.

In connection with the closing of the Company's secured revolving credit
facility with Bank of America Illinois, Boston Chicken agreed to subordinate
all of its loans to the Company, both convertible and non-convertible, to all
indebtedness under the Company's secured revolving credit facility, and
further agreed to release its security interest in the assets of the Company.

CONCURRENT PRIVATE PLACEMENT AGREEMENT AND REGISTRATION AGREEMENT

Concurrent with the consummation of the Initial Public Offering and the
Concurrent Public Offering, the Company entered into a concurrent private
placement agreement with Boston Chicken (the "Concurrent Private Placement
Agreement"), pursuant to which Boston Chicken purchased 2,000,000 shares of
Common Stock at the initial public offering price per share, net of
underwriting discount. The Concurrent Private Placement Agreement includes
customary terms and provisions, representations and warranties and
indemnification obligations. In addition, the Concurrent Private Placement
Agreement permits Boston Chicken to maintain ownership of shares of Common
Stock having up to 52% of the voting power of all of the outstanding shares of
capital stock of the Company having the power generally to vote in the
election of directors pursuant to an option (the "BCI Option") to purchase
newly issued shares of Common Stock for cash or registered shares of Boston
Chicken common stock at a per share exercise price equal to the (i) the
weighted average price per share at which the Common Stock was issued or sold
in a transaction pursuant to which the BCI Option becomes exercisable, in the
case of a transaction in which such price per share is readily ascertainable,
or (ii) in all other cases, the average of the closing sale prices for the
Common Stock on the Nasdaq National Market (or such other principal exchange
or market on which the Common Stock may then be trading) for the five trading
days ending on the fifth trading day prior to the date of the transaction
pursuant to which the BCI Option becomes exercisable, but subject in each case
to adjustments for issuances of shares of Common Stock in connection with
recapitalizations, dividends, stock splits, consolidations of shares and other
diluting events. In the event payment is made in registered shares of Boston
Chicken common stock, Boston Chicken will guarantee the price at which those
shares can be sold at the market within a limited time period. The BCI Option
will terminate if (i) Boston

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Chicken sells or transfers shares of Common Stock and as a result owns less
than a majority of the then outstanding shares of the Company's voting stock
or (ii) the percentage of outstanding shares of voting stock of the Company
owned by Boston Chicken is reduced below 50% other than as a result of Boston
Chicken's voluntary sale or transfer of shares of Common Stock and Boston
Chicken fails to acquire a sufficient number of shares of Common Stock so that
it owns at least a majority of the then outstanding shares of voting stock of
the Company by July 31 of the calendar year next following the calendar year
in which such reduction occurs. In addition, the percentage ownership level of
52% is subject to reduction to the extent voluntary sales or transfers by
Boston Chicken reduce its ownership of the outstanding shares of voting stock
of the Company to less than 52% but do not otherwise result in termination of
the BCI Option. The Concurrent Private Placement Agreement prohibits the
Company from taking certain actions without the consent of Boston Chicken as
long as the BCI Option has not terminated, including altering any rights
attaching to the Common Stock, offering or issuing any equity securities or
debt securities convertible into equity securities, in either case other than
Common Stock, distributing assets or securities of the Company having a fair
market value in excess of 10% of the Company's consolidated gross assets or
consolidated gross revenues measured as of the immediately preceding fiscal
year end, and filing a petition in bankruptcy.

In connection with the Concurrent Private Placement Agreement, the Company
also entered into a registration agreement with Boston Chicken (the "Boston
Chicken Registration Agreement"), pursuant to which the Company granted to
Boston Chicken five demand and unlimited piggyback registration rights under
the Securities Act with respect to the shares of Common Stock purchased by
Boston Chicken in the Concurrent Private Placement or otherwise owned by it,
including shares of Common Stock subject to the BCI Option for which the
Company will bear substantially all of the expenses in connection with such
registrations (other than underwriting discounts or commissions). The Boston
Chicken Registration Agreement supersedes the rights of Boston Chicken under
the Stockholder Registration Agreement. Boston Chicken's demand registration
rights under the Boston Chicken Registration Agreement are not exercisable by
it until the earlier of (i) the date on which the Company requests the
effectiveness of the registration statement under the Stockholder Registration
Agreement or (ii) September 7, 1997. In addition, the Company has agreed in
connection with Boston Chicken's first demand registration, to waive the
requirement of the Stockholder Registration Agreement, if it is still
applicable, that the holders of the Registrable Securities agree not to sell
up to 30% of such Registrable Securities for certain periods and Boston
Chicken has agreed to consent to such waiver. The Company obtained from the
parties to the Stockholder Registration Agreement a waiver of the provision of
such agreement prohibiting the Company from granting registration rights
superior to those granted under such agreement, and a consent to the grant by
the Company to Boston Chicken of registration rights pursuant to the Boston
Chicken Registration Agreement. See "Certain Transactions--Registration
Rights" and "Shares Eligible for Future Sale."

The Concurrent Private Placement Agreement and the Boston Chicken
Registration Agreement are exhibits to the Registration Statement of which
this Prospectus is a part.

ASSIGNMENT AND REIMBURSEMENT AGREEMENT

On March 24, 1995, Boston Chicken and the Company entered into an assignment
and reimbursement agreement, pursuant to which Boston Chicken assigned to the
Company certain intellectual property rights relating to the development,
manufacture and sale of bagels and bagel-related products (the "Bagel Rights")
and certain rights under contracts to which Boston Chicken was a party,
including Boston Chicken's rights under a lease of office space in Golden,
Colorado that was formerly used as the Company's support center (the "Bagel
Contracts"). The Company paid to Boston Chicken an aggregate of $1,160,334 in
consideration for certain assets and Boston Chicken's assignment of the Bagel
Rights and the Bagel Contracts, and in reimbursement of certain costs and
expenses paid by Boston Chicken in connection with the development and
creation of the Company and certain of its relationships, the development or
acquisition of the Bagel Rights, the negotiation of the Bagel Contracts and
the costs associated with transferring certain employees from Boston Chicken
to the Company. The Company also agreed to assume Boston Chicken's liabilities
and obligations under the Bagel Contracts and in connection with the other
activities performed by Boston Chicken for which the Company reimbursed Boston
Chicken.

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ACCOUNTING AND ADMINISTRATION SERVICES AGREEMENT

On March 24, 1995, Boston Chicken and the Company entered into an accounting
and administration services agreement, subsequently amended and restated in
May 1996 and June 1996 to incorporate minor changes to such agreement (the
"Accounting and Administration Services Agreement"), pursuant to which Boston
Chicken has agreed to assist the Company, its subsidiaries and its area
developers in performing certain services, including maintaining accounting
records, performing accounting activities, preparing financial reports,
administering options, establishing and administering employee benefits, human
resources, insurance and recordkeeping services, assisting with lease
negotiations, maintaining lease files and complying with reporting obligations
thereunder, and providing certain other administrative support services.

In consideration for such assistance, the Company has agreed to pay to
Boston Chicken a base fee of $30,000 for each four-week accounting period, and
to cause each Entity (defined below) to pay a supplemental base fee of $4,500
for each accounting period for services to each area developer or business
unit of the Company (each such area developer or business unit being herein
sometimes referred to as an "Entity"), which fees may be increased
cumulatively not more than 10% per fiscal year by Boston Chicken. The
Accounting and Administration Services Agreement also provides for a per store
fee, ranging from $850 per four-week accounting period if the Company or
Entity operates fewer than twelve bagel stores, to $350 per four-week
accounting period if the Company or Entity operates more than 200 bagel stores
(which range of per store fees may be reduced to a range from $700 to $250
upon compliance with certain reporting requirements, administrative procedure
compliance requirements and timeliness deadlines established by Boston
Chicken). The Company has also agreed to reimburse Boston Chicken for all non-
ordinary, out-of-pocket expenses incurred by Boston Chicken or its affiliates
in connection with the Accounting and Administration Services Agreement. All
such expenses in excess of $50,000 must be approved by the Company prior to
being incurred. Pursuant to the Accounting and Administration Services
Agreement, the Company paid to Boston Chicken in fiscal year 1995 and for the
two quarters ended July 14, 1996, fees aggregating $489,750 and $407,450,
respectively.

The Accounting and Administration Services Agreement has a term of three
years and may be terminated by the Company or Boston Chicken upon 180 days'
prior written notice. In addition, Boston Chicken may terminate the agreement
without notice 15 days after giving notice of non-payment of the fees provided
for in the agreement, unless such non-payment is cured within such 15-day
period.

FINANCIAL SERVICES AGREEMENT

On March 24, 1995, Boston Chicken and the Company entered into a financial
services agreement, (as amended, the "Financial Services Agreement"), pursuant
to which Boston Chicken agreed to provide certain financial services to the
Company and its area developers, including identification and analysis of
possible transactions and related financial and strategic advice, assistance
in budget and forecast preparation, consultations and advice as to
presentations, discussions and disclosures to financial analysts and the
financial press, and advice concerning crisis management and control. In
consideration for such financial services, the Company agreed to pay to Boston
Chicken financial services fees aggregating $500,000 for fiscal year 1995 and
approximately $96,000 for fiscal year 1996. The Company also agreed to
reimburse Boston Chicken for all non-ordinary, out-of-pocket expenses incurred
by Boston Chicken or its affiliates in connection with the Financial Services
Agreement. All such expenses in excess of $50,000 were required to be approved
by the Company prior to being incurred. The Financial Services Agreement was
terminated effective as of May 20, 1996.

REAL ESTATE SERVICES AGREEMENT

On March 24, 1995, Boston Chicken and the Company entered into a real estate
services agreement, subsequently amended and restated in May 1996 to make
minor changes to such agreement (the "Real Estate Services Agreement"),
pursuant to which Boston Chicken agreed to assist the Company, its
subsidiaries and its area developers in conducting certain real estate-related
activities, including site analysis, advisory services regarding customer
trade area studies and other real estate matters. In consideration for such
real estate services,

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the Company agreed to pay a general real estate advisory fee of $5,000 for
each bagel store location proposed to be owned, operated, leased or franchised
by the Company or any of its area developers or subsidiaries. The Company also
agreed that the Company and its subsidiaries would pay Boston Chicken's
regular fees for customer area trade studies, market development plans, and
demographic and census reports, charts and maps (which fees were subject to
change from time to time by Boston Chicken). The Company also agreed to
reimburse Boston Chicken for all non-ordinary, out-of-pocket expenses incurred
by Boston Chicken or its affiliates in connection with the Real Estate
Services Agreement. All such expenses in excess of $50,000 were required to be
approved by the Company prior to being incurred. Pursuant to the Real Estate
Services Agreement, the Company paid to Boston Chicken in fiscal year 1995
fees aggregating $280,000. The Real Estate Services Agreement was terminated
effective as of June 17, 1996.

COMPUTER AND COMMUNICATIONS SYSTEMS SERVICES AGREEMENTS

On March 24, 1995, Boston Chicken and the Company entered into the Computer
Services Agreement, subsequently amended and restated in May 1996 and June
1996 to make certain changes to such agreement, pursuant to which (i) the
Company has agreed to acquire communications and computer systems or hardware
specified or required from time to time by Boston Chicken for use by the
Company and its subsidiaries and area developers (except for Noah's Pacific an
area developer of the Company operating Noah's New York Bagels stores, which
has entered into a separate agreement with Boston Chicken for computer systems
conversion and services as more fully described below), (ii) Boston Chicken
has licensed the Company to use retail store-level computer software programs
and certain other computer software programs in connection with various
support and control functions (which the Company has agreed to use
exclusively, along with other software specified by Boston Chicken), and (iii)
Boston Chicken has agreed to provide certain computer and communications
support services. In consideration for such license and provision of services,
the Company has agreed to pay, and to cause each of its subsidiaries and area
developers to pay, to Boston Chicken a one-time license fee of $15,000 per
bagel store. In addition, the Company agreed to pay fees aggregating $156,000
for certain real estate software, fees aggregating $156,000 for certain Lotus
Notes Database(R) templates and fees aggregating $156,000 for certain
structured report software. In addition, the Company has agreed to pay to
Boston Chicken, for data center and network service operations and support of
certain infrastructure programs, $750,000 for each of the 1996, 1997 and 1998
fiscal years and 0.25% of net systemwide revenue of the Company, its
subsidiaries and its area developers (excluding the revenue derived from
Noah's New York Bagels stores) for each of the 1999 and 2000 fiscal years. The
Company has also agreed to pay, and to cause each of its subsidiaries and area
developers to pay, to Boston Chicken a software maintenance and support
service fee of $323 for each of Boston Chicken's four-week accounting periods
for each installed copy of certain software licensed from Boston Chicken,
which fee may be increased by Boston Chicken at any time at its option. The
Company has also agreed to compensate Boston Chicken at hourly rates for
performance of support services not otherwise covered by the foregoing fees
and to incur certain additional amounts as may be needed to modify, enhance or
replace computer or communications systems or computer software, some of which
amounts may be payable to Boston Chicken. The Company has also agreed to
reimburse Boston Chicken for certain costs and expenses incurred by Boston
Chicken in connection with the Computer Services Agreement. Pursuant to the
Computer Services Agreement, the Company, its subsidiaries and area developers
paid to Boston Chicken in fiscal year 1995 and for the two quarters ended July
14, 1996, fees aggregating $234,823 and $375,460, respectively.

The Computer Services Agreement has a term of five years and may be
terminated by the Company or Boston Chicken upon one year prior written
notice. In addition, Boston Chicken may terminate the agreement without notice
15 days after giving notice of non-payment of the fees provided for in the
agreement, unless such non-payment is cured within such 15-day period.

In June 1996, Noah's Pacific and Boston Chicken entered into a computer and
communications systems conversion and services agreement (the "Noah's Pacific
Agreement") substantially similar to the Computer Services Agreement with
respect to the systems and hardware acquired by Noah's Pacific and the
computer and communications support services provided by Boston Chicken. The
Noah's Pacific Agreement provides that

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Boston Chicken will provide certain conversion assistance to Noah's Pacific
and Noah's Bay Area L.L.C. The conversion services provided by Boston Chicken
under the Noah's Pacific Agreement include assisting with the development of a
conversion plan and timetable for converting the Noah's Pacific system to the
Company's system, the development of employee training materials, programs and
processes and customizing and adapting the Company's systems and software
programs for use in connection with the development and operation of Noah's
New York Bagels stores. In consideration of the conversion assistance,
software support and other services to be provided by Boston Chicken pursuant
to the Noah's Pacific Agreement, Noah's Pacific has agreed to pay to Boston
Chicken $1.5 million for the period beginning June 17, 1996 and ending
December 29, 1996, $3.0 million for each of Boston Chicken's 1997 and 1998
fiscal years and, for each of Boston Chicken's accounting periods in fiscal
1999 and 2000, an amount equal to 0.5% of the combined Royalty Base Revenue of
all stores owned by Noah's Pacific, Noah's Bay Area or their subsidiaries or
affiliates which are operating during any such accounting period.

The Noah's Pacific Agreement terminates at the end of Boston Chicken's
fiscal year 2000. In addition, Boston Chicken may terminate the agreement
without notice (i) 15 days after giving notice of non-payment of the fees
provided for in the agreement, unless such non-payment is cured within such
15-day period and (ii) if Noah's Pacific breaches any provision of the
agreement or, as to a particular store owned and operated by Noah's Pacific or
Noah's Bay Area, if the franchise agreement covering the operation of the
store is terminated for any reason.

OTHER RELATIONSHIPS BETWEEN BOSTON CHICKEN AND THE COMPANY

Pursuant to subscription agreements and certain other agreements entered
into upon the formation of the Company, the stockholders of the Company agreed
to vote their shares in favor of three persons designated by Boston Chicken as
directors of the Company. The Company currently has ten directors, including
the following designees of Boston Chicken: Scott Beck, Kyle Craig and David
Stanchak. Boston Chicken did not designate nominees for the 1996 election of
directors. In addition, certain officers of the Company were previously
officers or employees of Boston Chicken. See "Management."

The Company has from time to time purchased from Boston Chicken shares of
Boston Chicken common stock for delivery by the Company in connection with
acquisitions of other businesses by the Company. In addition to shares of
Boston Chicken common stock funded by Boston Chicken under the loan agreement,
during the period from March 24, 1995 through August 10, 1995, the Company
also purchased an aggregate of 1,298,958 shares of Boston Chicken common stock
in connection with such acquisitions, having an aggregate market value,
measured as of the respective dates such shares were acquired, of
approximately $23.4 million. See "Certain Transactions--Formation of the
Company and Subsequent Acquisitions." The Company may from time to time
acquire shares of common stock, or other securities, of Boston Chicken for
such purposes in the future. See also "--Loan Agreement."

In connection with the formation of the Company, the Company granted options
to purchase an aggregate of 224,300 shares of Common Stock to certain officers
and employees of Boston Chicken at an exercise price of $5.88 per share. Of
such shares, 50,978 shares are subject to options granted to executive
officers of Boston Chicken as follows: Mark W. Stephens, Vice Chairman of the
Board and Chief Financial Officer, 15,294 shares; Thomas R. Sprague, Executive
Vice President, 15,294 shares; Donald J. Bingle, Vice President, General
Counsel and Secretary, 10,195 shares; and Mark A. Link, Vice President--
Financial Reporting, 10,195 shares.

In July 1996, the Company, as tenant, entered into a lease with Boston
Chicken, as landlord, for the Company's support center facility, consisting of
approximately 38,000 square feet of office space (and certain common areas,
including parking areas) located in Golden, Colorado. The lease commenced on
September 1, 1996 and has a 15-year term, renewable for two consecutive five-
year terms. The lease provides for initial rent of approximately $38,000 per
month to be increased by 15% every five years during the initial term and any
renewal term of the lease. Under the lease, the Company has agreed that, in
the event Boston Chicken enters into a sale/leaseback transaction with any
third party, the Company will, at Boston Chicken's option, amend the

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amount of rental payments under the lease to equal 40% of the rental amounts
agreed to be paid by Boston Chicken pursuant to such a transaction. The lease
is a "triple net" lease which requires the Company to pay its proportionate
share of costs associated with the property, building and common areas related
to the leased premises, including, without limitation, real estate taxes,
maintenance costs and insurance premiums. In addition, the Company is required
to pay to Boston Chicken an administrative and management fee not to exceed
15% of such costs. Under the terms of the lease, the Company is required to
procure and maintain comprehensive commercial liability and property damage
insurance for the leased premises. The lease contains other provisions typical
of commercial leases generally, including indemnification provisions, a
prohibition against subleasing without landlord consent and standard
provisions relating to defaults under the lease and remedies available upon
default. The Company believes the terms and provisions of the lease, including
the rent payable thereunder, are at least as favorable to the Company as those
it could have obtained from an unaffiliated third party.

The Company is a party to two subleases with Boston Chicken, pursuant to
which the Company is entitled to the non-exclusive use of aircraft leased by
Boston Chicken from unaffiliated leasing companies. Under the subleases, the
Company is obligated to pay to Boston Chicken between $1,900 and $2,800
(depending on the type of aircraft) for each hour of flight time such aircraft
is used by the Company. There is no minimum monthly use requirement or lease
payment under either of the subleases, and both subleases may be terminated by
either party upon 30 days' written notice. The Company believes that costs
incurred by it under the subleases are lower than the costs it would incur to
lease and maintain its own aircraft from an unaffiliated third party lessor
and slightly higher than the costs it would incur to charter individual
aircraft on a spot-basis from unaffiliated third party lessors. However, the
Company believes that such higher costs are reasonably related to the benefits
to the Company from the subleases, including aircraft availability and higher
maintenance standards, that it would not realize from charter arrangements
with unaffiliated third party lessors.

See also "Risk Factors--Dependence on Boston Chicken," "Risk Factors--
Control by and Conflicts of Interest with Boston Chicken" and "Certain
Transactions."

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 200 million shares
of Common Stock, $.01 par value per share, and 20 million shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). At September 4, 1996,
the Company had 28,987,326 shares of Common Stock issued and outstanding. As
of such date, no shares of Preferred Stock were issued and outstanding. The
following description is a summary of the provisions of the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"), and its
Amended and Restated Bylaws (the "Bylaws"), copies of which are exhibits to
the Registration Statement of which this Prospectus is a part. See "Risk
Factors--Anti-Takeover Effect of Charter and Statutory Provisions."

COMMON STOCK

Except as required by law or by the Certificate of Incorporation, holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the holders of Common Stock. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors and are not permitted to act by written consent. Subject
to preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the board of directors out of funds legally available therefor.
See "Dividend Policy." In the event of a liquidation, dissolution, or winding
up of the Company, holders of the Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock
have no preemptive rights and have no right to convert their Common Stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are,
and the Common Stock to be outstanding upon consummation of the Offerings will
be, fully paid and nonassessable. The board of directors may issue additional
authorized shares of Common Stock without further action by the stockholders.

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PREFERRED STOCK

The board of directors has the authority, without further action by the
stockholders, to issue up to 20 million shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares constituting any
series or the designation of such series. However, pursuant to the Certificate
of Incorporation, the holders of Preferred Stock would not have cumulative
voting rights with respect to the election of directors. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and could have the effect of delaying, deferring, or preventing a change
in control of the Company.

On August 10, 1995, the Company issued the Preferred Shares in connection
with the acquisition of Baltimore Bagel. Each of the Preferred Shares had a
liquidation preference of $1,000 and paid annual dividends of $60.00. Upon
completion of the Initial Public Offering, each Preferred Share was
automatically converted into 73.52941 shares of Common Stock.

As of September 4, 1996, no shares of Preferred Stock were outstanding and
the Company has no present plan to issue any shares of Preferred Stock.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is LaSalle National
Trust, N.A.

SHARES ELIGIBLE FOR FUTURE SALE

At September 4, 1996, the Company had 28,987,326 shares of Common Stock
outstanding. The 3,105,000 shares of Common Stock sold in the Initial Public
Offering are freely tradeable (other than by an "affiliate" of the Company as
such term is defined in the Securities Act) without restriction or
registration under the Securities Act. The 425,000 shares of Common Stock sold
in the Concurrent Public Offering, although also freely tradeable (other than
by an "affiliate" of the Company as such term is defined in the Securities
Act), are subject to contractual lock-up arrangements restricting their sale
prior to August 1, 1997, without the consent of Merrill Lynch. The 16,797,175
shares of Common Stock owned by Boston Chicken were issued and sold by the
Company in private transactions ("Restricted Shares") and may not be resold
unless registered under the Securities Act or sold in accordance with an
exemption therefrom, such as Rule 144, Rule 144A or Rule 701 thereunder. The
Company has granted to Boston Chicken five demand and unlimited piggyback
registration rights under the Boston Chicken Registration Agreement. Boston
Chicken has agreed, however, not to sell shares of Common Stock purchased in
the Concurrent Private Placement prior to August 1, 1997, without the consent
of Merrill Lynch, and has agreed not to sell the remaining shares of Common
Stock owned by it prior to January 28, 1997. Of the Shares covered by this
Prospectus, 8,569,050 are currently issued and outstanding and 1,339,277 are
issuable pursuant to outstanding warrants granted by the Company. All of such
Shares covered by this Prospectus are, or when issued will be, Restricted
Shares, but may be offered hereby by the Registering Stockholders in the
public market. The holders of 6,971,820 of such Shares have agreed, however,
that they will not sell any of such Shares prior to January 28, 1997, subject
to certain exceptions, without the consent of Merrill Lynch, the holders of an
167,197 of the Shares covered hereby have agreed that they will not sell any
of such Shares prior to 180 days from the date of this Prospectus, the holders
of 17,000 of the Shares covered hereby have agreed that they will not sell any
of such Shares prior to August 1, 1997 and the holders of 1,372,135 of the
Shares covered hereby (consisting of all officers and directors of the
Company, who hold an aggregate of 550,460 of such Shares, and area developers
of the Company holding an aggregate of 821,675 of such Shares) have agreed
that they will not sell any of such Shares prior to August 1, 1998.

In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who beneficially owns shares that were not acquired from the Company or
an affiliate of the Company within the previous two years would be entitled to
sell in the public market within any three-month period a number of shares
that does not exceed the

58
<PAGE>

greater of (i) one percent of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume of the Common Stock on the Nasdaq
National Market during the four calendar weeks immediately preceding the date
on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales pursuant to Rule 144 are also subject to
certain other requirements relating to manner of sale, notice and the
availability of current public information about the Company. A person who is
deemed not to have been an affiliate of the Company at any time during the
three months immediately preceding a sale and who beneficially owns shares
that were not acquired from the Company or an affiliate of the Company within
the past three years is entitled to sell such shares under Rule 144(k) without
regard to the foregoing limitations. Rule 144A under the Securities Act
permits the immediate sale by the holders of Restricted Shares issued prior to
completion of the Offerings of all or a portion of their shares to certain
"qualified institutional buyers" as defined in Rule 144A. Although under Rule
144, as currently in effect, none of the Restricted Shares are currently
available for resale under such rule, the shares of Common Stock covered by
this Prospectus may be offered hereby by the Registering Stockholders in the
public market.

Boston Chicken is a party to the Stockholder Registration Agreement.
However, in connection with the Concurrent Private Placement, the Company
entered into the Boston Chicken Registration Agreement (which superseded
Boston Chicken's rights under the Stockholder Registration Agreement).
Pursuant to the Boston Chicken Registration Agreement, the Company granted to
Boston Chicken five demand and unlimited piggyback registration rights under
the Securities Act with respect to the shares of Common Stock owned by Boston
Chicken, including shares of Common Stock subject to the BCI Option, for which
the Company will bear substantially all of the expenses (other than
underwriting discounts or commissions). The demand registration rights are not
exercisable by Boston Chicken until the earlier of (i) the date on which the
Company requests the effectiveness of the resale registration statement under
the Stockholder Registration Agreement or (ii) 13 months after completion of
the Offerings. In addition, the Company has agreed, in connection with Boston
Chicken's first demand registration, to waive the requirement of the
Stockholder Registration Agreement, if it is still applicable, that the
holders of the Registrable Securities agree not to sell up to 30% of such
Registrable Securities for certain periods and Boston Chicken has agreed to
consent to such waiver. The Company has obtained from the parties to the
Stockholder Registration Agreement a waiver of the provision of such agreement
prohibiting the Company from granting registration rights superior to those
granted under such agreement, and a consent to the grant by the Company to
Boston Chicken of registration rights pursuant to the Boston Chicken
Registration Agreement. See "Certain Transactions--Registration Rights" and
"Relationship with Boston Chicken--Concurrent Private Placement Agreement and
Registration Agreement."

The Company has registered under the Securities Act 3,569,436 shares of
Common Stock subject to outstanding options and 1,725,759 shares of Common
Stock reserved for issuance under the Amended Plan and the Directors Plan. All
shares purchased in the future under such plans will be available for resale
in the public market without restriction, except that affiliates must comply
with the provisions of Rule 144 other than the two-year holding period
requirement described above. In addition, the Company may file a registration
statement covering shares of Common Stock for issuance from time to time in
connection with potential future acquisitions and resales thereof by the
recipients, although no such acquisitions are currently pending. Shares so
registered could not be sold in the public market prior to January 28, 1997,
subject to certain exceptions, without the consent of Merrill Lynch.

59
<PAGE>

REGISTERING STOCKHOLDERS

The Shares are being registered hereunder to simplify resale thereof if and
when a Registering Stockholder determines to sell Shares from time to time and
not because of any expressed intent to immediately sell such Shares. The
following table sets forth certain information regarding the ownership of the
Company's Common Stock as of September 4, 1996 by each of the Registering
Stockholders. Of the Shares being registered hereunder, 8,569,050 are
currently issued and outstanding and 1,339,277 are issuable pursuant to
outstanding warrants granted by the Company. Only 1,380,175 of the Shares
registered hereunder will be immediately available for resale upon
effectiveness of the Registration Statement of which this Prospectus forms a
part. The remaining 8,528,152 of the Shares registered hereunder are subject
to contractual lock-up arrangements of various durations as follows: the
holders of 6,971,820 of the Shares registered hereunder have agreed that they
will not sell any of such Shares prior to January 28, 1997, subject to certain
exceptions, without the consent of Merrill Lynch, the holders of 167,197 of
the Shares registered hereunder have agreed that they will not sell any of
such Shares prior to 180 days from the date of this Prospectus, the holders of
17,000 of the Shares registered hereunder have agreed that they will not sell
such shares prior to August 1, 1997 and the holders of 1,372,135 of the Shares
registered hereunder (consisting of all officers and directors of the Company,
who hold an aggregate of 550,460 of such Shares, and area developers of the
Company holding an aggregate of 821,675 of such Shares) have agreed that they
will not sell any of such Shares prior to August 1, 1998.

<TABLE>
<CAPTION>
SHARES NOT
TOTAL REGISTERED
SHARES OWNED HEREUNDER
--------------- SHARES REGISTERED --------------
NAME NUMBER PERCENT HEREUNDER(1) NUMBER PERCENT
- ---- ------- ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
Paul Aiken.................... 18,000 * 18,000(10) -- *
Sangwoo Ahn................... 13,191 * 13,191 -- *
Joan M. Alam.................. 100 * 100 -- *
Joel M. Alam and Bernadette
Dennehy, joint tenants....... 6,524 * 2,024 4,500 *
Daniel V. and Lynne K. Alper,
as community property........ 16,630 * 16,630(2) -- *
Fred Alper.................... 7,127 * 7,127(2) -- *
Noah C. or Hope M. Alper,
Trustee or Successor Trustee
of the Alper Living Trust
U/A/D July 18, 1994.......... 93,600 * 93,600(2) -- *
Altgeld Management
Corporation.................. 43,743 * 43,743(3) -- *
ALTHEO, Inc................... 3,823 * 3,823 -- *
Amalgamated Acme Corp. Profit
Sharing Trust Earmarked
Rollover Account for Michael
L. Epsteen................... 1,426 * 1,426(2) -- *
Glenn Bacheller............... 9,028 * 9,028(2) -- *
Bagel South, L.L.C............ 11,953 * 11,953(3) -- *
Albert S. and Anne M.
Baldocchi, as community
property..................... 88,715 * 84,965 3,750 *
Baldwin & Lyons, Inc.......... 57,250 * 56,250(3) 1,000 *
Bank America Investment Corp.. 28,688 * 28,688(3) -- *
Bank of America Illinois...... 15,375 * 15,375(4) -- *
Bank of America Illinois,
Trustee of the Hayden GST
Trust u/a dated 12/28/95..... 29,739 * 29,739 -- *
B & B Holdings, Inc........... 546,850 1.9 546,850(5) -- *
B.B. Investments, Ltd......... 263,817 * 263,817 -- *
BC Equity Funding, L.L.C...... 510,246 1.8 510,246(6) -- *
BCE West Bagels, L.L.C........ 85,050 * 85,050(12) -- *
Michael Beaudoin.............. 24,990 * 21,240 3,750 *
Lawrence Beck................. 21,125 * 19,125(3) 2,000 *
Belushi Partners II........... 4,781 * 4,781(3) -- *
Daniel Bercu.................. 2,426 * 1,426(2) 1,000 *
Steven Berrard................ 14,273 * 13,273(3) 1,000 *
Robert Bielinski.............. 4,562 * 1,062 3,500 *
Donald J. Bingle.............. 3,520 * 1,020(8) 2,500 *
Theodore A. Bosler Trust...... 3,391 * 2,391(3) 1,000 *
</TABLE>
- --------
*Represents less than 1% of the outstanding Common Stock.

60
<PAGE>

<TABLE>
<CAPTION>
SHARES NOT
TOTAL REGISTERED
SHARES OWNED HEREUNDER
--------------- SHARES REGISTERED --------------
NAME NUMBER PERCENT HEREUNDER(1) NUMBER PERCENT
- ---- ------- ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
Brau Family Partnership,
L.P......................... 465,830 1.6 465,830(9) -- *
Charles A. Brickman, Trustee
under Trust dated 6/1/88.... 20,119 * 19,119 1,000 *
Dean L. Buntrock............. 2,000 * 2,000(7) -- *
Jeffrey L. Butler............ 99,135 * 95,385(3)(8) 3,750 *
Vincent Buonanno............. 3,869 * 2,869(3) 1,000 *
James S. Cary................ 8,225 * 7,725(8) 500 *
W. Eric Carlborg............. 15,115 * 11,365(3) 3,750 *
C & B Holdings, Ltd.......... 101,705 * 101,705 -- *
Dr. Richard Caleel........... 5,281 * 4,781(3) 500 *
Arthur Chaykin............... 100 * 100(5) -- *
Daniel V. Colangelo.......... 351,354 1.2 351,354(10) -- *
Vito J. Colangelo............ 13,500 * 13,500(10) -- *
Colonial Bagels, L.P......... 100,350 * 100,350(12) -- *
Kyle T. Craig................ 42,483 * 42,483 -- *
John W. Croghan, Trustee for
the John W. Croghan Trust
dated 12/28/82.............. 19,119 * 19,119 -- *
Joseph A. Cusimano IRA
Rollover.................... 3,825 * 3,825(3) -- *
D&R, L.L.C................... 56,250 * 56,250(3) -- *
DNB, L.P..................... 10,620 * 10,620 -- *
Peter Desnoes................ 5,781 * 4,781(3) 1,000 *
Chris B. Dodge............... 5,475 * 2,975 2,500 *
Craig J. Duchossois.......... 10,558 * 9,558 1,000 *
EBB Investors, Inc........... 23,906 * 23,906(3) -- *
EB&M Holdings, Ltd........... 14,344 * 14,344(3) -- *
F. Warren Ellish............. 6,372 * 6,372 -- *
Andrew J. Filipowski......... 34,058 * 32,058(3) 2,000 *
Finest Bagels, L.L.C......... 77,175 * 77,175(12) -- *
Robert Flynn................. 1,688 * 1,688(3) -- *
Brian J. Flynn Trust......... 12,250 * 11,250(3) 1,000 *
Donald F. Flynn, 1993 Trust.. 13,250 * 11,250(3) 2,000 *
Kevin F. Flynn Trust......... 11,250 * 11,250(3) -- *
Craig J. Foley............... 19,006 * 19,006(2) -- *
Richard A. Forsythe Revocable
Trust....................... 4,781 * 4,781(3) -- *
Julius Frankel............... 13,500 * 13,500(10) -- *
Frontenac VI Limited
Partnership................. 424,827 1.5 424,827 -- *
Stuart Fullinwider........... 14,650 * 12,150(8) 2,500 *
Furst Rudman Investors,
L.L.P....................... 4,781 * 4,781(3) -- *
Thomas F. Githens Family
Partnership................. 3,823 * 3,823 -- *
J. Douglas Gray.............. 3,391 * 2,391(3) 1,000 *
Robert Guerin................ 10,620 * 10,620 -- *
Great Lakes Bagels, L.L.C.... 103,500 * 103,500(12) -- *
Arnold C. Greenberg.......... 12,500 * 12,500(7) -- *
Grosvenor Fund, L.P.......... 5,625 * 5,625(3) -- *
Gulfstream Bagels, L.P....... 97,425 * 97,425(12) -- *
Frederic C. Hamilton......... 9,558 * 9,558 -- *
Hal P. Harlan................ 11,325 * 3,825(3) 7,500 *
</TABLE>
- --------
*Represents less than 1% of the outstanding Common Stock.

61
<PAGE>

<TABLE>
<CAPTION>
SHARES NOT
TOTAL REGISTERED
SHARES OWNED HEREUNDER
--------------- SHARES REGISTERED --------------
NAME NUMBER PERCENT HEREUNDER(1) NUMBER PERCENT
- ---- ------- ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
Harlan Bagel Supply Company.. 23,173 * 23,173(12) -- *
J. Bruce Harreld............. 2,500 * 2,500(7) -- *
Jeff Harpster................ 6,563 * 2,813(3) 3,750 *
Nancy Hauge.................. 4,752 * 4,752(2) -- *
Mark X. Hayden............... 18,967 * 16,467(3)(8) 2,500 *
Hay Property Company, Ltd.... 4,500 * 4,500(3) -- *
Theodore P. Heininger........ 4,812 * 1,062 3,750 *
J. Michael Hesler............ 6,738 * 5,738(3) 1,000 *
James Hilmer................. 90,278 * 90,278(8) -- *
A. Barry Hirschfeld.......... 3,391 * 2,391(3) 1,000 *
Matt Holmes.................. 2,901 * 1,901(2) 1,000 *
Joe Hoog..................... 5,663 * 1,913(3) 3,750 *
William B. Hughson, Trustee
under the William B. Hughson
and Margaret A. Hsia
Revocable Trust............. 8,553 * 8,553(2) -- *
William P. Hulligan.......... 10,563 * 9,563(3) 1,000 *
Barbara Huth................. 8,496 * 8,496 -- *
M Howard Jacobson............ 500 * 500(7) -- *
JKS Trust.................... 10,206 * 10,206 -- *
JMH Associates, Inc. Profit
Sharing Fund................ 3,825 * 3,825(3) -- *
JWC Trust.................... 3,825 * 3,825(3) -- *
Adrienne Kizer............... 500 * 500(5) -- *
Jeffrey A. Klein............. 38,715 * 38,715(3) -- *
Karen Klein.................. 1,426 * 1,426(2) -- *
KMK & Associates............. 10,563 * 9,563(3) 1,000 *
James W. Largay.............. 57,492 * 57,492(10) -- *
North American Trust Company,
as Trustee for Bell, Boyd &
Lloyd Retirement Plan
Account FBO Paul A. Strasen. 3,398 * 3,398 -- *
Lowell H. Leberman........... 16,294 * 15,294 1,000 *
Gerard Lewis................. 4,624 * 2,124 2,500 *
Kathryn C. Lewis............. 64,125 * 64,125 -- *
Kathryn C. Lewis Trust U/A
6/14/93..................... 33,300 * 33,300 -- *
Perry J. Lewis............... 13,191 * 13,191 -- *
Peter C. Lewis............... 90,678 * 90,678 -- *
Peter C. Lewis Trust U/A
6/14/93..................... 33,300 * 33,300 -- *
Frederick W. Ley............. 55,603 * 53,103 2,500 *
Liberty Foods, L.L.C......... 100,350 * 100,350(12) -- *
Mark Link.................... 2,926 * 426 2,500 *
Gail A. Lozoff............... 4,249 * 4,249(8) -- *
Shelby Lozoff................ 150 * 150(5) -- *
Aaron March.................. 250 * 250(5) -- *
Daniel C. Marino, Jr......... 38,235 * 38,235 -- *
Marquette Venture Partners
II, L.P..................... 206,514 * 206,514 -- *
Maverick Fund USA, Ltd....... 41,680 * 41,680(3) -- *
Mayfair Bagels, L.L.C........ 77,175 * 77,175(12) -- *
John & Janet Melk Jt. Ten.... 47,813 * 47,813(3) -- *
David B. Meltzer............. 2,869 * 2,869(3) -- *
</TABLE>
- --------
*Represents less than 1% of the outstanding Common Stock.

62
<PAGE>

<TABLE>
<CAPTION>
SHARES NOT
TOTAL REGISTERED
SHARES OWNED HEREUNDER
--------------- SHARES REGISTERED --------------
NAME NUMBER PERCENT HEREUNDER(1) NUMBER PERCENT
- ---- ------- ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce,
Fenner & Smith, Custodian
for the W. Eric Carlborg
Individual Retirement
Account, for the benefit of
W. Eric Carlborg........... 12,744 * 12,744 -- *
Robert Meyer................ 100 * 100(5) -- *
James Fox Miller............ 10,563 * 9,563(3) 1,000 *
Lewis Miller................ 5,596 * 5,596(8) -- *
Jim Mizes................... 12,778 * 9,028(2) 3,750 *
John A. Morgan.............. 13,191 * 13,191 -- *
Morgan Lewis Githens & Ahn,
L.P........................ 28,688 * 28,688(3) -- *
John Morlock................ 28,575 * 26,075(3)(8) 2,500 *
Shirley Morlock............. 8,496 * 8,496 -- *
John H. Muehlstein, Jr...... 6,141 * 6,141(3)(7) -- *
Dennis B. Mullen............ 3,600 * 1,100(3) 2,500 *
Andrew P. Murphy............ 1,125 * 1,125(3) -- *
Barbara Musante............. 8,152 * 6,652(2) 1,500 *
MVP II Affiliates, L.P...... 5,900 * 5,900 -- *
Alfred G. Naddaff........... 6,014 * 6,014(8) -- *
Saad J. Nadhir.............. 6,748 * 6,748(7) -- *
Gary Thomas Naifeh.......... 5,874 * 2,124 3,750 *
Jeffrey C. Neal............. 83,786 * 83,786(3) -- *
The Nippon Credit Bank,
Ltd........................ 4,397 * 4,397 -- *
NNYB, L.L.C................. 234,227 * 234,227(12) -- *
Stephen A. Norman........... 230,358 * 230,358(10) -- *
Noah's Pacific, L.L.C....... 168,750 * 168,750(12) -- *
NS Associates, Inc.......... 5,625 * 5,625(3) -- *
OBG Holdings, Inc........... 885,997 3.1 885,997(11) -- *
Alain O'Hayon............... 956 * 956(3) -- *
Edward M. Palms............. 4,624 * 2,124 2,500 *
George G.C. Parker.......... 1,711 * 1,711(2) -- *
Gary Pasternak.............. 2,500 * 2,500(5) -- *
Irene Pasternak............. 7,500 * 7,500(5) -- *
Sam Pasternak............... 7,500 * 7,500(5) -- *
Thomas H. Patrick........... 133,821 * 133,821 -- *
Pedersen Bagel Investment
Joint Venture.............. 678,661 2.3 678,661 -- *
Peer Pedersen............... 49,813 * 49,813(3)(7) -- *
Joren C. Peterson........... 10,996 * 8,496 2,500 *
Philly Rose, L.P............ 92,700 * 92,700(12) -- *
The Pisces Fund............. 6,842 * 6,842(2) -- *
PJS Bagel Investing, L.L.C.. 5,099 * 5,099 -- *
Platinum Venture Partners I,
L.P........................ 17,206 * 17,206 -- *
Platinum Venture Partners
II, L.P.................... 21,029 * 21,029 -- *
PSR Investments, L.P........ 19,125 * 19,125(3) -- *
Steven J. Quamme............ 9,375 * 5,625(3) 3,750 *
A. G. Rappaport............. 4,781 * 4,781(3) -- *
A.G. Rappaport and Diane M.
Rappaport, tenants by the
entireties................. 141,819 * 138,069 3,750 *
Charles Reeder.............. 5,781 * 4,781(3) 1,000 *
</TABLE>
- --------
*Represents less than 1% of the outstanding Common Stock.

63
<PAGE>

<TABLE>
<CAPTION>
SHARES NOT
TOTAL REGISTERED
SHARES OWNED HEREUNDER
--------------- SHARES REGISTERED --------------
NAME NUMBER PERCENT HEREUNDER(1) NUMBER PERCENT
- ---- ------- ------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C>
J. Christopher Reyes...... 5,781 * 4,781(3) 1,000 *
M. Jude Reyes............. 5,781 * 4,781(3) 1,000 *
Rodney Rice............... 24,993 * 21,243(8) 3,750 *
Harry T. Rose............. 6,141 * 2,391(3) 3,750 *
Rosewood Capital, L.P..... 475,126 1.6 475,126(2) -- *
Maurice Rowe.............. 8,846 * 8,496 350 *
Karen Rugen............... 5,050 * 2,550 2,500 *
Lloyd D. Ruth............. 5,663 * 5,663(3)(7) -- *
William Schrader.......... 12,778 * 9,028(2) 3,750 *
Martin Schwartz........... 24,906 * 23,906(3) 1,000 *
Lisa A. Sebring........... 64,125 * 64,125 -- *
Lisa A. Sebring Trust U/A
6/14/93.................. 33,300 * 33,300 -- *
Penny Bender Sebring...... 50,934 * 50,934(3) -- *
Jeffry J. Shearer......... 79,993 * 77,493(3) 2,500 *
John A. Shields........... 3,869 * 2,869(3) 1,000 *
Scott Slabotsky........... 500 * 500(5) -- *
Judith A. Smith........... 1,901 * 1,901(2) -- *
Thomas R. Sprague and
Victoria B. Sprague,
joint tenants............ 3,062 * 212 2,850 *
David G. Stanchak......... 43,305 * 43,305(3)(7)(8) -- *
Starbucks Corporation..... 171,045 * 171,045(2) -- *
Mark W. Stephens.......... 106,052 * 106,052(7) -- *
Debra Swaden.............. 7,500 * 7,500(5) -- *
Rick Tasman............... 1,372 * 772 600 *
Texas Bagels, L.L.C....... 77,175 * 77,175(12) -- *
Mark A. Thomas............ 772 * 772 -- *
Mark A. Thomas and Nena M.
Thomas, joint tenants.... 2,124 * 2,124 -- *
Triune Venture Partners,
L.P...................... 181,614 * 181,614 -- *
Triune Venture Partners
II, L.P.................. 56,250 * 56,250(3) -- *
Doug Troy................. 11,528 * 9,028(2) 2,500 *
Mark G. Villalpando....... 12,246 * 8,496 3,750 *
Anthony J. Vinci and Paula
Vinci, joint tenants..... 2,124 * 2,124 -- *
Howard C. Warren.......... 49,813 * 47,813(3) 2,000 *
Marshall Weber............ 150 * 150(5) -- *
M. David White............ 83,528 * 81,028(3) 2,500 *
Wijler (Guernsey), Ltd.... 14,344 * 14,344(3) -- *
Joel Winston.............. 150 * 150(5) -- *
David G. Wurfel........... 6,248 * 4,248 2,000 *
Youngstown Partners....... 39,375 * 39,375(3) -- *
Laurence M. Zwain......... 7,281 * 7,281(3)(7) -- *
</TABLE>
- --------
*Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the Registering Stockholders received all of
their respective Shares being registered hereunder in connection with
their initial subscription in March 1995 or upon the transfer of such
Shares from a subscriber.
(2) Such Registering Stockholders received all of the Shares being registered
hereunder in connection with the acquisition by the Company of Noah's.
(3) Altgeld Management Corporation, Steven Berrard, Jeffrey L. Butler, W. Eric
Carlborg, Andrew J.

64
<PAGE>

Filipowski, Mark X. Hayden, Jeffrey A. Klein, Maverick Fund USA, Ltd., John
Morlock, John H. Muehlstein, Jr., Jeffrey C. Neal, Peer Pedersen, Lloyd D.
Ruth, Jeffry J. Shearer, David G. Stanchak, M. David White and Laurence M.
Zwain will receive, upon the exercise of warrants granted by the Company to
be distributed by Bagel Funding to its members, 22,500, 5,625, 5,625,
2,869, 22,500, 9,563, 6,216, 9,563, 11,250, 2,391, 16,875, 47,813, 1,913,
56,250, 14,063, 2,860 and 4,781 of such Shares being registered hereunder,
respectively. Each of the other Registering Stockholders will receive, upon
the exercise of warrants granted by the Company to be distributed by Bagel
Funding to its members, all of the Shares being registered hereunder.
(4) Bank of America Illinois received a warrant to purchase all of the Shares
being registered hereunder in connection with the commitment to provide the
Company with the secured revolving credit facility.
(5) B&B Holdings, Inc. received all of the Shares being registered hereunder in
connection with the acquisition by the Company of Bagel & Bagel and all of
the Shares being registered hereunder for the account of such other
Registering Stockholders were acquired upon the transfer of such Shares
from B&B Holdings, Inc.
(6) BC Equity Funding, L.L.C. received all of the Shares being registered
hereunder from Boston Chicken.
(7) Dean L. Buntrock, Arnold C. Greenberg, J. Bruce Harreld, M Howard Jacobson,
John H. Muehlstein, Jr., Saad J. Nadhir, Peer Pedersen, Lloyd D. Ruth,
David G. Stanchak, Mark W. Stephens and Laurence M. Zwain received 2,000,
7,500, 2,500, 500, 3,750, 2,500, 2,000, 3,750, 3,750, 2,500 and 2,500 of
such Shares in the Concurrent Public Offering. Mr. Greenberg also received
5,000 of the Shares being registered hereunder in the Initial Public
Offering.
(8) Jeffrey L. Butler, Donald J. Bingle, James S. Cary, Stuart N. Fullinwider,
Mark X. Hayden, James Hilmer, Gail A. Lozoff, Lewis Miller, John Morlock,
Alfred Naddaff, Rodney Rice and David G. Stanchak received 71,069, 1,020,
7,725, 1,530, 4,249, 72,221, 4,249, 983, 1,699, 490, 21,243 and 4,249 of
such Shares being registered hereunder, respectively, pursuant to the
exercise of stock options granted by the Company under the Plan.
(9) Brau Family Partnership, L.P. received all of the Shares being registered
hereunder in connection with the acquisition by the Company of Baltimore
Bagel.
(10) Daniel V. Colangelo, Vito J. Colangelo, James W. Largay, Stephen A.
Norman, Paul Aiken and Julius Frankel, received 300,375, 13,500, 40,500,
187,875, 18,000 and 13,500 of the Shares being registered hereunder,
respectively, in connection with the acquisition by the Company of
Brackman, and Daniel V. Colangelo, Mr. Largay and Mr. Norman received
50,979, 16,992 and 42,483 of the Shares being registered hereunder,
respectively, pursuant to the exercise of stock options granted by the
Company under the Plan.
(11) OBG Holdings, Inc. received 811,652 of the Shares being registered
hereunder in connection with the acquisition by the Company of
Offerdahl's.
(12) Each of Registering Stockholders received, or will receive, all of the
Shares registered hereunder pursuant to the exercise of warrants granted
by the Company.

Joel M. Alam is Vice President and Secretary of the Company. Noah C. Alper is
Vice Chairman of the Board of the Company and a trustee and a beneficiary of
the Alper Living Trust U/A/D July 18, 1994. Richard Lozoff, husband of Gail A.
Lozoff, a director of the Company, is the sole stockholder of B&B Holdings,
Inc. Michael J. Beaudoin is Senior Vice President--Supply Chain of the Company.
Scott A. Beck is Chairman of the Board of the Company. Jeffrey L. Butler is
President of Einstein Bros. Bagels Concept of the Company. W. Eric Carlborg is
Senior Vice President--Finance of the Company. Kyle T. Craig is a director of
the Company. M. Laird Koldyke, a director of the Company, is a general partner
of Frontenac VI Limited Partnership. Mark R. Goldston is President and Chief
Executive Officer and a director of the Company. John A. Muehlstein, Jr., a
director of the Company, is a general partner of Pedersen Bagel Investment
Joint Venture. John A. Offerdahl, a director of the Company, is a stockholder
of OBG Holdings, Inc. Lloyd D. Ruth, a director of the Company, is a general
partner of the general partner of each of Marquette Venture Partners II, L.P.
and MVP II Affiliates, L.P. Paul A. Strasen, Vice President and General Counsel
of the Company, is a beneficiary of the Bell, Boyd & Lloyd Retirement Plan
Account FBO Paul A. Strasen and is a member of PJS Bagel Investing, L.L.C.
David G. Stanchak is Vice President and Chief Development Officer and a
director of the Company. See "Management." Bank of American Illinois has
provided the Company with a $45.0 million secured, revolving credit facility.
BCE

65
<PAGE>

West Bagels, L.L.C., Great Lakes Bagels, L.L.C., Gulfstream Bagels, L.P.,
Liberty Foods, L.L.C., Mayfair Bagels, L.L.C., Noah's Pacific, L.L.C., and
Philly Rose, L.P. are area developers of the Company. See "Certain
Transactions--Interests in Area Developers By Certain Persons." Harlan Bagel
Supply Company, LLC ("Harlan") and the Company are parties to the Harlan Supply
Agreement, pursuant to which Harlan has agreed to supply the Company, its area
developers and their food-service distributors with specified quantities of
bagels per month through June 1, 2003. Hal P. Harlan owns an equity interest in
Harlan. See "Business Vendors."

PLAN OF DISTRIBUTION

An aggregate of up to 9,908,327 Registering Stockholders' Shares may be
offered pursuant to this Prospectus. The distribution of such Shares by the
Registering Stockholders may be effected from time to time in one or more
transactions on the Nasdaq National Market (which may involve block
transactions), in special offerings, in negotiated transactions, or otherwise,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Registering Stockholders
may engage one or more brokers to act as principal or agent in making sales,
who may receive discounts or commissions from the Registering Stockholders in
amounts to be negotiated. The Registering Stockholders and any such brokers may
be deemed "underwriters" under the Securities Act of the Shares sold. In
addition, pledgees, donees, transferees or other successors in interest of the
Registering Stockholders may sell, pursuant to this Prospectus, Shares from
time to time in any manner and at prices determined by any methods provided
herein.

The Company will pay all expenses of filing the Registration Statement and
preparing and reproducing this Prospectus. The Registering Stockholders will
pay any selling expenses, including brokerage commissions, incurred in
connection with their sale of any Shares covered by this Prospectus.

EXPERTS

The consolidated balance sheet of Einstein/Noah Bagel Corp. and subsidiaries
as of December 31, 1995 and the related consolidated statements of operations,
stockholders' deficit and cash flows for the period from March 24, 1995
(inception) through December 31, 1995 included in this Prospectus and the
related financial statement schedule included elsewhere in the Registration
Statement of which this Prospectus is a part, have been included herein in
reliance on the reports of Arthur Andersen LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.

The consolidated financial statements of Noah's New York Bagels, Inc. as of
December 31, 1994 and December 30, 1995 and for each of the three fiscal years
in the period ended December 30, 1995 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.

The financial statements of Bagel & Bagel, Inc. for the year ended December
27, 1994 and the period from December 28, 1994 to March 23, 1995 included in
this Prospectus have been audited by Mayer Hoffman McCann L.C., independent
auditors, as stated in their reports appearing herein and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

The combined financial statements of Offerdahl's Bagel Gourmet, Inc. and
Affiliates for the years ended December 31, 1993 and 1994 and for the period
from January 1, 1995 to April 2, 1995 included in this Prospectus have been
included herein in reliance upon the reports of Arthur Andersen LLP,
independent accountants, given upon the authority of that firm as experts in
accounting and auditing.

The financial statements of Baltimore Bagel Co. for the years ended December
31, 1994 and for the period from January 1, 1995 to August 10, 1995 included in
this Prospectus have been included herein in reliance upon the reports of
Arthur Andersen LLP, independent accountants, given upon the authority of that
firm as experts in accounting and auditing.

66
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
Report of Independent Public Accountants.................................. F-3
Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1995......................... F-4
Consolidated Statement of Operations for the period from March 24, 1995
(inception) through December 31, 1995.................................. F-5
Consolidated Statement of Stockholders' Deficit for the period from
March 24, 1995 (inception) through December 31, 1995................... F-6
Consolidated Statement of Cash Flows for the period from March 24, 1995
(inception) through December 31, 1995.................................. F-7
Notes to Audited Consolidated Financial Statements...................... F-8
Consolidated Balance Sheets at December 31, 1995 and July 14, 1996
(unaudited)............................................................ F-19
Consolidated Statements of Operations for the quarter ended July 9,
1995, the period from March 24, 1995 (inception) through July 9, 1995,
and for the quarter and two quarters ended July 14, 1996 (unaudited)... F-20
Consolidated Statements of Cash Flows for the period from March 24, 1995
(inception) through July 9, 1995 and for the two quarters ended July
14, 1996 (unaudited)................................................... F-21
Notes to Unaudited Consolidated Financial Statements.................... F-22
NOAH'S NEW YORK BAGELS, INC.
Independent Auditors' Report.............................................. F-26
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1994 and December 30, 1995.. F-27
Consolidated Statements of Operations for the fiscal years ended
December 31, 1993, December 31, 1994 and December 30, 1995............. F-28
Consolidated Statements of Shareholders' Equity (Deficit) for the fiscal
years ended December 31, 1993, December 31, 1994 and December 30, 1995. F-29
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1993, December 31, 1994 and December 30, 1995............. F-30
Notes to Audited Consolidated Financial Statements...................... F-31
BAGEL & BAGEL, INC.
Report of Independent Public Accountants.................................. F-37
Financial Statements:
Statements of Operations for the fiscal year ended December 27, 1994 and
for the period from December 28, 1994 through March 23, 1995........... F-38
Statements of Cash Flows for the fiscal year ended December 27, 1994 and
for the period from December 28, 1994 through March 23, 1995........... F-39
Notes to Audited Financial Statements................................... F-40
</TABLE>

F-1
<PAGE>

<TABLE>
<S> <C>
OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES
Report of Independent Public Accountants.................................. F-42
Combined Financial Statements:
Combined Statements of Operations for the fiscal years ended December
31, 1993 and December 31, 1994 and for the period from January 1, 1995
through April 2, 1995.................................................. F-43
Combined Statements of Cash Flows for the fiscal years ended December
31, 1993 and December 31, 1994 and for the period from January 1, 1995
through April 2, 1995.................................................. F-44
Notes to Audited Combined Financial Statements.......................... F-45
BALTIMORE BAGEL CO.
Report of Independent Public Accountants.................................. F-46
Financial Statements:
Statements of Operations for the years ended December 31, 1993 and
December 31, 1994 and for the period from January 1, 1995 through
August 10, 1995........................................................ F-47
Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the period from January 1, 1995 through August 10, 1995........ F-48
Notes to Financial Statements........................................... F-49
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Financial Information of Einstein/Noah
Bagel Corp............................................................... F-50
Unaudited Pro Forma Consolidated Statement of Operations for the fiscal
year ended December 31, 1995............................................. F-51
Unaudited Pro Forma Consolidated Statement of Operations for the quarter
ended April 21, 1996..................................................... F-52
Notes to Unaudited Pro Forma Consolidated Financial Statements............ F-53
</TABLE>

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Einstein/Noah Bagel Corp.:

We have audited the accompanying consolidated balance sheet of Einstein/Noah
Bagel Corp. (a Delaware corporation) and subsidiaries as of December 31, 1995,
and the related consolidated statements of operations, stockholders' deficit
and cash flows for the period from inception (March 24, 1995) through December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Einstein/Noah Bagel Corp.
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the period from inception (March 24, 1995) through
December 31, 1995 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Denver, Colorado
July 16, 1996

F-3
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
ASSETS
- ------
<S> <C>
Current Assets:
Cash and cash equivalents....................................... $ 5,368
Accounts receivable............................................. 1,327
Inventory....................................................... 883
Deposits........................................................ 1,492
Prepaid expenses and other current assets....................... 217
-------
Total current assets.......................................... 9,287
Property and Equipment, net....................................... 19,410
Notes Receivable.................................................. 7,267
Excess of Purchase Price Over Fair Value of Net Assets Acquired,
net.............................................................. 13,715
Other Assets, net................................................. 620
-------
Total assets.................................................. $50,299
=======

LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
<S> <C>
Current Liabilities:
Accounts payable................................................ $ 5,633
Accrued expenses................................................ 2,968
Deferred franchise revenue...................................... 645
-------
Total current liabilities..................................... 9,246
Convertible Debt.................................................. 40,000
Deferred Franchise Revenue........................................ 265
Other Noncurrent Liabilities...................................... 2,907
Repurchase Common Stock Shares--1,721,250 shares issued and
outstanding...................................................... 11,062
Series A Preferred Stock--6,250 shares issued and outstanding..... 7,813
Commitments
Stockholders' Deficit:
Preferred Stock--$.01 par value; 20,000,000 shares authorized;
no shares issued and outstanding............................... --
Common Stock--$.01 par value; 200,000,000 shares authorized;
3,848,607 shares issued and outstanding........................ 38
Additional paid-in capital...................................... 22,684
Accumulated deficit............................................. (43,716)
-------
Total stockholders' deficit................................... (20,994)
-------
Total liabilities and stockholders' deficit................... $50,299
=======
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of this statement.

F-4
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE PERIOD FROM MARCH 24, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<S> <C>
Revenue:
Company-operated stores............................................ $ 25,685
Royalties and franchise-related fees............................... 738
--------
26,423
Costs and Expenses:
Cost of products sold.............................................. 8,239
Salaries and benefits.............................................. 13,531
General and administrative......................................... 21,230
Write-off of intangible assets..................................... 26,575
--------
Total costs and expenses........................................... 69,575
--------
Loss from Operations................................................. (43,152)
Other Income (Expense):
Interest expense, net.............................................. (1,281)
Other income, net.................................................. 717
--------
Total other expense.............................................. (564)
========
Net loss........................................................... $(43,716)
========
Net loss per common and equivalent share........................... $ (4.54)
========
Weighted average number of common and equivalent shares
outstanding....................................................... 9,659
========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of this statement.

F-5
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE PERIOD FROM MARCH 24, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
Common Stock
Balance at inception............................................... $ --
Issuance of common stock........................................... 38
--------
Balance at December 31, 1995....................................... $ 38
========
Additional paid-in capital
Balance at inception............................................... $ --
Issuance of common stock, net of offering cost of $500............. 22,051
Dividends on Series A preferred stock and accretion of dividends on
repurchase shares................................................. (1,077)
Expense recognized for warrants issued............................. 1,710
--------
Balance at December 31, 1995....................................... $ 22,684
========
Accumulated deficit
Balance at inception............................................... $ --
Net loss........................................................... (43,716)
--------
Balance at December 31, 1995....................................... $(43,716)
========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of this statement.

F-6
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM MARCH 24, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss........................................................... $(43,716)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 1,657
Warrant expense.................................................. 1,710
Write-off of intangible assets................................... 26,575
Gain on the sale of marketable equity securities..................... (719)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable................................................ (680)
Accounts payable and accrued expenses.............................. 1,778
Deferred franchise revenue......................................... 910
Other assets and liabilities....................................... 173
--------
Net cash used in operating activities............................ (12,312)
Cash Flows from Investing Activities:
Purchase of property and equipment................................. (18,109)
Proceeds from sale of property and equipment....................... 5,519
Purchase of marketable equity securities, net of proceeds from
sales............................................................. (22,682)
Purchase of other assets........................................... (621)
Issuance of notes receivable....................................... (10,569)
Repayment of notes receivable...................................... 3,831
--------
Net cash used in investing activities............................ (42,631)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock............................. 20,311
Proceeds from convertible debt..................................... 91,060
Repayment of convertible debt...................................... (51,060)
--------
Net cash provided by financing activities........................ 60,311
--------
Net Increase in Cash and Cash Equivalents............................ 5,368
Cash and Cash Equivalents, inception................................. --
--------
Cash and Cash Equivalents, end of year............................... $ 5,368
========
Supplemental Cash Flow Information:
Interest Paid...................................................... $ 1,107
========
Supplemental Schedule of Non-Cash Activities:
Exchange of Series A preferred stock, repurchase common stock,
common stock and marketable equity securities for net assets
acquired.......................................................... $ 42,742
========
Issuance of common stock for note receivable....................... $ 437
========
Accretion of dividends on repurchase common stock.................. $ 933
========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of this statement.

F-7
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Einstein/Noah Bagel Corp. and subsidiaries, formerly Einstein Bros. Bagels,
Inc. (the "Company"), operate and franchise specialty retail stores in the
United States that feature fresh-baked bagels, proprietary cream cheeses,
specialty coffees and teas, and creative soups, salads and sandwiches. At
December 31, 1995, there were 60 stores in operation systemwide, consisting of
47 Company-operated stores and 13 franchise stores. In 1995, the Company sold
13 Company-operated stores to newly-formed area developers of the Company.
Subject to the provisions of the applicable franchise agreements, the Company
is obligated to allow franchisees to utilize the Company's trademarks,
copyrights, recipes, operating procedures and other elements of its systems in
the operation of franchised stores.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.

Fiscal Year

The Company's fiscal year is the 52/53 week period ending on the last Sunday
in December.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and on deposit, and highly
liquid instruments purchased with maturities of three months or less.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization has been
calculated using the straight-line method. The following represent the useful
lives over which the assets are depreciated and amortized:

<TABLE>
<S> <C>
Buildings and improvements.................................... 15-30 years
Furniture, fixtures and equipment............................. 6-8 years
Pre-opening expenses.......................................... 1 year
</TABLE>

Property and equipment additions include acquisitions of buildings and
equipment, costs incurred in the development and construction of new stores
and major improvements to existing stores. Expenditures for maintenance and
repairs are charged to expense as incurred. Pre-opening costs consist
primarily of salaries and other direct expenses incurred in connection with
the set-up, initial stocking of stores, initial training of employees and
general management activities incurred prior to the opening of new stores.

F-8
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Long-Lived Assets

The Company has adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" to evaluate the recoverability of long-lived assets and
assets to be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. SFAS No. 121 also establishes
the procedures for review of recoverability, and measurement of impairment if
necessary, of long-lived assets and certain identifiable intangibles to be
held and used by an entity.

Excess Purchase Price Over Fair Value of Identifiable Net Assets Acquired

The excess purchase price over the fair value of identifiable net assets
acquired from acquisitions is being amortized on a straight-line basis over 35
years. The Company evaluates whether events and circumstances have occurred
that indicate revision to the remaining useful life or the remaining balances
may be appropriate. Such events and circumstances include, but are not limited
to, a change in business strategy or change in current and long-term projected
operating performance. When factors indicate that the carrying amount of an
asset may not be recoverable, the Company estimates the future cash flows
expected to result from the use of such asset and its eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, the Company will
recognize an impairment loss equal to the excess of the carrying amount over
the fair value of the asset.

Revenue Recognition

Revenue from Company-operated stores is recognized in the period related
food and beverage products are sold. Royalties are recognized in the same
period that related franchised store revenue is generated. Revenue derived
from initial franchise fees and area development fees is recognized when the
franchised store opens. Interest is recognized as earned. The components of
royalties and franchise-related fees for fiscal 1995 are as follows (in
thousands of dollars):

<TABLE>
<S> <C>
Initial franchise and area development fees......................... $520
Royalties........................................................... 35
Other............................................................... 183
----
Total royalties and franchise-related fees.......................... $738
====
</TABLE>

Per Share Data

Net loss per common share is computed by dividing net loss, adjusted for
dividends on Series A preferred stock, by the weighted average number of
common shares outstanding during the period and common stock and common stock
equivalent shares issued within one year prior to the effective date of the
Company's initial public offering at a price or exercise price less than the
initial public offering price. The common stock equivalents have been reduced
by the number of shares of common stock which could be purchased with the
proceeds from the assumed exercise of the options and warrants, including tax
benefits assumed to be realized.

Stock Options

Employee stock options are accounted for pursuant to APB No. 25.

Employee Benefit Plan

The Company has a 401(k) plan to which the Company makes no contributions.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

F-9
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT DATA

Accounts receivable are net of an allowance for doubtful accounts of $81,000
at December 31, 1995.

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
(IN THOUSANDS OF
DOLLARS)
<S> <C>
Property and equipment consists of:
Land.................................................. $ 123
Buildings and improvements............................ 12,083
Furniture, fixtures and equipment..................... 7,544
Pre-opening expenses.................................. 401
-------
20,151
Less: Accumulated depreciation and amortization....... (741)
-------
Total property and equipment, net................... $19,410
=======
Accrued expenses consist of:
Accrued payroll and fringe benefits................... $ 876
Accrued interest...................................... 325
Accrued other......................................... 1,767
-------
Total accrued expenses.............................. $ 2,968
=======
Interest expense, net consists of:
Interest expense...................................... $ 1,432
Interest income....................................... (151)
-------
Total interest expense, net......................... $ 1,281
=======
</TABLE>

4. ACQUISITIONS

In 1995, the Company acquired four regional bagel companies. In March 1995,
the acquisitions included Brackman Brothers, Inc. ("Brackman") for which the
Company issued 573,750 shares of common stock valued at $5.88 per share and
other marketable equity securities with a value of $8.3 million, Bagel &
Bagel, Inc. ("Bagel & Bagel") for which the Company issued 573,750 shares of
common stock valued at $5.88 per share and other marketable equity securities
with a value of $5.5 million, and Offerdahl's Bagel Gourmet, Inc.
("Offerdahl's") for which the Company issued 811,625 shares of common stock
valued at $5.88 per share and other marketable equity securities with a value
of $5.6 million. In August 1995, the Company acquired Baltimore Bagel Co.
("Baltimore Bagel") for which the Company issued 6,250 shares of Series A
preferred stock with a value of $7.8 million and other marketable equity
securities with a value of $4.0 million. Pursuant to the acquisitions, the
Company agreed to repurchase up to 1,721,250 shares of the common stock under
certain circumstances (see Note 12). The acquisitions have been accounted for
as purchases, and, accordingly, the purchase prices were allocated to assets
(both tangible and identifiable intangible) and liabilities based upon an
evaluation of their fair values at the dates of the acquisitions. The total
purchase price for these four companies, including assumption of liabilities,
was $51.1 million, of which $21.2 million was allocated to trademarks
(amortized over a 35-year life), $5.4 million was allocated to recipes
(amortized over a 10-year life) and $14.0 million was allocated to excess
purchase price over fair value of identifiable net assets acquired (amortized
over a 35-year life). Such intangibles were identified by management based
upon its evaluation of the businesses acquired. The allocation of the purchase
price to trademarks and recipes was based upon a royalty savings methodology
which determines the present value of the stream of royalties which the
Company believes an independent third party would be willing to pay to obtain
the use of such trademarks and recipes. The estimated useful life for these
assets was based upon various factors which existed at the time of the
acquisitions, including the anticipated periods of benefit to be derived from
the utilization of such assets in connection with executing a

F-10
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

regional brand business strategy, increasing consumer demand for bagel
products, the lack of a competitor with national brand awareness, the lack of
regulatory limitations on the potential useful lives of such assets, the
absence of any inherent or technological obsolescence for such assets, and in
the case of trademarks, the long-lived nature of a primary brand name in the
consumer marketplace. Subsequent to these acquisitions, management launched a
development project which resulted in the development of the Einstein Bros.
Bagel brand and store, at which time management determined it would
discontinue the use of the acquired trademarks and recipes. Consequently, this
change in business strategy resulted in an impairment of these identifiable
intangible assets, and accordingly, the assets were written down to their fair
market values, resulting in a write-off of $26.6 million (see Note 13). The
financial statements include the results of operations for the acquired
entities from their dates of acquisition.

The following represents the unaudited pro forma results of operations as if
all of the above-noted business combinations had occurred at the beginning of
the Company's fiscal year (in thousands of dollars, except per share data):

<TABLE>
<S> <C>
Revenue........................................................... $38,065
Net loss.......................................................... 43,540
Net loss per share................................................ $ 4.51
</TABLE>

The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined as of the beginning of the Company's fiscal year, and is not intended
to be a projection of future results or trends.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash and Cash Equivalents

The carrying value approximates fair value due to the length of maturity of
the investments.

Notes Receivable

The estimated fair value of the Company's notes receivable, including the
conversion option (Notes 6 and 11), is based on the discounted value of future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings.

Convertible Debt

The estimated fair value of the Company's convertible debt, including the
conversion option (see Note 7), is based on the discounted value of future
payments using the current rate at which a similar loan would be made to a
company with similar credit ratings.

Common Stock Subject to Repurchase

The estimated fair value of the Company's common stock subject to repurchase
by the Company is based on the price of other common stock equity transactions
near December 31, 1995.

Series A Preferred Stock

The estimated fair value of the Company's Series A preferred stock is based
on the discounted value of future cash flows using interest rates which would
be applicable to similar instruments held in companies with similar credit
ratings.

The estimated fair values of the Company's financial instruments are as
follows (in thousands of dollars):

<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Cash and cash equivalents...................... $ 5,368 $ 5,368
Notes receivable............................... 7,267 7,267
Convertible debt............................... 40,000 40,000
Repurchase common stock........................ 11,062 11,142
Series A preferred stock....................... 7,813 7,813
</TABLE>

F-11
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. NOTES RECEIVABLE

The following table summarizes the primary components of notes receivable as
of December 31, 1995 (in thousands of dollars):

<TABLE>
<S> <C>
Due from area developers (Note 11)................................ $3,538
Notes receivable from stockholder................................. 1,888
Term loans........................................................ 1,108
Revolving loan.................................................... 226
Other............................................................. 507
------
$7,267
======
</TABLE>

Notes receivable from stockholder bear interest at 1% over the applicable
reference rate of Bank of America Illinois. Principal and interest are due
April 2001. The notes are collateralized by various assets.

Term loans bear interest based upon the reference rate plus 1%. Principal is
due in annual installments with balloon payments required through various
dates through 2001. The loans are collateralized by various assets.

The revolving loan provides a credit facility to a vendor of up to $400,000
through October 2000 with interest payable currently based upon the reference
rate plus 1%. The loan is collateralized by various assets.

7. DEBT

The Company has entered into a secured loan agreement (the "Agreement")
providing borrowings through March 1998, pursuant to which Boston Chicken,
Inc. ("Boston Chicken") provides debt financing and, in turn, obtains the
right to convert all or any portion of the loan into shares of common stock of
the Company. In January 1996, Boston Chicken increased the available
borrowings under the Agreement from $80.0 million to $120.0 million. The
ownership percentage represented by the shares of common stock to be acquired
upon conversion (or exercise of the option, as provided below) is dependent
upon total equity and rights outstanding, but would represent a majority
ownership in certain instances. The loan may be converted at any time after
the earlier of April 1997, the completion of an initial public offering, or
the Company being in default of the loan and until October 2003. Additionally,
during this same period, to the extent the loan is not fully drawn or has been
drawn and repaid, Boston Chicken has the option to acquire at the loan
conversion price, as defined, the amount of additional equity it could have
acquired by conversion of the loan had the loan been fully drawn. The loan is
collateralized by substantially all of the assets of the Company and a pledge
of the common stock of its subsidiaries. The Agreement contains various
restrictive covenants including restricting cash dividends and limiting
additional indebtedness. Interest is based upon the reference rate of Bank of
America Illinois plus 1% and is payable currently. In April 1998, the loan
converts to an amortizing term loan payable through May 2003, with a final
balloon payment.

Principal maturities on the outstanding balance as of December 31, 1995 were
as follows (in thousands of dollars):

<TABLE>
<S> <C>
1998.............................................................. $ 3,077
1999.............................................................. 4,000
2000.............................................................. 4,000
Thereafter........................................................ 28,923
-------
$40,000
=======
</TABLE>

In connection with the acquisition of Noah's New York Bagels, Inc.
("Noah's") in February 1996 (Note 15), Boston Chicken provided the Company
with a non-convertible bridge loan facility of up to $40.0 million.

F-12
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. INCOME TAXES

As of December 31, 1995, the Company had cumulative federal and state tax
operating loss carryforwards available to reduce future taxable income of
approximately $11.1 million which begin to expire in 2010.

The primary components that comprise the net deferred tax asset as of
December 31, 1995 are as follows (in thousands of dollars):

<TABLE>
<S> <C>
Deferred tax assets:
Accounts payable and accrued expenses.......................... $ 218
Deferred franchise revenue..................................... 355
Other noncurrent liabilities................................... 220
Write-off of intangible assets that are amortizable for tax.... 2,017
Net operating loss............................................. 4,104
Other.......................................................... 1,380
-------
Total deferred tax assets.................................... 8,294
Deferred tax liabilities:
Property and equipment......................................... (489)
Other assets................................................... (116)
-------
Total deferred tax liabilities............................... (605)
-------
Net deferred tax asset....................................... 7,689
Valuation allowance.............................................. (7,689)
-------
Net deferred tax asset........................................... $ --
=======
</TABLE>

The increase in the valuation allowance of $7,689,000 from inception through
December 31, 1995, is due to uncertainty regarding the realization of the
related tax benefits.

9. NATIONAL AND LOCAL ADVERTISING FUNDS

The Company administers a National Advertising Fund to which Company-
operated stores and franchised stores make contributions based on individual
franchise agreements (2% of net revenue). Collected amounts are spent
primarily on developing marketing and advertising materials for use
systemwide. Such amounts are not segregated from the cash resources of the
Company, but the National Advertising Fund is accounted for separately and not
included in the financial statements of the Company.

The Company maintains Local Advertising Funds that provide comprehensive
advertising and sales promotion support for stores in particular markets.
Contributions are made by both Company-operated and franchised stores
(currently 4% of net revenue). The Company disburses funds and accounts for
all transactions related to such Local Advertising Funds. Such amounts are not
segregated from the cash resources of the Company, but are accounted for
separately and are not included in the financial statements of the Company.

10. COMMITMENTS

The Company leases sites for its stores, commissaries and office space.
Lease terms are generally five years with two or three five-year renewal
options. The Company also subleases sites to its area developers. The sublease
terms to area developers are negotiated at arms length on commercially
reasonable terms. The Company is contingently liable for all lease costs
including common area maintenance charges. Most of the leases contain
escalation clauses and common area maintenance charges.

F-13
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year and sublease proceeds as of December 31,
1995 (in thousands of dollars):

<TABLE>
<CAPTION>
MINIMUM SUBLEASE NET MINIMUM
RENTAL PAYMENTS PROCEEDS RENTAL PAYMENTS
--------------- -------- ---------------
<S> <C> <C> <C>
1996............................. $ 3,495 $ 822 $ 2,673
1997............................. 2,908 597 2,311
1998............................. 2,686 590 2,096
1999............................. 2,403 560 1,843
2000............................. 1,587 529 1,058
Thereafter....................... 3,046 1,352 1,694
------- ------ -------
$16,125 $4,450 $11,675
======= ====== =======
</TABLE>

The net rental expense under operating leases, primarily for Company-
operated stores, was approximately $1,909,000 for the period from March 24,
1995 (inception) through December 31, 1995.

In December 1995, Bagel Store Development Funding, L.L.C. ("Bagel Funding"),
formerly Einstein Bros. Equity Funding, L.L.C., was formed with the objective
of raising $90.0 million to invest in existing and proposed area developers.
Through December 31, 1995, Bagel Funding had raised approximately $40.0
million (including an aggregate of $20.0 million in subscription receivables)
and had invested a total of $3.5 million in area developers. In March 1996,
Bagel Funding raised the remainder of anticipated funds, so that the funds
raised equalled the $90.0 million (including an aggregate of $45.0 million in
subscription receivables). Bagel Funding can require an area developer to
redeem Bagel Funding's equity interest at a formula price in the event the
Company acquires a majority interest in the area developer, and if the area
developer fails to do so, the Company will be required to purchase Bagel
Funding's unredeemed equity interest at the formula price. In the event the
Company's conversion and/or option rights expire unexercised under the area
developer's secured loan agreement with the Company, as originally in effect,
Bagel Funding will have the right to require, subject to the Company's prior
consent, that the area developer undertake a firm commitment underwritten
public offering of equity of the area developer. In the event the Company does
not consent to a public offering, the area developer can be required to
purchase Bagel Funding's unredeemed equity interest in the area developer at a
formula price and if the area developer fails to do so, the Company will be
required to purchase Bagel Funding's unredeemed equity interest. Also, in the
event the Company does not acquire a majority interest in the area developer
pursuant to the Company's conversion and/or option rights prior to the time
such rights expire unexercised under the area developer's secured loan
agreement with the Company, as originally in effect, Bagel Funding will have
the right to request that the area developer seek to terminate its area
development and franchise agreements with the Company. If the Company does not
consent to such termination, the area developer can be required to redeem
Bagel Funding's equity interest in the area developer at a formula price, and
if the area developer fails to do so, the Company will be required to purchase
Bagel Funding's unredeemed equity interest.

The Company has entered into a supply agreement relating to the purchase of
certain minimum levels of cream cheese, which expires in October 2000, or
earlier in certain circumstances. The agreement requires the Company, its
subsidiaries, area developers and other authorized purchasers to purchase the
lesser of 160,000 pounds of cream cheese per week or 60% of their requirements
for cream cheese (excluding certain requirements that may be satisfied through
other commitments and certain requirements of acquired companies). The price
per pound is determined over the term of the contract based upon production
costs.

11. AREA DEVELOPER FINANCING

The Company currently offers partial financing to its area developers for
use in expansion of their operations. These financing arrangements permit the
Company to obtain an equity interest in the area developer

F-14
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

at a predetermined price after a moratorium (generally two years) and after
the area developer has completed not less than 80% of its area development
commitment (or in the event of certain defaults) on conversion of the loan
into equity. The maximum loan amount is established to give the Company
majority ownership of the area developer upon conversion (or option exercise,
as described further below) provided the Company exercises its right to
participate in any intervening financing of the area developer.

Area developer financing requires the developer to expend at least 75% of
its contributed capital toward developing stores prior to drawing on the
revolving loan account, with draws permitted during a three-year draw period
in a pre-determined maximum amount equal to four times the amount of the area
developer's equity capital. Upon expiration of the draw period, the loan
converts to an amortizing term loan payable over five years in periodic
installments, with a final balloon payment. Interest is set at 1% over the
applicable reference rate of Bank of America Illinois from time to time and is
payable each four-week period. The loan is secured by a pledge of substantially
all of the assets of the area developer.

(a) Loan Conversion Option

All or any portion of the loan amount may be converted at the Company's
election at any time after the expiration of a specified moratorium period
(generally two years) and after the area developer has completed not less than
80% of its area development commitment (or in the event of certain defaults)
into equity in the area developer at the conversion price set forth in such
loan agreement, generally at a 12% premium over the per equity unit price paid
by the investors in the area developer for the equity investment made
concurrently with the execution of the loan agreement. To the extent such loan
is not fully drawn or has been drawn and repaid, the Company has a
corresponding option to acquire at the loan conversion price the amount of
additional equity it could have acquired by conversion of the loan had it been
fully drawn.

There can be no assurance the Company will or will not convert any loan
amount or exercise its option at such time as it may be permitted to do so
and, if it does convert, that such conversion will constitute a majority
interest in the area developer.

(b) Commitments to Extend Area Developer Financing

The following table summarizes as of December 31, 1995 credit commitments
for area developer financing (in thousands of dollars):

<TABLE>
<S> <C>
Number of area developers receiving financing.................... 2
Loan commitments................................................. $16,000
Unused loans..................................................... 12,462
-------
Loans outstanding (included in Notes Receivable)................. $ 3,538
=======
Allowance for loan losses........................................ $ --
=======
</TABLE>

The principal maturities on the aforementioned notes receivable are as
follows (in thousands of dollars):

<TABLE>
<S> <C>
1998............................................................... $ 82
1999............................................................... 354
2000............................................................... 354
Thereafter......................................................... 2,748
------
$3,538
======
</TABLE>

F-15
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(c) Credit Risk and Allowance for Loan Losses

The allowance for credit losses is maintained at a level that in
management's judgment is adequate to provide for estimated possible loan
losses. The amount of the allowance is based on management's review of each
area developer's use of loan proceeds, stage of development, adherence to its
store development schedule, store performance trends, type and amount of
collateral securing the loan, prevailing economic conditions, and other
factors which management deems relevant at the time. Based upon this review
and analysis, no allowance was required as of December 31, 1995.

12. STOCKHOLDERS' EQUITY

Common Stock

On July 8, 1996, the Company approved a 225-for-one split of the Company's
common stock in the form of a stock dividend. Per share amounts, the number of
common shares and capital accounts have been restated to give retroactive
effect to the stock split.

The Company issued 3,536,361 shares of common stock at the time of its
formation, which provided net proceeds of approximately $20.8 million.

Preferred Stock

In connection with the acquisition of the net assets of Baltimore Bagel, the
Company issued 6,250 shares of Series A preferred stock. The Series A
preferred stock has a liquidation preference of $1,000 per share, pays annual
dividends of $60 per share, and is automatically convertible into common stock
of the Company in an initial public offering with the number of shares of
common stock received being equal to $1,000 plus accrued and unpaid dividends
divided by 80% of the gross offering price per share to the public.

The Series A preferred stock is redeemable by the Company at any time after
February 10, 1999, at a price per share equal to $1,250 plus accrued and
unpaid dividends. A majority of the holders may require the Company to redeem
one-third of the shares of Series A preferred stock on each of February 28,
1998, May 1, 1998 and August 1, 1998, at a price of $1,250 plus accrued and
unpaid dividends. The holders of the Series A preferred stock may also require
redemption in the event the Company has failed to pay three consecutive
quarterly dividends.

Common Stock Subject to Repurchase

Pursuant to the purchase agreements (see Note 4), the Company has agreed
that, in the event it has not completed an initial public offering of its
common stock resulting in gross proceeds of at least $15.0 million by
specified dates or Boston Chicken's ownership of, or right to acquire an
ownership interest in, the Company's common stock falls below 25%, the holders
of common stock subject to repurchase by the Company can require the Company
to redeem such shares of common stock at their fair market value, but not less
than a specified floor price per share. The difference between the
consideration paid per share and the greater of the fair market value of the
shares or the floor price per share is being accreted to the shares as a
dividend over the life of the put option.

Warrants

The Company sold warrants to purchase 1,012,500 shares of common stock of
the Company to Bagel Funding. The warrants have an exercise price of $6.47 per
common share and expire in 2000. The market value of the warrants was recorded
as an expense and credited to additional paid-in capital during fiscal 1995.

F-16
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Stock Option Plan

The Company has a stock option plan (the "Plan") under which options to
purchase up to 3,600,000 shares of common stock, subsequently increased to
5,500,000 shares of common stock, may be granted to certain employees and
officers of, and consultants to, the Company. The option price is equal to the
fair market value of the stock on the date of the grant and each option has a
term of ten years. Options granted under the Plan generally vest at a rate of
10% at the end of the first year, an additional 20% at the end of the second
year, an additional 30% at the end of the third year, with the balance vesting
at the end of the fourth year from the date of the grant.

Activity under the option plan through December 31, 1995 was as follows:

<TABLE>
<CAPTION>
OPTION
PRICE PER
SHARES SHARE
--------- -----------
<S> <C> <C>
Granted........................................... 2,090,248 $5.88-$6.47
Cancelled......................................... (16,778) 5.88
--------- -----------
Outstanding as of December 31, 1995............... 2,073,470 $5.88-$6.47
========= ===========
Exercisable as of December 31, 1995............... 29,738 $ 5.88
========= ===========
</TABLE>

As of December 31, 1995, the Company had 17,146,125 shares of common stock
reserved for issuance upon exercise of options and warrants and conversion of
Boston Chicken's loan into common stock. In addition, the Company has
contractually agreed to reserve a sufficient number of shares of common stock
for issuance to the holder of the Series A preferred stock upon conversion.

13. WRITE-OFF OF INTANGIBLE ASSETS

After the acquisition of Brackman, Bagel & Bagel, Offerdahl's and Baltimore
Bagel (collectively the "Founding Companies"), the Company launched a
development project, pursuant to which management analyzed (i) the Founding
Companies' stores, including brand positionings, product offerings,
operational service systems and atmosphere, (ii) the competitive environment
and (iii) the preferences of consumers across the United States. The project
resulted in the development of the Einstein Bros. Bagels brand and store. In
connection with, and as a result of, the development of the Einstein Bros.
Bagels brand and store, management determined to discontinue the use of the
identifiable intangible assets acquired in the acquisitions of the Founding
Companies, including trademarks and recipes. Consequently, this change in
business strategy resulted in an impairment of these identifiable intangible
assets, and accordingly, the assets were written down to their fair market
values resulting in a write-off of $26.6 million.

14. RELATED-PARTY TRANSACTIONS

Certain officers and directors of Boston Chicken have an equity interest in
the Company. For the Company's 1995 fiscal year, the Company paid to Boston
Chicken approximately $1.2 million for the purchase of furniture, equipment
and other miscellaneous assets and approximately $3.0 million in software
license, software maintenance, real estate, financial advisory, accounting
fees and interest on its loan with Boston Chicken.

Certain officers and directors of the Company are officers and investors in
Bagel Funding and had invested $8.4 million in Bagel Funding at December 31,
1995. The Company is the manager of Bagel Funding. No fees were paid to the
Company in its capacity as manager during 1995.

The Company has entered into secured loan and area developer agreements with
certain area developers in which certain directors and officers and members of
their families have a direct or indirect equity interest. The

F-17
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

Company received from these entities approximately $2.3 million in
development, franchise, royalty, management services and interest in fiscal
1995. The Company has also sold to these entities, stores, inventory,
equipment and other miscellaneous assets for which it received approximately
$5.5 million in 1995.

During 1995, the Company paid $85,874 to Bowana Aviation, Inc. ("Bowana")
for the Company's use of an aircraft owned by Bowana. A director and a member
of his family (both stockholders of the Company) own Bowana. The Company
believes that the amounts charged are at rates comparable to those charged by
third parties.

15. SUBSEQUENT EVENTS

In February 1996, the Company acquired Noah's, the largest regional bagel
retailer on the West Coast, for approximately $100.9 million, including
approximately $83.7 million of intangible assets, including excess purchase
price over the fair value of net assets acquired.

In May 1996, the Company entered into a secured revolving credit facility
providing for borrowings of up to $45.0 million through April 30, 1998.
Borrowing under the facility may be either floating rate loans with interest
at the lender's base rate plus 1.0% or, at the Company's option, the rate
offered in the interbank Eurodollar market for one-, two-, or three-month
dollar deposits offered by the lender plus 3.0%. In addition, a commitment fee
of .25% of the average daily unused portion of the loan is required. The
facility contains covenants, among others, restricting other borrowings,
prohibiting cash dividends, and requires the Company to maintain minimum
interest coverage and cash flow ratios, specified store level sales, and a
minimum capital level.

In June 1996, the $120.0 million convertible loan to the Company was
converted into 15,307,421 shares of common stock of the Company.

F-18
<PAGE>

EINSTEIN/NOAH BAGEL CORP.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, JULY 14,
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 5,368 $ 569
Accounts receivable, net............................ 1,327 5,354
Inventory........................................... 883 1,054
Prepaid expenses and other current assets........... 1,709 481
------- --------
Total current assets.............................. 9,287 7,458
Property and Equipment, net........................... 19,410 28,828
Notes Receivable...................................... 7,267 65,322
Excess of Purchase Price Over Fair Value of Net Assets
Acquired, net........................................ 13,715 69,706
Trademarks, net....................................... -- 21,840
Recipes, net.......................................... -- 5,000
Other Assets, net..................................... 620 8,566
------- --------
Total assets...................................... $50,299 $206,720
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable.................................... $ 5,633 $ 3,198
Accrued expenses.................................... 2,968 6,055
Deferred franchise revenue.......................... 645 2,415
------- --------
Total current liabilities......................... 9,246 11,668
Convertible Debt...................................... 40,000 --
Revolving Credit Facilities........................... -- 56,650
Deferred Franchise Revenue............................ 265 5,550
Other Noncurrent Liabilities.......................... 2,907 1,777
Repurchase Common Stock Shares--1,721,250 shares
issued and outstanding............................... 11,062 12,548
Series A Preferred Stock--6,250 shares issued and
outstanding.......................................... 7,813 7,813
Commitments and Contingencies Stockholders' Equity
(Deficit):
Preferred stock--$.01 par value; 20,000,000 shares
authorized; no shares issued and outstanding....... -- --
Common stock--$.01 par value; 200,000,000 shares
authorized; issued and outstanding: 3,848,607 in
1995 and 21,150,975 in 1996........................ 38 212
Additional paid-in capital.......................... 22,684 157,240
Accumulated deficit................................. (43,716) (46,738)
------- --------
Total stockholders' equity (deficit).............. (20,994) 110,714
------- --------
Total liabilities and stockholders' equity........ $50,299 $206,720
======= ========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

F-19
<PAGE>

EINSTEIN/NOAH BAGEL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED PERIOD FROM TWO
---------------- MARCH 24, 1995 QUARTERS
JULY (INCEPTION) ENDED
JULY 9, 14, THROUGH JULY 14,
1995 1996 JULY 9, 1995 1996
------- ------- -------------- --------
<S> <C> <C> <C> <C>
Revenue:
Company-operated stores............ $ 6,292 $13,092 $ 7,715 $31,489
Royalties and franchise-related
fees.............................. -- 5,114 -- 9,096
------- ------- ------- -------
Total revenue.................... 6,292 18,206 7,715 40,585
Costs and Expenses:
Cost of products sold.............. 1,918 4,588 2,356 10,078
Salaries and benefits.............. 2,993 5,316 3,636 14,444
General and administrative......... 3,165 5,999 3,687 15,030
------- ------- ------- -------
Total costs and expenses......... 8,076 15,903 9,679 39,552
------- ------- ------- -------
Income (Loss) from Operations........ (1,784) 2,303 (1,964) 1,033
Other Expense:
Interest expense, net.............. (141) (2,651) (221) (5,984)
Other income, net.................. 1 643 1 1,929
------- ------- ------- -------
Total other expense.............. (140) (2,008) (220) (4,055)
------- ------- ------- -------
Income (Loss) Before Income Taxes.... (1,924) 295 (2,184) (3,022)
Income Taxes......................... -- -- -- --
------- ------- ------- -------
Net Income (Loss).................... $(1,924) $ 295 $(2,184) $(3,022)
======= ======= ======= =======
Net Income (Loss) Per Common and
Equivalent Share.................... $ (0.20) $ 0.01 $ (0.23) $ (0.23)
======= ======= ======= =======
Weighted Average Number of Common and
Equivalent Shares Outstanding....... 9,679 20,370 9,626 14,261
======= ======= ======= =======
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

F-20
<PAGE>

EINSTEIN/NOAH BAGEL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 24, 1995 TWO QUARTERS
(INCEPTION) THROUGH ENDED
JULY 9, 1995 JULY 14, 1996
------------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................... $ (2,184) $ (3,022)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 557 3,087
Gain on sale of marketable equity
securities.............................. -- (1,872)
Changes in assets and liabilities, net of
effect of acquisitions:
Accounts receivable and due from
affiliates............................ 474 (3,731)
Accounts payable and accrued expenses.. (4,304) (5,162)
Deferred franchise revenue............. -- 7,040
Other assets and liabilities........... (191) (4,834)
-------- ---------
Net cash used in operating
activities.......................... (5,648) (8,494)
-------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment......... (941) (27,066)
Proceeds from sale of assets............... -- 42,217
Purchase of other assets................... (120) (7,179)
Net assets purchased, net of cash acquired. (2,358) --
Acquisition of Noah's New York Bagels, Inc.
.......................................... -- (100,902)
Issuance of notes receivable............... (1,796) (118,747)
Repayment of notes receivable.............. -- 60,692
Purchase of marketable equity securities... (21,465) (66,778)
Proceeds from sales of marketable equity
securities................................ -- 68,650
-------- ---------
Net cash used in investing
activities.......................... (26,680) (149,113)
-------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock..... 23,819 16,158
Borrowings under revolving credit
facilities................................ 43,191 286,154
Repayments of revolving credit facilities.. (33,755) (149,504)
-------- ---------
Net cash provided by financing
activities.......................... 33,255 152,808
-------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents................................. 927 (4,799)
Cash and Cash Equivalents, beginning of
period...................................... -- 5,368
-------- ---------
Cash and Cash Equivalents, end of period..... $ 927 $ 569
======== =========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

F-21
<PAGE>

EINSTEIN/NOAH BAGEL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The consolidated financial statements have been prepared by Einstein/Noah
Bagel Corp. (the "Company") and are unaudited except for the consolidated
balance sheet at December 31, 1995. The financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not necessarily include all information and footnotes required by generally
accepted accounting principles. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position, results of operations and cash
flows as of July 14, 1996 and for all periods presented have been made. The
statements are subject to year-end audit adjustment. A description of the
Company's accounting policies and other financial information is included in
its 1995 audited consolidated financial statements included in the prospectus
that forms a part of the Company's Registration Statement on Form S-1 (Reg.
No. 333-04725). The consolidated results of operations for the quarter and two
quarters ended July 14, 1996 are not necessarily indicative of the results
expected for the full year.

2. ACQUISITION

In February 1996, the Company acquired Noah's New York Bagels, Inc. for
approximately $100.9 million. The acquisition has been accounted for as a
purchase, and, accordingly, the purchase price was allocated to assets (both
tangible and identifiable intangible) and liabilities based upon an evaluation
of their fair values at the date of the acquisition. Of such total purchase
price, $22.1 million was allocated to trademarks (amortized over a 35-year
life), $5.2 million was allocated to recipes (amortized over a 10-year life)
and $56.3 million was allocated to excess purchase price over fair value of
identifiable net assets acquired (amortized over a 35-year life). Such
intangibles were identified by management based upon its evaluation of the
business acquired. The allocation of the purchase price to trademarks and
recipes was based upon a royalty savings methodology which determines the
present value of the stream of royalties which the Company believes an
independent third party would be willing to pay to obtain the use of such
trademarks and recipes. The estimated useful life for these assets was based
upon various factors which existed at the time of the acquisition, including
the anticipated periods of benefit to be derived from the utilization of such
assets in connection with executing a dual brand business strategy, increasing
consumer demand for bagel products, the lack of a competitor with national
brand awareness, the lack of regulatory limitations on the potential useful
lives of such assets, the absence of any inherent or technological
obsolescence for such assets, and in the case of trademarks, the long-lived
nature of a primary brand name in the consumer marketplace.

The following represents the unaudited pro forma results of operations for
the two quarters ended July 14, 1996 as if the acquisition had occurred at the
beginning of the Company's fiscal year (in thousands of dollars, except per
share amount):

<TABLE>
<S> <C>
Revenue........................................................... $43,889
Net loss.......................................................... $ 4,904
Net loss per share................................................ $ 0.36
</TABLE>

This pro forma information is not indicative of the results of operations
that actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. The pro forma information is not
intended to be a projection of future results.

F-22
<PAGE>

EINSTEIN/NOAH BAGEL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. AREA DEVELOPER FINANCING

The Company currently offers partial financing to its area developers for
use in expansion of their operations. Area developer financing requires the
area developer to expend at least 75% of its contributed capital toward
developing stores prior to drawing on the revolving loan account, with draws
permitted during a three-year draw period in a pre-determined maximum amount
equal to four times the amount of the developer's equity capital. Upon
expiration of the draw period, the loan converts to an amortizing term loan
payable over five years in periodic installments, with a final balloon
payment. Interest is set at 1% over the applicable reference rate of Bank of
America Illinois as established from time to time and is payable each four-
week period. The loan is secured by a pledge of substantially all of the
assets of the area developer.

(A) Loan Conversion Option

All or any portion of the loan amount may be converted at the Company's
election at any time after the expiration of a specified moratorium (generally
two years) and after the area developer has completed not less than 80% of its
area development commitment (or in the event of certain defaults) into equity
in the area developer at the conversion price set forth in such loan
agreement, generally at a 12% premium over the per unit equity price paid by
the investors in the area developer for the equity investment made
concurrently with the execution of the loan agreement. The maximum loan amount
is established to give the Company majority ownership of the area developer
upon conversion provided the Company exercises its right to participate in any
intervening financing of the developer. To the extent such loan is not fully
drawn or has been drawn and repaid, the Company has a corresponding option to
acquire, at the loan conversion price, the amount of additional equity it
could have acquired by conversion of the loan, had it been fully drawn.

(B) Commitments to Extend Area Developer Financing

The following table summarizes credit commitments for area developer
financing (in thousands of dollars):

<TABLE>
<CAPTION>
DECEMBER 31, JULY 14,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Number of area developers receiving financing... 2 8
Loan commitments................................ $16,000 $162,540
Unused loans.................................... 12,462 103,219
------- --------
Loans outstanding (included in Notes
Receivable).................................... $ 3,538 $ 59,321
======= ========
Allowance for loan losses $ -- $ --
======= ========
</TABLE>

The allowance for credit losses is maintained at a level that in
management's judgment is adequate to provide for estimated possible loan
losses. The amount of the allowance is based on management's review of each
area developer's use of loan proceeds, stage of development, adherence to its
store development schedule, store performance trends, type and amount of
collateral securing the loan, prevailing economic conditions and other factors
which management deems relevant at the time. Based upon this review and
analysis, no allowance was required as of December 31, 1995 and July 14, 1996.

F-23
<PAGE>

EINSTEIN/NOAH BAGEL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table sets forth certain aggregate financial information
obtained from area developers to which the Company had outstanding loans (in
thousands, except total number of area developers and store data):

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Total number of area developers.............................. 2
Total number of area developer stores open................... 13
Total gross assets........................................... $9,262
Total debt to the Company.................................... $3,538
Total members' equity........................................ $2,676
</TABLE>

4. DEBT

In May 1996, the Company entered into a secured revolving credit facility
providing for borrowings of up to $45.0 million through April 30, 1998.
Borrowings under the facility may be either floating rate loans with interest
at the lender's base rate plus 1.0% (subsequently reduced to .5% in August
1996) or, at the Company's option, the rate offered in the interbank
Eurodollar market for one-, two-, or three-month dollar deposits offered by
the lender plus 3.0%. In addition, a commitment fee of .25% of the average
daily unused portion of the loan is required. The facility contains covenants,
among others, restricting other borrowings, prohibiting cash dividends and
requiring the Company to maintain minimum interest coverage and cash flow
ratios, specified store level sales, and a minimum capital level. As of July
14, 1996, $42.7 million was outstanding under the facility.

The Company also has an unsecured revolving credit facility from Boston
Chicken, Inc. providing for borrowings of up to $14.0 million (subsequently
increased to $50.0 million) through June 15, 2003. The facility bears interest
at the reference rate of Bank of America Illinois plus 1%. As of July 14,
1996, $14.0 million was outstanding under the facility.

The Company utilized a portion of the proceeds from its equity offerings
(see Note 8) to payoff the outstanding balances under both facilities.

5. ROYALTIES AND FRANCHISE-RELATED FEES

The components of royalties and franchise-related fees are comprised of the
following (in thousands of dollars):

<TABLE>
<CAPTION>
QUARTER ENDED PERIOD FROM
---------------- MARCH 24, 1995 TWO QUARTERS
JULY 9, JULY 14, (INCEPTION) THROUGH ENDED
1995 1996 JULY 9, 1995 JULY 14, 1996
------- -------- ------------------- -------------
<S> <C> <C> <C> <C>
Royalties................ $ -- $ 995 $ -- $1,674
Initial franchise and
area developer fees..... -- 3,060 -- 5,660
Interest income.......... -- 914 -- 1,337
Other.................... -- 145 -- 425
----- ------ ----- ------
$ -- $5,114 $ -- $9,096
===== ====== ===== ======
</TABLE>

F-24
<PAGE>

EINSTEIN/NOAH BAGEL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. COMMITMENTS

In December 1995, Bagel Store Development Funding, L.L.C., formerly named
Einstein Bros. Equity Funding, L.L.C. ("Bagel Funding"), was formed to invest
in existing and proposed area developers. Through July 14, 1996, Bagel Funding
had raised $90.0 million (including an aggregate of $45.0 million in
subscriptions receivable) and had invested a total of $40.4 million in area
developers. Bagel Funding can require an area
developer to redeem Bagel Funding's equity interest at a formula price in the
event the Company acquires a majority interest in the area developer, and if
the area developer fails to do so, the Company will be required to purchase
Bagel Funding's unredeemed equity interest. In the event the Company's
conversion and/or option rights expire unexercised under the area developer's
secured loan agreement with the Company, as originally in effect, Bagel
Funding will have the right to require, subject to the Company's prior
consent, that the area developer undertake a firm commitment underwritten
public offering of equity of the area developer. In the event the Company does
not consent to a public offering, the area developer can be required to
purchase Bagel Funding's unredeemed equity interest in the area developer at a
formula price and if the area developer fails to do so, the Company will be
required to purchase Bagel Funding's unredeemed equity interest. Also, in the
event the Company does not acquire a majority interest in the area developer
pursuant to the Company's conversion and/or option rights prior to the time
such rights expire unexercised under the area developer's secured loan
agreement with the Company, as originally in effect, Bagel Funding will have
the right to request that the area developer seek to terminate its area
developer and franchise agreements with the Company. If the Company does not
consent to such termination, the area developer can be required to redeem
Bagel Funding's equity interest in the area developer at a formula price, and
if the area developer fails to do so, the Company will be required to purchase
Bagel Funding's unredeemed equity interest.

7. CONTINGENCIES

The Company is subject to various lawsuits, claims, and other legal matters
in the course of conducting its business, including its business as a
franchisor. The Company believes that the outcome of such lawsuits, claims,
and other legal matters will not have a material impact on the Company's
financial position or results of operations.

8. SUBSEQUENT EVENT

In August 1996, the Company completed an underwritten initial offering of
3,105,000 shares of its common stock to the public, a concurrent non-
underwritten public offering of 425,000 shares of its common stock to certain
individuals and entities and a concurrent private placement of 2,000,000
shares of its common stock to Boston Chicken, Inc., raising aggregate net
proceeds of approximately $86.0 million. Such proceeds were partially used to
retire the outstanding balances under its revolving credit facilities. For the
two quarters ended July 14, 1996, assuming the offering proceeds had been
utilized to repay the then outstanding balances under the revolving credit
facilities of $56.7 million, the loss per share would have been $0.18.

F-25
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Noah's New York Bagels, Inc.:

We have audited the accompanying consolidated balance sheets of Noah's New
York Bagels, Inc. (the "Company") as of December 31, 1994 and December 30,
1995, and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for each of the three fiscal years in the
period ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
December 30, 1995, and the results of their operations and cash flows for each
of the three fiscal years in the period ended December 30, 1995 in conformity
with generally accepted accounting principles.

Deloitte & Touche LLP

San Francisco, California
May 7, 1996

F-26
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1994 AND DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1994 1995
------- -------
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................. $ 1,726 $ 1,630
Accounts receivable........................................ 239 550
Inventory.................................................. 255 652
Prepaid expenses........................................... 657 963
------- -------
Total current assets..................................... 2,877 3,795
Property and Equipment....................................... 9,631 19,847
Other Assets................................................. 752 926
------- -------
Total Assets............................................. $13,260 $24,568
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
- -------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable........................................... $ 1,296 $ 3,439
Accrued payroll............................................ 455 831
Other accrued expenses..................................... 178 328
Current portion of long-term debt.......................... 211 1,005
------- -------
Total current liabilities................................ 2,140 5,603
Long-Term Debt:
Related parties............................................ 4,480 --
Bank....................................................... 3,378 10
Deferred Credits............................................. 270 309
Redeemable Preferred Stock (liquidation preference of $6,573
in 1994 and $23,891 in 1995)................................ 3,331 20,325
Shareholders' Deficit:
Common stock, no par value: authorized, 38,000,000 shares;
issued and outstanding, 5,359,219 shares in 1994 and
5,365,197 shares in 1995.................................. 387 858
Accumulated deficit........................................ (726) (1,566)
Unearned compensation...................................... -- (971)
------- -------
Total shareholders' deficit.............................. (339) (1,679)
------- -------
Total Liabilities and Shareholders' Deficit.............. $13,260 $24,568
======= =======
</TABLE>

See notes to consolidated financial statements.

F-27
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Net Sales............................................ $8,148 $17,530 $32,323
Costs and Expenses:
Cost of sales...................................... 3,122 6,704 12,118
Salaries and benefits.............................. 2,504 6,340 12,388
General and administrative expenses................ 1,877 4,728 8,561
------ ------- -------
Total Costs and Expenses........................... 7,503 17,772 33,067
------ ------- -------
Income (Loss) from Operations........................ 645 (242) (744)
Interest Expense--Net (including interest expense of
$--, $352 and $326)................................. (168) (331) (79)
Other Income (Expense)............................... (17) 20 (17)
------ ------- -------
Net Income (Loss).................................... $ 460 $ (553) $ (840)
====== ======= =======
</TABLE>

See notes to consolidated financial statements.

F-28
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
---------------- EARNINGS UNEARNED
SHARES AMOUNT (DEFICIT) COMPENSATION TOTAL
--------- ------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993.. 922,222 $ 16 $ 203 $ -- $ 219
Dividends Declared.......... -- -- (836) -- (836)
Net Income.................. -- -- 460 -- 460
Issuance of Common Stock for
Acquisition................ 1,180,000 717 -- -- 717
--------- ----- ------- ----- -------
Balance at January 1, 1994.. 2,102,222 733 (173) -- 560
Recapitalization............ 3,219,028 -- -- -- --
Stock Options Exercised..... 37,969 1 -- -- 1
Accretion of Redeemable
Preferred Stock............ -- (347) -- -- (347)
Net Loss.................... -- -- (553) -- (553)
--------- ----- ------- ----- -------
Balance at December 31,
1994....................... 5,359,219 387 (726) -- (339)
Stock Options Exercised..... 5,978 1 -- -- 1
Accretion of Redeemable
Preferred Stock............ -- (520) -- -- (520)
Compensatory Stock Option
Grants..................... -- 990 -- (990) --
Amortization of Unearned 19
Compensation............... -- -- -- 19
Net Loss.................... -- -- (840) -- (840)
--------- ----- ------- ----- -------
Balance at December 30,
1995....................... 5,365,197 $ 858 $(1,566) $(971) $(1,679)
========= ===== ======= ===== =======
</TABLE>

See notes to consolidated financial statements.

F-29
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)................................. $ 460 $ (553) $ (840)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 289 863 1,966
Noncash compensation expense..................... -- -- 19
Deferred credits................................. 50 220 39
Other............................................ -- 276 184
Changes in assets and liabilities:
Accounts receivable............................. (74) (71) (311)
Inventory....................................... (70) (138) (397)
Prepaid expenses................................ (39) (582) (306)
Other assets.................................... (32) (94) (205)
Accounts payable and accrued expenses........... 498 1,190 2,669
------- ------- --------
Net cash provided by operating activities...... 1,082 1,111 2,818
Cash Flows from Investing Activities--
Purchases of property and equipment............... (1,996) (7,578) (12,160)
Cash Flows from Financing Activities:
Borrowings from related parties................... 1,250 5 5,191
Proceeds from issuance of short-term debt......... -- 2,000 --
Proceeds from issuance of redeemable preferred
stock, net....................................... -- 2,970 7,123
Net borrowings (repayments) under line-of-credit
agreements....................................... 95 3,550 (2,550)
Repayments of long-term debt...................... (113) (315) (24)
Repayments related party debt..................... -- (104) (495)
Stock options exercised........................... -- 15 1
Dividends paid.................................... (207) (167) --
------- ------- --------
Net cash provided by financing activities...... 1,025 7,954 9,246
------- ------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... 111 1,487 (96)
Cash and Cash Equivalents at Beginning of Year..... 128 239 1,726
------- ------- --------
Cash and Cash Equivalents at End of Year........... $ 239 $ 1,726 $ 1,630
======= ======= ========
Other Cash Flow Information--Interest paid......... $ 119 $ 313 $ 400
======= ======= ========
Supplemental Information of Noncash Transactions:
Acquisition of P&A Ventures, Inc.--common stock
issued........................................... $ 717 $ -- $ --
Dividends paid with notes payable................. 462 -- --
Conversion of promissory note to series B
redeemable preferred stock....................... -- -- 5,283
Conversion of related party debt to Series B
redeemable preferred stock....................... -- -- 4,068
</TABLE>

See notes to consolidated financial statements.

F-30
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1993 AND 1994 AND DECEMBER 30, 1995

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Business--Noah's New York Bagels, Inc. (the "Company") produces high quality
bagels, cream cheeses and salads and sells them, along with a variety of
sandwiches, beverages and other delicatessen items, primarily through Company-
owned and operated restaurants on the West Coast. In addition, the Company
operates a wholesale business selling bagels and cream cheeses directly to
various grocers, delicatessens and restaurants.

Recapitalization--In April 1994, the Company effected a recapitalization
whereby each outstanding share of common stock (2,102,222 shares) converted
into 2.53125 shares of common stock (3,291,028 shares) and 0.84375 shares of
Series A convertible preferred stock (1,773,750 shares).

Change in Fiscal Year End--In 1995 the Company changed its year end from
December 31 to the Saturday closest to December 31. As a result fiscal 1995
ended December 30, 1995.

Cash and Cash Equivalents--The Company classifies as cash equivalents all
highly liquid investments, primarily composed of money market accounts and
certificate of deposits with a maturity of three months or less, which are
convertible to a known amount of cash and carry an insignificant risk of
change in value.

Inventory, primarily raw ingredients and food held for resale, is stated at
the lower of cost (first-in, first-out method) or market.

Property and Equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets ranging
from 3 to 10 years. Amortization of improvements to leased properties is based
upon the term of the applicable lease or the estimated useful lives of such
assets, whichever is shorter.

Income Taxes--Effective May 3, 1994, the Company converted from an S-
Corporation to a C-Corporation subject to federal and state income taxes.

Pre-opening costs consist of direct costs of hiring and training the initial
workforce and other direct costs associated with opening a new store. Such
costs are amortized over a twelve-month period commencing with the store
opening.

Deferred Rent--Certain of the Company's lease agreements provide for
scheduled rent increases during the lease term, or for rental payments
commencing at a date other than initial occupancy. Provision is made for the
excess of operating lease rentals computed on a straight-line basis over the
lease term, over cash rentals paid.

Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.

Impact of New Accounting Standards--The Company will adopt Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of in 1996. The
adoption of SFAS No. 121 is expected to have no material affect on the
Company's consolidated financial statements.

F-31
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Fair Value of Financial Instruments--In accordance with SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments," the carrying value of
the Company's current assets and liabilities approximate their estimated fair
value.

The Company is required to adopt "SFAS" No. 123, Accounting for Stock-Based
Compensation in fiscal 1996. SFAS No. 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for
stock based employee compensation plans. Under SFAS No. 123 the Company may
either adopt the new fair value based accounting method or continue the
intrinsic value based method under APB 25. Accounting for Stock issued to
Employees and provide pro forma disclosures of net earnings as if the
accounting provisions of SFAS No. 123 had been adopted. The Company plans to
adopt only the disclosure requirements of SFAS No. 123; therefore such
adoption will have no effect on the Company's consolidated net earnings or
cash flows.

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31 and December
30, respectively (in thousands):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Leasehold improvements.................................. $ 5,002 $11,248
Equipment............................................... 3,875 7,422
Furniture and fixtures.................................. 808 2,076
Construction in progress................................ 1,116 2,187
------- -------
Total............................................... 10,801 22,933
Less accumulated depreciation and amortization.......... (1,170) (3,086)
------- -------
Property and equipment--net............................. $ 9,631 $19,847
======= =======
</TABLE>

3. BANK LINE OF CREDIT

At December 30, 1995 the Company had a line of credit agreement with a bank
that provides for unsecured borrowings up to $12,000,000 through January 1,
2002 of which $1,000,000 was outstanding and was repaid in February 1996.
Interest on borrowings under this agreement are at varying rates, based on the
bank's prime rate or at a fixed rate.

Long-term debt at December 31 and December 30, respectively, consists of the
following (in thousands):

<TABLE>
<CAPTION>
1994 1995
------ -------
<S> <C> <C>
Line of credit........................................... $3,550 $ 1,000
Other.................................................... 39 15
------ -------
Total................................................ 3,589 1,015
Less current portion..................................... (211) (1,005)
------ -------
Total................................................ $3,378 $ 10
====== =======
</TABLE>

Minimum principal payments are as follows (in thousands):

<TABLE>
<S> <C>
1996............................................................... $1,005
1997............................................................... 5
1998............................................................... 5
------
Total.......................................................... $1,015
======
</TABLE>

F-32
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. NOTES PAYABLE TO RELATED PARTIES

During 1995, $4,068,000 of related party debt (including $83,000 of accrued
interest) was converted into Series B preferred stock and $495,000 was repaid.
Notes payable to related parties at December 31, 1994 consisted of convertible
subordinated notes of $3,330,000 issued to shareholders bearing interest at
8%; subordinated notes issued to shareholders of $655,000 bearing interest at
10%; a promissory note issued to shareholders of $475,000 bearing interest at
10%; and S-Corporation distribution notes of $20,000 payable in installments
of principal and interest at 10%.

5. INCOME TAXES

Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) net operating loss carryforwards.

Significant components of the Company's net deferred taxes at December 31
and December 30, respectively, are as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995
---- -----
<S> <C> <C>
Deferred tax assets:
Federal operating tax loss carryforward.................... $227 $ 619
State operating tax loss carryforward...................... 24 75
Nondeductible accruals..................................... 95 92
---- -----
Total.................................................... $346 $ 786
==== =====
Deferred tax liabilities:
Preopening stores expense.................................. $149 $ 197
Depreciation............................................... 118 245
Other...................................................... 34 44
---- -----
Total.................................................... 301 486
---- -----
Net deferred tax assets...................................... 45 300
Less valuation allowance..................................... (45) (300)
---- -----
Total.................................................... $ -- $ --
==== =====
</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. As it is more likely
than not that sufficient taxable income will not be generated in future
periods to utilize the deferred tax assets, a valuation allowance has been
recorded. During 1995 the valuation allowance increased by $255,000 and during
1994 the valuation allowance increased by $45,000.

As of December 30, 1995, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $1,821,000 and a net
operating loss carryforward for state tax purposes of approximately
$1,214,000. Subsequent to year end, there was a change in ownership of the
Company (Note 9). Certain provisions of the 1986 Tax Reform Act have
significantly limited the use of the Company's net operating loss
carryforwards under the change in ownership provisions of Section 382 of the
Internal Revenue Code. Federal NOL's expire beginning 2009; state NOL's expire
beginning 1999.

F-33
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. REDEEMABLE PREFERRED STOCK

Changes in redeemable preferred stock are as follows (in thousands):

<TABLE>
<CAPTION>
SERIES A SERIES B
-------------- --------------
SHARES DOLLARS SHARES DOLLARS TOTAL
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993.............. -- $ -- -- $ -- $ --
Recapitalization (Note 1).............. 1,774 -- -- -- --
Issuance of Series A for cash.......... 1,500 2,970 -- -- 2,970
Stock options exercised................ 12 14 -- -- 14
Accretion to redemption value.......... -- 347 -- -- 347
----- ------ ----- ------- -------
Balance at December 31, 1994........... 3,286 3,331 -- -- 3,331
Issuance of Series B for cash.......... -- -- 2,121 7,550 7,550
Conversion of related party debt to
Series B (Note 4)..................... -- -- 1,143 4,068 4,068
Conversion of promissory note to Series
B..................................... -- -- 1,481 5,283 5,283
Costs of issuing Series B.............. -- -- -- (427) (427)
Accretion to redemption value.......... -- 520 -- -- 520
----- ------ ----- ------- -------
Balance at December 30, 1995........... 3,286 $3,851 4,745 $16,474 $20,325
===== ====== ===== ======= =======
</TABLE>

In March 1995, the Company amended and restated its Articles of
Incorporation to authorize the issuance of 76,000,000 shares including
38,000,000 shares of common stock and 38,000,000 shares of preferred stock. Of
the 38,000,000 shares of preferred stock, 3,375,000 shares are designated
Series A convertible redeemable preferred stock and 4,904,425 shares are
designated as Series B cumulative convertible redeemable preferred stock.

In March 1995, the Company issued $5,191,000 of 5.90% convertible promissory
notes to a shareholder. In September 1995, the entire unpaid principal balance
of $5,191,000 and accrued interest of $92,000 automatically converted into
1,481,219 shares of the Company's Series B cumulative convertible redeemable
preferred stock.

Liquidation Preferences--Upon liquidation, the holders of Series A
convertible redeemable preferred stock and Series B cumulative convertible
redeemable preferred stock are entitled to receive a preferential payment of
$2.00 per share and $3.56 per share, respectively, before payments are made to
the holders of common stock.

Dividends and Dividend Preferences--If declared by the Board of Directors of
the Company, the holders of Series A cumulative convertible redeemable
preferred stock are entitled to receive dividends at a rate per annum of $.16
per share. If declared by the Board of Directors of the Company, dividends
accrue and accumulate on Series B cumulative convertible redeemable preferred
stock at a rate of $.2848 per share, per annum. Through December 31, 1995, no
dividends have been declared.

Conversion Rights--All series of preferred stock are convertible into common
stock on a one-for-one basis, as adjusted, based on the issuance of common
stock, options, warrants or other securities convertible into common stock.

Preferred Stock Redemption--Series A convertible redeemable preferred stock
is redeemable at the option of the holder under certain conditions beginning
March 31, 2001 at a per share price of $2.00, plus an amount equal to all
accrued but unpaid dividends. Series B cumulative convertible redeemable
preferred stock is redeemable at the option of the holder under certain
conditions beginning March 31, 2001 at a per share price of $3.56, plus an
amount equal to the total of all accrued but unpaid dividends. The preferred
stock is being accreted to its minimum redemption value.

F-34
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. STOCK OPTION PLANS

Under Company's stock option plans, the Company may grant incentive and
nonqualified options to purchase up to 2,053,750 shares of common stock and
101,250 shares of Series A Preferred Stock. Options vest ratably over five
years, are exercisable up to ten years and are generally granted at an
exercise price that approximates fair market value at the date of grant, as
determined by the Board of Directors.

A summary of stock option transactions follows:

<TABLE>
<CAPTION>
NUMBER
OF STOCK OPTION PRICE
OPTIONS PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at December 31, 1993
Granted......................................... 844,500 $ .20
Canceled........................................ (7,500) .20
Outstanding at December 31, 1994.................. 837,000 .20
Granted......................................... 977,075 .20-.50
Exercised....................................... (5,978) .20
Canceled........................................ (103,247) .20-.50
--------- ---------
Outstanding at December 30, 1995.................. 1,704,850 $.20-$.50
========= =========
</TABLE>

At December 30, 1995, stock options available for grant were 45,158 and
approximately 170,000 options were exercisable.

During 1995, the Company granted options with exercise prices below market
value. The difference between the market value and the exercise price will be
recognized as compensation expense over the five year vesting period.
Compensation expense in 1995 related to such options was $19,000. Immediately
prior to the acquisition of the Company in February 1996 (see Note 9), certain
options were accelerated and exercised. Accordingly, the unamortized
compensation expense of $971,000 at December 30, 1995, will be recognized as
compensation expense in 1996.

8. LEASES

The Company leases restaurant, office and production facilities under
operating lease agreements that expire at various dates, with options to
extend through 2016. In addition to minimum rental payments, certain of the
leases require contingent payments based on sales levels. The Company also
pays real estate taxes, insurance and maintenance expenses related to these
leases. Net rental expense for all operating leases was as follows (in
thousands):

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ------
<S> <C> <C> <C>
Minimum rentals......................................... $309 $638 $1,409
Contingent rentals and other charges.................... -- 40 40
---- ---- ------
$309 $678 $1,449
==== ==== ======
</TABLE>

F-35
<PAGE>

NOAH'S NEW YORK BAGELS, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The aggregate future minimum lease payments under all non-cancelable lease
agreements are as follows (in thousands):

<TABLE>
<S> <C>
1996............................................................. $ 3,305
1997............................................................. 4,213
1998............................................................. 4,074
1999............................................................. 3,982
2000............................................................. 3,749
Thereafter....................................................... 15,167
-------
Total minimum lease commitments.............................. 34,490
Less sublease rentals............................................ (160)
-------
Total minimum lease commitments.............................. $34,330
=======
</TABLE>

9. SUBSEQUENT EVENT

In February 1996, all outstanding preferred and common stock of the Company
was acquired by Einstein/Noah Bagel Corp. for approximately $100.9 million in
cash.

F-36
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Bagel & Bagel, Inc.:

We have audited the accompanying statements of operations and cash flows for
the year ended December 27, 1994 and the period from December 28, 1994 to
March 23, 1995 of Bagel & Bagel, Inc. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Bagel &
Bagel, Inc. for the year ended December 27, 1994 and the period from December
28, 1994 to March 23, 1995 in conformity with generally accepted accounting
principles.

MAYER HOFFMAN McCANN L.C.

Kansas City, Missouri
April 26, 1996

F-37
<PAGE>

BAGEL & BAGEL, INC.

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 27, 1994 AND THE PERIOD FROM
DECEMBER 28, 1994 TO MARCH 23, 1995

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 27, DECEMBER 28, 1994
1994 TO MARCH 23, 1995
------------ -----------------
<S> <C> <C>
Net Sales........................................ $5,858,908 $1,887,424
Cost and Expenses:
Cost of products sold.......................... 2,369,512 735,691
Salaries and benefits.......................... 1,534,138 534,759
General and administrative..................... 1,704,667 653,430
---------- ----------
Total costs and expenses..................... 5,608,317 1,923,880
---------- ----------
Income (Loss) from Operations.................... 250,591 (36,456)
---------- ----------
Other Expense:
Interest expense............................... (133,331) (79,093)
Other expense, net............................. (249,000) (14,277)
---------- ----------
Total other expense.......................... (382,331) (93,370)
---------- ----------
Net Loss......................................... $ (131,740) $ (129,826)
========== ==========
</TABLE>

The accompanying notes to the financial statements are an integral part of
these statements.

F-38
<PAGE>

BAGEL & BAGEL, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 27, 1994 AND FOR THE PERIOD FROM
DECEMBER 28, 1994 TO MARCH 23, 1995

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER DECEMBER 28, 1994
27, 1994 TO MARCH 23, 1995
----------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss...................................... $ (131,740) $ (129,826)
Adjustments to reconcile loss to net cash
provided by operating activities:
Depreciation and amortization............... 375,742 139,478
Changes in assets and liabilities:
Accounts receivable....................... 1,469 63,053
Inventories............................... (186,994) 20,349
Prepaid expenses and other current assets. (9,242) 34,587
Accounts payable and accrued expenses..... 683,417 (115,568)
----------- -----------
Net cash provided by operating
activities............................. 732,652 12,073
Cash Flows from Investing Activities:
Purchase of property and equipment............ (2,087,859) (525,019)
Purchase of other assets...................... (11,464) --
----------- -----------
Net cash used in investing activities... (2,099,323) (525,019)
Cash Flows from Financing Activities:
Increase in short-term obligations............ 632,679 2,038,652
Proceeds from long-term obligations........... 903,420 101,180
Repayment of long-term obligations............ (125,894) (1,672,197)
----------- -----------
Net cash provided by financing
activities............................. 1,410,205 467,635
----------- -----------
Net increase (decrease) in Cash................. 43,534 (45,311)
Cash, beginning of period....................... 210,340 253,874
----------- -----------
Cash, end of period............................. $ 253,874 $ 208,563
=========== ===========
Supplemental Cash Flow Information:
Interest Paid................................. $ 84,880 $ 12,701
=========== ===========
</TABLE>

The accompanying notes to the financial statements are an integral part of
these statements.

F-39
<PAGE>

BAGEL & BAGEL, INC.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

The Company operates a chain of bagel stores in the Kansas City metropolitan
area.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

Property and Equipment

The provision for depreciation and amortization has been calculated using
the straight-line and accelerated methods. The following represents the useful
lives over which the assets are depreciated and amortized:

<TABLE>
<S> <C>
Leasehold improvements.......................................... 8 years
Furniture, fixtures, and equipment.............................. 5-7 years
</TABLE>

Expenditures for maintenance and repairs are expensed as incurred.

Revenue Recognition

Revenue from sales is recognized in the period the related food and beverage
products are sold.

Income Taxes

The Company is organized as a Subchapter S corporation for federal and state
income tax purposes. Any taxable income or loss is the responsibility of the
individual stockholders.

Estimates

Reclassification

Certain items in the financial statements for the year ended December 27,
1994 have been reclassified to conform with the presentation of the period
ended March 23, 1995.

3. COMMITMENTS AND CONTINGENCIES

The Company leases its corporate offices, store premises and commissary
under various noncancelable operating lease agreements. Lease terms are
generally five years with renewal options ranging from one to ten years. Most
of these leases contain escalation clauses and common area maintenance
charges. Total rent expense was approximately $306,000 for the year ended
December 27, 1994 and $100,000 for the period ended March 23, 1995, including
contingent rental expense of approximately $101,000 for the year ended
December 27, 1994 and $23,000 for the period ended March 23, 1995.

On December 13, 1994, the Company suffered a fire at one of its retail
locations, resulting in the involuntary conversion of the equipment, inventory
and leasehold improvements therein. The Company retains insurance

F-40
<PAGE>

BAGEL & BAGEL, INC.

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
coverage at the replacement value which is deemed to be in excess of the net
book value of the assets lost. As the claim for recovery from insurance is
probable of realization, no loss has been recorded in the financial statements
for the year ended December 27, 1994. In addition, as the amount of the
insurance proceeds to be collected is uncertain, no gain has been recorded in
the financial statements for the year ended December 27, 1994 and the period
ended March 23, 1995. If the final insurance proceeds exceed the net book
value of the assets lost, a gain may result which would be recorded at that
time.

4. RELATED-PARTY TRANSACTIONS

The Company leases certain facilities from an entity controlled by the sole
stockholder. Total rent paid under this lease was $8,307 for the year ended
December 27, 1994 and $18,000 for the period ended March 23, 1995.

5. SALE OF ASSETS

In March 1995, the Company sold substantially all of its net assets in
exchange for consideration with a market value of approximately $8.9 million.

F-41
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Offerdahl's Bagel Gourmet, Inc.
and Affiliates:

We have audited the accompanying combined statements of operations and cash
flows of Offerdahl's Bagel Gourmet, Inc. and Affiliates (Florida corporations)
for the years ended December 31, 1993 and 1994 and the period from January 1,
1995 to April 2, 1995. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Offerdahl's Bagel Gourmet, Inc. and Affiliates for the years ended December
31, 1993 and 1994 and the period from January 1, 1995 to April 2, 1995 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Denver, Colorado
April 24, 1996

F-42
<PAGE>

OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE PERIOD
FROM JANUARY 1, 1995 TO APRIL 2, 1995

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER PERIOD FROM
31, JANUARY 1, 1995
---------------------- TO
1993 1994 APRIL 2, 1995
---------- ---------- ---------------
<S> <C> <C> <C>
Net Sales............................... $2,691,161 $4,785,116 $1,712,091
Cost and Expenses:
Cost of products sold................. 1,167,075 2,082,739 1,010,311
Salaries and benefits................. 761,466 1,525,307 776,739
General and administrative............ 487,359 1,014,670 227,585
---------- ---------- ----------
Total costs and expenses............ 2,415,900 4,622,716 2,014,635
---------- ---------- ----------
Income (loss) from Operations........... 275,261 162,400 (302,544)
Other Income (Expense):
Interest expense...................... -- (585) (6,058)
Interest income....................... -- 295 --
Other income (expense)................ (2,909) 23,749 365
---------- ---------- ----------
Total other income (expense)........ (2,909) 23,459 (5,693)
---------- ---------- ----------
Net Income (Loss)....................... $ 272,352 $ 185,859 $ (308,237)
========== ========== ==========
</TABLE>

The accompanying notes to the financial statements are an integral part of
these statements.

F-43
<PAGE>

OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR THE PERIOD
FROM JANUARY 1, 1995 TO APRIL 2, 1995

<TABLE>
<CAPTION>
YEARS ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995
-------------------- TO APRIL 2,
1993 1994 1995
--------- --------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)...................... $ 272,352 $ 185,859 $(308,237)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 120,091 232,158 68,321
Changes in assets and liabilities:
Accounts receivable................ (35,804) 35,842 (17,420)
Inventories........................ (46,770) (48,527) 7,592
Prepaid expenses and other current
assets............................ (13,965) (27,352) (9,969)
Accounts payable and accrued
expenses.......................... 111,424 84,834 879,557
Other.............................. (43,367) (57,974) (28,848)
--------- --------- ---------
Net cash provided by operating
activities...................... 363,961 404,840 590,996
Cash Flows from Investing Activities:
Purchases of property and equipment.... (600,775) (800,205) (458,380)
--------- --------- ---------
Net cash used in investing
activities...................... (600,775) (800,205) (458,380)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock. 547,005 760,000 28,080
Distributions to stockholders.......... (235,000) (570,000) (32,000)
Proceeds from long-term obligations.... -- 250,000 --
Repayment of long-term obligations..... -- -- (250,000)
--------- --------- ---------
Net cash provided by (used in)
financing activities............ 312,005 440,000 (253,920)
--------- --------- ---------
Net increase (decrease) in Cash.......... 75,191 44,635 (121,304)
Cash, beginning of period................ 128,316 203,507 248,142
--------- --------- ---------
Cash, end of period...................... $ 203,507 $ 248,142 $ 126,838
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid.......................... $ -- $ -- $ 6,643
========= ========= =========
</TABLE>

The accompanying notes to the financial statements are an integral part of
these statements.

F-44
<PAGE>

OFFERDAHL'S BAGEL GOURMET, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Offerdahl's Bagel Gourmet, Inc. and Affiliates (the "Company") operates a
chain of bagel stores in Southern Florida.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination

The accompanying combined financial statements include the accounts of
Offerdahl's Bagel Gourmet Inc., Bagel Gourmet (Sheridan), Inc., Bagel Gourmet
(Weston), Inc., Bagel Gourmet (Pembroke), Inc., Bagel Gourmet (Boynton), Inc.,
Bagel Gourmet (Promenade), Inc., Bagel Gourmet, Inc., and Bagel Gourmet
Production, Inc. Bagel Gourmet, Inc. was formed in 1993 through the merger of
Bagel Gourmet (Sheridan), Inc., Bagel Gourmet (Pembroke), Inc., Bagel Gourmet
(Boynton), Inc., Bagel Gourmet (Promenade), Inc. and Bagel Gourmet (Weston),
Inc., with Bagel Gourmet (Weston), Inc. as the surviving corporation. Bagel
Gourmet (Weston), Inc. then changed its name to Bagel Gourmet, Inc.
Offerdahl's Bagel Gourmet, Inc. was formed December 31, 1994 through the
merger of Bagel Gourmet Production, Inc. and Bagel Gourmet, Inc. All the
companies are under common control. All material intercompany accounts and
transactions have been eliminated in combination.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

Property and Equipment

The provision for depreciation and amortization has been calculated using
the straight-line method. The following represents the useful lives over which
the assets are depreciated and amortized:

<TABLE>
<S> <C>
Leasehold improvements........................................ 10-15 years
Furniture, fixtures, and equipment............................ 5-7 years
</TABLE>

Expenditures for maintenance and repairs are expensed as incurred.

Revenue Recognition

Revenue from sales is recognized in the period the related food and beverage
products are sold.

Income Taxes

The Company is organized as a Subchapter S corporation for federal and state
income tax purposes. Any taxable income or loss is the responsibility of the
individual stockholders.

Estimates

3. COMMITMENTS

The Company leases its corporate offices, store premises and commissary
under various noncancelable operating lease agreements. Lease terms are
generally five years with two or three five-year renewal options. Most of
these leases contain escalation clauses and common area maintenance charges.
Total rent expense was approximately $168,000 in 1993, $264,000 in 1994, and
$97,000 from January 1, 1995 through April 2, 1995.

4. SALE OF ASSETS

In March 1995, the Company sold certain of its net assets in exchange for
consideration with a market value of approximately $10.4 million.

F-45
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Baltimore Bagel Co.:

We have audited the accompanying statements of operations and cash flows of
Baltimore Bagel Co. (a California corporation) for the years ended December
31, 1993 and 1994 and the period from January 1, 1995 to August 10, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Baltimore Bagel Co. for the years ended December 31, 1993 and 1994 and the
period from January 1, 1995 to August 10, 1995 in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Denver, Colorado
April 24, 1996

F-46
<PAGE>

BALTIMORE BAGEL CO.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE PERIOD FROM
JANUARY 1, 1995 TO AUGUST 10, 1995

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, PERIOD FROM
---------------------- JANUARY 1, 1995
1993 1994 TO AUGUST 10, 1995
---------- ---------- ------------------
<S> <C> <C> <C>
Net Sales............................ $6,365,586 $7,714,995 $5,760,017
Cost and Expenses:
Cost of products sold.............. 1,887,879 2,378,824 1,857,310
Salaries and benefits.............. 2,550,276 2,623,055 2,033,937
General and administrative......... 1,762,373 2,138,286 1,614,783
---------- ---------- ----------
Total costs and expenses......... 6,200,528 7,140,165 5,506,030
---------- ---------- ----------
Income from Operations............... 165,058 574,830 253,987
Other Income (Expense):
Interest expense................... (40,101) (36,106) (13,100)
Interest income.................... 11,667 12,766 16,261
Other income (expense), net........ (80) 29,743 (21,027)
---------- ---------- ----------
Total other income (expense)..... (28,514) 6,403 (17,866)
---------- ---------- ----------
Net Income........................... $ 136,544 $ 581,233 $ 236,121
========== ========== ==========
</TABLE>

The accompanying notes to the financial statements are an integral part of
these statements.

F-47
<PAGE>

BALTIMORE BAGEL CO.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR THE PERIOD FROM
JANUARY 1, 1995 TO AUGUST 10, 1995

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERIOD FROM
-------------------- JANUARY 1, 1995
1993 1994 TO AUGUST 10, 1995
--------- --------- ------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.......................... $ 136,544 $ 581,233 $ 236,121
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 206,353 205,828 148,926
Loss on disposal of property and
equipment........................ 26,417 -- 16,619
Changes in assets and liabilities:
Accounts receivable............. (3,140) (8,956) 3,254
Inventories..................... (18,263) (1,097) 823
Prepaid expenses and other
current assets................. 4,518 (25,815) 16,677
Accounts payable and accrued
expenses....................... 21,703 67,220 42,713
Other assets.................... -- (4,950) 10,343
--------- --------- ---------
Net cash provided by operating
activities................... 374,132 813,463 475,476
Cash Flows from Investing Activities:
Purchases of property and equipment. (46,464) (480,908) (217,774)
Proceeds from sale of property and
equipment.......................... -- -- 29,004
--------- --------- ---------
Net cash used in investing
activities................... (46,464) (480,908) (188,770)
Cash Flows from Financing Activities:
Distributions to stockholders....... -- -- (823,950)
Proceeds from long-term obligations. 364,123 436,566 149,880
Repayment of long-term obligations.. (375,621) (764,837) (105,381)
--------- --------- ---------
Net cash used in financing
activities................... (11,498) (328,271) (779,451)
--------- --------- ---------
Net increase (decrease) in cash and
equivalents.......................... 316,170 4,284 (492,745)
Cash and equivalents, beginning of
period............................... 172,291 488,461 492,745
--------- --------- ---------
Cash and equivalents, end of period... $ 488,461 $ 492,745 $ --
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid....................... $ 40,101 $ 36,106 $ 13,100
========= ========= =========
</TABLE>

The accompanying notes to the financial statements are an integral part of
these statements.

F-48
<PAGE>

BALTIMORE BAGEL CO.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

The Company operates a chain of bagel stores in southern California.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

Property and Equipment

The provision for depreciation and amortization has been calculated using
the straight-line method. The following represents the useful lives over which
the assets are depreciated and amortized:

<TABLE>
<S> <C>
Leasehold improvements......................................... 5-18 years
Furniture, fixtures, and equipment............................. 3-7 years
</TABLE>

Expenditures for maintenance and repairs are expensed as incurred.

Revenue Recognition

Revenue from sales is recognized in the period the related food and beverage
products are sold.

Income Taxes

The Company is organized as a Subchapter S corporation for federal and state
income tax purposes. Any taxable income or loss is the responsibility of the
individual stockholders.

Employee Benefit Plan

The Company has a 401(k) plan for which all full-time employees participate.
Company contributions were approximately $4,800 in 1993, $11,300 in 1994, and
$4,700 for the period ended August 10, 1995.

Estimates

3. COMMITMENTS

The Company leases its corporate offices, store premises and commissary
under various noncancelable operating lease agreements. Lease terms are
generally five years with one or two five-year renewal options. Most of these
leases contain escalation clauses and common area maintenance charges. Total
rent expense was approximately $479,500 in 1993, $535,900 in 1994, and
$473,500 for the period ended August 10, 1995.

4. RELATED-PARTY TRANSACTIONS

The Company leases its corporate offices from an entity controlled by the
stockholders. Total rent paid under this lease was approximately $79,900 in
1993, $81,100 in 1994, and $59,700 for the period ended August 10, 1995.

5. SALE OF ASSETS

In August 1995, the Company sold substantially all of its net assets in
exchange for consideration with a market value of approximately $11.8 million.

F-49
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL

INFORMATION OF EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

The pro forma consolidated statements of operations for the fiscal year
ended December 31, 1995 and for the two quarters ended July 14, 1996 give
effect to the acquisitions of Noah's New York Bagel's, Inc., Bagel & Bagel,
Inc., Baltimore Bagel Co., Brackman Brothers, Inc., and Offerdahl's Bagel
Gourmet, Inc. as of December 26, 1994 (the beginning of the Company's 1995
fiscal year). The pro forma consolidated financial statements are based upon
the assumptions set forth in the accompanying notes to such statements. The
pro forma adjustments are based upon available information and assumptions
that management believes are reasonable under the circumstances.

The pro forma consolidated financial statements should be read in
conjunction with the related historical financial statements and are not
necessarily indicative of the results that would have actually occurred had
the acquisitions been consummated on the dates or for the periods indicated or
which may occur in the future.

F-50
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NOAH'S NEW
YORK OFFERDAHL'S BRACKMAN
EINSTEIN/NOAH BAGELS, BAGEL & BALTIMORE BAGEL BROTHERS,
BAGEL CORP. INC. BAGEL, INC. BAGEL CO. GOURMET, INC. INC. PRO FORMA UNAUDITED
(HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ----------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Company-operated
stores........... $ 25,685 $32,323 $1,887 $5,760 $1,712 $2,283 $ 69,650
Royalties and
franchise-related
fees............. 738 -- -- -- -- -- 738
-------- ------- ------ ------ ------ ------ --------
26,423 32,323 1,887 5,760 1,712 2,283 70,388
Costs and
Expenses:
Cost of products
sold............. 8,239 12,118 736 1,857 1,010 1,125 25,085
Salaries and
benefits......... 13,531 12,388 535 2,034 777 282 29,547
General and
administrative... 21,230 8,561 653 1,615 228 497 2,766 (1) 35,550
Write-off of
intangible
assets........... 26,575 -- -- -- -- -- 26,575
-------- ------- ------ ------ ------ ------ --------
Total costs and
expenses.......... 69,575 33,067 1,924 5,506 2,015 1,904 116,757
-------- ------- ------ ------ ------ ------ --------
Income (Loss) from
Operations........ (43,152) (744) (37) 254 (303) 379 (46,369)
Other Income
(Expense):
Interest income
(expense), net.... (1,281) (79) (79) 3 (6) -- (9,090)(2) (10,532)
Other income
(expense), net.... 717 (17) (14) (21) -- -- 665
-------- ------- ------ ------ ------ ------ --------
Total other
expense.......... (564) (96) (93) (18) (6) -- (9,867)
-------- ------- ------ ------ ------ ------ --------
Income (Loss)
Before Income
Taxes............. (43,716) (840) (130) 236 (309) 379 (56,236)
Provision for
Income Taxes...... -- -- -- -- -- 98 98 (3) --
-------- ------- ------ ------ ------ ------ --------
Net Income (Loss). $(43,716) $ (840) $ (130) $ 236 $ (309) $ 281 $(56,236)
======== ======= ====== ====== ====== ====== ========
Net loss per
common and
equivalent share.. $ (4.54) $ (5.82)
======== ========
Weighted average
number of common
and equivalent
shares
outstanding....... 9,659 9,679 (4)
======== ========
</TABLE>

The accompanying notes to the consolidated financial statements
are an integral part of this statement.

F-51
<PAGE>

EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE TWO QUARTERS ENDED JULY 14, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NOAH'S NEW
EINSTEIN/NOAH YORK BAGELS,
BAGEL CORP. INC. PRO FORMA UNAUDITED
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Company-operated stores..... $31,489 $3,304 $34,793
Royalties and franchise-
related fees............... 9,096 -- 9,096
------- ------ -------
40,585 3,304 43,889
Costs and Expenses:
Cost of products sold....... 10,078 1,118 11,196
Salaries and benefits(5).... 14,444 2,361 16,805
General and administrative.. 15,030 795 213 (1) 16,038
------- ------ -------
Total costs and expenses.. 39,552 4,274 44,039
------- ------ -------
Income (Loss) from Operations. 1,033 (970) (150)
Other Income (Expense):
Interest expense, net....... (5,984) (4) (699)(2) (6,687)
Other income, net........... 1,929 4 1,933
------- ------ -------
Total other expense....... (4,055) -- (4,754)
------- ------ -------
Net Loss...................... $(3,022) $ (970) $(4,904)
======= ====== =======
Net loss per common and
equivalent share............. $ (0.23) $ (0.36)
======= =======
Weighted average number of
common and equivalent shares
outstanding.................. 14,261 14,261
======= =======
</TABLE>

The accompanying notes to the consolidated financial statements
are an integral part of this statement.

F-52
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

1. To record amortization on the intangible assets acquired in connection with
the acquisition of Noah's New York Bagel's, Inc. (Noah's) over periods
ranging from 10 to 35 years.

2. To adjust interest expense to reflect the acquisition of Noah's as of the
beginning of the Company's fiscal year.

3. To adjust the provision for income taxes based upon the consolidated loss.

4. The pro forma weighted average number of shares for 1995 gives effect to
the issuance of 1,959,125 shares of common stock and 6,250 shares of Series
A preferred stock deemed to be issued as of December 26, 1994 (the
beginning of the Company's 1995 fiscal year) pursuant to the acquisition of
the common stock of Brackman Brothers, Inc. and certain net assets of Bagel
& Bagel, Inc., Baltimore Bagel Co. and Offerdahl's Bagel Gourmet, Inc. and
all other shares of common stock, options and warrants issued during the
year prior to the initial public offering. The options and warrants issued,
and shares of common stock sold, are deemed outstanding for the entire
reporting period pursuant to Staff Accounting Bulletin No. 83.

5. Noah's salaries and benefits include approximately $954,000 of stock option
expense attributable to the acceleration of the vesting of compensatory
stock options. The acceleration of the vesting occurred immediately before
the acquisition of Noah's by Einstein/Noah Bagel Corp.

Note: Subsequent to the acquisitions of Noah's, Bagel & Bagel, Inc., Baltimore
Bagel Co., Offerdahl's Bagel Gourmet, Inc. and Brackman Brothers, Inc., the
Company sold all of the stores acquired in these acquisitions, with the
exception of the Baltimore Bagel Co. stores, to area developers of the
Company. Consequently, the store revenue (and related operating expenses)
reflected in the pro forma consolidated statement of operations will be
replaced with revenue (and operating expenses) of the Company as a franchisor
and lender.

F-53